WEBVTT - The Great Rotation: Why to Buy British with Ben Whitmore 0:00:02.520 --> 0:00:15.680 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:16.800 --> 0:00:18.680 Welcome to Maren Took to Money, the podcast in which 0:00:18.680 --> 0:00:21.320 people who know the markets explain the markets. I'm Maren 0:00:21.400 --> 0:00:23.919 sumsep Web. This week I am speaking with Ben Whitmore 0:00:23.920 --> 0:00:28.080 about his new value equity fund boutique, Brickwood Asset Management. 0:00:28.120 --> 0:00:30.680 Ben is one of the UK's most renowned value investors. 0:00:30.880 --> 0:00:33.360 Before he launched Brickwood, he was a star at Jupiter 0:00:33.440 --> 0:00:37.080 Asset Management, where he handled around a fifth of Jupiter's assets. 0:00:37.320 --> 0:00:39.639 In fact, news of his exits sent the shares down 0:00:39.680 --> 0:00:42.720 nearly fifteen percent in a single day in January, so 0:00:43.120 --> 0:00:46.080 needless to say, Ben's investment strategy has really worth paying 0:00:46.080 --> 0:00:48.680 attention to, and in our conversation we talk about the 0:00:48.680 --> 0:00:50.760 funds he has launched, why he launched you in the 0:00:50.760 --> 0:00:53.960 first place, and what he expects to happen next. Ben, 0:00:53.960 --> 0:00:55.680 thank you so much for coming in today. We hugely 0:00:55.680 --> 0:00:57.800 appreciate it's nice to have you with us. Thank you 0:00:57.840 --> 0:01:00.520 very much for having me right now. We have to 0:01:00.560 --> 0:01:03.280 start with why you've done this in the first place. 0:01:03.320 --> 0:01:06.119 Why would you leave a giant, comfortable company where you're 0:01:06.160 --> 0:01:09.720 running billions and billions of pounds Presumably making an excellent living, 0:01:10.040 --> 0:01:12.960 everything going very well, great reputation. Why would you leave 0:01:13.280 --> 0:01:15.360 all that to set up on your own? 0:01:16.080 --> 0:01:18.240 Oh? Okay, I think it's a great question. It's not 0:01:18.520 --> 0:01:22.960 just me, the four of us, and we just felt 0:01:23.040 --> 0:01:27.760 that there was an opportunity to create a value boutique 0:01:28.160 --> 0:01:31.080 really well known for value investing, and that we by 0:01:31.160 --> 0:01:35.600 concentrating on that, we could design the systems and technology 0:01:35.640 --> 0:01:39.080 we wanted, we could have the clients service that we wanted, 0:01:39.760 --> 0:01:43.840 and that by really focusing on it, we hope that 0:01:43.880 --> 0:01:45.840 in the end that would lead to better outcomes for 0:01:45.880 --> 0:01:48.600 the clients by that sort of real focus of the 0:01:48.640 --> 0:01:52.280 whole organization. And we felt that there was an opportunity. 0:01:51.760 --> 0:01:52.120 To do it. 0:01:52.240 --> 0:01:56.600 Value had been pretty scarred over the last ten plus years, 0:01:57.080 --> 0:02:01.680 especially globally, and we felt that there was an opportunity 0:02:02.520 --> 0:02:06.400 that might occur over the next five ten years, some 0:02:06.440 --> 0:02:09.600 form of mean reversion, and we felt that there hadn't 0:02:09.639 --> 0:02:13.760 really been any value boutiques out there recently launched, and 0:02:13.800 --> 0:02:17.959 we thought that was just an opportunity. We all liked 0:02:18.000 --> 0:02:20.560 and trusted each other and felt that the team of 0:02:20.639 --> 0:02:22.120 us we could give it a shot. 0:02:22.639 --> 0:02:24.680 It's interesting, though, isn't he You're right, there are very 0:02:24.800 --> 0:02:28.360 very few real value players left out there after all 0:02:28.400 --> 0:02:30.720 these years of value not working. There aren't very many 0:02:30.800 --> 0:02:33.400 value boutiques, and there weren't really that many value teams 0:02:33.639 --> 0:02:35.360 sitting inside any of the bigger companies. 0:02:35.560 --> 0:02:35.800 Yeah. 0:02:35.840 --> 0:02:39.919 Absolutely, And I think that's just a natural process. If 0:02:39.960 --> 0:02:44.000 you've started in fund management in the last five, ten, 0:02:44.080 --> 0:02:47.440 fifteen years, value investing has not been a growing area. 0:02:47.680 --> 0:02:50.799 It's been shrinking, or people have retired or given up 0:02:50.880 --> 0:02:53.760 or and so naturally you've gone into the other areas 0:02:53.800 --> 0:02:55.720 that have been increasing their headcount. 0:02:56.120 --> 0:02:58.600 Let's just go back even one more step and say, 0:02:59.280 --> 0:03:01.480 we're going to talk a lot about value investing. But 0:03:01.560 --> 0:03:03.880 what does that mean to you when you say value, 0:03:03.880 --> 0:03:04.840 what are you talking about? 0:03:05.280 --> 0:03:05.480 Yeah? 0:03:05.520 --> 0:03:08.840 I think it's a very good question because at one extreme, 0:03:09.280 --> 0:03:16.120 some people think it's Ben Graham buying heavily discounted companies 0:03:16.160 --> 0:03:18.400 trading it below the cash on the balance sheet, and 0:03:18.400 --> 0:03:20.680 at the other end of the spectrum it's Ben Graham's 0:03:20.720 --> 0:03:24.160 most famous student, Warren Buffett, who who's more about buying, 0:03:24.480 --> 0:03:27.440 you know, very good quality companies at resonall prices. I 0:03:27.440 --> 0:03:31.520 think for us, the key thing is that the starting 0:03:31.520 --> 0:03:36.080 point is the valuation, So we are looking for low valuation, 0:03:36.800 --> 0:03:40.920 but just as importantly, just as if you're in a 0:03:40.960 --> 0:03:44.360 supermarket doing all weekly shop, value is a trade off 0:03:44.400 --> 0:03:49.520 between price and quality. So we're very keenly aware that 0:03:49.800 --> 0:03:53.200 starting valuation is extremely important, but you need to be 0:03:53.240 --> 0:03:55.840 cognizant of the quality of the company. One of the 0:03:55.880 --> 0:03:57.960 great things about value investing is there's a lot of 0:03:57.960 --> 0:03:59.720 books on it you can read and read and read. 0:03:59.760 --> 0:04:02.800 And one of the sort of key guiding points for 0:04:02.840 --> 0:04:08.160 our investment process is the cyclically adjusted price earnings ratio. 0:04:08.720 --> 0:04:12.360 And now what is that that is? Rather than take 0:04:12.520 --> 0:04:15.000 a snapshot of the earnings, because you don't know where 0:04:15.000 --> 0:04:18.600 you are in a company's life cycle or economic cycle, 0:04:20.360 --> 0:04:22.800 Graham and Odd suggested you take an average over a 0:04:22.800 --> 0:04:26.800 business cycle, and they said seven is better than five, 0:04:26.960 --> 0:04:29.800 tens better than seven, So ten as an approximation at 0:04:29.800 --> 0:04:34.320 business cycle, and if you like, we're looking at companies 0:04:34.320 --> 0:04:39.599 that look lowly valued on their average earnings power over 0:04:39.640 --> 0:04:42.760 a ten year cycle, and that. 0:04:42.680 --> 0:04:44.960 Way you get much more of. 0:04:44.880 --> 0:04:48.600 A feel for where true low valuation lies, rather than 0:04:48.640 --> 0:04:52.040 if you like, accidentally picking a cyclical company at its 0:04:52.120 --> 0:04:54.960 highs or conversely avoiding it when it's at its lows, 0:04:55.560 --> 0:04:59.400 and that for us is one of our absolutely key 0:05:00.320 --> 0:05:05.200 valuation metrics. And the other reason why we believe in 0:05:05.279 --> 0:05:08.240 it so much is we're very evidence based and the 0:05:08.279 --> 0:05:11.560 evidence over long periods of time shows that that's a 0:05:11.680 --> 0:05:16.600 very powerful indicator of subsequent returns. And if you look 0:05:17.360 --> 0:05:20.120 on sort of online resources for this, Professor Schiller has 0:05:20.160 --> 0:05:23.680 a whole series of this stuff around the Shiller pee, 0:05:23.720 --> 0:05:26.799 which he called which is the same thing that cyclically adjusted. 0:05:26.839 --> 0:05:28.359 Pews for timing. 0:05:28.480 --> 0:05:32.800 Isn't it very poor for timing, but it does point 0:05:32.839 --> 0:05:33.480 to you like a. 0:05:34.960 --> 0:05:37.880 In the right direction, and that has a tendency to 0:05:37.920 --> 0:05:38.600 revert to the mean. 0:05:39.240 --> 0:05:39.440 Yes. 0:05:39.720 --> 0:05:41.359 And again, one of the conversations that I've had with 0:05:41.360 --> 0:05:43.839 a lot of growth managers over the last decade or 0:05:43.880 --> 0:05:45.960 so is the idea that reversion to the mean is 0:05:46.000 --> 0:05:49.520 dead because the very fast growing technology company is destroy 0:05:49.600 --> 0:05:52.680 the idea that any sector or marker as a whole 0:05:52.680 --> 0:05:53.920 would revert to any kind of mean. 0:05:54.279 --> 0:05:57.800 Yeah, and they're absolutely right to a degree. But what 0:05:57.960 --> 0:06:03.359 I think is also very important aboun mind is that innovation, industrialization, 0:06:03.400 --> 0:06:06.360 technological change has been happening for the last hundred plus years, 0:06:06.480 --> 0:06:09.320 and so it's not a new phenomena. It's been happening 0:06:09.400 --> 0:06:11.800 for the last hundred years. So if you we don't 0:06:11.800 --> 0:06:13.560 need to talk about all the things that have occurred 0:06:13.560 --> 0:06:15.479 in the last one hundred years which have surprised and 0:06:15.520 --> 0:06:19.040 shocked people, but that rate of innovation and change and 0:06:19.080 --> 0:06:23.479 new products, new ways of housing, formation or shopping, or 0:06:23.520 --> 0:06:26.840 transport or ways of living have been in place for 0:06:26.880 --> 0:06:30.120 the last one hundred plus years, and the evidence stretches 0:06:30.160 --> 0:06:32.839 back over nearly one hundred and fifty years. So I 0:06:32.960 --> 0:06:36.760 absolutely acknowledge that. But I think where I differ would 0:06:36.800 --> 0:06:39.680 be that's been in place for the last one hundred 0:06:39.680 --> 0:06:41.839 and thirty years. Imagine going back to I don't know 0:06:41.920 --> 0:06:44.120 the data tends to start in eighteen seventy one, but 0:06:44.160 --> 0:06:47.359 if you went back then and imagined what life was 0:06:47.440 --> 0:06:49.719 like in nineteen ten or nineteen thirty, or nineteen fifteen, 0:06:49.760 --> 0:06:52.800 nineteen seventy nine, you would think that there's been the 0:06:52.839 --> 0:06:55.239 most incredible amount of change. 0:06:55.320 --> 0:06:56.560 Now. I do think it's. 0:06:56.440 --> 0:07:01.440 Right that it's probably more exacerbated now perhaps than say 0:07:01.480 --> 0:07:04.200 would have been in maybe a decade of the eighties, 0:07:04.240 --> 0:07:09.000 but that change is always something that's been around in 0:07:09.040 --> 0:07:12.560 the world economy, and so I don't think that this 0:07:12.640 --> 0:07:17.320 particular period means that everything that has worked in investing 0:07:17.600 --> 0:07:18.840 is now discounted. 0:07:19.680 --> 0:07:23.200 You have launched value funds really at rather a good time. 0:07:23.640 --> 0:07:26.280 Your timing, whether purfle or not, have been fairly impeccable. 0:07:26.440 --> 0:07:30.000 We're just seeing the US market coming off, seeing significant 0:07:30.000 --> 0:07:32.760 falls in the NATICT this year, etc. And we're seeing 0:07:32.840 --> 0:07:36.080 the much cheaper European markets begin to pick up. So 0:07:36.160 --> 0:07:38.360 there is look slightly is the beginning of a great 0:07:38.440 --> 0:07:43.200 rotation out of expensive US markets into cheaper global markets. 0:07:43.880 --> 0:07:44.880 Timing is impeccable. 0:07:45.200 --> 0:07:46.560 I guess it's a bit how you need to say. 0:07:46.600 --> 0:07:49.040 Time will tell, but I think all you can say, 0:07:49.440 --> 0:07:52.000 leaving aside the sort of very short term, is that 0:07:52.560 --> 0:07:56.920 rest of the world versus America, or small versus large, 0:07:57.080 --> 0:07:59.280 or value versus growth, that there are at quite big 0:07:59.320 --> 0:08:03.320 extremes when look globally. So when if you're like the 0:08:03.360 --> 0:08:07.520 rubber band is pulled so tight, it doesn't take much 0:08:08.080 --> 0:08:11.480 to change that narrative. Now, I don't know whether it's 0:08:11.520 --> 0:08:13.560 going to be caused by everything that's going on at 0:08:13.560 --> 0:08:18.040 the moment, but we do very much believe that at 0:08:18.080 --> 0:08:21.160 some point there will be some if you're like mean 0:08:21.200 --> 0:08:25.320 reversion or change in the very low valuation applied to 0:08:25.680 --> 0:08:29.600 quite a few assets in UK, Europe, Japan, Latin America. 0:08:29.720 --> 0:08:31.480 Yes, well, why don't we start my looking at the 0:08:31.560 --> 0:08:33.880 UK because that's the first fund you launched, the UK 0:08:34.040 --> 0:08:36.640 Value Fund. You just mentioned that there is this big 0:08:36.679 --> 0:08:39.280 gap between large and smaller, and smaller companies have massively 0:08:39.320 --> 0:08:42.280 unperformed and if you're really looking for extreme value in 0:08:42.280 --> 0:08:44.560 the UK, you might go small. But you haven't done that, right. 0:08:44.640 --> 0:08:45.920 It's a large cap fund. 0:08:46.440 --> 0:08:50.480 Yes, it's a large medium sized company fund. I co 0:08:50.600 --> 0:08:53.840 manage that fund with my colleague Kevin Murphy. That's where 0:08:53.840 --> 0:08:56.479 we've spent our last combined fifty years. 0:08:56.480 --> 0:08:59.079 And Kevin came from the Value Team. It showed us, yes. 0:08:58.960 --> 0:09:03.480 Exactly, that's why we spent our fifty years concentrating. So 0:09:03.520 --> 0:09:04.959 we don't want to do anything different from what we 0:09:05.040 --> 0:09:08.840 have been doing. But yes, you can find a lot 0:09:08.880 --> 0:09:12.640 of very lowly valued shares in that whole space. 0:09:13.320 --> 0:09:16.280 GE's been phenomenally unpopular for a long time, and we've 0:09:16.280 --> 0:09:18.200 talked a lot on this podcast over the last couple 0:09:18.240 --> 0:09:20.440 of years about the UK it's so cheap. Get him 0:09:20.480 --> 0:09:22.480 while you still can. If you don't buy these, other 0:09:22.520 --> 0:09:24.800 people will et cetera, et cetera. And of course everyone 0:09:24.840 --> 0:09:27.480 has completely ignored us, and we've seen ongoing outflows from 0:09:27.600 --> 0:09:30.520 the UK market over and over and over. It's been very, 0:09:30.920 --> 0:09:33.960 very depressing. So you know, you're really very optimistic here. 0:09:34.320 --> 0:09:38.319 I think it just depends on your timeframe. As you say, 0:09:38.720 --> 0:09:43.480 the out flows have carried on. But I think you know, 0:09:43.640 --> 0:09:47.520 flows tend to follow performance, and if you did see 0:09:48.080 --> 0:09:52.000 the UK stop market showing some good performance, I think 0:09:52.040 --> 0:09:53.600 you would see the flows change. 0:09:53.920 --> 0:09:56.040 I think in good performance in the UK, and even 0:09:56.080 --> 0:09:57.960 small caps aren't performing at the moment quite as badly 0:09:57.960 --> 0:10:00.000 as you might expect given global upset. 0:10:00.200 --> 0:10:03.840 Yeah, you know, I am optimistic because the starting valuation 0:10:03.920 --> 0:10:07.320 is solow. I definitely can't predict, and they think around 0:10:07.320 --> 0:10:10.480 flows or timing. But I am very optimistic because just 0:10:10.480 --> 0:10:14.559 the starting valuation solow and history shows that very low 0:10:14.600 --> 0:10:17.840 starting valuations are good. Now, your point, which you make 0:10:17.920 --> 0:10:19.800 is very valued. But what about the timing of it, 0:10:20.559 --> 0:10:23.240 and that I can't help on or can't predict. But 0:10:23.280 --> 0:10:26.520 what I do know is that that very low starting 0:10:26.559 --> 0:10:28.959 point is a good sign for if you like the 0:10:29.000 --> 0:10:30.199 medium to long term investor. 0:10:30.880 --> 0:10:33.560 Okay, well, I was reading the fact cheek for this 0:10:33.800 --> 0:10:36.199 UK fund earlier. One of the things you say is 0:10:36.240 --> 0:10:40.680 that your hope is to outperform the index on a 0:10:40.760 --> 0:10:44.480 rolling five year basis after fees. I hope you won't 0:10:44.480 --> 0:10:46.880 mind me saying that that's remarkably unambitious. 0:10:47.720 --> 0:10:53.960 Well, I think it's better to not try and set 0:10:54.280 --> 0:10:58.640 a very very high hurdle. If you look back historically 0:10:59.440 --> 0:11:03.920 at the long run data in say the IA UK 0:11:04.080 --> 0:11:09.760 or company sector, historically, if you have had compounded at 0:11:10.120 --> 0:11:13.400 two percent pranum neta fees ahead of the index over 0:11:14.120 --> 0:11:16.680 ten to fifteen years, you're comfortably in the top decile. 0:11:16.960 --> 0:11:19.559 So why not say that you would like to achieve 0:11:20.240 --> 0:11:23.280 two percent? Well, I think more than the index over 0:11:23.320 --> 0:11:24.840 a rolling fabily period. 0:11:25.200 --> 0:11:28.320 As soon as you start getting very precise, it might 0:11:28.360 --> 0:11:30.560 not be that helpful. But I also think that you 0:11:30.600 --> 0:11:33.600 don't want to try and make very big promises either. 0:11:33.640 --> 0:11:36.160 I think you're much better to get on and run 0:11:36.200 --> 0:11:38.319 the fund and try and deliver that good performance. 0:11:38.360 --> 0:11:40.240 Here okay, and we can see your history of good 0:11:40.240 --> 0:11:42.600 performance so well, you might not be promising yet we 0:11:42.679 --> 0:11:45.000 can make a guess or what you might be hopeful for. 0:11:45.080 --> 0:11:47.400 And I think also that financial service is more broadly 0:11:47.440 --> 0:11:50.520 sometimes gets a bad reputation for sort of being a 0:11:50.520 --> 0:11:53.040 bit too aggressive on the marketing and such like. And 0:11:53.040 --> 0:11:56.679 I think you're much better to be cautious on promises 0:11:56.880 --> 0:12:00.000 and concentrate much more on actual delivery. 0:12:00.120 --> 0:12:02.320 It fair enough. We spend a lot of time criticizing 0:12:02.360 --> 0:12:04.880 fun management companies for being more marketing companies and money 0:12:04.920 --> 0:12:09.439 management companies and asset gatherers rather than activists or us to. 0:12:09.600 --> 0:12:12.880 So fair enough, Okay, let's talk about the fund then 0:12:13.240 --> 0:12:16.600 forty six holdings, so not that concentrated. 0:12:16.240 --> 0:12:18.920 No, not that concentrated. There's a lot of academic and 0:12:19.240 --> 0:12:26.280 experienced evidence around how much you need for diversification, but 0:12:26.400 --> 0:12:30.120 also there's a sort of balance here. Probably twenty to 0:12:30.160 --> 0:12:33.040 thirty would get you sufficient diversification on a sort of 0:12:33.320 --> 0:12:36.960 theoretical basis, But there are also quite a lot of 0:12:36.960 --> 0:12:39.840 loading value stocks at the moment. So if you increase 0:12:39.880 --> 0:12:43.280 the number of holdings whilst at the same time being 0:12:43.280 --> 0:12:45.760 able to keep the valuation the same, you're getting a 0:12:45.760 --> 0:12:48.880 bit more diversification. So I do think that is sensible, 0:12:48.920 --> 0:12:49.439 I really do. 0:12:49.760 --> 0:12:51.680 Okay, Well, should we talk about some of the stocks 0:12:51.760 --> 0:12:53.760 in that UK portfolio, because I think we do have 0:12:53.800 --> 0:12:56.120 quite a lot of listeners who do buy individual stocks 0:12:56.160 --> 0:12:58.920 and are interested in these big, cheap, high yielding stocked 0:12:58.960 --> 0:13:01.040 in the UK, and I'm interested. I am looking at 0:13:01.120 --> 0:13:03.800 facts each and maybe slightly out of date. The dividend 0:13:03.840 --> 0:13:06.600 yield on it is four point seven percent, and just 0:13:06.640 --> 0:13:09.559 for the sake of interest, the p ratio forward p 0:13:09.800 --> 0:13:12.520 ratio average across the portfolio is eight point eight times, 0:13:12.520 --> 0:13:13.600 so remarkably cheap. 0:13:13.600 --> 0:13:16.760 Actually it is a lowly valued fund. Just to highlight 0:13:17.160 --> 0:13:20.360 a couple of companies, two very different companies. We've got 0:13:20.360 --> 0:13:24.880 an investment in Travis Perkins that's building merchant operating predominantly 0:13:24.880 --> 0:13:29.120 in the UK. It's actually trading below tangible book value. 0:13:29.480 --> 0:13:34.920 Its book value is predominantly some property and working capital. 0:13:35.480 --> 0:13:40.040 So when companies trade below tangible book value, the stock 0:13:40.120 --> 0:13:44.240 market is saying something very pessimistic. They've got a new 0:13:44.320 --> 0:13:47.520 chair and they did have a new CEO who Sally, 0:13:47.600 --> 0:13:49.400 due to ill health, has recently had to step down. 0:13:49.440 --> 0:13:53.280 But they've got pretty strong market positions. The business hasn't 0:13:53.320 --> 0:13:56.400 been that well run, hence the opportunity to buy it 0:13:56.720 --> 0:14:01.560 at below tangible book value. Difficult economic environment but I 0:14:01.600 --> 0:14:05.360 think if we can find our whole series of investments 0:14:05.360 --> 0:14:10.000 training at that low valuation, with established franchises, but where 0:14:10.040 --> 0:14:13.400 there have been some problems but not even like permanent problems, 0:14:13.800 --> 0:14:15.200 that's exactly what we're trying to do. 0:14:15.360 --> 0:14:19.360 Doesn't look like you're looking for particular catalysts, so there 0:14:19.400 --> 0:14:20.920 could be some value traps in here. 0:14:21.000 --> 0:14:21.240 Yeah. 0:14:21.240 --> 0:14:25.240 Well, I think catalysts, by their nature are surprises. I 0:14:25.280 --> 0:14:27.840 think it would be quite difficult to say that we 0:14:27.920 --> 0:14:29.720 know what the surprises are going to be. You know, 0:14:30.320 --> 0:14:34.320 surprises to markets are genuine surprises. I think, though, what 0:14:34.360 --> 0:14:36.760 the evidence shows is that what we're trying to do 0:14:36.960 --> 0:14:41.840 is that low valuation helps to protect you from negative surprises, 0:14:42.520 --> 0:14:45.600 but at the same time you're much more exposed to 0:14:45.760 --> 0:14:49.880 positive surprises. And so we don't know the catalyst. But 0:14:50.000 --> 0:14:54.040 what we think is that more broadly, catalysts tend to 0:14:54.080 --> 0:15:00.320 be either fears recede or profits recover, and some in 0:15:00.360 --> 0:15:03.040 that area is how we think we'll get the valuation 0:15:03.200 --> 0:15:05.480 change to reflect the value of the business. 0:15:05.760 --> 0:15:08.080 All right, I interrupted you were telling us a stock story. 0:15:08.480 --> 0:15:11.800 Carry I think the other one at the other sort 0:15:11.800 --> 0:15:14.360 of extreme in terms of business, but not in terms 0:15:14.400 --> 0:15:18.960 of valuation would be Burbery, that is reasonably well known 0:15:19.360 --> 0:15:24.960 luxury goods company concentrating on outerwear, scarves and other fashion 0:15:25.000 --> 0:15:28.160 where that's had a very difficult time, partly due to 0:15:28.680 --> 0:15:32.120 a downturn in luxury spending in China, but also due 0:15:32.120 --> 0:15:36.200 to some self inflicted wounds. They changed the chief executive 0:15:36.760 --> 0:15:41.640 last summer as well, and their merchandising and pricing strategy 0:15:41.960 --> 0:15:44.760 went wrong. The new chief executive is returning the business 0:15:44.800 --> 0:15:47.400 to if you're like the real core check, if you're 0:15:47.440 --> 0:15:50.920 like what it stands for, and you're able to pick 0:15:50.960 --> 0:15:54.280 that up on investing that on a if you're like 0:15:54.320 --> 0:15:59.240 a cape yield of about fifteen sixteen percent, which is 0:15:59.840 --> 0:16:05.440 very very low in relation to absolute valuations, whereby the 0:16:05.480 --> 0:16:08.640 stock market is feeling very pessimistic about the ability to 0:16:08.840 --> 0:16:12.640 recover the lost profits which have happened. And so if 0:16:12.680 --> 0:16:15.440 we can find, as you say, forty to fifty ideas 0:16:15.480 --> 0:16:17.320 like that, we're very very happy. 0:16:17.800 --> 0:16:21.560 Have you been watching the TikTok of luxury goods being 0:16:21.560 --> 0:16:22.200 made in China? 0:16:22.720 --> 0:16:23.440 No? I haven't. 0:16:23.720 --> 0:16:26.040 It's worth it. It's worth it. If you go go 0:16:26.080 --> 0:16:27.800 and look on tikto, you're probably not on TikTok. So 0:16:28.000 --> 0:16:29.840 I'm not on TikTok either. I'd rely on my kids 0:16:29.840 --> 0:16:31.840 with this. But there are lots of videos doing the 0:16:31.920 --> 0:16:35.320 rounds of luxury goods factories in China, showing how things 0:16:35.400 --> 0:16:38.280 are made and when they're made in China, when you 0:16:38.320 --> 0:16:41.360 think they're not made in China, etc. They're fascinating and 0:16:41.400 --> 0:16:43.920 I wonder if if that kind of thing will have 0:16:43.920 --> 0:16:45.560 an impact on luxury goods spending. 0:16:46.160 --> 0:16:48.320 So these are copies, is that right? 0:16:48.720 --> 0:16:52.000 No? Well, supposedly not. I'm watching TikTok here. 0:16:52.080 --> 0:16:52.520 Yeah, okay. 0:16:52.960 --> 0:16:55.120 So one of the things that Berbera spent a lot 0:16:55.120 --> 0:16:57.160 of time on is the supply chain. So obviously it's 0:16:57.320 --> 0:17:00.520 very well known for its UK heritage demand factoring in 0:17:00.560 --> 0:17:07.000 the UK, so I think clearly that is a concern 0:17:07.359 --> 0:17:11.480 for companies more broadly, but I would I'd feel pretty 0:17:11.480 --> 0:17:14.119 confident that that wouldn't apply to Berbera. 0:17:15.320 --> 0:17:18.639 Is there an ESG overlay of any kind on the fund? 0:17:18.760 --> 0:17:20.480 I see, and will come to global one in a minute. 0:17:20.480 --> 0:17:22.520 But I see you have got ahead of stewardship kind 0:17:22.520 --> 0:17:23.040 of compulsory? 0:17:23.119 --> 0:17:23.600 Is it? Right? 0:17:23.640 --> 0:17:23.720 Now? 0:17:24.480 --> 0:17:26.680 How do you approach all that? I mean, obviously it's 0:17:26.720 --> 0:17:29.800 not classic ESG because in your top ten you've got 0:17:29.840 --> 0:17:33.400 British American tobacco, et cetera shell BP, So it's not 0:17:33.520 --> 0:17:36.239 your standard ESG overlay. But how do you approach that? 0:17:36.800 --> 0:17:40.000 Yes, so Andrew Mortimer, as are at a stewardship and 0:17:41.200 --> 0:17:45.960 those the S energy are very important because they can 0:17:46.000 --> 0:17:49.280 be fundamental to permanent loss of capital if you don't 0:17:49.320 --> 0:17:52.760 take them seriously enough. Now, historically people have always thought 0:17:52.760 --> 0:17:55.000 about the G the governance. You know, you've had poor 0:17:55.000 --> 0:17:57.920 governance that can lead to permanent loss of capital via 0:17:58.480 --> 0:18:02.359 poor management of the business capital allocation. But the E 0:18:02.800 --> 0:18:06.840 and the S, the environmental and like the social side, 0:18:07.119 --> 0:18:11.879 those are important when you're thinking about if you're like 0:18:12.040 --> 0:18:15.920 the sustainability of the franchise and so for us, they're 0:18:15.960 --> 0:18:20.600 all part of thinking about investment risk or it's the 0:18:20.720 --> 0:18:23.840 risk that we're going to lose our client's capital and 0:18:23.880 --> 0:18:27.600 anyone investment. So yes, we do absolutely want to take 0:18:27.640 --> 0:18:31.520 all of those into consideration when making an investment decision. 0:18:31.880 --> 0:18:33.920 Okay, can we talk about BP a bit. That's been 0:18:33.960 --> 0:18:35.320 in the news a lot and I'm sure a lot 0:18:35.320 --> 0:18:37.720 of our listeners are interested in it as a standalone 0:18:37.760 --> 0:18:38.040 to DOC. 0:18:38.640 --> 0:18:42.199 Yes, so, BP has been in the news. Well, I 0:18:42.200 --> 0:18:46.280 guess a lot recently, but when I think about since 0:18:46.320 --> 0:18:49.080 I started in the city in nineteen ninety four, it's 0:18:49.080 --> 0:18:54.800 been in the news a lot. And you're absolutely right, 0:18:55.080 --> 0:18:59.399 it's currently in the news because the previous CEO tried 0:18:59.800 --> 0:19:06.280 to to deploy more capital into low carbon or renewable assets. 0:19:07.720 --> 0:19:10.160 The returns on those have not been very good. He 0:19:10.240 --> 0:19:14.080 was also looking to shrink the oil and gas portfolio 0:19:14.119 --> 0:19:17.879 quite aggressively as the world transitioned away from if you 0:19:17.960 --> 0:19:18.840 like carbon. 0:19:18.520 --> 0:19:20.959 Assets, except that is not really doing that, is it. 0:19:21.160 --> 0:19:24.480 But the pace of changes is not as fast as 0:19:25.240 --> 0:19:30.359 was anticipated, And so the new CEO, who was the 0:19:30.359 --> 0:19:35.240 finance director, is really running the company I think more 0:19:35.280 --> 0:19:39.040 in line with how society is changing now. That might 0:19:39.080 --> 0:19:41.719 come into for some criticism that they're not going faster, 0:19:42.240 --> 0:19:44.840 but I think he's basically adopting a more pragmatic approach. 0:19:45.400 --> 0:19:48.399 What really needs to happen, I think at VP, and 0:19:48.440 --> 0:19:50.600 it's what they've said, is that oil and gas companies 0:19:50.600 --> 0:19:52.800 are very capital intensive. They need to concentrate on the 0:19:52.840 --> 0:19:57.280 returns from deploying that capital rather than if you're like 0:19:57.560 --> 0:20:00.320 talking about the strategy talking about a deploying thing and 0:20:00.520 --> 0:20:02.360 what the returns may or may not be. They need 0:20:02.400 --> 0:20:05.359 to concentrate on what they're The new change of strategies 0:20:05.400 --> 0:20:09.280 around is the actual returns from the capital deployed, rather 0:20:09.359 --> 0:20:11.560 than having a strategy what it might be. 0:20:12.040 --> 0:20:13.840 Do you think that that is happening now? I mean, 0:20:13.840 --> 0:20:15.920 this has been one of the most of the many 0:20:16.000 --> 0:20:19.720 disappointing stocks in the UK that BP is consistently disappointed 0:20:19.720 --> 0:20:20.800 at Shoholders, hasn't it. 0:20:21.040 --> 0:20:22.840 You can see it in the stock market has expressed 0:20:22.840 --> 0:20:26.840 by the valuation. There's a sense of deep distrust in 0:20:26.840 --> 0:20:30.800 the company, and so I think you get a very 0:20:30.800 --> 0:20:34.240 low starting valuation, a sort of a very big discount 0:20:34.280 --> 0:20:38.080 to European and American super majors. Clearly it's not a 0:20:38.119 --> 0:20:40.520 super major really, it's shrunk quite a lot over the 0:20:40.600 --> 0:20:44.280 last ten twenty years, especially following mccondo. So I think 0:20:44.840 --> 0:20:49.040 that big discount can't really only be closed by them 0:20:49.160 --> 0:20:52.359 demonstrating operational performance. And I think that's that is definitely 0:20:52.359 --> 0:20:54.919 what it seems that the stock market in investors want. 0:20:55.640 --> 0:20:58.280 Let's talk about the second fund, because you've moved pretty 0:20:58.320 --> 0:21:01.280 quickly here. Lawn's UK one pretty small and you've gone 0:21:01.320 --> 0:21:04.520 straight into launch a global value fund, also still pretty 0:21:04.520 --> 0:21:07.320 small at the moment. What was the thinking behind that? 0:21:07.359 --> 0:21:09.480 Because you can have your UK fund, you can have 0:21:09.520 --> 0:21:12.520 twenty percent of the assets in non UK companies, right, 0:21:12.680 --> 0:21:14.479 yes you can? Ye, yeah, so you can. You can 0:21:14.480 --> 0:21:16.199 put a little global in there if you feel like it. 0:21:16.240 --> 0:21:19.640 But nonetheless you've still vote launched a devoted global fund. 0:21:20.720 --> 0:21:23.200 So I'm managing that with my co manager, Dormat Murphy, 0:21:23.240 --> 0:21:26.160 who I've spent the last ten years working with, and 0:21:26.520 --> 0:21:28.000 we ran global funds together. 0:21:28.720 --> 0:21:30.320