WEBVTT - The US v NZ investing conundrum 0:00:06.000 --> 0:00:08.360 Kyota, and welcome to this episode of Sheered Lunch. Today 0:00:08.360 --> 0:00:10.120 we are posing the question on a lot of people's 0:00:10.160 --> 0:00:13.720 minds right now, why should we bother investing locally when 0:00:13.760 --> 0:00:16.120 all of the action and all the investment returns seem 0:00:16.160 --> 0:00:18.759 to be going on in the United States. I'm Dan 0:00:18.760 --> 0:00:21.240 Brounskill from Interest dot cot in ZID and I'm joined 0:00:21.239 --> 0:00:24.200 to discuss this with Chris Deliver, head of Global and 0:00:24.320 --> 0:00:27.120 multi asset Investments at Harbor Asset Management. 0:00:27.560 --> 0:00:31.280 Investing involves risk you might lose the money you start with. 0:00:31.760 --> 0:00:35.520 We recommend talking to a licensed financial advisor. We also 0:00:35.560 --> 0:00:40.360 recommend reading product disclosure documents before deciding to invest. Everything 0:00:40.360 --> 0:00:43.000 you're about to see and hear is current at the 0:00:43.000 --> 0:00:43.879 time of recording. 0:00:44.000 --> 0:00:44.959 Thank you for joining us. 0:00:45.200 --> 0:00:46.879 Thanks jan Ah. 0:00:46.920 --> 0:00:47.000 So. 0:00:47.200 --> 0:00:49.440 I guess looking at the United States stock market, it 0:00:49.840 --> 0:00:51.839 has gone up a lot, while our market in the 0:00:51.840 --> 0:00:54.000 Australian market and lots of other markets around the world 0:00:54.120 --> 0:00:57.520 have not gone up anything like so much. Is this sustainable? 0:00:57.560 --> 0:00:58.960 What's going on? Help us understand? 0:01:00.360 --> 0:01:03.440 So a question we get often is why is a 0:01:03.560 --> 0:01:05.840 US market done so well? And why he has New 0:01:05.920 --> 0:01:10.039 Zealand been left behind? And it's probably going to sound 0:01:10.080 --> 0:01:14.600 quite predictable, but the answer is rarely around technology. So 0:01:15.040 --> 0:01:18.880 we've seen a lot of capital expenditure in AI that 0:01:18.959 --> 0:01:22.480 has driven a really large part of the gain for 0:01:22.560 --> 0:01:26.919 the US stock market. In addition to that, there's also 0:01:27.280 --> 0:01:30.560 been really strong economic growth in the US. If you 0:01:30.680 --> 0:01:33.440 look back to the end of twenty twenty two, the 0:01:33.520 --> 0:01:36.200 consensus was saying that we're going to get a recession 0:01:36.240 --> 0:01:40.360 in the US in twenty twenty three. Just a few 0:01:40.440 --> 0:01:43.800 days ago, there was a fund manager survey released and 0:01:44.040 --> 0:01:46.640 not many people think there is going to be a recession. 0:01:46.680 --> 0:01:50.640 So there's been a big change in the consensus over 0:01:50.680 --> 0:01:54.720 the last eighteen months and that has really helped drive 0:01:54.920 --> 0:01:55.880 sheer markets forward. 0:01:56.200 --> 0:01:57.800 When you look around the world right now, I mean 0:01:57.800 --> 0:02:01.160 there's a lot of negative sentiment economics New Zealand particularly. 0:02:01.560 --> 0:02:03.840 Do you think the US stock market is doing unusually 0:02:03.840 --> 0:02:08.600 well or other markets doing unusually badly? Talk to me 0:02:08.639 --> 0:02:08.960 about that. 0:02:09.639 --> 0:02:13.000 Yeah. So, although the US is the market that's had 0:02:13.080 --> 0:02:16.400 most of the headlines so far this year, it's actually 0:02:16.480 --> 0:02:20.959 the second largest country in the world that's actually done better. 0:02:21.800 --> 0:02:24.800 So the second largest country in the index is actually Japan. 0:02:25.080 --> 0:02:29.600 But actually so far this year, Japan has actually delivered 0:02:29.600 --> 0:02:34.960 a higher return than the US stock market. But you 0:02:35.040 --> 0:02:37.520 hear a lot about the US because it's the way 0:02:38.000 --> 0:02:41.720 the US stock market has generated its performance that has 0:02:41.760 --> 0:02:45.919 been quite odd. So up until last Friday, a third 0:02:45.919 --> 0:02:49.400 of the returns were driven by one stock, and we 0:02:49.440 --> 0:02:54.000 all know the name. It's in Video, probably the ultimate 0:02:54.160 --> 0:03:01.639 AI play. Given every dollar that gets spent towards some 0:03:01.720 --> 0:03:05.880 of it will find its way to buying in video GPUs. 0:03:07.000 --> 0:03:10.560 This is because in Vidio not itself an AI company, 0:03:10.600 --> 0:03:12.280 but makes the chips that power AI. 0:03:12.760 --> 0:03:18.120 Yeah, they're the infrastructure play I suppose with regards to AI. 0:03:18.280 --> 0:03:23.120 So they're benefiting from the capital expenditure that lots of 0:03:23.360 --> 0:03:27.720 large companies in the US are doing right now. I 0:03:27.760 --> 0:03:30.240 know that Mark Zuckerberg has said this in the past, 0:03:30.840 --> 0:03:35.640 is they're investing in AI partly to protect their current 0:03:35.760 --> 0:03:40.240 revenues and the money they're spending today. They don't expect 0:03:40.280 --> 0:03:45.280 to see returns on that capital investment for at least 0:03:45.840 --> 0:03:48.839 a few years from today. So there's been a lot 0:03:48.880 --> 0:03:52.920 of investment in as I said, capital expenditure, which is 0:03:52.960 --> 0:03:56.880 investing in supply. We've got to wait and see the 0:03:56.920 --> 0:04:00.600 next few years whether the demand is as good as 0:04:00.600 --> 0:04:03.240 everyone expects, and I think that is going to be 0:04:03.240 --> 0:04:07.280 the interesting thing for AI. It's over the next few 0:04:07.360 --> 0:04:10.840 years when we find out whether those use cases which 0:04:10.840 --> 0:04:15.040 seem promising are actually going to translate into real revenues 0:04:15.360 --> 0:04:19.920 and real margins for businesses. But certainly AI it's been 0:04:19.920 --> 0:04:23.039 a real story. It has created real earnings. I think 0:04:23.040 --> 0:04:26.839 that's important. So in Vidia's share price, yes, it's gone 0:04:26.880 --> 0:04:31.400 through the roof, but their earnings have gone up multiples 0:04:31.560 --> 0:04:35.839 of where they were expected to be. So consensus earnings 0:04:35.839 --> 0:04:38.359 were way off a couple of years ago, and that 0:04:38.440 --> 0:04:42.120 has since been upgraded. But the key thing we've got 0:04:42.120 --> 0:04:45.760 to figure out is are these earnings going to be 0:04:45.839 --> 0:04:50.279 sustainable for the future. And no one knows, not even 0:04:50.400 --> 0:04:54.839 the leaders of these really large companies are able to 0:04:54.880 --> 0:04:59.480 tell you exactly the use cases and exactly what the 0:04:59.560 --> 0:05:00.760 demand be in the future. 0:05:00.920 --> 0:05:02.919 A few weeks ago, we did an episode on the 0:05:02.920 --> 0:05:05.880 weight loss drugs. That's another big trend like AI. How 0:05:05.920 --> 0:05:08.400 much is that affecting stock market returns in the US 0:05:08.400 --> 0:05:09.000 and elsewhere. 0:05:09.480 --> 0:05:12.200 Yes, it has been a driver. The key plays here 0:05:12.240 --> 0:05:16.000 have been Eli, Lilly and Novo Nordis as a theme 0:05:16.200 --> 0:05:20.520 hasn't contributed anywhere near as much to return. So when 0:05:20.560 --> 0:05:24.160 I look at Novo Nordisk and Eli Lilly together, they've 0:05:24.160 --> 0:05:29.200 contributed about five percent of the return for the MSCI 0:05:29.320 --> 0:05:33.479 World Index this year. That's pretty small when you consider 0:05:33.600 --> 0:05:39.479 that Nvidia has alone generated five to six times the 0:05:39.520 --> 0:05:42.640 contribution to return. But where the weight loss drugs are 0:05:42.680 --> 0:05:45.800 really interesting is the impact that they're having on other companies, 0:05:46.000 --> 0:05:49.920 and we're actually seeing it this side of the world. 0:05:50.080 --> 0:05:54.760 So recently ResMed, for example, sold off because it was 0:05:54.839 --> 0:05:58.040 deemed that these weight loss drugs are not just helping 0:05:58.120 --> 0:06:01.520 people lose weight, it's how helping them sleep better and 0:06:01.560 --> 0:06:06.000 treat their sleep at near as well. So the interesting 0:06:06.040 --> 0:06:09.800 part we see on that is yes, the first order 0:06:09.800 --> 0:06:14.280 effects on those companies, but the impact has actually spanned 0:06:14.760 --> 0:06:18.839 far greater to companies listed locally here like Fisher and 0:06:18.839 --> 0:06:22.200 pikeal Healthcare. I'd include in that as well, all the 0:06:22.200 --> 0:06:24.640 way through to airlines because we're all going to be 0:06:24.640 --> 0:06:27.680 slimmer and that's going to mean less jet fuel. So 0:06:28.200 --> 0:06:29.200 I look forward to that. 0:06:29.279 --> 0:06:30.520 I can't wait for them to see if they can 0:06:30.560 --> 0:06:31.960 make the seeds even narrower. 0:06:32.160 --> 0:06:34.360 Yeah, so how. 0:06:34.320 --> 0:06:36.200 Much of if you look at how the US market 0:06:36.240 --> 0:06:37.880 has gone up quite a lot more than New Zealand 0:06:37.920 --> 0:06:39.960 or Australian market. How much of that is due to 0:06:40.160 --> 0:06:42.720 AI or even in video alone. 0:06:42.960 --> 0:06:46.039 So I think there's two key things to think about 0:06:46.080 --> 0:06:50.000 with share markets. One is the sectoral composition. So you 0:06:50.040 --> 0:06:53.280 know how much in tech, how much in consumer discretionary? 0:06:53.520 --> 0:06:58.080 The Amazon is classified as a consumer discretionary company. In 0:06:58.120 --> 0:07:02.280 most people's minds, it's it's probably tech because a lot 0:07:02.279 --> 0:07:05.600 of their earnings come from Amazon Web services as opposed 0:07:05.600 --> 0:07:09.119 to the marketplace. But that's how it's classified. So tech 0:07:09.200 --> 0:07:15.560 kind of permeates every sector. But notwithstanding that, you look 0:07:15.600 --> 0:07:18.000 at say the US compared to the New Zealand and 0:07:18.000 --> 0:07:21.280 Australian market, and you've just got to look through the 0:07:21.280 --> 0:07:26.000 top ten to see that it's a radically different beast 0:07:26.880 --> 0:07:30.160 and that has been a massive headwind for our market. 0:07:30.600 --> 0:07:32.680 But that brings me on to the second point. So 0:07:32.800 --> 0:07:37.080 one is sectoral composition has something to do with it. 0:07:37.480 --> 0:07:41.240 The second part is the economy. Now there's that old 0:07:41.280 --> 0:07:45.040 saying the stock market is the economy or is not 0:07:45.160 --> 0:07:48.040 the economy in New Zealand's case, so people in the 0:07:48.160 --> 0:07:51.240 US tend to say, oh, the stock market is the 0:07:51.280 --> 0:07:56.040 economy because there are a lot of listed companies over 0:07:56.080 --> 0:08:00.120 there which are a world avest fight across the US 0:08:00.480 --> 0:08:05.280 and capture America Inc. Quite well. They capture the innovation 0:08:06.280 --> 0:08:08.520 and a lot of the things driving gd growth and 0:08:08.720 --> 0:08:12.640 GDP growth in the US. In Australia it's quite similar, right. 0:08:12.680 --> 0:08:15.120 You know, we've got big banks over there, We've got 0:08:16.200 --> 0:08:19.440 we know that commodities is a large part of their economy. 0:08:19.760 --> 0:08:22.320 When you look through their share markets you see that 0:08:22.440 --> 0:08:25.480 quite well represented. Now that brings me to the New 0:08:25.600 --> 0:08:30.480 Zealand economy. Look through the top ten names in our 0:08:30.720 --> 0:08:36.200 market and it isn't the economy at all. You know, 0:08:36.240 --> 0:08:39.640 for example, Fisher and Pikele Healthcare great key we name 0:08:39.840 --> 0:08:42.439 given it that came out of Fisher and Pikele appliances, 0:08:43.040 --> 0:08:44.960 which I'd say most people have got one of them 0:08:44.960 --> 0:08:51.720 in their kitchen. But it's revenue really is generated all offshore. 0:08:51.760 --> 0:08:53.800 So that's not a New Zealand Inc. Investment. 0:08:53.960 --> 0:08:56.320 The New Zealand economy slows Fisher and pike wll barely. 0:08:56.160 --> 0:09:00.559 Notices correct, But where it does have an impact is 0:09:00.600 --> 0:09:04.760 around sentiment towards a market. So even though our stock 0:09:04.840 --> 0:09:08.960 market isn't our economy. If there's bad headlines around New 0:09:09.080 --> 0:09:13.600 Zealand and our economic growth and we have been slowing 0:09:14.920 --> 0:09:20.640 quicker than particularly the US, it is another reason for 0:09:20.679 --> 0:09:23.400 an investor to not come into our market. And we 0:09:23.559 --> 0:09:27.680 have noticed over the past few years that we've had 0:09:27.800 --> 0:09:31.240 less interest from Australian investors in our market, and that's 0:09:31.320 --> 0:09:35.120 captured by statistics, and part of that is that the 0:09:35.160 --> 0:09:37.680 banks have been doing quite well. Right, So when you 0:09:37.679 --> 0:09:40.160 look at the Australian Index, if you're an Australian fund 0:09:40.240 --> 0:09:44.120 manager and you don't like the banks, it's really inconvenient 0:09:44.480 --> 0:09:47.959 because there's such a large part of the index. So 0:09:48.800 --> 0:09:53.040 what a lot of Australian managers were doing through to 0:09:53.120 --> 0:09:56.800 kind of twenty twenty was building some reasonably large positions 0:09:56.840 --> 0:10:00.600 in New Zealand companies. But as it happened, you know, 0:10:01.040 --> 0:10:06.800 the banks' actually done extremely well over the past few years, 0:10:07.000 --> 0:10:10.360 so they haven't had as much reason to come into 0:10:10.440 --> 0:10:15.040 New Zealand. In New Zealand since our market has underperformed 0:10:15.120 --> 0:10:18.880 so substantially, there's no fomo there either. You know, they're 0:10:18.920 --> 0:10:21.000 not missing out on anything. They look at the market 0:10:21.040 --> 0:10:23.560 and go Actually it was greater was in in New Zealand, 0:10:23.600 --> 0:10:27.440 so the Australian market has done better. So the economy 0:10:27.440 --> 0:10:33.560 does matter here, but less so than the US and Australia. 0:10:32.960 --> 0:10:34.679 Because if you look, there's a couple of companies in 0:10:34.720 --> 0:10:37.480 the top five Meridian Energy, Spark New Zealand and New 0:10:37.559 --> 0:10:40.640 Zealands INDECKS. Those are ones that are probably tied to 0:10:40.679 --> 0:10:43.320 economic performance to a certain degree, or at least economic growth. 0:10:43.640 --> 0:10:46.439 But as you say, Fisher and Pical Healthcare, Auckland Airport 0:10:46.520 --> 0:10:49.720 not so much in fratil global investment business, so not 0:10:49.760 --> 0:10:51.920 actually that tightly and that makes up forty three percent 0:10:51.920 --> 0:10:54.400 of the index those five companies, so not super tightly 0:10:54.440 --> 0:10:56.760 tied to New Zealand economy. But you say that the 0:10:56.800 --> 0:10:59.640 downturn is turning people off anyway, people still not. 0:10:59.800 --> 0:11:02.920 Yeah, that's right. And I think the other thing we've 0:11:02.960 --> 0:11:06.480 got to take into account is a lot of our 0:11:06.480 --> 0:11:11.920 companies were quite impacted by COVID, so you know, quite simply, 0:11:12.400 --> 0:11:15.000 and this doesn't really hold over the short term, but 0:11:15.120 --> 0:11:19.360 over the long term. Share markets tend to track earnings, 0:11:19.480 --> 0:11:22.280 so if you've got earnings growth, that is a good 0:11:22.320 --> 0:11:25.520 reason for your share market to go up, right, And 0:11:25.720 --> 0:11:27.760 we just haven't had the earnings growth. In New Zealand, 0:11:28.120 --> 0:11:32.439 we've had a lot of our larger companies impacted by 0:11:32.559 --> 0:11:37.320 COVID and they've been finding their new equilibrium earnings level. 0:11:37.440 --> 0:11:42.080 So look at for example, Fish and Pipel Healthcare. COVID 0:11:42.400 --> 0:11:49.280 led to a lot of demand for their consumables, so 0:11:49.320 --> 0:11:54.040 they had their earnings increase quite substantially. But as the 0:11:54.080 --> 0:11:56.920 world normalize, what our analysts have been trying to figure 0:11:56.960 --> 0:12:02.280 out is what is what is the new equilibrium equilibrium? 0:12:03.120 --> 0:12:05.800 Why do I say these long words earnings for Fisher 0:12:05.840 --> 0:12:07.959 and Parker Healthcare, you can say a rarely similar thing 0:12:07.960 --> 0:12:13.120 for a two milk the dig or suitcase traveler just 0:12:13.200 --> 0:12:17.960 completely dried up during COVID, So after COVID you're wondering 0:12:18.840 --> 0:12:23.720 what sort of businesses business emerges are from this disruption. 0:12:24.240 --> 0:12:26.480 Main Freight as well. If you look at Main Freight's 0:12:26.520 --> 0:12:31.679 earnings chart, massive COVID earnings and now to us it 0:12:31.720 --> 0:12:36.760 looks like it's got back to it's pre COVID earnings growth. 0:12:37.200 --> 0:12:40.160 So you know you had that massive, massive increase back down. 0:12:40.720 --> 0:12:44.160 These are big companies, they haven't impact on the index 0:12:44.520 --> 0:12:47.240 and looks something I get asked often, and this has 0:12:47.280 --> 0:12:50.400 been a recurring question over the past few years is 0:12:50.440 --> 0:12:54.080 when is New Zealand going to catch up? And I 0:12:54.120 --> 0:12:57.679 still can't answer it, not much used to anyone, But 0:12:58.200 --> 0:13:00.600 what I will say is it does feel like we're 0:13:00.600 --> 0:13:05.920 getting back to our baselime level of earnings. So we've 0:13:05.920 --> 0:13:09.920 been quite bearish on New Zealand relative to global assets 0:13:10.679 --> 0:13:15.160 over the past twenty four months especially. Our next move 0:13:15.880 --> 0:13:18.360 might actually be to close some of that underweight to 0:13:18.400 --> 0:13:21.240 New Zealand. And there's two reasons for that. One is 0:13:21.240 --> 0:13:26.360 that valuations relative to global share markets are actually a 0:13:26.360 --> 0:13:29.280 lot more attractive today than they were a couple of 0:13:29.360 --> 0:13:32.560 years ago. And secondly, we feel like we've got a 0:13:32.559 --> 0:13:35.679 lot more faith in what the earnings picture is are 0:13:35.800 --> 0:13:36.520 going forward. 0:13:36.760 --> 0:13:40.040 Yeah, because I think it's basically if you look pre 0:13:40.160 --> 0:13:42.560 COVID to today, the index is almost flat. I mean, 0:13:42.559 --> 0:13:44.040 depending on the day, it might be up one percent 0:13:44.120 --> 0:13:47.160 or two percent. You think, surely that can't last. 0:13:48.160 --> 0:13:51.600 Yeah, I mean, but I always tell people that, you know, 0:13:52.400 --> 0:13:56.680 be careful with time frames because you know that's true. 0:13:56.760 --> 0:14:01.320 So I think to the end of twenty nineteen to today, 0:14:01.720 --> 0:14:04.080 we're pretty much flat and the US market's up like 0:14:04.200 --> 0:14:08.400 seventy percent, So it's been a massive drain and you 0:14:08.440 --> 0:14:09.880 look at it and go, what am I doing here? 0:14:10.600 --> 0:14:16.160 Why am I being? And I think there's good reasons 0:14:16.200 --> 0:14:22.320 though too, and just on the performance basis, So the 0:14:22.400 --> 0:14:26.640 two decades to twenty twenty, we outperformed the US market 0:14:26.720 --> 0:14:31.520 quite substantially. So from twenty ten to twenty twenty, the 0:14:31.600 --> 0:14:35.480 indices were pretty much on par, but the US from 0:14:35.640 --> 0:14:40.600 two thousand to twenty and ten was flat because we 0:14:40.760 --> 0:14:45.560 had two crises, one to do with tech, the other 0:14:45.880 --> 0:14:49.240 was obviously the global financial crisis. And that's a good 0:14:49.240 --> 0:14:53.160 thing about New Zealand. We just our companies weren't impacted 0:14:53.200 --> 0:14:57.400 as much. We hummed away and actually we delivered the 0:14:57.480 --> 0:15:00.280 level of outperformance which is similar to what the US 0:15:00.360 --> 0:15:04.680 has delivered relative to US over over the past four 0:15:04.760 --> 0:15:06.160 years that we've just talked about. 0:15:06.280 --> 0:15:08.240 So yeah, so that's why we talk about this whole 0:15:08.280 --> 0:15:09.960 You've got to have a long term horizon and you've 0:15:09.960 --> 0:15:11.560 got to be prepared for losses because I mean, some 0:15:11.600 --> 0:15:13.920 of us are you know, younger investors who definitely haven't 0:15:13.920 --> 0:15:16.200 been around for any ten year cycle a littleone multiple. 0:15:16.480 --> 0:15:18.560 But it's interesting to hear that like this idea because 0:15:18.560 --> 0:15:20.840 to me, three years of flat gains feels like my 0:15:20.920 --> 0:15:23.440 investing lifetime. It's interesting to hear that there was a 0:15:23.440 --> 0:15:25.280 time where there was ten years in the States. 0:15:25.360 --> 0:15:29.040 But there can be some very very long winters. So 0:15:29.120 --> 0:15:33.080 we're talking about Japan this year, right, because the Japanese 0:15:33.120 --> 0:15:35.480 stock market has done really well. The problem with the 0:15:35.560 --> 0:15:38.560 Japanese sheer market all time high is the high that 0:15:38.600 --> 0:15:44.120 they hit this year was a relative to nineteen eighty nine. Okay, 0:15:44.160 --> 0:15:48.640 all right, so it's thirty five years in other words, 0:15:48.680 --> 0:15:51.880 of a zero nominal return. You know, we're not even 0:15:51.920 --> 0:15:56.680 talking about talking about kind of really justable. Look, I'm 0:15:56.680 --> 0:15:59.720 not going to draw that analogue to today in the US. 0:16:00.120 --> 0:16:05.400 The valuations in Japan were just just absolutely unheard of 0:16:05.880 --> 0:16:09.680 and they haven't really been tested since on a price 0:16:09.720 --> 0:16:12.480 to earnings multiple basis. The only thing close was the 0:16:12.800 --> 0:16:15.960 was the tech level in the US. But it's just 0:16:16.080 --> 0:16:21.280 a really good example of conventional wisdom back then was 0:16:21.360 --> 0:16:24.920 you know, Japan was the future and it didn't transpire. 0:16:25.520 --> 0:16:28.600 Interesting with Japan today it does look like and a 0:16:28.680 --> 0:16:32.120 key reason their market is rarely is one there's reforms 0:16:32.280 --> 0:16:38.480 around shareholder returns. So you know, Japanese companies were quite 0:16:38.520 --> 0:16:42.720 benevolent and you know, really took great care of their employees, 0:16:43.200 --> 0:16:47.360 which is a good thing. But would enter we do 0:16:47.480 --> 0:16:51.840 expenditure with the expectations of really low returns on capital. 0:16:52.160 --> 0:16:55.160 So if Japan is being a little bit less benevolent, 0:16:55.880 --> 0:16:58.480 is the reason the US economy and therefore it's share 0:16:58.520 --> 0:17:01.840 market to a certain degree, is our performing because the 0:17:01.960 --> 0:17:06.080 US is not so malevolent. Perhaps they're better capitalists, perhaps 0:17:06.119 --> 0:17:08.120 more malevolent. You might even say. 0:17:09.720 --> 0:17:12.840 There is some truth in that. If you look at 0:17:13.040 --> 0:17:17.840 the share of a company's profit that goes to labor 0:17:18.400 --> 0:17:21.800 versus what goes to the shareholders, and that is over 0:17:21.800 --> 0:17:25.560 the past couple of decades in the US fallen, so 0:17:25.920 --> 0:17:28.320 so a bigger share of the gains have gone to 0:17:28.359 --> 0:17:33.800 capital over labor. More nearer term. What's quite interesting is 0:17:33.840 --> 0:17:37.640 that some of the larger companies in the US, you'll 0:17:37.680 --> 0:17:42.360 probably say they weren't great capitalists. And I'm talking specifically 0:17:42.400 --> 0:17:46.719 about some of the large tech companies. So you're going 0:17:46.760 --> 0:17:54.000 into the say two, they had a decade of just 0:17:54.160 --> 0:17:57.840 rarely really check money. Easy to get around a way 0:17:58.840 --> 0:18:03.360 with regards to raising capital, and money was cheap, right, 0:18:03.400 --> 0:18:06.560 you know, we had intrastructs pretty much zero, and that 0:18:06.720 --> 0:18:09.359 meant that actually there was a lot of fat in 0:18:09.400 --> 0:18:15.159 those businesses, right, you know, think of Meta, think of 0:18:15.200 --> 0:18:17.880 why it's called Meta because they were chucking so much 0:18:17.920 --> 0:18:22.520 money into the metaverse and it wasn't exactly delivering any 0:18:22.680 --> 0:18:26.240 shareholder returns. So actually part of the gains that you've 0:18:26.240 --> 0:18:29.919 seen in the US share market, I think, particularly in 0:18:29.920 --> 0:18:34.400 twenty twenty three in twenty twenty four, has actually them 0:18:34.440 --> 0:18:38.640 been better capitalists. So I will use Meta as an 0:18:38.680 --> 0:18:46.360 example again because they managed to gain deliver strong profits 0:18:47.080 --> 0:18:48.720 while reducing their workforce. 0:18:49.440 --> 0:18:51.879 So I feel like we've highlighted two main things that 0:18:51.960 --> 0:18:55.359 explain the difference between the New Zealand Australian markets and 0:18:55.440 --> 0:18:59.159 the Japanese and US markets, which is largely tech exposure 0:18:59.280 --> 0:19:04.000 AI better economy performance. How would you split those two things? 0:19:04.040 --> 0:19:04.240 You know? 0:19:04.320 --> 0:19:07.159 The you know, is it is it fifty to fifty 0:19:07.240 --> 0:19:09.480 or is it more tech driving the returns or is 0:19:09.520 --> 0:19:11.800 it more the better economy? Do you have an idea 0:19:11.840 --> 0:19:14.280 of which of those two things are having a bigger impact. 0:19:14.359 --> 0:19:18.560 I guess it's definitely the composition of an index which 0:19:18.640 --> 0:19:21.800 has the line's share of the impact in my view. 0:19:22.320 --> 0:19:24.679 And the reason I say that is because we do 0:19:24.760 --> 0:19:29.199 a lot of analysis where we adjust share markets to 0:19:29.240 --> 0:19:33.080 have the same composition interest as the US and see 0:19:33.080 --> 0:19:36.040 how much of returns it that actually explains. So it 0:19:36.160 --> 0:19:40.880 does explain a really large portion. So for example, if 0:19:40.920 --> 0:19:44.920 Europe had more in information technology, just the same information 0:19:45.040 --> 0:19:48.800 technology companies they have today, their share market return would 0:19:48.800 --> 0:19:53.200 be higher because their information's technology sector is actually done 0:19:53.280 --> 0:19:56.000 quite well, but they just haven't had as much of 0:19:56.040 --> 0:19:59.720 it as the US. So that definitely is the lines 0:19:59.760 --> 0:20:03.440 share and so some of it sector. Some of it 0:20:03.480 --> 0:20:06.679 comes down to style as well. So you know, growth 0:20:06.720 --> 0:20:10.679 investing has done quite well for a number of years, 0:20:12.040 --> 0:20:15.040 particularly though kind of over the past twelve to eighteen 0:20:15.119 --> 0:20:17.359 months now when you look at a lot of the 0:20:17.359 --> 0:20:21.200 companies within New Zealand, for example, you wouldn't call them 0:20:21.200 --> 0:20:22.159 traditional growth. 0:20:22.680 --> 0:20:26.760 So, Chris, when retail investors are thinking about their own 0:20:26.800 --> 0:20:30.439 personal finance, what approach could they take to factor in 0:20:30.480 --> 0:20:32.840 some of these things? What things should they be thinking about? 0:20:32.880 --> 0:20:35.879 I guess yeah, So I think a key one is 0:20:35.960 --> 0:20:39.520 just making sure that you haven't had risk creep in 0:20:39.560 --> 0:20:44.119 your portfolio. So lots of things have gone up since 0:20:44.160 --> 0:20:48.200 you've probably bought them, and what that means is that 0:20:48.320 --> 0:20:52.320 actually the portfolio that you bought might be quite different 0:20:52.480 --> 0:20:55.479 than the portfolio that you have today. For example, if 0:20:55.520 --> 0:20:59.480 you you've gotten video in your portfolio, it has it 0:20:59.560 --> 0:21:02.680 a guest say, it's probably a bigger weight today than 0:21:02.720 --> 0:21:06.840 it was when you originally purchased it. So have a 0:21:06.840 --> 0:21:09.840 look at your strategy and make sure that it reflects 0:21:09.880 --> 0:21:15.480 your risk profile today as opposed to your risk profile 0:21:15.600 --> 0:21:19.320 that markets have just given to you. That would be 0:21:19.400 --> 0:21:22.720 my key tip. The other tip is something that people 0:21:22.800 --> 0:21:28.480 ignore in portfolios is the impact of currency. So a 0:21:28.520 --> 0:21:31.760 lot of people might just be invested in the US. 0:21:32.480 --> 0:21:36.760 Is that hedged i e. Have you invested in a 0:21:36.840 --> 0:21:40.760 product that hedges out the currency risks? So if the 0:21:40.800 --> 0:21:44.719 New Zealand dollar depreciates or appreciates, it won't impact your 0:21:44.760 --> 0:21:49.040 return or are you an unhedged investor? A lot of 0:21:49.080 --> 0:21:53.040 people given especially if they're buying shares directly, they would 0:21:53.080 --> 0:21:54.960 have a lot of unhedged stocks. 0:21:55.320 --> 0:21:57.600 So if you think about the markets we've talked about today, 0:21:57.720 --> 0:22:00.440 New Zealand maybe doing the worst of the Setustralia a 0:22:00.440 --> 0:22:04.359 little bit better, US and Japan doing really great. What 0:22:04.400 --> 0:22:07.400 should people be doing? But you know, is it good 0:22:07.440 --> 0:22:09.359 to be spread across all those markets, or do you 0:22:09.400 --> 0:22:11.240 want to focus on the ones that have done the worst? 0:22:11.960 --> 0:22:13.240 How should people approach that? 0:22:14.119 --> 0:22:18.160 Yes, so I definitely wouldn't although it's tempting to try 0:22:18.200 --> 0:22:23.840 and catch the bottom and catching falling knives is really 0:22:23.880 --> 0:22:28.040 really difficult and as you could imagine, pretty fraught. But 0:22:28.080 --> 0:22:31.520 I think, as I demonstrated earlier, there are different time 0:22:31.600 --> 0:22:37.800 periods where different markets outperform and underperform one another. And 0:22:38.160 --> 0:22:43.040 I think the very I get a lot of information 0:22:43.720 --> 0:22:46.040 by the questions that people ask me, And a really 0:22:46.080 --> 0:22:47.919 common question is why do I even need to be 0:22:47.960 --> 0:22:51.119 investing in New Zealand. Typically when you're asking that question, 0:22:51.680 --> 0:22:55.879 it's because of performance, and typically that is the time 0:22:56.000 --> 0:23:00.000 where actually maybe you should consider investing in New Zealand. 0:23:00.440 --> 0:23:04.960 As I said, there's recent decades where the New Zealand 0:23:05.000 --> 0:23:08.639 market has done really well a relative to the US 0:23:08.680 --> 0:23:13.840 market and Australia in particular. So yeah, I think in 0:23:13.960 --> 0:23:17.240 MIX and H market there are different drivers for each 0:23:18.040 --> 0:23:23.240 And you know, today so much of the world index 0:23:23.600 --> 0:23:26.560 is invested in the US, so you're getting really good 0:23:26.600 --> 0:23:28.000 exposure to the US market. 0:23:28.040 --> 0:23:31.480 Anyway, Harve has just done some interesting research looking at 0:23:31.680 --> 0:23:35.119 basically portfolio allocation, and it seemed like from my reading 0:23:35.119 --> 0:23:38.879 of the note, that you're essentially arguing that institutional investors 0:23:38.920 --> 0:23:41.919 like you should not just be investing in different markets, 0:23:41.920 --> 0:23:44.840 but actually investing in different kinds of assets, and that 0:23:45.040 --> 0:23:49.640 the stock market might have law returns relative to potentially bonds, 0:23:49.960 --> 0:23:52.399 and that you should actually invest in a slightly broader 0:23:52.520 --> 0:23:54.840 range of assets. Can you talk just briefly and in 0:23:54.920 --> 0:23:57.680 simple terms about what that research shows and why you're 0:23:57.680 --> 0:24:00.280 thinking about maybe changing up the way you look at 0:24:00.320 --> 0:24:01.160 your portfolios. 0:24:01.400 --> 0:24:07.080 Yes. So, there aren't many relationships in finance that actually 0:24:07.119 --> 0:24:10.719 stand the test of time, but one that does is 0:24:10.920 --> 0:24:14.440 your starting valuation of when you invest in a market 0:24:15.200 --> 0:24:17.800 and the return that you get over the next decade. 0:24:18.160 --> 0:24:21.119 Because say you're buying a company with a price to 0:24:21.200 --> 0:24:25.119 earnings ratio of twenty times. Essentially, what that is telling 0:24:25.160 --> 0:24:28.040