1 00:00:00,560 --> 00:00:03,240 Speaker 1: No one's all in. No one's like it's going to 2 00:00:03,320 --> 00:00:06,720 Speaker 1: keep going or actually there's quite a level of conservatism. 3 00:00:06,960 --> 00:00:10,039 Speaker 1: There is risk obviously with all this tariff and stimulus 4 00:00:10,039 --> 00:00:12,240 Speaker 1: coming through, that we're going to go through another period 5 00:00:12,560 --> 00:00:16,680 Speaker 1: of heightened inflation. I think that's a real risk depending 6 00:00:16,720 --> 00:00:19,320 Speaker 1: on what part of the Australian market you look at. 7 00:00:19,480 --> 00:00:22,400 Speaker 1: We're up sort of twenty to forty percent, so everyone 8 00:00:22,400 --> 00:00:25,160 Speaker 1: that's the god can't keep going. And it's done so well, well, 9 00:00:25,560 --> 00:00:28,120 Speaker 1: it's done so well since the absolute lows of people, 10 00:00:28,560 --> 00:00:29,800 Speaker 1: but it's still quite really cycle. 11 00:00:30,240 --> 00:00:33,559 Speaker 2: Hi, welcome to Shared Lunch, brought to you by Chasis. 12 00:00:34,040 --> 00:00:38,760 Speaker 2: I'm Jackie Newman, head of Capital Markets at Chaz's. Today 13 00:00:39,000 --> 00:00:44,000 Speaker 2: we're welcoming back Michelle Lopez, head of Australasian Equities and 14 00:00:44,120 --> 00:00:46,519 Speaker 2: portfolio manager at PIE Funds. 15 00:00:47,040 --> 00:00:49,640 Speaker 3: Investing involves the risk you might lose the money you 16 00:00:49,680 --> 00:00:53,000 Speaker 3: start with. We recommend talking to a licensed financial advisor. 17 00:00:53,720 --> 00:00:57,520 Speaker 3: We also recommend reading product disclosure documents before deciding to invest. 18 00:00:57,800 --> 00:01:00,200 Speaker 3: Everything you're about to see and here as current at 19 00:01:00,200 --> 00:01:01,000 Speaker 3: the time of recording. 20 00:01:01,160 --> 00:01:03,720 Speaker 2: Before we get started, I want to acknowledge the gaddigle 21 00:01:03,840 --> 00:01:09,039 Speaker 2: people of the EURA nation, the traditional custodians of the land, water, 22 00:01:09,360 --> 00:01:13,080 Speaker 2: and sky from where we're filming today, and pay respects 23 00:01:13,120 --> 00:01:17,600 Speaker 2: to elders past and present. Hi Michelle, great to have 24 00:01:17,720 --> 00:01:20,640 Speaker 2: you back with us. Thank you for joining. Last time 25 00:01:20,640 --> 00:01:24,480 Speaker 2: we had you on the Liberation Day, tariffs had just 26 00:01:24,520 --> 00:01:29,000 Speaker 2: been announced and markets were quite volatile. Fair to say 27 00:01:29,040 --> 00:01:33,360 Speaker 2: that there is still some noise around tariffs and uncertainty persist, 28 00:01:33,520 --> 00:01:37,880 Speaker 2: but by and large it feels like volatility has somewhat abated, 29 00:01:37,959 --> 00:01:41,280 Speaker 2: and indeed we've seen markets rally in the last few months. 30 00:01:42,400 --> 00:01:46,000 Speaker 2: Looking at it through your expert lens, how would you 31 00:01:46,120 --> 00:01:49,920 Speaker 2: characterize global equity market conditions at the moment? 32 00:01:51,760 --> 00:01:56,520 Speaker 1: Buoyant still, but it's quite incredible looking back on the 33 00:01:56,600 --> 00:01:59,720 Speaker 1: last six months. The market's kind of been linear since 34 00:02:00,000 --> 00:02:02,640 Speaker 1: and on an upwood trajectory, and a lot of the 35 00:02:03,320 --> 00:02:05,920 Speaker 1: indices you know, there's and P five hundred being the 36 00:02:05,920 --> 00:02:12,120 Speaker 1: main one globally US based. It's been quite a narrow 37 00:02:12,720 --> 00:02:17,040 Speaker 1: still performance period. So by narrow, I mean a select 38 00:02:17,080 --> 00:02:20,560 Speaker 1: few type of companies very much those leverage to AI, 39 00:02:20,960 --> 00:02:24,840 Speaker 1: the big tech companies in Magnificent seven that everyone keeps 40 00:02:24,840 --> 00:02:28,519 Speaker 1: talking about, they're still driving the rally. When we sort 41 00:02:28,520 --> 00:02:32,280 Speaker 1: of think about conditions. What's really sort of propelled that 42 00:02:32,639 --> 00:02:35,799 Speaker 1: is obviously a lot of the political side of things. 43 00:02:35,919 --> 00:02:38,320 Speaker 1: We've got a bit more line of sight around tariffs. 44 00:02:38,880 --> 00:02:42,600 Speaker 1: There is policy changes happening on a daily basis, though, 45 00:02:43,200 --> 00:02:45,359 Speaker 1: so there are certain sectors that are being affected more 46 00:02:45,400 --> 00:02:48,000 Speaker 1: than others. Healthcare is the sector in the US and 47 00:02:48,040 --> 00:02:51,240 Speaker 1: globally in fact, because you know, it is a global 48 00:02:51,280 --> 00:02:54,600 Speaker 1: sector that is still sort of finding its way through 49 00:02:55,080 --> 00:02:59,600 Speaker 1: new tariff announcements. So I certainly don't think that it's 50 00:02:59,639 --> 00:03:03,080 Speaker 1: all a clear and green light ahead. But you know, 51 00:03:03,160 --> 00:03:07,760 Speaker 1: as we've seen in indocry performances and specific companies, it 52 00:03:07,800 --> 00:03:10,760 Speaker 1: has been a really buoyant time to be in the 53 00:03:10,800 --> 00:03:14,160 Speaker 1: market over the last six months. The other thing i'd say, though, 54 00:03:14,560 --> 00:03:20,239 Speaker 1: it's not it's not a uniform kind of positive sentiment 55 00:03:20,360 --> 00:03:22,440 Speaker 1: out there. In fact, when I speak to a lot 56 00:03:22,440 --> 00:03:25,680 Speaker 1: of my peers and a lot of my colleagues, no 57 00:03:25,840 --> 00:03:29,000 Speaker 1: one's all in. No one's like this is you know 58 00:03:29,440 --> 00:03:32,280 Speaker 1: it's going to keep going? Or actually there's quite a 59 00:03:32,400 --> 00:03:36,040 Speaker 1: level of conservatism that I'm that I'm seeing and I'm hearing, 60 00:03:36,080 --> 00:03:38,360 Speaker 1: and I have it, and I share that level of 61 00:03:38,400 --> 00:03:42,760 Speaker 1: conservativesm myself and there's there's a few factors driving that. 62 00:03:43,480 --> 00:03:47,040 Speaker 1: We're also starting to see, you know, revisions to the 63 00:03:47,120 --> 00:03:51,120 Speaker 1: employment market, so that unemployment number in the US specifically 64 00:03:51,440 --> 00:03:56,800 Speaker 1: being revised upwards. More recently, we've had you know, unemployment 65 00:03:56,840 --> 00:03:58,720 Speaker 1: TI cup in Australia as well to four and a 66 00:03:58,760 --> 00:04:02,720 Speaker 1: half percent. A lot of capital has come into our market, 67 00:04:03,400 --> 00:04:06,040 Speaker 1: and you know, stepping outside of the equity market, you've 68 00:04:06,040 --> 00:04:10,760 Speaker 1: got private credit which has seen a huge influx. There's crypto, 69 00:04:10,920 --> 00:04:14,200 Speaker 1: there's and everything feels like it's going up at the moment, 70 00:04:14,520 --> 00:04:18,320 Speaker 1: but the sentiment I think is quite bifurcated. You've got 71 00:04:18,320 --> 00:04:21,880 Speaker 1: some concerns and then you've got some people that are 72 00:04:21,920 --> 00:04:26,680 Speaker 1: amor thematic driven AI. Anything that has AI connected to 73 00:04:26,720 --> 00:04:29,320 Speaker 1: it in some way seems to be doing really well. 74 00:04:29,600 --> 00:04:32,839 Speaker 2: So if you take a closer look at the Australian market, 75 00:04:32,880 --> 00:04:35,800 Speaker 2: how would you say that it looks relative to other 76 00:04:35,880 --> 00:04:38,240 Speaker 2: offshore markets at the moment? And I guess what I'm 77 00:04:38,279 --> 00:04:41,240 Speaker 2: saying is, would you say that now is a good 78 00:04:41,240 --> 00:04:45,240 Speaker 2: time to be more or less invested in local stocks? 79 00:04:45,560 --> 00:04:50,160 Speaker 1: Our market's quite different to the global market, and I'm 80 00:04:50,200 --> 00:04:53,840 Speaker 1: saying global a lot of it is very much still 81 00:04:53,960 --> 00:04:59,359 Speaker 1: US driven, in the sense that AI and tech is 82 00:04:59,400 --> 00:05:02,240 Speaker 1: a very big part of that market. We don't have 83 00:05:02,400 --> 00:05:05,880 Speaker 1: that in Australia or New Zealand. In fact, when you 84 00:05:05,880 --> 00:05:08,919 Speaker 1: look at the large cap part of the market, it's 85 00:05:09,160 --> 00:05:11,839 Speaker 1: you know, the big four banks, We've got some supermarkets, 86 00:05:13,080 --> 00:05:17,560 Speaker 1: We've had some healthcare names in there as well, West Farmers, 87 00:05:18,040 --> 00:05:22,600 Speaker 1: so very different drivers. That part of the market has 88 00:05:22,640 --> 00:05:26,640 Speaker 1: done exceptionally well over the last four years. And in fact, 89 00:05:26,760 --> 00:05:30,200 Speaker 1: what we've seen more recently over the last three months 90 00:05:30,240 --> 00:05:34,680 Speaker 1: call it six months, as large caps and those big 91 00:05:35,160 --> 00:05:38,520 Speaker 1: blue chip companies in Australia probably not do so well. 92 00:05:38,880 --> 00:05:41,360 Speaker 1: At the other end, which is small caps, it's a 93 00:05:41,440 --> 00:05:45,279 Speaker 1: much much broader composition within that part of the market. 94 00:05:45,400 --> 00:05:48,920 Speaker 1: And what's driven small caps over the last twelve months, 95 00:05:48,960 --> 00:05:53,240 Speaker 1: and I'll probably drill it down to three things. It's commodities, 96 00:05:53,480 --> 00:05:57,839 Speaker 1: specifically gold, It's anything kind of defense related, and technology 97 00:05:57,960 --> 00:06:02,640 Speaker 1: as well. And we're starting to see again the underperformance 98 00:06:02,640 --> 00:06:05,599 Speaker 1: that we've had in small caps over the last four 99 00:06:05,680 --> 00:06:09,560 Speaker 1: years start to unwind a bit and catch up. You ask, 100 00:06:09,680 --> 00:06:12,480 Speaker 1: is it a good time? It is because it's broadening out. 101 00:06:12,760 --> 00:06:16,080 Speaker 1: So I said that the global rally has been very 102 00:06:16,320 --> 00:06:19,760 Speaker 1: much driven by these larger companies, tech AI, all of that. 103 00:06:20,880 --> 00:06:23,640 Speaker 1: We're starting to see that broadened out in Australia. And 104 00:06:23,760 --> 00:06:29,279 Speaker 1: what's driving that is economic conditions, interest rates. So as 105 00:06:29,720 --> 00:06:32,560 Speaker 1: New Zealand, as most of the developed world actually is 106 00:06:32,600 --> 00:06:36,240 Speaker 1: cutting rates, we're in that cycle too. And what that 107 00:06:36,279 --> 00:06:39,039 Speaker 1: effectively means is you've got a lot more sort of 108 00:06:39,080 --> 00:06:43,800 Speaker 1: macro support and economic support and stimulus coming through. So 109 00:06:44,080 --> 00:06:46,479 Speaker 1: I think it is an interesting time depending on what 110 00:06:46,600 --> 00:06:49,320 Speaker 1: part of the Australian market you look at. We're up 111 00:06:49,360 --> 00:06:53,279 Speaker 1: sort of twenty to forty percent from the lows in April, 112 00:06:53,600 --> 00:06:56,599 Speaker 1: but on a yearly basis, on a twelve month basis, 113 00:06:56,640 --> 00:06:58,840 Speaker 1: you know, the large cap is up maybe eight percent 114 00:06:59,279 --> 00:07:02,720 Speaker 1: and the small cap is maybe up eighteen percent. So 115 00:07:02,760 --> 00:07:06,359 Speaker 1: it's not euphoric in any way. So everyone that's saying, oh, 116 00:07:06,360 --> 00:07:08,680 Speaker 1: I can't keep going and it's done so well, well, 117 00:07:09,080 --> 00:07:11,720 Speaker 1: it's done so well since the absolute lows of April, 118 00:07:12,080 --> 00:07:13,360 Speaker 1: but it's still quite early cycle. 119 00:07:14,120 --> 00:07:17,480 Speaker 2: So do you feel as though there is a likelihood 120 00:07:17,520 --> 00:07:21,400 Speaker 2: that small caps will continue this outperformance? What's your sense 121 00:07:21,680 --> 00:07:23,680 Speaker 2: on how that will play out in the next twelve 122 00:07:23,680 --> 00:07:25,800 Speaker 2: months or so, just looking at the economic picture and 123 00:07:25,840 --> 00:07:28,080 Speaker 2: other factors. Yeah, I do. 124 00:07:28,520 --> 00:07:31,960 Speaker 1: I do think it will continue. But let me tell 125 00:07:31,960 --> 00:07:34,000 Speaker 1: you why, because I think sort of the reasoning is 126 00:07:34,000 --> 00:07:40,040 Speaker 1: probably more important what drives small caps and if I 127 00:07:40,080 --> 00:07:42,600 Speaker 1: sort of outlined those kind of macro settings, So you've 128 00:07:42,640 --> 00:07:46,320 Speaker 1: got interest rates coming down, why is that a positive 129 00:07:46,720 --> 00:07:51,440 Speaker 1: for small caps? Well, three reasons. Firstly, cost of debt 130 00:07:51,520 --> 00:07:53,920 Speaker 1: is cheaper. A lot of these small caps rely on 131 00:07:54,000 --> 00:07:58,160 Speaker 1: debt funding to grow, so either capital expenditures or m 132 00:07:58,160 --> 00:08:02,400 Speaker 1: and A or whatever the case may be for capital allocation, 133 00:08:02,680 --> 00:08:06,320 Speaker 1: it's gotten cheaper. And typically the term on the debt 134 00:08:06,400 --> 00:08:09,240 Speaker 1: is shorter because bank's not willing to lend out five 135 00:08:09,320 --> 00:08:13,400 Speaker 1: ten years for more sort of riskier assets or companies, 136 00:08:14,360 --> 00:08:18,120 Speaker 1: so they're refinancing at much lower rates and that directly 137 00:08:18,160 --> 00:08:20,760 Speaker 1: falls through to the bottom line from an earnings perspective. 138 00:08:21,120 --> 00:08:25,440 Speaker 1: The second thing is the consumer. So the consumer underpins 139 00:08:25,480 --> 00:08:27,600 Speaker 1: small caps in a big way. As you would know, 140 00:08:27,640 --> 00:08:29,920 Speaker 1: if your interest rate on your mortgage is going down, 141 00:08:30,520 --> 00:08:33,320 Speaker 1: then you've got a lot more discretionary spend, so it 142 00:08:33,400 --> 00:08:36,480 Speaker 1: kind of goes across the board. And then thirdly, valuations, 143 00:08:36,600 --> 00:08:41,920 Speaker 1: So a way to value a company is discounting its 144 00:08:41,960 --> 00:08:45,160 Speaker 1: earnings back to the present, So future earnings back to 145 00:08:45,200 --> 00:08:47,880 Speaker 1: the present. The discount rate that you use is tied 146 00:08:48,240 --> 00:08:53,080 Speaker 1: to cash rates, so effectively there's a direct correlation lower 147 00:08:53,440 --> 00:08:57,840 Speaker 1: indirect correlation lower rates, higher valuations. So there are three 148 00:08:57,880 --> 00:09:02,240 Speaker 1: things and why that affects small caps more and positively 149 00:09:02,320 --> 00:09:05,200 Speaker 1: impact small caps more than large caps, So we have 150 00:09:05,400 --> 00:09:08,600 Speaker 1: a rate cutting cycle. The other thing i'd say, and 151 00:09:08,640 --> 00:09:12,160 Speaker 1: I came back to small caps being a much broader 152 00:09:12,600 --> 00:09:17,360 Speaker 1: reflection of our economy. Commodities is a big part of 153 00:09:17,360 --> 00:09:20,240 Speaker 1: that index, so it's probably worth touching on that separately. 154 00:09:21,000 --> 00:09:25,960 Speaker 1: But you've got everything from consumer stocks, discretionary, you've got contractors, 155 00:09:26,040 --> 00:09:29,640 Speaker 1: you have healthcare, you have tech, and it's a real 156 00:09:30,440 --> 00:09:33,839 Speaker 1: property and it's just a much more balanced view. So 157 00:09:33,880 --> 00:09:38,760 Speaker 1: when we're in constructive economic backdrop like we are now, 158 00:09:39,120 --> 00:09:44,200 Speaker 1: you've got fiscal stimulus, you've got monetary policy easing, and yes, 159 00:09:44,240 --> 00:09:46,280 Speaker 1: unemployment I mentioned sticking up a little bit, but it's 160 00:09:46,280 --> 00:09:50,240 Speaker 1: still very supportive and that all plays into sort of 161 00:09:50,280 --> 00:09:53,000 Speaker 1: a positive outlook for small caps, i'd say more so 162 00:09:53,080 --> 00:09:56,040 Speaker 1: than large So yeah, I think over the next twelve 163 00:09:56,080 --> 00:09:59,280 Speaker 1: months longer out it is very it is sickly coll 164 00:09:59,600 --> 00:10:04,199 Speaker 1: part of the market, so it's not forever, but yeah, 165 00:10:04,240 --> 00:10:06,440 Speaker 1: I think for the next twelve months to frame the 166 00:10:06,480 --> 00:10:09,600 Speaker 1: timing there, there's still scope to continue the outperformance. 167 00:10:09,840 --> 00:10:11,440 Speaker 2: I guess if we could zoom in on some of 168 00:10:11,480 --> 00:10:15,000 Speaker 2: those sectors that you mentioned around and the themes around 169 00:10:15,240 --> 00:10:20,439 Speaker 2: lower interest rates and a more positive consumer. Firstly around 170 00:10:20,720 --> 00:10:24,120 Speaker 2: our interest rates, are there any particular sort of sub 171 00:10:24,160 --> 00:10:27,840 Speaker 2: sectors or stocks even that you're focused on that you 172 00:10:27,920 --> 00:10:31,480 Speaker 2: think are sort of leveraged to this lower rate environment 173 00:10:31,520 --> 00:10:35,000 Speaker 2: that we're in and with rates expected to go even lower. 174 00:10:35,280 --> 00:10:39,679 Speaker 1: As a house Pythons really does look at companies on 175 00:10:39,720 --> 00:10:42,600 Speaker 1: a case by case basis, so we are very much fundamental, 176 00:10:42,600 --> 00:10:47,800 Speaker 1: bottom up investors, and it's all about the company. Having 177 00:10:47,880 --> 00:10:50,120 Speaker 1: said that, though, we wouldn't be doing our job properly 178 00:10:50,360 --> 00:10:54,640 Speaker 1: if we didn't recognize the industry that they're participating in, 179 00:10:54,840 --> 00:10:57,360 Speaker 1: and it's a very big part of the assessment that 180 00:10:57,400 --> 00:11:03,920 Speaker 1: we undertake of the company. So there are absolutely industries 181 00:11:04,000 --> 00:11:06,920 Speaker 1: or sectors that benefit more. A very simple one to 182 00:11:07,000 --> 00:11:11,480 Speaker 1: understand is property. So we've had a lot of our 183 00:11:11,559 --> 00:11:16,680 Speaker 1: rates trading at very steep discounts to their NTA, their 184 00:11:17,200 --> 00:11:19,680 Speaker 1: net tangible assets. So the backing the property of backing, 185 00:11:20,280 --> 00:11:22,839 Speaker 1: so anywhere between you know, twenty all the way down 186 00:11:22,920 --> 00:11:28,000 Speaker 1: to fifty percent discounts. So what a rate cutting cycle 187 00:11:28,360 --> 00:11:32,240 Speaker 1: implies is, obviously you're able to take our debt to 188 00:11:32,440 --> 00:11:37,000 Speaker 1: actually drive growth within sort of the property sector. And obviously, 189 00:11:37,080 --> 00:11:39,800 Speaker 1: as I mentioned before, the debt that you do becomes cheaper, 190 00:11:40,360 --> 00:11:42,920 Speaker 1: so you have earning secretion come through. So that's a 191 00:11:43,000 --> 00:11:46,120 Speaker 1: very very easy one to understand. But then there's second 192 00:11:46,240 --> 00:11:49,520 Speaker 1: order effects of it. So you've got the consumer consumer discretionary. 193 00:11:49,640 --> 00:11:52,800 Speaker 1: That's a part of the market where we've got more 194 00:11:53,120 --> 00:11:55,000 Speaker 1: money in our pockets, we can go out, we can 195 00:11:55,040 --> 00:11:59,000 Speaker 1: spend more, and how that filters through is across multiple 196 00:11:59,600 --> 00:12:03,840 Speaker 1: of sector. But you know, retailers, at the August reporting 197 00:12:03,880 --> 00:12:08,920 Speaker 1: season that just passed, retailers had a really good period 198 00:12:09,120 --> 00:12:14,000 Speaker 1: and we've started to see retailers post positive same store 199 00:12:14,040 --> 00:12:17,680 Speaker 1: sales growth all like for like growth in their revenue 200 00:12:17,720 --> 00:12:20,640 Speaker 1: in their sales. So that's a direct indication. And in fact, 201 00:12:21,120 --> 00:12:24,359 Speaker 1: we were starting to see our retailers that had operations 202 00:12:24,360 --> 00:12:28,920 Speaker 1: in New Zealand post really positive numbers. So anywhere between 203 00:12:28,960 --> 00:12:32,000 Speaker 1: sort of fifteen to thirty percent growth. I don't want 204 00:12:32,040 --> 00:12:34,800 Speaker 1: to get overly excited because these aren't kind of the 205 00:12:34,960 --> 00:12:37,800 Speaker 1: incumbents in the New Zealand market, it's you know, UJB, 206 00:12:37,960 --> 00:12:44,240 Speaker 1: high fives, ARB Nick scale. They are sort of cracking 207 00:12:44,240 --> 00:12:46,760 Speaker 1: that market and probably the growth, but they were going 208 00:12:46,800 --> 00:12:49,280 Speaker 1: backwards not that long ago. So we did start to 209 00:12:49,280 --> 00:12:52,200 Speaker 1: see grain shoots in our retailers and I think that 210 00:12:52,280 --> 00:12:53,720 Speaker 1: they are very rate sensitive. 211 00:12:53,840 --> 00:12:57,640 Speaker 2: Are there any other consumer sub sectors, whether it be 212 00:12:57,760 --> 00:13:02,080 Speaker 2: trouble or you know, retail, specialty retail or anything like that, 213 00:13:02,160 --> 00:13:05,240 Speaker 2: any sectors sub sectors that are piquing your interest. 214 00:13:05,640 --> 00:13:10,440 Speaker 1: Travel's tricky because travel's global and we've had a lot 215 00:13:10,520 --> 00:13:15,560 Speaker 1: of disruption across kind of global channels. And when I 216 00:13:15,600 --> 00:13:19,280 Speaker 1: look at the travel sector for US, there's the leisure 217 00:13:19,640 --> 00:13:24,560 Speaker 1: and then you've got your corporate travel. And the corporate side, 218 00:13:25,160 --> 00:13:28,760 Speaker 1: with all the geopolitical uncertainty that we've had, has really 219 00:13:29,480 --> 00:13:33,680 Speaker 1: come off. Leisure not so much, but it's still not 220 00:13:33,800 --> 00:13:36,760 Speaker 1: as exuberant as it has been probably over the last 221 00:13:37,040 --> 00:13:40,800 Speaker 1: twelve twenty four months, right, So I think that's a 222 00:13:40,840 --> 00:13:44,280 Speaker 1: trickier part, and there's lots of moving parts to that. 223 00:13:44,559 --> 00:13:51,200 Speaker 1: So I think travel looks interesting from evaluation perspective. A 224 00:13:51,320 --> 00:13:54,360 Speaker 1: number of our listed travel names are starting to screen 225 00:13:55,080 --> 00:13:58,920 Speaker 1: quite attractively, and I think it's a part of the market. 226 00:13:58,920 --> 00:14:02,360 Speaker 1: We're doing work on retail. Even within retail, you've got 227 00:14:02,360 --> 00:14:06,160 Speaker 1: different categories. So electronics, we're going through a big replacement cycle. 228 00:14:07,360 --> 00:14:10,960 Speaker 1: COVID four years ago, probably a lot of people bought 229 00:14:11,640 --> 00:14:13,640 Speaker 1: a laptop to work from home, whatever it is, and 230 00:14:13,679 --> 00:14:16,880 Speaker 1: that replacement cycle is kicking in Windows ten I think 231 00:14:17,400 --> 00:14:20,880 Speaker 1: are no longer rolling out or servicing that application, so 232 00:14:20,960 --> 00:14:24,720 Speaker 1: again another another reason to go out and buy. Then 233 00:14:24,760 --> 00:14:28,880 Speaker 1: we've got things that are leveraged to property. Property has 234 00:14:28,880 --> 00:14:33,160 Speaker 1: been interesting in Australia. I know it's been very tricky 235 00:14:33,200 --> 00:14:36,280 Speaker 1: and challenged. In New Zealand, we actually held up really 236 00:14:36,320 --> 00:14:38,440 Speaker 1: well up until about twelve months ago and then it's 237 00:14:38,480 --> 00:14:40,960 Speaker 1: just kind of flatlined. It's probably down a little bit, 238 00:14:41,040 --> 00:14:44,360 Speaker 1: but not kind of the twenty percent moves thirty percent 239 00:14:44,400 --> 00:14:47,040 Speaker 1: that we've seen in New Zealand. But we're starting to 240 00:14:47,120 --> 00:14:49,800 Speaker 1: see a bit of recovery in that space too, so 241 00:14:49,880 --> 00:14:53,880 Speaker 1: that filters down to your home, wears furniture. So yeah, 242 00:14:54,120 --> 00:14:56,760 Speaker 1: they're the parts that I'd say, I think at this 243 00:14:56,800 --> 00:14:59,400 Speaker 1: point in the cycle should continue to do well. 244 00:14:59,480 --> 00:15:03,520 Speaker 2: And if we think about resources, you know, the resources 245 00:15:03,680 --> 00:15:06,960 Speaker 2: sector makes up a large component of the Small Worlds index, 246 00:15:07,000 --> 00:15:11,800 Speaker 2: and we've seen gold rally significantly this year if we 247 00:15:11,840 --> 00:15:14,680 Speaker 2: look at that sub sector. Are there any opportunities that 248 00:15:14,720 --> 00:15:18,160 Speaker 2: you're looking at in terms of gold stocks or commodities 249 00:15:18,200 --> 00:15:20,760 Speaker 2: more generally, where are you sort of focused on? At 250 00:15:20,760 --> 00:15:21,160 Speaker 2: the moment? 251 00:15:21,320 --> 00:15:25,040 Speaker 1: Gold has been exceptional And you know, the interesting thing 252 00:15:25,080 --> 00:15:30,120 Speaker 1: about gold is it's typically thought of as a as 253 00:15:30,160 --> 00:15:34,560 Speaker 1: a safe haven, and the constructive backdrop for gold is 254 00:15:35,280 --> 00:15:40,440 Speaker 1: weaker dollar, lower interest rates, and uncertainty geo political uncertainty, 255 00:15:40,520 --> 00:15:43,200 Speaker 1: and that's all sort of played out, but it's gone 256 00:15:43,240 --> 00:15:47,000 Speaker 1: well above and beyond I think what the fundamental constructive 257 00:15:47,000 --> 00:15:51,320 Speaker 1: backdrop is, which may indicate a couple of things. People 258 00:15:51,360 --> 00:15:57,119 Speaker 1: are genuinely worried, and that safe haven status continues inflation, 259 00:15:57,800 --> 00:16:03,040 Speaker 1: so inflation risk gold is seen as a hedge for inflation. 260 00:16:03,760 --> 00:16:08,520 Speaker 1: So even though it's sort of down into ranges where 261 00:16:08,560 --> 00:16:11,280 Speaker 1: central banks wanted to get them down to, there is 262 00:16:11,440 --> 00:16:14,560 Speaker 1: risk obviously with all this tariff and stimulus coming through 263 00:16:14,600 --> 00:16:18,120 Speaker 1: that we're going to go through another period of heightened inflation. 264 00:16:19,040 --> 00:16:23,240 Speaker 1: I think that's a real risk. So there's people buying 265 00:16:23,440 --> 00:16:26,080 Speaker 1: on sort of fundamentals, but then you've started to see 266 00:16:26,120 --> 00:16:30,840 Speaker 1: a bit of euphoric activity. And it's interesting Martin Place 267 00:16:30,960 --> 00:16:33,040 Speaker 1: just here in town. I'm sure you've seen sort of 268 00:16:33,080 --> 00:16:35,600 Speaker 1: the pictures. There's light lines out the door. Is it 269 00:16:35,640 --> 00:16:38,360 Speaker 1: a bubble? I don't think so. Can it correct twenty 270 00:16:38,400 --> 00:16:41,200 Speaker 1: thirty percent? I think so. So. Bringing it back to 271 00:16:41,280 --> 00:16:44,480 Speaker 1: the markets, the goal price itself, I think I'll have 272 00:16:44,520 --> 00:16:45,960 Speaker 1: to I'll have to check this. I didn't check it 273 00:16:45,960 --> 00:16:47,480 Speaker 1: before I came in, but I think the gold price 274 00:16:47,560 --> 00:16:51,480 Speaker 1: is up something like fifty percent. Gold equities are up 275 00:16:51,480 --> 00:16:57,200 Speaker 1: one hundred percent over the last year. And what we've 276 00:16:57,280 --> 00:17:01,440 Speaker 1: seen within that, and that's typical. There's lev there's operating leverage, 277 00:17:01,440 --> 00:17:04,240 Speaker 1: there's financial leverage, and in fact, the ones that have 278 00:17:04,280 --> 00:17:08,520 Speaker 1: done best are your poorer quality ones that you know, 279 00:17:08,760 --> 00:17:12,960 Speaker 1: high high cash cost to operate, which means that the 280 00:17:13,040 --> 00:17:15,680 Speaker 1: leverage that they get from a higher goal price is 281 00:17:16,359 --> 00:17:19,800 Speaker 1: more than sort of your good quality operators. But you've 282 00:17:19,840 --> 00:17:24,600 Speaker 1: done well owning anything gold related over this period. Other commodities. 283 00:17:24,680 --> 00:17:27,440 Speaker 1: I think I spoke about rare earths six months ago. 284 00:17:27,920 --> 00:17:32,879 Speaker 1: That's had an exceptional run that's been quite politically driven 285 00:17:33,000 --> 00:17:38,000 Speaker 1: as well. That the price itself hasn't moved too much. 286 00:17:38,400 --> 00:17:42,520 Speaker 1: So that's a situation that we're cautious on because again 287 00:17:43,640 --> 00:17:48,359 Speaker 1: it's a critical metal. It's strategically important for a number 288 00:17:48,400 --> 00:17:52,439 Speaker 1: of these industries that are in big sort of growth trajectory. 289 00:17:52,680 --> 00:17:56,400 Speaker 1: But when the fundamental commodity price doesn't move, it can 290 00:17:56,440 --> 00:18:00,399 Speaker 1: easily sort of whip back down. So we're quite careful 291 00:18:00,400 --> 00:18:04,439 Speaker 1: and mindful of that. Lithium is still quite challenged. We 292 00:18:04,480 --> 00:18:07,080 Speaker 1: had sort of a big as a little sort of 293 00:18:07,119 --> 00:18:11,680 Speaker 1: run up fifty percent, but that's kind of platted out 294 00:18:11,720 --> 00:18:13,840 Speaker 1: and that you have to bring it back to supply 295 00:18:13,840 --> 00:18:18,520 Speaker 1: and demand dynamics in a lot of those markets. But yes, 296 00:18:18,760 --> 00:18:23,240 Speaker 1: you can't avoid it, and unfortunately, being underweight that part 297 00:18:23,240 --> 00:18:27,600 Speaker 1: of the market for us, we've done, it's proudly done 298 00:18:27,640 --> 00:18:29,680 Speaker 1: quite well to be able to sort of hold the 299 00:18:29,680 --> 00:18:33,360 Speaker 1: performance and deliver exceptional performance without owning lots of those 300 00:18:33,440 --> 00:18:35,119 Speaker 1: companies that are run a lot. 301 00:18:36,000 --> 00:18:39,720 Speaker 2: I want to talk about AI. It's very topical you 302 00:18:39,760 --> 00:18:42,920 Speaker 2: know in the media at the moment. Would you say 303 00:18:42,960 --> 00:18:47,400 Speaker 2: that there are ways to play that thematic more indirectly 304 00:18:47,960 --> 00:18:49,120 Speaker 2: across our markets. 305 00:18:49,359 --> 00:18:53,960 Speaker 1: There's certainly companies in the AI space, it's just not 306 00:18:54,040 --> 00:18:57,720 Speaker 1: the concentrated nature in the large caps that we see 307 00:18:57,760 --> 00:19:01,920 Speaker 1: offshore the very obvious one is data centers, so there 308 00:19:02,000 --> 00:19:05,879 Speaker 1: is certainly small cap all the way through to large 309 00:19:05,920 --> 00:19:10,320 Speaker 1: cap in Goodman Group, who have now become one of 310 00:19:10,320 --> 00:19:14,679 Speaker 1: the largest DC operators or developers. Sorry, so you do. 311 00:19:14,840 --> 00:19:17,480 Speaker 1: You've got you know, even in New Zealand in Fertilla 312 00:19:17,520 --> 00:19:20,480 Speaker 1: and a fifty percent stake in thereabouts stake in CDC. 313 00:19:21,160 --> 00:19:27,760 Speaker 1: CDC are an exceptional operator of data centers, and you've 314 00:19:27,760 --> 00:19:31,919 Speaker 1: got next DC as a mid cap in Australia, then 315 00:19:31,920 --> 00:19:35,280 Speaker 1: you've got Macroi Telecom sort of small cap, so that's 316 00:19:35,359 --> 00:19:37,960 Speaker 1: kind of a very direct way of playing it. There 317 00:19:38,040 --> 00:19:40,840 Speaker 1: is a massive amount of capital going into data centers 318 00:19:40,880 --> 00:19:45,840 Speaker 1: at the moment, and even just yesterday, CDC announced another 319 00:19:45,880 --> 00:19:49,080 Speaker 1: forty megawatt contract. The week before they announced one hundred 320 00:19:49,119 --> 00:19:52,000 Speaker 1: or the week for that one hundred megawatt contract, so 321 00:19:52,600 --> 00:19:56,240 Speaker 1: there is absolutely no shortage of demand from that, and 322 00:19:56,600 --> 00:19:59,200 Speaker 1: it seems that there's no shortage of capital that wants 323 00:19:59,240 --> 00:20:02,200 Speaker 1: to be invested in this space as well. So at 324 00:20:02,200 --> 00:20:07,000 Speaker 1: the moment there is clearly more demand than there is 325 00:20:07,040 --> 00:20:10,800 Speaker 1: supply by far, but at some point that will sort 326 00:20:10,840 --> 00:20:14,440 Speaker 1: of even out. I'm not expecting that at least for 327 00:20:14,480 --> 00:20:16,680 Speaker 1: the next three years, but at some point that will happen. 328 00:20:16,920 --> 00:20:19,840 Speaker 1: And the one thing I would note as a signal 329 00:20:19,960 --> 00:20:22,919 Speaker 1: to maybe pull back a little bit is when you 330 00:20:22,960 --> 00:20:26,720 Speaker 1: start to hear your big hyperscalers, your Amazon, your Google 331 00:20:27,440 --> 00:20:31,640 Speaker 1: cutting back there on their capex on AI. That's quite 332 00:20:31,640 --> 00:20:34,359 Speaker 1: a negative signal coming back to kind of opportunities. So 333 00:20:34,359 --> 00:20:36,080 Speaker 1: you've got data centers, then you've got a lot of 334 00:20:36,119 --> 00:20:41,359 Speaker 1: these companies that are internally generating products that are AI 335 00:20:41,640 --> 00:20:46,760 Speaker 1: enabled or to help their customers and clients be more efficient. 336 00:20:47,760 --> 00:20:51,160 Speaker 1: Here it's zero is a typical. They've got Agentic AI 337 00:20:52,960 --> 00:20:56,639 Speaker 1: module for their accountants using the software. You've got Wise 338 00:20:56,680 --> 00:21:01,719 Speaker 1: Tech that are coming out, which is logistics company. And 339 00:21:01,760 --> 00:21:05,240 Speaker 1: then more in the small and microcraft you've got Life 340 00:21:05,280 --> 00:21:09,680 Speaker 1: through sixty that are using sort of AI as well 341 00:21:09,680 --> 00:21:15,879 Speaker 1: with their application of tracking their tracking software. So it 342 00:21:15,960 --> 00:21:18,240 Speaker 1: goes the whole way through. So you can absolutely get 343 00:21:18,280 --> 00:21:21,719 Speaker 1: access to it. It's just more not those hyperscalers that 344 00:21:21,760 --> 00:21:24,920 Speaker 1: we have here that we can invest in. But there's 345 00:21:24,960 --> 00:21:29,600 Speaker 1: certainly ways and I would be shocked if fifty percent 346 00:21:29,600 --> 00:21:31,800 Speaker 1: of the company is that we are invested in don't 347 00:21:31,800 --> 00:21:37,440 Speaker 1: have some form of AI now embedded into their workflows. 348 00:21:37,640 --> 00:21:42,800 Speaker 2: A good barometer for institutional investor confidence in the outlook 349 00:21:42,880 --> 00:21:46,879 Speaker 2: for markets are the cash balances that they hold. Last 350 00:21:46,880 --> 00:21:50,040 Speaker 2: time we spoke to you, you mentioned that across some 351 00:21:50,119 --> 00:21:53,760 Speaker 2: of the PI funds you were at or close to 352 00:21:53,840 --> 00:21:57,040 Speaker 2: mandate limits in terms of those cash balances, just given 353 00:21:57,200 --> 00:22:02,080 Speaker 2: some caution around markets. How would you say that has 354 00:22:02,200 --> 00:22:07,159 Speaker 2: changed in the last six months? Would you say that 355 00:22:07,200 --> 00:22:10,000 Speaker 2: you've got a lot of dry powder or cash on 356 00:22:10,040 --> 00:22:13,400 Speaker 2: the sidelines still? How fully invested are you? 357 00:22:13,680 --> 00:22:16,880 Speaker 1: Yeah, we're very fortunate that our mandate allows us to 358 00:22:17,080 --> 00:22:20,000 Speaker 1: move as much into cash as we would like to, 359 00:22:21,280 --> 00:22:23,919 Speaker 1: depending on how we see the environment, what we have. 360 00:22:24,080 --> 00:22:27,280 Speaker 1: There are internal ranges that we like to operate in, 361 00:22:27,320 --> 00:22:32,240 Speaker 1: but those ranges change. So if sort of sort of 362 00:22:32,240 --> 00:22:34,520 Speaker 1: post COVID, that range went up to fifty percent, so 363 00:22:34,560 --> 00:22:36,880 Speaker 1: we could own up to fifty percent. Back in April, 364 00:22:37,200 --> 00:22:40,040 Speaker 1: we increase the range from I believe it was five 365 00:22:40,080 --> 00:22:42,359 Speaker 1: to fifteen percent, and we're sort of sitting at that 366 00:22:42,960 --> 00:22:47,400 Speaker 1: higher end. That range still holds today, but we're probably 367 00:22:47,440 --> 00:22:51,040 Speaker 1: more towards the mid to bottom end. We were very 368 00:22:51,080 --> 00:22:54,800 Speaker 1: fortunate that we're able to allocate and take up some 369 00:22:54,840 --> 00:22:58,720 Speaker 1: opportunities in the market. Now. Typically speaking, we are taking 370 00:22:58,720 --> 00:23:00,440 Speaker 1: a bit of profit in those names that are up 371 00:23:00,480 --> 00:23:04,680 Speaker 1: thirty forty percent, but we're seeing lots of opportunities. We're 372 00:23:04,720 --> 00:23:08,399 Speaker 1: genuinely seeing lots of opportunities coming out of reporting season 373 00:23:08,440 --> 00:23:12,080 Speaker 1: in August. We didn't touch on the contractors, but there's 374 00:23:12,280 --> 00:23:18,440 Speaker 1: anything real leverage to infrastructure. Infrastructure isn't just kind of 375 00:23:18,600 --> 00:23:22,680 Speaker 1: building roads and tunnels and that. It's it's electricity grid 376 00:23:23,880 --> 00:23:26,680 Speaker 1: and you know this whole electrification and talking about data 377 00:23:26,720 --> 00:23:30,920 Speaker 1: centers for example, the need of energy for those centers 378 00:23:30,960 --> 00:23:33,960 Speaker 1: to be built. There's been a massive investment in transmission 379 00:23:35,320 --> 00:23:38,640 Speaker 1: that's required. So that's what I mean sort of by infrastructure. 380 00:23:38,920 --> 00:23:41,800 Speaker 1: The contractors, whether it's you know, gold mining, whether it's 381 00:23:41,880 --> 00:23:45,760 Speaker 1: replacement ors in iron ore, whether it's oil and gas, 382 00:23:46,240 --> 00:23:52,200 Speaker 1: we are seeing really strong pipelines within that space. So 383 00:23:52,200 --> 00:23:54,840 Speaker 1: we ask genuine seeing a lot of opportunities. So to 384 00:23:54,920 --> 00:23:57,800 Speaker 1: your question around cash ranges, we're probably sitting around kind 385 00:23:57,800 --> 00:24:00,919 Speaker 1: of the mid the mid range to the lower of 386 00:24:01,080 --> 00:24:04,520 Speaker 1: those of that cash range, depending on the funds, because 387 00:24:04,520 --> 00:24:06,879 Speaker 1: we genuinely see quite a lot of opportunities at the moment. 388 00:24:07,240 --> 00:24:10,440 Speaker 2: Thank you, Michelle for being on this episode of Shared Lunch. 389 00:24:10,440 --> 00:24:12,000 Speaker 2: It's been great to have you on now. 390 00:24:12,000 --> 00:24:17,400 Speaker 1: It's a pleasure always, I'm always happy to be here.