Speaker 1: Welcome to Inside Active, a podcast about active managers that
Speaker 1: goes beyond sound bites and headlines and looks deeper into
Speaker 1: their processes, challenges and philosophies and security selection. I'm David Cohne,
Speaker 1: i lead mutual fund and active Research at Bloomberg Intelligence. Today,
Speaker 1: my cost is Christopher Kine, us quantitative strategist at Bloomberg Intelligence. Chris,
Speaker 1: thank you for joining me today.
Speaker 2: Thank you so much for having me. David.
Speaker 1: So, you wrote interesting note last month on quality stocks
Speaker 1: trading near their most expensive levels over the past twenty
Speaker 1: five years. Is that still the case?
Speaker 2: Yes, it is still the case. I mean quality has
Speaker 2: been certainly the most expensive factor from a historical perspective.
Speaker 2: Now for a while. You know, our bi quality we
Speaker 2: keep it pretty simple and we just consider profitability metrics
Speaker 2: like r O E ro see as well as low leverage.
Speaker 2: So you know, when you look at the top Quintown
Speaker 2: on the Russell one thousand is trading over four and
Speaker 2: a half time sales versus just over one time sales
Speaker 2: for the lowest, lowest stock quality Quintal. So that's about
Speaker 2: over three and a half times more expensive, which is
Speaker 2: one of the most expensive readings we've seen. I will
Speaker 2: say also, though, that you know, the profitability of these stocks,
Speaker 2: of these high quality stocks are much elevated compared to history.
Speaker 2: Obviously high profitability will you know, high quality will always
Speaker 2: have higher profitability. But when you look at the spread
Speaker 2: between the probitability of low and high quality right now,
Speaker 2: it's very wide, So you would think there is some
Speaker 2: fundamental support though the valuations are very stretched.
Speaker 1: Great, well, I'm sure today's guest has a great take
Speaker 1: on valuations. And without further ado, i'd like to welcome
Speaker 1: Sid Jane to the podcast. Sid is deputy portfolio manager
Speaker 1: at GQG Partners. Sid, thank you for joining us today.
Speaker 3: Thanks for having me on. Guys.
Speaker 1: So I have to start with the research note your
Speaker 1: firm recently published. You know, I couldn't I really think
Speaker 1: that's the best way to start. So you put out
Speaker 1: a note called dot com on Steroids. In the note,
Speaker 1: you know, your firm says that today's market, you know,
Speaker 1: could actually be worse than the dot com bubble, and
Speaker 1: your firm argues that, you know, many of today's big
Speaker 1: tech names represent backward looking quality, not forward with looking quality.
Speaker 1: So you know, my question is, you know, what are
Speaker 1: the clearest quantifiable metrics, say canaries in the coal mine,
Speaker 1: that in your view, distinguished one from the other.
Speaker 2: Yeah.
Speaker 4: Absolutely, And I think to kick things off, it's important
Speaker 4: to understand some of our history with the technology sector
Speaker 4: where we're not perma bears by any means. We've been
Speaker 4: actually quite bullish and constructive on the sector for better
Speaker 4: part of our firm's history.
Speaker 3: Of the past decade.
Speaker 4: What has caused us to get nervous is this new
Speaker 4: investment cycle that you're seeing. And if you study again history,
Speaker 4: when you see major spikes in CAPEX and this is
Speaker 4: on present level of investment you're seeing right now, that
Speaker 4: usually tends put poorly for forward looking equity returns. And
Speaker 4: so that's one metric where it's spiking CAPEX. And you've
Speaker 4: seen this in the past, whether it's the railroad boom,
Speaker 4: electricity boom, internet boom twenty five years ago. That gives
Speaker 4: us pause, especially when there's really no clear evidence of
Speaker 4: an ROI on the trillions of dollars investment that are
Speaker 4: being debated today. The second thing that keeps us nervous
Speaker 4: is just decelerating revenue growth. These companies, big tech companies
Speaker 4: were growing twenty thirty percent like Clockwork pre COVID, whereas
Speaker 4: now we believe the growth runaway is significantly less than
Speaker 4: what existed before. I mean, digital ad penetration is now
Speaker 4: running at seventy percent of over advertising. The metas Googles
Speaker 4: of the world cannot go twenty thirty percent sustainably anymore.
Speaker 4: I mean, same with Amazon's Microsoft. They're all slowing down structurally.
Speaker 4: And so the combination of well of names, high multiples
Speaker 4: and growth decelerating has problems been all over it. And
Speaker 4: last thing I'll say is the accounting shenanigans. And this
Speaker 4: is a little bit less quantifiable, but it was a
Speaker 4: lot of press that I'm sure you guys have read about.
Speaker 4: I mean, the circular vendor financing that you're seeing between
Speaker 4: Nvidia and open Ai, or today's AMD deal that usually
Speaker 4: comes at the very end of a cycle. So these
Speaker 4: are some of the data points that causes to believe
Speaker 4: that the best years are over for vast majority the
Speaker 4: technology space. Part to be a large cap the AI winner,
Speaker 4: so to speak.
Speaker 2: Interesting, very interesting. So you're talking about slowing growth, you know,
Speaker 2: I was wondering, you know, quality of all the factors,
Speaker 2: you know, tends to have the highest variance if you will,
Speaker 2: of factor definitions, you know, because you know it's not
Speaker 2: maybe as straightforward as a value or momentum. So do
Speaker 2: you have explicit growth elements in your quality factor? I've
Speaker 2: seen some quants do that, some not. Do you have
Speaker 2: that component in your quality factor? Yeah?
Speaker 3: So growth, we like growing companies.
Speaker 4: We don't generally buy companies that are in secular decline.
Speaker 4: But growth in and of itself is not what we're
Speaker 4: looking for. That's the only variable that matters. And so
Speaker 4: the way we think about investing is we want to
Speaker 4: compound it roughly ten percent annually, and we get there
Speaker 4: through a function of earnings per share growth plus dividend yield.
Speaker 4: That combination gets you there. And so we're equally comfortable
Speaker 4: owning software companies that get you to that tot re
Speaker 4: turn predominantly from the growth side, as well as energy
Speaker 4: companies where there's a much growth but you're getting a
Speaker 4: massive buyback and dividend return, and we're equally comfortable flexing
Speaker 4: both sides of that lever So it doesn't just have
Speaker 4: to be.
Speaker 2: Growth awesome, thank you.
Speaker 1: So I know, I know you know with your firm,
Speaker 1: you know it's a big approach with durable earnings rather
Speaker 1: than you know, typical growth or value labels. How do you,
Speaker 1: I guess, distinguish between durable earnings from just optimistic growth assumptions.
Speaker 4: So I think one area where we'd have maybe have
Speaker 4: a bit of a differential view is truly appreciate long
Speaker 4: term capital cycles. And this goes back to our founder
Speaker 4: in Cio Rajiev having a thirty year track record investing
Speaker 4: in developed markets, emerging markets, and everything in between. And
Speaker 4: once you've seen enough cycle that forced you to appreciate
Speaker 4: that everything experience goes through this. I mean, have you
Speaker 4: wrote a white paper action on the semiconductor sector. I
Speaker 4: think it was back in twenty seventeen House saying this
Speaker 4: has become the new growth sector and we've got a
Speaker 4: lot of pushback saying, how can you say that semic
Speaker 4: corectors haven't.
Speaker 3: Grown in ages?
Speaker 4: And so you do see those and I think, for example,
Speaker 4: if you look at today, we believe a lot of
Speaker 4: the technology sectors are very late cycle. The growth is
Speaker 4: slowing down, and the addressable market is just a lot
Speaker 4: less than it used to be. Is on going from
Speaker 4: twenty thirty percent revenue growth to ten percent, that's problematic
Speaker 4: We're also very focused on the rate of change of growth.
Speaker 4: So it's not just is it growing twenty percent a year,
Speaker 4: but what direction is that heading? And that goes to
Speaker 4: our definition of forward looking quality, is accelerating or decelerating,
Speaker 4: and so that's a much bigger focus of our process.
Speaker 4: So if you look at the energy space, we are
Speaker 4: one of the few quality managers that made a large
Speaker 4: pivot into energy back in twenty twenty one. Where people
Speaker 4: have thought this was secular decline, our view was that's
Speaker 4: the top of a cycle where you've seen most of
Speaker 4: the industries underwater, not making much money, massive under investment,
Speaker 4: and that will normalize. And that's how we think about
Speaker 4: that in terms of the longer term cycle. That's a
Speaker 4: big portion of how we deploy capital.
Speaker 1: So, you know, you mentioned, you know quality. Obviously, one
Speaker 1: of the funds I really wanted to kind of focus
Speaker 1: in is the gqg US Quality Value Fund ticker gq
Speaker 1: ep X, And so you know, if you look at
Speaker 1: the description, you know, invest in high quality companies with
Speaker 1: attractively priced future growth products. How does this fund different
Speaker 1: process or constraints from you know, your broader quality durable
Speaker 1: earning philosophy.
Speaker 3: Yeah, sure. So there's.
Speaker 4: The investible The universe of names we choose from is
Speaker 4: actually the exact same. So every name that we will
Speaker 4: own on the value strategy has to meet our definition
Speaker 4: of forward looking quality. So story that's improving has barriers
Speaker 4: to enter, a strong cashoder, turner, equity and all of
Speaker 4: that large chat focused. So that's the same. What is
Speaker 4: different is where the returns are coming from. So, as
Speaker 4: I mentioned, we go we want to get high single
Speaker 4: digit load double edit total return with earnings, growth and
Speaker 4: dividend yield. The growth strategy can go anywhere in between.
Speaker 4: The value strategy will focus on the companies that pay
Speaker 4: the yield. It's so usually the lower multiple names within
Speaker 4: our investible universe, with a much greater focus on dividend yield.
Speaker 4: So if you think from a scale of one to ten,
Speaker 4: one being deep value, ten being super fast growth or
Speaker 4: growth strategy will usually grow go anywhere between a three
Speaker 4: to seven on that spectrum, the value strategy will be
Speaker 4: between a three to five. Such a smaller subsector over
Speaker 4: quality universe, and sometimes the strategy looked exactly the same
Speaker 4: because the growth strategy can go everywhere in between.
Speaker 2: I would love to hear about You kind of alluded
Speaker 2: to this a bit in your last answer, but you know,
Speaker 2: I would love to hear about what's systematic, what's discretionary,
Speaker 2: and how that process kind of weaves in together. You know,
Speaker 2: I talked to a lot of clients that want to
Speaker 2: do quant but maybe they don't want to do it
Speaker 2: in a completely systematic way, right, they want to use
Speaker 2: their own discretion. So is it like you have, you know,
Speaker 2: a universe that's filtered for you quantitatively and then you
Speaker 2: do more research on it, or how does that process work.
Speaker 3: It's a great question.
Speaker 4: At the end of the day, we will always be
Speaker 4: a discretionary shop. We are fundamental Bondo stock managers, but
Speaker 4: we believe heavily in using quant as almost like guardrails
Speaker 4: on the process. So we have a team of quant
Speaker 4: analysts and they help monitor things as factor exposures, what
Speaker 4: factors are working, whatnot, doing historical back testing, making sure
Speaker 4: we're not making any obvious mistakes. So, for example, one
Speaker 4: thing we look at is what factor works in each country,
Speaker 4: and it's not the same fact that it's work across
Speaker 4: the world. So for example, if you look at China,
Speaker 4: one factor that has proven pretty effective longer term is
Speaker 4: divid and yield, and so our viob is let's maximize
Speaker 4: the odds as much as we can and focus on
Speaker 4: companies that have a yield versus purely growth. Now we
Speaker 4: can buy growthy names, but the job is to just
Speaker 4: improve the odds.
Speaker 3: As much as you can.
Speaker 4: As I mentioned the capex, we back to sectors that
Speaker 4: are seeing significant CAPEX increases generally tend to underperform, and
Speaker 4: so we monitor as those factors. But at the end
Speaker 4: of the day, we are a bottom up shop. It's
Speaker 4: another tool in our toolkit.
Speaker 2: Awesome, thank you so much. I would guess it's a similar,
Speaker 2: you know answer, But as I kind of mentioned previously,
Speaker 2: like quality definitely has the biggest variance of any quant factor,
Speaker 2: and I've seen quants have wildly different definitions, and I
Speaker 2: always ask, like, how do you weight the components of
Speaker 2: your quality factor? Like, typically I see profitability as probably
Speaker 2: the main thing, but obviously other things like margins and
Speaker 2: stability of fundamentals and all this kind of stuff. So like,
Speaker 2: is the waiting that you give to each of those
Speaker 2: is that going to change kind of based on the
Speaker 2: environment we're in, or do you have some kind of
Speaker 2: structure in your mind of the weighting of the different components.
Speaker 4: So there's a couple of things that change. One is
Speaker 4: the market environment also does matter. So for example, the
Speaker 4: pre COVID era, we were much more focused on growth,
Speaker 4: revenue growth. When it's a zero interest rate world where
Speaker 4: you're struggling to get economic growth, earnings growth in most
Speaker 4: major sectors, we are willing to pay a premium for
Speaker 4: the fastest growing, best companies, whereas today it's a bit murkier.
Speaker 4: It's a much higher interest rate world. You have to
Speaker 4: be more valuation sensitive, and we do think there's a
Speaker 4: lot of earnings risks from.
Speaker 3: The higher revenue growth names. But that's number one.
Speaker 4: Number two, and this might be even more important, is
Speaker 4: that we look at all the same factors that you
Speaker 4: mentioned in profitability, margins, et cetera. But we are much
Speaker 4: more focused on rate of change, the second derivative of
Speaker 4: those factors. As you mentioned the beginning, some of these
Speaker 4: quality companies today have very strong profits, strong returns today,
Speaker 4: but the question is next five year do they mean revert,
Speaker 4: which is what we think that will start happening. That's
Speaker 4: much less attractive than a company or a sector that
Speaker 4: is at the trophy of a cycle. Maybe improving take
Speaker 4: energy a few years ago, utilities over the past twelve
Speaker 4: to twenty four months, which you're much more positive on.
Speaker 4: And so that rate of change is what I think
Speaker 4: is differentiates us versus many other quality oriented fundamental managers
Speaker 4: out there.
Speaker 2: Awesome. I guess my last question here is what about
Speaker 2: other factors, Like we talked about value, we talked about quality,
Speaker 2: like does price momentum matter at all, does low risk
Speaker 2: matter at all, or any other factors that kind of
Speaker 2: add into your process.
Speaker 4: So I think historically, if you go back, one of
Speaker 4: the factors, and this is an output not an input,
Speaker 4: is that we do tend to have a bit of
Speaker 4: a momentum overlay on our strategies. And the reason for
Speaker 4: that is a fundamental reason is we like to buy
Speaker 4: improving stories, not getcheries. So that typically correlates with strong
Speaker 4: price momentum as well, and so it's rare. We want
Speaker 4: to be aware which sectors are seeing strong price momentum
Speaker 4: and not and understanding what is a fundamental reason for that.
Speaker 4: We don't have to buy based on just great price action,
Speaker 4: but if a stock is clearly breaking down, we want
Speaker 4: to know why because we focus on the largest companies
Speaker 4: in the world. Is a hyper efficient market, and we
Speaker 4: have deep respect for price section and that it has
Speaker 4: been longer term guardrails to our process making sure we're
Speaker 4: not a stock goes down twenty you buy it looks
Speaker 4: cheap because another twenty buy it and the classic value
Speaker 4: trapped territory. So price pomentum does matter to us.
Speaker 1: So your research process integrates not just traditional analysis, but
Speaker 1: also incorporates, you know, journalists, domain experts, others. Can you
Speaker 1: share an example of, you know where a non traditional
Speaker 1: perspective may have shifted your investment view.
Speaker 4: Absolutely, and it's the non traditional team that truly has
Speaker 4: some of the most differentiated views on our investment team.
Speaker 4: Where these are folks who have previously worked as investigated journals, journalists.
Speaker 4: There's the Wall Street journal or Barons or so Reuters,
Speaker 4: and they approached the world very differently. They're not actually
Speaker 4: allowed to talk to the investment team the traditional side.
Speaker 4: They're working in a vacuum. They don't read seal side research.
Speaker 4: They actually go on the ground and talk to people,
Speaker 4: whether it's former employees, regulators and things of that sort.
Speaker 4: And they've been a couple of examples where it's helped
Speaker 4: avoid blow ups but also find incredibly attractive opportunities.
Speaker 3: So I'll give a few.
Speaker 4: One would have been the technology sector. Actually, back in
Speaker 4: twenty twenty one, as I mentioned earlier, we made a
Speaker 4: large pivot from IT tech to energy, which paid out
Speaker 4: well in twenty twenty two. One of the interesting data
Speaker 4: points we found was the non traditional team had been
Speaker 4: talking to a lot of recruiters in Silicon Valley and
Speaker 4: the feedback they started hearing by summer twenty twenty one,
Speaker 4: where job offers were getting yanked. You're seeing reduced hiring
Speaker 4: across the board. And that was surprising because at that
Speaker 4: point you might remember, the technology companies were talking about growth,
Speaker 4: very strong growth into perpetuity revenue, strong, business outlooks strong,
Speaker 4: but quietly.
Speaker 3: They weren't hiring people anymore.
Speaker 4: And so when you see in disconnects like that, that
Speaker 4: cast your attention. Now, that's not the only data point
Speaker 4: we looked at, but that helped fit this mosaic that
Speaker 4: maybe things aren't all hunky dory the way people thought
Speaker 4: they were back in twenty twenty one. Another example would
Speaker 4: be on the emerging market side. We did a lot
Speaker 4: of work a few years ago on a coffee company
Speaker 4: called luckin Coffee in China, which maybe I remember it
Speaker 4: was a very hot IPO, supposed to be the next
Speaker 4: star Books of China. Our non traditional team did a
Speaker 4: lot of work and they were able to find core
Speaker 4: filings that show the founder at a criminal track record,
Speaker 4: obviously was not being talked about on the prospectus, and
Speaker 4: we were able to avoid that company ended up becoming
Speaker 4: a fraud a few years later. And so we've seen
Speaker 4: it add a lot of value in terms of truly
Speaker 4: differentiated insights versus what you read from Wall Street, the
Speaker 4: echo chamber of Wall Street.
Speaker 2: That's interesting about Luck And I remember that IPO that
Speaker 2: was a hot IPO. I didn't realize it was a fraud. Wow,
Speaker 2: good good job avoiding that one. I would love to
Speaker 2: hear about like stock waiting schemes, you know, is it
Speaker 2: just like weight? Is there a discretion amount of waiting?
Speaker 2: Is there like a quant process like a Marcowitz type situation?
Speaker 2: How do you think about waiting your stocks?
Speaker 4: So we've the camp of hold all your eggs in
Speaker 4: one basket and watch it closely. So typically the top
Speaker 4: ten names can be roughly fifty percent of our strategy.
Speaker 4: Top twenty seventy percent and the biggest name will be
Speaker 4: ten percent for context, and so we do like to
Speaker 4: run a concentrated strategy, and.
Speaker 3: The way we think about it is almost from.
Speaker 4: A credit perspective or a credit mindset, where it's not
Speaker 4: about find the names that have the most raw upside,
Speaker 4: it's find the names where it can lose.
Speaker 3: The least amount of money in.
Speaker 4: And so a name could have three hundred percent upside,
Speaker 4: but if you're wrong, you lose fifty percent. That deserves
Speaker 4: a spat on the portfolio. But we wouldn't make it
Speaker 4: a ten percent position. So the quality of the business
Speaker 4: plays a huge role in terms of how we size
Speaker 4: these bets. The second thing is also we're focused on
Speaker 4: very large liquid names because we do change our minds
Speaker 4: a lot, and that's what's kept us in the game
Speaker 4: over the long run. Where the beauty about the process
Speaker 4: here is it's a super lean team, very fast decision making,
Speaker 4: and so the moment we see the earnings deteriorate, we
Speaker 4: can sell out a large position overnight. There's no investment committee,
Speaker 4: there's no deck you have to put together, and so
Speaker 4: that really is a risk management process is cutting back
Speaker 4: losses when the markets move against you materially, earnings are deteriorating,
Speaker 4: or there's a macro risk potentially looming. And I think
Speaker 4: the historical context for that is when you think of
Speaker 4: Ragie's early career, I mean, starting off in the nineties
Speaker 4: as an em manager, you're forced to risk management is
Speaker 4: deeply ingrained in the DNA, and so that's what still
Speaker 4: plays a role. So there's not a stop loss mechanism
Speaker 4: or anything like that, use of much faster, quick when
Speaker 4: you see fundamentals even marginally deteriorate.
Speaker 2: That's so interesting. Yeah, you kind of mentioned like using
Speaker 2: price momentum as a bit of a risk management to whenounce.
Speaker 2: You kind of got ahead of me on my next question,
Speaker 2: which was like about risk management. So basically, it's not
Speaker 2: a systematic process. It's not a stop loss in the market.
Speaker 2: You assess the market, you assess you know, your view
Speaker 2: of earnings or the price momentum or something, and then
Speaker 2: you can quickly make decision to pull the plug per se,
Speaker 2: with no investment meetings or investment committees or anything like
Speaker 2: that exactly.
Speaker 4: And in our first gut reaction, when a name moves
Speaker 4: maturely against the frankly, is that we're wrong until proven otherwise.
Speaker 3: A lot of managers like.
Speaker 4: To view the in terms of a stall goes down
Speaker 4: twenty percent, you should buy more and more attractively priced,
Speaker 4: which is true in theory, but that also assumes that
Speaker 4: the fundamentals haven't changed at all. The reality of large
Speaker 4: gap investing today, it's so efficient that generally speaking, when
Speaker 4: I stop gaps on twenty percent, don you something is
Speaker 4: fundamentally changed, And it could be the other way around
Speaker 4: as well. Sawcolls are twenty thirty percent large care well covered.
Speaker 4: Something's happened, and you better understand why.
Speaker 2: I totally agree.
Speaker 1: So I want to go back to valuation just a
Speaker 1: little bit. You know, if you have a situation where
Speaker 1: there's a very high quality company but it's trading at
Speaker 1: a less than ideal valuation, how do you look at it,
Speaker 1: you know, you know, in terms of you know, waiting,
Speaker 1: you know, risking the opportunity gets away, or kind of
Speaker 1: going into it at what you may not consider an
Speaker 1: ideal valuation.
Speaker 3: Yeah, So I think the a couple of things. One
Speaker 3: is that we actually urge all the.
Speaker 4: Investment team members to look at valuation last when it
Speaker 4: comes to the analysis. The reason for that is if
Speaker 4: you start, let's say I tell you to look at
Speaker 4: Into Surgical for example, it's a high quality robotics company.
Speaker 4: This name trad is that generally fifty to seventy times
Speaker 4: earning is always super expensive. If you start with valuation first,
Speaker 4: it makes it, it doesn't. You need to first understand
Speaker 4: the business, the long term growth runway, the barriers to entry,
Speaker 4: and then you can value it. So it's a timing
Speaker 4: thing we would urge everyone to do. Second is you
Speaker 4: need to have conviction in the long term runway and
Speaker 4: the barriers. And when we like to say that the
Speaker 4: air gets very thin at the top of the mountain,
Speaker 4: you can't have any misses.
Speaker 3: We're fine paying up and we paid.
Speaker 4: We've owned companies in the past trading at sixty seventy
Speaker 4: times revenue in the past rarely, but it does happen.
Speaker 4: You have to have conviction of the earning trajectory and
Speaker 4: there's no room for error. You also have to have
Speaker 4: conviction that the street is missing something. Where this is
Speaker 4: a high multiple name that street expects to grow a
Speaker 4: twenty percent a year, but you think it's a thirty
Speaker 4: percent grower. That's extremely interesting. The vice versa is not
Speaker 4: where stream expects thirty percent, you think it's will be
Speaker 4: twenty percent. So again, the rate of change and the
Speaker 4: disconnect versus market expectation matters a lot, especially when it's
Speaker 4: such a high multiple name you have no room brearer.
Speaker 4: Last thing I'll say is that there's an opportunity cost
Speaker 4: element where there's a lot of big world out there,
Speaker 4: what is what is the opportunity on Maybe there's another sector,
Speaker 4: another company that's more interesting, that's more attractively valued, which
Speaker 4: is why I said earlier where pre COVID we felt
Speaker 4: much more comfortable paying up for growth because there weren't
Speaker 4: a million options out there. Today, the investible universe, whether
Speaker 4: it's from a country perspective, you look at emerging markets
Speaker 4: or Europe, it's much broader than it's been for in
Speaker 4: a very long time, and so we feel less the
Speaker 4: need to chase high multiple names today.
Speaker 1: Okay, and we just got one more question, and this
Speaker 1: kind of a second waiting question. You know, the US
Speaker 1: equity Value fund is a US quality value fund, is
Speaker 1: non diversified, so you know it's it's typically going to
Speaker 1: be more concentrated than some of the more diversified funds.
Speaker 1: How do you know, just look at position sizing in
Speaker 1: terms of concentration and you know balancing risk reward trade
Speaker 1: offs of fewer names.
Speaker 4: So our view is you have to make big bets.
Speaker 4: That's the reason for active management. We do not believe
Speaker 4: in Benchamarhaggey. We are completely benchmark agnostic, and you can
Speaker 4: see by our tech positioning where it's gone from seventy
Speaker 4: percent tech to zero, back to seventy and everything in between.
Speaker 4: But the caveat is when you're making these big bets,
Speaker 4: you do have to have a deep respect for price
Speaker 4: action and selling quickly when the fundamentals are deteriorating. The
Speaker 4: easiest way to blow up is you have a large position.
Speaker 4: That's the fundamentals are getting worse and you don't cut
Speaker 4: back risk immediately, which is why if you look at
Speaker 4: our turnover, it's typically north of fifty percent, which is
Speaker 4: quite high for a long only manager.
Speaker 3: And then that is part of the risk manage element.
Speaker 4: We also believe in macro in terms of a risk
Speaker 4: off tool.
Speaker 3: We are a bottom up shop.
Speaker 4: We won't buy a name because of a good macro setup,
Speaker 4: but if we feel there's a clear macro risk pending,
Speaker 4: we'll cut back risk aggressively.
Speaker 3: And this goes back to again Rodger being an EA.
Speaker 4: Manager hard back in the thirties and in the nineties
Speaker 4: and then so a class example would be back in
Speaker 4: twenty twenty one twenty twenty two, where the mistake a
Speaker 4: lot of quality managers missed made was not appreciating macro
Speaker 4: where what is the impact of higher rates, higher inflation
Speaker 4: on tech valuations. That was a fundamental issue that many
Speaker 4: quality managers missed. But our view was the macro. Respect
Speaker 4: for macros helped us preserve capital in bear markets. So
Speaker 4: these are some of the things that play a role
Speaker 4: in terms of how we size bets, how risk on
Speaker 4: we are at any given moment and not that makes sense.
Speaker 1: Well, unfortunately we have to end here, but this is
Speaker 1: a great conversation. Thank you so much said for.
Speaker 3: Joining us shoe the time. Guys, thanks again, thank you.
Speaker 1: And Chris, thanks again for being my host. Thank you,
Speaker 1: and I want to thank our listeners. If you liked
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