WEBVTT - ASX: Insights, earnings & outlook 0:00:05.640 --> 0:00:08.760 Hello and welcome to this episode of Shared Lunch. We 0:00:08.800 --> 0:00:11.360 were going to focus on the Australian market off the 0:00:11.360 --> 0:00:13.119 back of the recent earning season. 0:00:13.680 --> 0:00:15.640 We're also going to chat about what to. 0:00:15.560 --> 0:00:18.720 Look for when investing in small to medium sized companies. 0:00:19.079 --> 0:00:21.680 Investing involves for risk you might lose the money you 0:00:21.720 --> 0:00:25.000 start with. We recommend talking to a licensed financial advisor. 0:00:25.720 --> 0:00:29.560 We also recommend reading product disclosure documents before deciding to invest. 0:00:29.840 --> 0:00:32.199 Everything you're about to see and here is current at 0:00:32.240 --> 0:00:33.080 the time of recording. 0:00:33.159 --> 0:00:35.440 My name's Sonya Williams. I'm the co founder and co 0:00:35.560 --> 0:00:38.440 CEO at Shears's and today I'm joined by the City 0:00:38.479 --> 0:00:42.960 based Michelle Lopez, head of Australasian Equities and portfolio manager 0:00:43.040 --> 0:00:49.280 at Pie Funds. Welcome, Michelle, Hi, Sonja. Before we get started, 0:00:49.320 --> 0:00:52.240 I'd like to acknowledge the traditional custodians of the land, 0:00:52.360 --> 0:00:55.160 water and sky on which we come to you from today, 0:00:55.480 --> 0:00:58.320 the Gettigill people of the Aura nation, and pay my 0:00:58.400 --> 0:01:01.280 respects to their elders, past, present and emerging. 0:01:01.960 --> 0:01:04.240 So thanks Heeps for joining us. Michelle. 0:01:04.880 --> 0:01:08.959 Before we get into it chatting all things a six, 0:01:09.319 --> 0:01:12.600 can you tell us about you and what does a 0:01:12.680 --> 0:01:13.800 day to day look like for you. 0:01:15.040 --> 0:01:15.200 Yeah. 0:01:15.240 --> 0:01:15.440 Sure. 0:01:16.160 --> 0:01:19.399 Firstly, thanks very much for having me on your podcast, Sonya. 0:01:19.400 --> 0:01:22.760 I'm always really happy to share a bit about the 0:01:22.840 --> 0:01:25.280 exciting world of investing and really what. 0:01:25.280 --> 0:01:26.280 Moves and shakes it. 0:01:27.400 --> 0:01:30.039 So, as you mentioned, I'm based here in Sydney, and 0:01:30.280 --> 0:01:32.720 as the accent is probably given away, I am at 0:01:32.760 --> 0:01:38.200 Aussie and by a way of background, I joined Pithon's 0:01:38.280 --> 0:01:42.319 early last year in twenty twenty three as a portfolio 0:01:42.360 --> 0:01:46.039 manager and as you mentioned, head of this Australation equity team, 0:01:46.720 --> 0:01:50.520 and I brought with me probably twenty years of experience 0:01:50.760 --> 0:01:56.800 investing inequities, most recently as the head of OSSI Equities 0:01:56.800 --> 0:01:59.760 at a large global fund manager, where I trained very 0:01:59.800 --> 0:02:05.640 much much on the job as a fundamental analyst and really. 0:02:05.440 --> 0:02:07.120 Lucky to have learned. 0:02:07.440 --> 0:02:12.200 From some incredibly well respected and successful portfolio managers and 0:02:12.200 --> 0:02:13.359 fund managers in the region. 0:02:14.040 --> 0:02:18.400 Markets are volatile of nature, and especially of late we've 0:02:18.440 --> 0:02:20.480 seen the A six has been down in the recent 0:02:20.600 --> 0:02:24.200 days due to some concerns around the US growth. Did 0:02:24.240 --> 0:02:26.400 this have any bearing to the end of the earning 0:02:26.440 --> 0:02:28.840 season in Australia. Yes, so. 0:02:30.520 --> 0:02:33.600 August which we've just come out of. 0:02:33.880 --> 0:02:36.680 You would think was a pretty you know, benign month 0:02:36.720 --> 0:02:39.480 if you looked at the performance over the month, which 0:02:39.560 --> 0:02:44.119 was virtually flat, but it certainly had a lot of volatility. 0:02:44.240 --> 0:02:48.480 And to your point, Sonya, the first week of August, 0:02:49.120 --> 0:02:51.400 you know, we had a five percent draw down which 0:02:51.520 --> 0:02:55.200 was which is quite brutal, and then it just recovered 0:02:55.280 --> 0:02:58.000 all of that as we sort of progressed through it. 0:02:59.040 --> 0:03:00.120 To your point, yes, a. 0:03:00.120 --> 0:03:03.520 Big driver was started coming out of the US, but 0:03:03.760 --> 0:03:05.040 as as you would. 0:03:04.760 --> 0:03:09.520 Know, August is really all about earnings. 0:03:09.200 --> 0:03:12.839 For US and companies reporting, so we saw a lot 0:03:12.840 --> 0:03:16.480 of big moves just on a stop by stock basis. 0:03:17.160 --> 0:03:20.400 And again if I sort of think through and I 0:03:20.480 --> 0:03:24.000 considered the earnings outcomes, again at a high level, it 0:03:24.080 --> 0:03:27.880 looked like it was quite evenly matched between companies that 0:03:28.000 --> 0:03:34.000 beat expectations and those that missed expectations. But again looking 0:03:34.080 --> 0:03:37.120 underneath the surface, there was there was a lot of 0:03:37.120 --> 0:03:43.120 callouts from the reporting season. The first, first and biggest 0:03:43.360 --> 0:03:45.600 trend that we saw and this probably isn't going to 0:03:45.600 --> 0:03:49.360 be a surprise for most was really around the cost 0:03:49.400 --> 0:03:54.760 of living pressures and these remained persistent and widespread. So 0:03:55.400 --> 0:03:59.720 there are a number of companies referring to changed consumer 0:03:59.760 --> 0:04:03.200 behaviors in response to kind of household budget pressures. 0:04:03.960 --> 0:04:05.600 And this was across the board, So this. 0:04:05.760 --> 0:04:09.720 Was retailers, it was supermarkets, which you think are quite defensive, 0:04:10.400 --> 0:04:14.520 It was the utility players, it was travel. However, I 0:04:14.520 --> 0:04:19.160 would actually say that the consumer has shown great resilience 0:04:19.200 --> 0:04:21.280 if you think about sort of where we've come from 0:04:21.320 --> 0:04:26.240 from an interest rate perspective and inflation being really high, 0:04:26.279 --> 0:04:29.520 and in fact we're starting to see signs that the 0:04:29.600 --> 0:04:33.280 trough in the consumer activity is could be behind us. 0:04:34.200 --> 0:04:37.200 So that'd be the first one. The second one is margins. 0:04:38.880 --> 0:04:43.839 So interesting that ebit DA, which is earnings before interest, tax, 0:04:43.960 --> 0:04:47.400 depreciation and amaltization, which is quite a common terminology in 0:04:47.400 --> 0:04:52.080 our market. The margins were revised lower for every single 0:04:52.120 --> 0:04:56.520 sector throughout August, and you know, one of the key 0:04:56.640 --> 0:05:01.120 drivers obviously inflation. But in our view again looking forward, 0:05:01.200 --> 0:05:04.480 which is really important is we feel that the margins 0:05:04.480 --> 0:05:07.320 should begin to recover from here. So we are seeing 0:05:07.320 --> 0:05:12.200 cost stabilize and importantly we're seeing labor supply improving and 0:05:12.240 --> 0:05:14.120 then maybe the final ones balance sheets. 0:05:14.560 --> 0:05:16.320 So balance sheets are strong. 0:05:16.760 --> 0:05:22.320 So the Australian corporates have remained lowly geared and they've 0:05:22.960 --> 0:05:26.680 had shown actually very little appetite to lever up. As 0:05:26.720 --> 0:05:29.680 you would know, we're probably at an inflection point from 0:05:29.680 --> 0:05:33.599 a rates perspective in Australia. We're lagging probably New Zealand 0:05:33.600 --> 0:05:37.880 in that sense, so there is an expectation that cuts 0:05:37.920 --> 0:05:43.200 will come next you And again we'll say kind of 0:05:43.560 --> 0:05:45.800 where the balance sheets go from there, but it's meant 0:05:45.800 --> 0:05:46.440 that there's been. 0:05:46.360 --> 0:05:49.640 A number of buybacks that companies have been able to do. 0:05:51.720 --> 0:05:54.160 The other thing I'd probably highlight from reporting season is 0:05:54.480 --> 0:05:58.039 more on the guidance and the outlook statements. And again 0:05:58.080 --> 0:06:02.320 the one thing was where companies did provide guidance, they 0:06:02.360 --> 0:06:06.160 were very it was very conservatively set as I mentioned 0:06:06.200 --> 0:06:10.960 the living and interest rate on uncertainties, and that actually 0:06:11.040 --> 0:06:16.159 meant that downgrades outpaced upgrades. If you look into the 0:06:16.200 --> 0:06:21.000 next fiscal year so FY twenty five, and on average 0:06:21.240 --> 0:06:27.279 forty six percent of the companies had earnings downgrades and 0:06:27.640 --> 0:06:32.640 that sort of versus twenty percent that had upgrades. So 0:06:32.760 --> 0:06:37.600 again there was a skew to having revisions revised downwards 0:06:37.680 --> 0:06:39.080 earnings revised downwards. 0:06:39.640 --> 0:06:42.280 Yeah, and when you say the downgrades and upgrades, do 0:06:42.320 --> 0:06:44.839 you want to just explain that what you mean by that. 0:06:45.600 --> 0:06:48.520 Yeah, of course, So upgrades. 0:06:49.800 --> 0:06:54.400 It essentially means that the management provide guidance that is 0:06:55.640 --> 0:07:00.680 ahead of where market expectations are. So in our world, 0:07:00.839 --> 0:07:06.000 earnings really drives share prices, so having an understanding of 0:07:06.040 --> 0:07:07.080 where earnings are going. 0:07:07.600 --> 0:07:11.120 So an upgrade is now we think earnings are going. 0:07:11.040 --> 0:07:13.600 To be higher next year than what we originally thought, 0:07:14.600 --> 0:07:16.480 and downgrades is the inverse of that. 0:07:16.680 --> 0:07:19.200 So we've had to revise earnings. 0:07:18.680 --> 0:07:23.360 Down in light of what management commentary has been. 0:07:25.400 --> 0:07:29.160 And so were there any surprises or anything that struck 0:07:29.480 --> 0:07:30.480 struck you as surprising? 0:07:30.800 --> 0:07:36.960 There's always surprises, So there's always surprises, and by surprises, 0:07:37.480 --> 0:07:41.040 the direct correlation here is just share price moves. 0:07:42.560 --> 0:07:46.760 So when we look at the beat versus miss ratio, 0:07:48.600 --> 0:07:51.120 a couple of things to call out. So from a 0:07:51.160 --> 0:07:55.480 sector perspective, we had healthcare the highest rates of beats, 0:07:56.320 --> 0:08:01.200 and then we had energy and utilities as the highest 0:08:01.280 --> 0:08:06.120 rate of misses. But to your question on surprises, you know, 0:08:06.400 --> 0:08:09.040 when I look at share price reactions, and in fact 0:08:09.200 --> 0:08:12.000 I pulled out I pulled out a report just just 0:08:12.080 --> 0:08:15.640 before our meeting, and they actually gave some numbers around 0:08:15.640 --> 0:08:17.040 this which I thought was quite interesting. 0:08:17.080 --> 0:08:20.960 This is a JP Morgan report, but as you'd. 0:08:20.800 --> 0:08:24.480 Expect, so if it met expectations, share price was benign 0:08:24.520 --> 0:08:28.560 and in line with market. If they beat consensus by 0:08:28.680 --> 0:08:34.320 more than two percent, that those that bucket of companies 0:08:34.360 --> 0:08:38.960 outperformed by three percent. So in a flat market, which 0:08:39.120 --> 0:08:40.800 was what we had in August, they are up three 0:08:40.840 --> 0:08:41.760 percent as a whole. 0:08:42.440 --> 0:08:44.280 The interesting part is the missus. 0:08:45.120 --> 0:08:50.440 So those companies that missed expectations by two percent or more, 0:08:51.320 --> 0:08:54.079 that group actually fell by six percent. 0:08:55.559 --> 0:08:58.160 And that's that skew to the downside. 0:08:58.960 --> 0:09:03.480 Is why you'll hear industry veterans saying all the time 0:09:03.520 --> 0:09:06.240 arou our reporting season that the goal is really to 0:09:06.280 --> 0:09:07.239 avoid the blowups. 0:09:07.960 --> 0:09:09.520 Because you can see that skew. 0:09:10.120 --> 0:09:13.439 Companies that exceeded by two percent were up three those 0:09:13.440 --> 0:09:16.440 that disappointed by two percent were down six. 0:09:17.360 --> 0:09:20.040 Are there any particular industries that you're keeping your eye 0:09:20.080 --> 0:09:21.480 on over the next six months. 0:09:21.800 --> 0:09:23.880 Yeah, I suppose i'd call out. 0:09:25.320 --> 0:09:31.240 I'd probably call out three again months is a very 0:09:31.320 --> 0:09:35.080 very short time horizon for us. But let me just 0:09:35.200 --> 0:09:37.079 call something out and then I'll cave. 0:09:37.000 --> 0:09:40.679 It all of it. But the first one would probably. 0:09:40.440 --> 0:09:46.880 Be infrastructure and construction so we've got a really solid pipeline. 0:09:47.720 --> 0:09:51.720 It's actually one point seven trillion worth of work for 0:09:51.760 --> 0:09:56.160 the next seven years, and importantly, this continues to be replenished, 0:09:56.679 --> 0:10:01.160 so there's a real tailwind within that set. And then 0:10:01.480 --> 0:10:08.040 if I can just narrow it in more construction. In particular, 0:10:08.800 --> 0:10:12.040 there's two hundred and forty thousand new homes that are 0:10:12.040 --> 0:10:17.960 required annually to achieve government supply targets. We're well below 0:10:18.000 --> 0:10:21.480 that level from an approvals perspective, and this has been 0:10:21.480 --> 0:10:23.680 a problem now for a couple of years, but it's 0:10:23.720 --> 0:10:27.560 really coming to a head. We've got a chronic shortage 0:10:27.559 --> 0:10:30.840 of in housing and we need to see this addressed. 0:10:31.040 --> 0:10:33.760 So I think over the next six months that's one 0:10:33.800 --> 0:10:34.640 that I've sort. 0:10:34.520 --> 0:10:36.880 Of been looking I'll be looking at closely. 0:10:37.920 --> 0:10:41.600 The second one is probably those consumer exposed sectors. 0:10:42.120 --> 0:10:44.600 So as I mentioned earlier, we are starting. 0:10:44.280 --> 0:10:49.040 To see signs of a trough and consumer activity. We've 0:10:49.040 --> 0:10:53.439 had retailers come up with trading updates throughout sort of 0:10:53.520 --> 0:10:57.959 July and into August and showing an improvement, not a 0:10:58.040 --> 0:11:00.119 huge improvement, but at least it's positive. 0:11:01.440 --> 0:11:03.920 So again, we've got tax cuts. 0:11:03.559 --> 0:11:06.600 That have started to filter through the economy, and we've 0:11:06.600 --> 0:11:09.800 got interest rate cuts coming next year, so I think 0:11:09.800 --> 0:11:13.480 that's going to be quite stimulatory for the consumer. And 0:11:13.520 --> 0:11:17.760 then finally, just real estate, with interest rates now sort 0:11:17.800 --> 0:11:19.920 of entering a new phase. I think that's going to 0:11:19.960 --> 0:11:23.720 look interesting from a valuation perspective. But as I mentioned, 0:11:23.800 --> 0:11:28.160 look that that's just kind of sectors, and importantly for US, 0:11:29.000 --> 0:11:33.520 we're bottom up fundamental investors, and that means that we 0:11:33.600 --> 0:11:37.400 approach investing at the company level rather than kind of 0:11:37.400 --> 0:11:38.760 at a sector level. 0:11:39.400 --> 0:11:42.360 And are there any big milestones or announcements that you're 0:11:42.360 --> 0:11:44.160 coming up that you think will impact the markets in 0:11:44.160 --> 0:11:45.880 any way? 0:11:45.880 --> 0:11:51.440 Oh, there's always announcements. I mean, you just don't know 0:11:51.480 --> 0:11:53.160 what you're going to wake up to and sort. 0:11:53.000 --> 0:11:54.080 Of overnight moves. 0:11:54.160 --> 0:11:59.240 But I mean, I suppose the very near term ones 0:11:59.320 --> 0:12:00.600 that we're look looking for. 0:12:01.640 --> 0:12:04.599 You know, macro data out of the US is always important. 0:12:05.520 --> 0:12:11.640 Payrolls which we've had just very recently, we're about to 0:12:11.840 --> 0:12:15.240 enter or we're in the campaigning of the politic of 0:12:15.280 --> 0:12:18.280 the US elections, that that could have quite an impact 0:12:18.280 --> 0:12:20.840 on our market from a policy setting perspective. 0:12:22.679 --> 0:12:26.840 The other big sort of announcements or I suppose. 0:12:26.960 --> 0:12:30.000 External factors if you wanted to call it, that is 0:12:30.200 --> 0:12:33.840 just commodity prices. Just to be aware that our market 0:12:33.920 --> 0:12:37.800 is quite levered to commodity prices for better or worse. 0:12:39.679 --> 0:12:42.640 But yeah, they represent a large part of our exports. 0:12:43.120 --> 0:12:49.720 So any data and announcements around China policy will have 0:12:49.880 --> 0:12:53.000 will have an impact, will have an impact there as well. 0:12:54.000 --> 0:12:58.240 Yeah, so that's a nice threat to follow there around like, 0:12:58.320 --> 0:13:01.120 what are some of the external factors that impact the 0:13:01.120 --> 0:13:01.959 Australian market. 0:13:04.720 --> 0:13:08.920 Yeah, so I suppose, like most countries, Australia is absolutely 0:13:09.000 --> 0:13:14.480 intertwined with global markets, so we really can't say we 0:13:14.600 --> 0:13:17.720 sort of stand alone. So there's always going to be 0:13:17.760 --> 0:13:21.960 external factors. I mentioned commodities. That's a big one for 0:13:22.080 --> 0:13:24.960 us if you think about and the reason for that 0:13:25.040 --> 0:13:29.520 if you think about the top three contributors to trade, 0:13:29.559 --> 0:13:35.480 So our biggest exports there Idal, CALL and LNG, so 0:13:36.280 --> 0:13:38.360 again really important. 0:13:39.880 --> 0:13:42.479 Just the demand for those in particular. 0:13:43.480 --> 0:13:47.040 The other one I would probably call out, and this 0:13:47.200 --> 0:13:52.199 is again not just for Australia, but you know, geopolitics 0:13:52.280 --> 0:13:56.600 can can really impact sort of markets and then the 0:13:56.720 --> 0:13:58.920 energy situation. 0:13:59.160 --> 0:14:01.880 So I try to desensitize. 0:14:01.120 --> 0:14:03.160 Sort of big words and I don't think it's a crisis, 0:14:03.160 --> 0:14:07.000 so we'll call it the energy transition. But again that's 0:14:07.040 --> 0:14:11.840 that's what's proving out, is that it's slower and it's 0:14:11.920 --> 0:14:16.400 harder than what maybe we had hoped for and what 0:14:16.520 --> 0:14:20.240 government's policy had had sort of factored in. 0:14:21.120 --> 0:14:23.360 And what we've also found out is it's most. 0:14:23.320 --> 0:14:28.160 Likely going to need gas, so we've had no hydrogen 0:14:28.320 --> 0:14:30.920 as as an example of a renewable source that we 0:14:30.960 --> 0:14:32.840 were trying to develop, capitals being. 0:14:34.160 --> 0:14:37.080 Sort of pulled out actually one of the major. 0:14:36.840 --> 0:14:40.160 Ones just because there the returns are not there, so 0:14:40.240 --> 0:14:42.680 to stimulate that level. So that's a you know, the 0:14:43.160 --> 0:14:47.280 energy transition is another one that's that's playing playing out 0:14:47.280 --> 0:14:47.880 in our market. 0:14:48.480 --> 0:14:51.640 So with the US election coming up, like how does 0:14:51.680 --> 0:14:55.080 that vector into how you know your investing decisions? 0:14:55.120 --> 0:14:58.680 Taking a step back, what do elections mean? It could 0:14:58.720 --> 0:15:04.520 potentially make a change in And the difficult part at 0:15:04.560 --> 0:15:11.360 this juncture is the Biden Harris administration haven't got firm 0:15:11.440 --> 0:15:17.560 policies in place. I think the Trump jd Vance does 0:15:18.480 --> 0:15:21.160 have all a bit more and it's the one thing 0:15:21.160 --> 0:15:23.640 I would say is both parties are going to be 0:15:23.920 --> 0:15:28.840 very stimulatory, and this is typically quite positive for equity 0:15:28.880 --> 0:15:34.240 markets if I think about the risks either one way 0:15:34.400 --> 0:15:39.160 or the other that we're considering, So renewables as a really. 0:15:40.840 --> 0:15:44.160 Topical policy, the Inflation Reduction Act. 0:15:43.920 --> 0:15:48.040 Which was introduced by Biden, that stimulated a lot of 0:15:48.080 --> 0:15:51.840 investment into renewables, a lot of incentives into that. 0:15:51.800 --> 0:15:52.600 Part of the market. 0:15:53.560 --> 0:15:57.440 So a question mark around whether that remains under Trump. 0:15:59.040 --> 0:16:02.880 I would say it's difficult to unwind something like that. 0:16:03.560 --> 0:16:08.320 So although it's a risk, I would say it's a hugely. 0:16:11.480 --> 0:16:12.200 Likely to happen. 0:16:12.320 --> 0:16:15.880 But I think in totality we're not overly concerned one 0:16:15.880 --> 0:16:18.360 way or the other what way it falls and lands. 0:16:19.280 --> 0:16:23.400 We're positioned and we've positioned our portfolio such that there's 0:16:23.440 --> 0:16:26.800 no great risk either way, and in fact we see 0:16:26.800 --> 0:16:30.880 it as a positive, a stimulatory type of response from 0:16:30.880 --> 0:16:31.520 both parties. 0:16:32.080 --> 0:16:35.080 Like now kind of honing in on one of the 0:16:35.080 --> 0:16:38.560 funds that you offer, talking about, you know, managing the 0:16:38.640 --> 0:16:41.360 risk or how you look at creating those things. 0:16:41.400 --> 0:16:42.640 One of the interesting things. 0:16:42.400 --> 0:16:45.240 About the PIG High Growth Fund is that you look 0:16:45.320 --> 0:16:49.080 to a lot of small to medium listed companies. What 0:16:49.120 --> 0:16:51.880 do you define as small to medium, Like we've heard 0:16:51.920 --> 0:16:55.400 a lot of the big companies or the big industries, like, yeah, 0:16:55.440 --> 0:16:56.240 how do you define that? 0:16:56.720 --> 0:17:01.040 Yes, So there's probably two ways to look at it. Firstly, 0:17:01.160 --> 0:17:04.200 is just market cap, so the size of the business 0:17:04.200 --> 0:17:08.920 itself and small we've just given our given our size 0:17:09.520 --> 0:17:12.440 at the moment, we really do need to be mindful 0:17:12.440 --> 0:17:15.320 of liquidity risk, so we kind of say from the 0:17:15.359 --> 0:17:18.960 small end of two hundred million market cap all the 0:17:18.960 --> 0:17:22.680 way up to say fifteen billion for a mid size business. 0:17:22.680 --> 0:17:25.920 And you know, we deliberately try to keep our vestable 0:17:26.000 --> 0:17:28.720 universe as broad as we can and as deep as possible. 0:17:29.280 --> 0:17:32.840 We don't want to limit ourselves within that. So that's 0:17:32.880 --> 0:17:35.640 the first kind of categorization. It's by market cap, it's 0:17:35.640 --> 0:17:38.840 by size. The second way to look at it, which 0:17:38.960 --> 0:17:43.840 is which is properly industry practice, is more is around 0:17:43.880 --> 0:17:49.280 the indices that they're in. So we focus on the 0:17:49.320 --> 0:17:54.600 small ordinaries for small caps, which is anything from if 0:17:54.640 --> 0:17:58.800 I think about size of companies stopping UMBER one hundred 0:17:58.840 --> 0:18:01.920 and one, so X one hundred all the way down 0:18:01.960 --> 0:18:05.960 to the three hundred mark. And then for midcaps, we 0:18:06.000 --> 0:18:09.560 look at everything outside of the X fifty, so the 0:18:09.600 --> 0:18:13.840 top fifty names we tend to classify as large cap. 0:18:14.920 --> 0:18:17.600 Is the way that you consider those different to how 0:18:17.600 --> 0:18:21.680 you would consider some of the larger companies, like how 0:18:21.720 --> 0:18:22.520 you evaluate them. 0:18:22.760 --> 0:18:23.320 Good question. 0:18:23.480 --> 0:18:23.840 I think. 0:18:24.640 --> 0:18:27.560 Look, the approach to investing and what we call our 0:18:27.560 --> 0:18:32.840 guess our investment process is very consistent regardless of the 0:18:32.880 --> 0:18:36.679 size of the company. So the characteristics that we're looking 0:18:36.720 --> 0:18:41.000 for in the businesses, which again we could probably to 0:18:41.000 --> 0:18:42.959 a whole nother podcast on that because it's kind of 0:18:44.160 --> 0:18:46.679 obviously live and breathe and love it, so but the 0:18:46.760 --> 0:18:49.919 characteristics themselves and the kind of questions that we're trying 0:18:49.960 --> 0:18:52.159 to solve for are consistent. 0:18:52.840 --> 0:18:55.320 The one thing I would say, though, and the reason 0:18:55.400 --> 0:18:57.280 why we have. 0:18:57.400 --> 0:19:00.879 A preference for the smaller MidCap over the large cap, 0:19:01.920 --> 0:19:04.639 is that potential for our performance is a lot greater 0:19:05.040 --> 0:19:07.000 within the smaller MidCap space. 0:19:07.880 --> 0:19:10.400 And there's a number of reasons for that. 0:19:11.400 --> 0:19:16.119 The first ones that they're much there's much less research 0:19:16.320 --> 0:19:21.680 available on them, and that allows for some more mispricing opportunities, 0:19:22.200 --> 0:19:24.919 and it's also a much less efficient part of the market. 0:19:25.800 --> 0:19:30.040 So again that potential for our performance is there. The 0:19:30.080 --> 0:19:33.400 other thing I'd say around small caps is that the 0:19:33.440 --> 0:19:38.520 growth is typically stronger. So when you think about the 0:19:38.600 --> 0:19:41.680 companies that they're typically younger companies, they're at an earlier 0:19:41.680 --> 0:19:46.520 stage of development, so that growth trajectory is stronger. And 0:19:46.560 --> 0:19:50.800 then the final piece which has probably missed a little bits, 0:19:51.480 --> 0:19:55.960 you know, merger and acquisition or i PO so initial 0:19:56.000 --> 0:20:01.400 public offerings. Within our markets, they've been a constant tailwind 0:20:01.640 --> 0:20:05.840 for smaller mid caps, and in fact, ninety five percent 0:20:06.240 --> 0:20:09.920 of merger and acquisition targets in terms of the number 0:20:09.920 --> 0:20:13.080 of deals have been in companies that have got a 0:20:13.119 --> 0:20:16.679 market cap of less than US fifty bill and the 0:20:16.680 --> 0:20:19.439 average premium that they get when they're bid for is 0:20:19.600 --> 0:20:22.399 you know, thirty to forty percent, and that's created a 0:20:22.440 --> 0:20:26.719 really strong tailwind within that part of the market. So 0:20:26.800 --> 0:20:29.440 that's the differences i'd call out between sort of the 0:20:30.800 --> 0:20:34.560 large versus smaller mid But what we're looking for in 0:20:34.560 --> 0:20:37.280 a company would be consistently applied in the. 0:20:37.280 --> 0:20:38.160 Large type as well. 0:20:38.440 --> 0:20:41.760 Some would say that the A six provides more retail 0:20:42.080 --> 0:20:45.760 or better retail opportunities than the insidets currently. What do 0:20:45.760 --> 0:20:47.240 you think about this or what do you think the 0:20:47.280 --> 0:20:48.640 main points of difference are. 0:20:50.280 --> 0:20:54.760 Yeah, I think it just comes back to the depth 0:20:54.920 --> 0:20:59.240 of opportunities. Really, there's just much more or many more 0:20:59.280 --> 0:21:03.719 stocks in Australia. There's a greater diversity of companies and 0:21:04.000 --> 0:21:08.760 industries available for us to invest in. You know, New 0:21:08.840 --> 0:21:14.399 Zealand traditionally has been quite a high yield market, dominated 0:21:14.440 --> 0:21:18.840 by infrastructure and property names, and whilst there's actually a 0:21:18.920 --> 0:21:22.720 very strong concentration in the Australian large cap part of 0:21:22.720 --> 0:21:26.240 the market. So if you think banks, you know, the 0:21:26.320 --> 0:21:29.960 big miners, a couple of supermarkets. If you strip that out, 0:21:30.000 --> 0:21:32.320 and again maybe one of the reasons we tend to 0:21:32.359 --> 0:21:36.280 focus on smaller MidCap it offers a real diversity of 0:21:36.320 --> 0:21:41.200 businesses and in fact there's some real global leaders amongst 0:21:41.240 --> 0:21:44.720 that pack as well. So I suppose if I had 0:21:44.760 --> 0:21:47.240 to just really zoom out, it would be that that 0:21:47.280 --> 0:21:52.240 there's just more stocks, greater depth of opportunities. Having said that, though, 0:21:52.320 --> 0:21:55.400 I think for the first time, well the first time 0:21:55.440 --> 0:21:59.119 since I joined PI eighteen months ago, we're seriously looking 0:21:59.200 --> 0:22:02.800 at some New Zealand investments. You know that there are 0:22:02.840 --> 0:22:07.440 companies over there with very solid fundamentals, and importantly, share 0:22:07.440 --> 0:22:11.560 prices at the moment are probably factoring in continued kind 0:22:11.600 --> 0:22:15.119 of challenges and derma and gloom that the NZ market 0:22:15.200 --> 0:22:18.760 has really muddled through and. 0:22:18.680 --> 0:22:21.280 That presents some really good buying opportunities. 0:22:21.359 --> 0:22:25.320 Right, So we're absolutely not dismissing New Zealand, and I 0:22:25.320 --> 0:22:27.840 think probably this is the time to start really kicking 0:22:27.920 --> 0:22:28.480 the tires. 0:22:28.920 --> 0:22:30.920 What kind of opportunities do you see? 0:22:31.640 --> 0:22:35.920 There's a two that we're sort of really down. We're 0:22:35.920 --> 0:22:39.040 doing quite detailed work on. One of them is actually 0:22:39.080 --> 0:22:42.800 in the logistics company. And again, what we like about 0:22:42.840 --> 0:22:46.800 this investment opportunity in particular is, yes, there's a large 0:22:47.560 --> 0:22:51.359 proportion of their earnings tied and pinned to the New 0:22:51.440 --> 0:22:54.360 Zealand economy, which we think is at an inflection point. 0:22:55.200 --> 0:22:57.800 But they've also so that's the near term sort of 0:22:57.920 --> 0:23:00.480 thesis and earnings driver. But then they've all I got 0:23:01.359 --> 0:23:05.400 optionality and upside through a US through the US side 0:23:05.400 --> 0:23:09.040 of the business. So again that's that's one. The other 0:23:09.080 --> 0:23:12.040 one is more in the property side of things. So 0:23:12.080 --> 0:23:17.480 again with interest rates being quite high in Zealand up 0:23:17.560 --> 0:23:23.560 until recently, and also you know, the valuation of a 0:23:23.600 --> 0:23:25.800 lot of these property companies have come down in a 0:23:25.840 --> 0:23:29.320 training you know, at book value or well below book value, 0:23:29.880 --> 0:23:32.240 and this particular company has got a really strong pipeline 0:23:32.240 --> 0:23:35.439 of development sort of in the age care space. So 0:23:35.520 --> 0:23:38.440 again that's just a couple of examples that we're looking 0:23:38.440 --> 0:23:43.240 at that the valuation we think underpins quite a bit of. 0:23:43.240 --> 0:23:43.880 Upside from here. 0:23:44.560 --> 0:23:47.439 Well, one company, if it springs to mind, that you 0:23:47.440 --> 0:23:51.919 wish you invested in ten years ago, and why you 0:23:51.960 --> 0:23:52.480 know what, this. 0:23:52.440 --> 0:23:55.480 One's easy for me because I also wish I invested 0:23:55.480 --> 0:23:59.680 in a PA. You know what for me, it's Promedicuse 0:24:00.359 --> 0:24:06.000 Promedicus is. It's a healthcare IT company specializing in. 0:24:06.160 --> 0:24:11.960 Radiology imaging software. And I have been I have been a. 0:24:12.040 --> 0:24:16.080 Shareholder from a professional capacity, and it's in the funds today. 0:24:16.800 --> 0:24:19.639 But the stock was a dollar ten years ago. 0:24:20.000 --> 0:24:21.760 I think it was a dollar. I'll have to check that. 0:24:21.920 --> 0:24:23.440 I think it was a dollar close to a dollar. 0:24:23.600 --> 0:24:27.000 It's one hundred and fifty today, so you know, but 0:24:27.200 --> 0:24:31.320 that that type of return, I'm not sure there are many, 0:24:31.359 --> 0:24:35.399 if any other companies. And importantly, this was not just 0:24:35.440 --> 0:24:37.800