WEBVTT - Making the Case for Active Investing 0:00:03.120 --> 0:00:11.239 Bloomberg Audio Studios, podcasts, radio news. John Man, you know, 0:00:11.320 --> 0:00:13.600 we were chatting before we started recording, and you said 0:00:13.600 --> 0:00:15.720 something I didn't think i'd ever hear you say. You 0:00:15.840 --> 0:00:18.640 said just a matter of seconds ago, so you can't 0:00:18.680 --> 0:00:22.880 deny it. You said, you know, those charters they're onto something. 0:00:23.120 --> 0:00:23.960 I think they're right. 0:00:25.800 --> 0:00:29.000 I will, I will. I'm more than happy to acknowledge 0:00:29.040 --> 0:00:32.479 that I am proudly chartist. 0:00:32.520 --> 0:00:32.920 Curious. 0:00:33.560 --> 0:00:36.680 It's one of those it's one of those great things 0:00:36.680 --> 0:00:40.159 where see you, if you're talking to someone who's a 0:00:40.200 --> 0:00:43.920 nervous financial journalist, one of the first things they'll say 0:00:44.159 --> 0:00:48.160 is this charting stuff's just a lot of hocus pocused nonsense. 0:00:48.760 --> 0:00:51.040 But once you've been kind of in the markets for wile, 0:00:51.040 --> 0:00:53.440 we realize that it is as good a way to 0:00:53.640 --> 0:00:57.320 analyze markets as anything else. And if you are actually 0:00:57.400 --> 0:01:00.640 looking at markets on any time horizon that is not 0:01:00.680 --> 0:01:05.280 amenable to fundamentals, which is practically everything from five years down, 0:01:05.760 --> 0:01:08.440 then technicals are about the only thing you've got, and 0:01:08.480 --> 0:01:13.560 that a really good reflection of behavior and psychology in 0:01:13.600 --> 0:01:16.600 the market. So yes, I say, I am. I have 0:01:16.680 --> 0:01:21.520 a lot of time for technical analysis, and you're. 0:01:21.400 --> 0:01:23.800 Talking to someone who once wrote a column, admittedly a 0:01:23.840 --> 0:01:26.319 couple of decades ago, about how the movements of the 0:01:26.360 --> 0:01:30.160 moon could influence the stock markets. I'm sure that, by 0:01:30.200 --> 0:01:33.319 the way, I still have some sympathy for the idea. 0:01:33.360 --> 0:01:36.600 I still have some sympathy the ideas. I'm definitely chart 0:01:36.760 --> 0:01:39.520 is curious as well. And of course, I mean this 0:01:39.560 --> 0:01:41.920 is really just about momentum. And we started talking about 0:01:42.000 --> 0:01:44.000 charting before we started recording, because I was telling you 0:01:44.040 --> 0:01:46.319 about a conversation I'd had with a fund manager and 0:01:46.480 --> 0:01:49.360 we were talking about executive pay and all this fuss around, 0:01:49.400 --> 0:01:54.320 you know, ocado this week and stock exchange last week, etc. 0:01:54.600 --> 0:01:58.720 About whether it's reasonable for CEOs to be paid ten 0:01:58.720 --> 0:02:01.080 to fifteen million pounds year, admittedly less than they get 0:02:01.080 --> 0:02:02.720 at the top in the US, but nowethertheless, you know 0:02:02.720 --> 0:02:04.920 a lot of money. Is it reasonable? Is there a 0:02:04.960 --> 0:02:06.720 link between pay and performance? I mean, it's such a 0:02:06.720 --> 0:02:08.680 boring conversation. We have it over and over and over 0:02:08.720 --> 0:02:11.480 and Overright, you can find a study to back up 0:02:11.520 --> 0:02:14.720 either side whenever you like. Anyway, having this conversation and 0:02:14.760 --> 0:02:16.320 I said to him, well, you know, do you is 0:02:16.360 --> 0:02:18.280 this the kind of thing that might be a catalyst 0:02:18.280 --> 0:02:20.440 for the market what would make the UK market go 0:02:20.600 --> 0:02:23.640 up properly? And he said, well, what will make the 0:02:23.639 --> 0:02:26.440 market go up properly? Is it going up? Because all 0:02:26.480 --> 0:02:30.120 fund managers, all fund managers, whatever they tell you in 0:02:30.160 --> 0:02:32.680 the end, are to a degree momentum investors. And that's 0:02:32.680 --> 0:02:35.880 particularly the case with global investors. They won't buy something 0:02:35.919 --> 0:02:38.160 because it's cheap, they won't buy something because it's interesting. 0:02:38.200 --> 0:02:40.959 They won't buy something because of some sort of macrofaf 0:02:41.120 --> 0:02:43.919 They'll buy it because it's already going up. That's it, 0:02:44.040 --> 0:02:44.679 That's all there is. 0:02:45.520 --> 0:02:49.920 Yeah, and I mean benchmarking leads to this. You know, 0:02:50.280 --> 0:02:54.639 it's like if some's going up and you're not in it, 0:02:55.320 --> 0:02:57.920 then chances are you're going to be in trouble the 0:02:57.960 --> 0:03:03.040 next time you see your investors. So it does encourage it. 0:03:03.160 --> 0:03:04.560 And at the end of the day, the foot SAE 0:03:04.560 --> 0:03:07.480 one hundred has now going to a new high a 0:03:07.520 --> 0:03:09.560 while at the same time, the S and P five 0:03:09.639 --> 0:03:11.640 hundred has come off the boil, which I think is 0:03:11.680 --> 0:03:16.360 also important. And you've also got like this massive merger 0:03:17.000 --> 0:03:20.920 deal with BHP buying Anglo or you know, trying to 0:03:20.919 --> 0:03:23.480 buy Anglo, so that's suddenly drawing a load of attention 0:03:23.600 --> 0:03:26.040 to it, and I mean, to be fair. What's his name, Nick? 0:03:27.120 --> 0:03:31.760 Of course, sorry Nick? Nick Train said that to you 0:03:31.840 --> 0:03:34.560 the other day. You were mentioning that on last week's 0:03:34.600 --> 0:03:38.760 podcast the catalyst was going to be a foot sae 0:03:38.760 --> 0:03:41.360 one hundred deal, and you know, I think that's a 0:03:41.400 --> 0:03:44.760 reasonable point. So it's in the news. It's going up. 0:03:44.840 --> 0:03:47.400 Suddenly people are saying, wait a minute, maybe maybe the 0:03:47.480 --> 0:03:51.800 UK is not a complete disaster after all. So yeah, 0:03:52.040 --> 0:03:52.400 I guess. 0:03:52.800 --> 0:03:53.000 Yeah. 0:03:53.320 --> 0:04:00.000 Charts reflect psychology, and the psychology hopefully possibly has changed. 0:04:00.240 --> 0:04:03.240 Goven that the fundamentals are already there. No, we've been 0:04:03.280 --> 0:04:05.600 saying for ages that is cheap. So if it needs 0:04:05.600 --> 0:04:08.480 a catalyst, then a new high and a big deal 0:04:09.040 --> 0:04:09.960 sort of makes sense. 0:04:11.080 --> 0:04:12.520 Is that what your chart tells you? John? 0:04:13.280 --> 0:04:16.839 Yep, yep, New highs, beget new highs. That's what they 0:04:16.880 --> 0:04:20.800 always say, until you hit the next febnit tee number. 0:04:21.200 --> 0:04:24.400 That's properly, that's properly getting the right twisted. 0:04:24.480 --> 0:04:26.960 Okay, So marcuts go up because they go up. You 0:04:27.080 --> 0:04:31.279 heard it here. First, tell your friends. I wanted to 0:04:31.320 --> 0:04:33.520 ask you another question, and I don't. I don't know 0:04:33.520 --> 0:04:35.400 if you if you haven't looked at this, don't say anything. 0:04:35.400 --> 0:04:39.040 But John, a few weeks ago, maybe a few months ago, now, 0:04:39.120 --> 0:04:41.960 you wrote about China and you said you wouldn't buy 0:04:42.000 --> 0:04:44.400 it because it was uninvestable from your point of view, 0:04:44.440 --> 0:04:46.480 but nonetheless you thought it would probably go up and 0:04:46.520 --> 0:04:48.039 now would be a good time in the cycle to 0:04:48.080 --> 0:04:51.360 start buying into China. And that kind of looks right, 0:04:51.400 --> 0:04:54.120 doesn't it, because China is at the very least stopped falling. 0:04:55.080 --> 0:04:57.760 Yeah, and it did go up since then. I hate 0:04:57.800 --> 0:05:00.279 them out. Haven't properly looked at the chart. It's the 0:05:00.320 --> 0:05:03.400 exact team that I said, you should buy it if 0:05:04.120 --> 0:05:05.480 you have no models. 0:05:06.080 --> 0:05:07.640 I only ask you, John, because I've been reading a 0:05:07.680 --> 0:05:10.479 little bit of research from gav Cal Research where they 0:05:10.720 --> 0:05:12.280 have this great little bit of research they put up 0:05:12.279 --> 0:05:14.200 every now and then where they just ask questions and 0:05:14.279 --> 0:05:16.520 answer the questions, and one of them is about China, 0:05:16.560 --> 0:05:19.320 and they're pointing out that even a couple of months ago, 0:05:19.480 --> 0:05:22.119 bad news would have pushed equities down ten twenty percent 0:05:22.560 --> 0:05:24.680 drop of the hat because everything was bad and everyone 0:05:24.760 --> 0:05:27.640 was pulling out. But now lots of nasty macro developments 0:05:27.640 --> 0:05:30.599 for the Chinese markets. So a strong US dollar, rising 0:05:30.640 --> 0:05:32.840 treasury eels collapsing again, except when these are the kinds 0:05:32.839 --> 0:05:34.080 of things that in the past would have made the 0:05:34.160 --> 0:05:36.360 Chinese market go down, down, down, but now it's just 0:05:36.480 --> 0:05:38.680 kind of fair going up, and so they see a 0:05:38.760 --> 0:05:41.000 momentum driven shift there as well. So if we would 0:05:41.000 --> 0:05:45.280 go back to your charts or the moon, we may 0:05:45.360 --> 0:05:47.440 find that we're being told there that right now, while 0:05:47.800 --> 0:05:51.400 we might continue to say that China is uninvestable, its 0:05:51.480 --> 0:05:52.719 behavior is slightly different. 0:05:53.560 --> 0:05:56.960 Yeah, And I mean that's kind of the piece at 0:05:57.000 --> 0:05:59.000 the start of the year saying that it was the 0:05:59.080 --> 0:06:02.000 most obvious can trade and trade for twenty twenty four 0:06:03.279 --> 0:06:05.080 and that I still wouldn't put my money in it, 0:06:05.240 --> 0:06:08.560 but you know, feel free, and yeah, it looks if 0:06:08.600 --> 0:06:10.400 it's done, okay. I mean the other interesting thing I 0:06:10.520 --> 0:06:12.640 noticed was that, and I haven't read the actual piece 0:06:12.720 --> 0:06:16.520 behind this, but Goldman Sachs were apparently saying expected rotation 0:06:16.720 --> 0:06:20.920 now from unfortunately from Japanese stocks into Hong Kong stocks, 0:06:22.160 --> 0:06:23.720 and I thought that was an interest in coll because 0:06:23.720 --> 0:06:26.840 I also saw a note from my chap that we 0:06:26.960 --> 0:06:29.960 both knows friend lorenz On LinkedIn the other day where 0:06:30.040 --> 0:06:32.320 he was saying he's just current on a research trip 0:06:32.360 --> 0:06:34.760 in Hong Kong and a guy he was speaking to 0:06:34.880 --> 0:06:38.000 there was saying that he's had a lot more fund 0:06:38.040 --> 0:06:41.200 managers coming to see him asking about Hong Kong stocks. Then, 0:06:41.560 --> 0:06:44.000 you know, I think the same number in the quarter 0:06:44.080 --> 0:06:47.000 as he normally sees in the whole year. So I 0:06:47.080 --> 0:06:49.960 think there's definitely a sense of chasing around for things 0:06:50.000 --> 0:06:55.240 that haven't gone up, because beyond that, it's hard to 0:06:55.320 --> 0:07:01.080 see the micro story hasn't really changed that much. Is 0:07:01.160 --> 0:07:03.320 more just at the point where people are thinking. 0:07:05.120 --> 0:07:05.480 Why not. 0:07:05.680 --> 0:07:08.880 And I guess also with the S and P getting 0:07:08.960 --> 0:07:11.480 a little bit, I don't know, it feels as if 0:07:11.520 --> 0:07:16.040 the mootor has changed slightly and maybe they kind of lagguards, 0:07:16.080 --> 0:07:18.640 which is basically the rest of the world are going 0:07:18.680 --> 0:07:20.600 to start having the time in a sign I don't know. 0:07:21.520 --> 0:07:23.480 And you know you need in this kind of environment, John, 0:07:24.840 --> 0:07:25.120 what's that? 0:07:25.280 --> 0:07:25.559 Sorry? 0:07:26.440 --> 0:07:27.200 You know what you need? 0:07:27.320 --> 0:07:29.280 And what do we need? 0:07:29.960 --> 0:07:32.040 What do you need? You need an active fund manager? 0:07:32.360 --> 0:07:37.080 Ah, that's a good transition out like that one, Thank you, thank. 0:07:36.920 --> 0:07:40.120 You, so moving on, So my guest this week John 0:07:40.280 --> 0:07:42.240 is Simon Evan Cook, who I've known for a long 0:07:42.280 --> 0:07:44.360 time now. I've been reading his research for fifteen years 0:07:44.480 --> 0:07:48.120 or so, and here's someone who really really knows about 0:07:48.320 --> 0:07:52.000 active fund management and how to pick a good active manager. 0:07:52.040 --> 0:07:53.920 Which is why I wanted to have him on at 0:07:54.120 --> 0:07:57.560 this point in the cycle, because it definitely feels to 0:07:57.800 --> 0:08:01.320 me like all change in the mind is everything widening out, 0:08:01.440 --> 0:08:05.160 everything moving around, magnificent seven in the US losing momentum. 0:08:05.480 --> 0:08:07.800 It looks like it might be if you're interested in 0:08:07.840 --> 0:08:10.559 this kind of thing, time to think about moving away 0:08:10.640 --> 0:08:13.440 from passive investments into something a little bit more active. 0:08:13.680 --> 0:08:16.040 It's very good at it, so that's why I asked 0:08:16.080 --> 0:08:16.320 him on. 0:08:17.240 --> 0:08:19.240 Well, I mean, I'm looking forward to here in this 0:08:19.360 --> 0:08:23.080 one because it is probably the single most controversial topic 0:08:23.400 --> 0:08:26.280 in investing active versus passive. 0:08:27.400 --> 0:08:29.120 It's emperting, isn't it? Because you and I we got 0:08:29.320 --> 0:08:31.920 you know, years ago as soon as that when passive 0:08:32.000 --> 0:08:34.600 really began to take off. We were so pro passive 0:08:34.679 --> 0:08:36.920 because we were so thrilled to see something that there 0:08:37.040 --> 0:08:40.400 was cheap and that would drive down fees across the industry. 0:08:40.679 --> 0:08:43.920 And it did exactly that. It's been a brilliant product 0:08:44.000 --> 0:08:47.880 for millions of millions of invested, Absolutely fantastic. But there 0:08:48.000 --> 0:08:50.960 comes a point, doesn't that, and I'm obviously two ear 0:08:51.000 --> 0:08:52.480 leagues that have been with everything for the last three 0:08:52.559 --> 0:08:54.120 or four years, I've going, oh, I don't know, that's 0:08:54.120 --> 0:08:56.120 a bit much passive. Maybe it's time for a shift. 0:08:56.200 --> 0:08:58.319 Maybe it's the age of the stock picker is back 0:08:58.400 --> 0:09:00.679 with us. Time to go back to active. One of 0:09:00.720 --> 0:09:02.600 the reasons why it's safe to go back to well 0:09:02.640 --> 0:09:04.599 say further than it used to be because fees have 0:09:04.720 --> 0:09:06.559 come down so much. And when you look at the 0:09:06.640 --> 0:09:09.160 fund when you're looking to invest, you look at the vehicle. 0:09:09.320 --> 0:09:11.640 The only thing you can know in advance is the 0:09:11.679 --> 0:09:14.320 compt You can't know anything else. So in the old days, 0:09:14.360 --> 0:09:15.959 when you look at a fund and you're like, wow, 0:09:16.000 --> 0:09:17.600 one and a half percent really And then of course 0:09:17.640 --> 0:09:19.319 in the old days there with that to you know, 0:09:19.400 --> 0:09:21.199 you had to pay that drag to your IFA for 0:09:21.320 --> 0:09:23.800 decades and all that kind of thing. It was super expensive. 0:09:23.920 --> 0:09:25.520 So the only thing you when you looked at it 0:09:25.760 --> 0:09:27.760 was wow, this is going to be a real drag 0:09:27.840 --> 0:09:29.959 on my performance, whereas you looked at passive, you know, 0:09:30.240 --> 0:09:31.840 not going to be such a drag on my performance. 0:09:31.880 --> 0:09:33.000 So the choice was kind of easy. 0:09:33.559 --> 0:09:37.679 Yeah, And I think it's interesting that the debate has 0:09:37.720 --> 0:09:42.160 become so polarized because passive took off to such an extent. 0:09:42.720 --> 0:09:45.599 But since those days when we were talking about it, 0:09:46.200 --> 0:09:49.239 the course on the active said half come down substantially. 0:09:49.480 --> 0:09:51.480 I mean, so you know we're talking maybe like twenty 0:09:51.600 --> 0:09:55.280 years ago. This was when I fees, as you said, well, 0:09:55.360 --> 0:09:58.640 basically getting paid commission from find managers for selling the 0:09:58.720 --> 0:10:01.800 products in their behalf. That will win out the window. Thankfully, 0:10:03.040 --> 0:10:05.920 the act of funds one more expensive and once ther 0:10:06.040 --> 0:10:09.160 came along and the passive competition that started to drive 0:10:09.240 --> 0:10:11.400 down the course of the active funds. So a lot 0:10:11.440 --> 0:10:14.400 of the arguments that were extremely cut and dried back 0:10:14.480 --> 0:10:17.760 then are not as cut and dried now. And yet 0:10:17.800 --> 0:10:22.480 the argument I would say has become far more will polarized. Basically, 0:10:22.720 --> 0:10:28.880 there's almost a kind of passive, kind of puritanical streak. 0:10:29.200 --> 0:10:31.640 In fact, I think we'll get more hate mail about 0:10:31.679 --> 0:10:33.920 this than we do when we see nasty stuff about 0:10:34.000 --> 0:10:35.480 MMT or bitcoin. 0:10:35.640 --> 0:10:36.520 And that is saying, some. 0:10:38.120 --> 0:10:42.520 Gosh say something. They say something nasty about Scottish politics, 0:10:42.640 --> 0:10:46.000 if that gets us more hate mail. But no, you're right, 0:10:46.080 --> 0:10:50.520 it has become a bizarrely polarized conversation and a conversation 0:10:50.600 --> 0:10:52.319 that is less about, you know, if there's a good 0:10:52.360 --> 0:10:54.400 way to combine the two, or a good way to 0:10:54.559 --> 0:10:56.360 use one in fun parts of the cycle and one 0:10:56.400 --> 0:10:59.120 another parts of the cycle, etcetera, to a complete division 0:10:59.160 --> 0:11:04.000 between only or only active. You're interesting anyway. Simon knows 0:11:04.040 --> 0:11:06.079 all this stuff, So we're going to move on to 0:11:06.200 --> 0:11:12.480 talk to the expert. Welcome to Maren Dogs Money, the 0:11:12.520 --> 0:11:15.160 podcast in which people who know the markets explain the markets. 0:11:15.200 --> 0:11:17.640 I'm there in Sunset weeb Here's my conversation with Simon 0:11:17.679 --> 0:11:20.240 Evan Cook, fund manager at Downing. Simon has more than 0:11:20.280 --> 0:11:23.600 twenty five years experience in the investment industry. Career started 0:11:23.679 --> 0:11:26.640 a long time ago at Fidelity before joining Rothschild Asset 0:11:26.679 --> 0:11:29.439 Management and then gartmore on to Premier Asset Management in 0:11:29.480 --> 0:11:31.800 two thousand and six. And this is where I first 0:11:31.840 --> 0:11:34.640 came across Simon and where he built his reputation as 0:11:34.760 --> 0:11:37.079 a member of an award winning multi asset team there 0:11:37.160 --> 0:11:39.760 and also wrote the fascinating research that we refer to 0:11:39.960 --> 0:11:42.400 pretty much all the way through our conversation. In twenty 0:11:42.480 --> 0:11:44.560 twenty two, he joined Downing to set up a manager 0:11:44.640 --> 0:11:50.200 Downing Fox range of funds, Simon, Thank you so much 0:11:50.240 --> 0:11:51.000 for joining us today. 0:11:51.320 --> 0:11:52.520 Hi, Maren, glad to be here. 0:11:52.679 --> 0:11:54.280 Now we have got a lot to get through, but 0:11:54.360 --> 0:11:57.280 I want to set us up by asking you to 0:11:57.400 --> 0:11:59.400 talk a little bit about you're in active manager. I 0:11:59.440 --> 0:12:01.880 think maybe clear now you're an active manager. I want 0:12:01.960 --> 0:12:03.760 to shut us up by asking you to talk a 0:12:03.800 --> 0:12:06.360 little bit about the rise of passive and what it's 0:12:06.480 --> 0:12:08.880 meant for the investment community as a whole. 0:12:09.600 --> 0:12:12.160 Yes, absolutely so. It's something I've come to peace with. 0:12:12.240 --> 0:12:13.959 If you've ever read any of my stuff, you know 0:12:14.080 --> 0:12:17.800 that I'm a massive advocate of active investing. I'm not 0:12:17.880 --> 0:12:20.479 an apologist for all active investors. I'm only an apologist 0:12:20.559 --> 0:12:22.280 for the great ones. So I think that's all we 0:12:22.320 --> 0:12:24.440 should be concerning ourselves with. But when you look at 0:12:24.920 --> 0:12:27.839 passive and the rise of it, it's something I've come 0:12:27.920 --> 0:12:30.680 to peace with recently. I used to almost attack anything 0:12:30.760 --> 0:12:33.320 passive just in the name of active, but I can 0:12:33.400 --> 0:12:37.240 now see that if Jack Bogel, the founder of Vanguard 0:12:37.320 --> 0:12:40.360 and basically the kind of father of passive investing, was 0:12:40.440 --> 0:12:43.480 a brit I fully concede that he should have been knighted, 0:12:43.640 --> 0:12:48.480 because he's probably done more for private or small individual 0:12:48.559 --> 0:12:51.400 wealth than anybody in history, because that product is a 0:12:51.440 --> 0:12:54.640 great thing, and it originally came about to solve a problem, 0:12:54.720 --> 0:12:57.880 which was that go back to the sixties and you 0:12:58.000 --> 0:13:01.199 had a lot of brokers and wealth who were picking 0:13:01.280 --> 0:13:05.400 I don't know, let's say twenty stocks, and those stocks 0:13:05.480 --> 0:13:07.440 would go up a lot, and then they would claim 0:13:07.520 --> 0:13:09.760 that was down to their skill. Now, of course, all 0:13:09.840 --> 0:13:12.959 stocks basically go up nearly all the time, so you 0:13:13.080 --> 0:13:14.679 could have bought anything and it would have gone up. 0:13:14.679 --> 0:13:16.480 So how do you know if that person was actually 0:13:17.120 --> 0:13:18.760 conning you or any good at their job at all? 0:13:19.000 --> 0:13:22.520 You didn't basically, whereas obviously the rise of benchmarks and 0:13:22.600 --> 0:13:24.880 then passive with that gave people an option to say, well, 0:13:24.880 --> 0:13:27.720 hang on a minute, mate, you're not actually picking good companies, 0:13:27.760 --> 0:13:30.000 so you're just buying any companies and then just conning 0:13:30.040 --> 0:13:32.719 them onto me. So the launch of that was a 0:13:32.800 --> 0:13:35.599 great thing. It's clearly gone from being a kind of 0:13:35.840 --> 0:13:41.080 disruptive small product in the seventies all the way through 0:13:41.280 --> 0:13:44.439 to where it is today, where it is he behemoth. 0:13:44.520 --> 0:13:48.360 It's a juggernault. It's various reports have the passive part 0:13:48.400 --> 0:13:52.120 of the market being more than fifty percent now so 0:13:52.440 --> 0:13:55.600 on that level, it's been an incredible success. But along 0:13:55.640 --> 0:13:58.439 the way you've had bumps in what it's done and 0:13:58.520 --> 0:14:01.199 how it's been perceived. But you're also now getting to 0:14:01.240 --> 0:14:05.559 the point where it's so huge that it's becoming potentially 0:14:05.679 --> 0:14:08.240 big enough to have its own impact on the market. 0:14:08.320 --> 0:14:10.800 And that to me is it's certainly raising a lot 0:14:10.840 --> 0:14:11.440 of concerns. 0:14:11.760 --> 0:14:15.120 Yeah, but let's stick with the core success before we beginning. 0:14:15.120 --> 0:14:16.520 And one of the things that's happened here is is 0:14:16.760 --> 0:14:18.800 enabled a lot of people to come into the market 0:14:19.200 --> 0:14:23.480 cheaply and easily track a benchmark, feel like they're doing everything. 0:14:23.840 --> 0:14:27.440 It feels low risk, it feels comprehensive, it is cheap. 0:14:27.840 --> 0:14:30.440 And I went on a podcast the other day which 0:14:30.520 --> 0:14:33.360 is aimed at beginner investors and people just beginning to 0:14:33.400 --> 0:14:35.720 get to start in the markets, et cetera. And their 0:14:35.840 --> 0:14:39.440 default advice to all investors is just to buy a 0:14:39.720 --> 0:14:41.800 global index man and be done with the whole thing. 0:14:42.120 --> 0:14:45.720 And that has been excellent advice for quite a long 0:14:45.880 --> 0:14:48.200 time now. You couldn't really go wrong with that, given 0:14:48.280 --> 0:14:50.000 that the US market just goes up and up, and 0:14:50.000 --> 0:14:53.120 then a global index treker is what about seventy percent 0:14:53.320 --> 0:14:55.880 the US, So you've got a lot of exposure in there, 0:14:56.000 --> 0:14:58.400 to the Magnificent Seven, to the big tech socks in 0:14:58.440 --> 0:15:00.040 the US, you've got a lot of exposure to the 0:15:00.080 --> 0:15:02.680 rest of the US market and very little exposure to 0:15:02.800 --> 0:15:04.360 the areas and the rest of the world that have 0:15:04.480 --> 0:15:06.640 been languishing around the place. So you've made good money, 0:15:06.680 --> 0:15:08.760 you haven't paid very much for it. That's been great. 0:15:09.080 --> 0:15:11.280 And at the same time that passive industry has put 0:15:11.400 --> 0:15:13.720 a lot of pressure on the rubbish parts of the 0:15:13.800 --> 0:15:17.520 active market, right, So Yes, work to bring down fees 0:15:17.560 --> 0:15:19.800 across the board because if you can get if you 0:15:19.880 --> 0:15:22.880 can get a good etf for a couple of basis points, 0:15:22.920 --> 0:15:24.200 why would you want to pay one and a half 0:15:24.240 --> 0:15:27.280 percent for allows the active manager, Alice, put pressure on 0:15:27.320 --> 0:15:28.640 that part of the market that you and I have 0:15:28.720 --> 0:15:30.960 often talked about before, the sort of the closet tracker, 0:15:31.120 --> 0:15:33.560 the active managers who are to actually activity all Yes, 0:15:33.640 --> 0:15:35.720 the tracker and they've paid, and they charge you more. 0:15:35.800 --> 0:15:39.800 So there've been great successes from passive before we look 0:15:39.800 --> 0:15:42.560 at the overall impact on that it might now have 0:15:42.680 --> 0:15:46.840 on the market for the individual inveasta. So far, the 0:15:47.000 --> 0:15:48.960 rise of the passive industry has been and I feel 0:15:48.960 --> 0:15:51.600 like you conflicted about this, but it's been a very 0:15:51.640 --> 0:15:52.120 good thing. 0:15:52.400 --> 0:15:55.800 Absolutely absolutely Now argument for me, it's just it's a simple, 0:15:55.920 --> 0:15:59.560 reliable product in a world that is endlessly complicated and 0:15:59.800 --> 0:16:02.720 for but a certain type of person. I always compare 0:16:02.760 --> 0:16:05.040 it to if I was ever asked God forbid to 0:16:05.120 --> 0:16:08.200 go on strictly come dancing. I have two left feet. 0:16:08.280 --> 0:16:10.000 If someone said at the start, you don't have to 0:16:10.040 --> 0:16:12.640 do the dancing, and we'll bring you in seventh out 0:16:12.680 --> 0:16:15.480 of twelve, I'm taking that all day long because I'm 0:16:15.520 --> 0:16:18.440 not a dancer. So for anyone who's not interested in investing, 0:16:18.520 --> 0:16:22.000 hasn't the time, expertise knowledge, it's been great. But it's 0:16:22.320 --> 0:16:25.640 where I've had taken issues with sometimes suggesting that everybody 0:16:25.720 --> 0:16:28.440 should go passive, and that's where my back starts to 0:16:28.480 --> 0:16:28.800 get up. 0:16:29.400 --> 0:16:31.120 So I talk me through a little bit. When you 0:16:31.160 --> 0:16:33.640 say reliable or what do you mean? You mean you 0:16:33.760 --> 0:16:34.720 always know what's in it? 0:16:35.120 --> 0:16:37.240 Yeah, you know what it's going to do. So I 0:16:37.320 --> 0:16:39.640 always talk about the two degrees of separation, and what 0:16:39.720 --> 0:16:42.280 I mean by that is how do you separate someone 0:16:42.920 --> 0:16:45.760 from their own money to being invested. Now, if you 0:16:46.000 --> 0:16:48.680 invest in just a passive fun I think you've got 0:16:48.720 --> 0:16:52.160 one degree of separation, which is that you have personally 0:16:52.320 --> 0:16:55.120 bought the market, so you only really need to consider 0:16:55.160 --> 0:16:57.560 whether it was the right thing to have bought the market. 0:16:57.720 --> 0:16:59.840 So there's only one kind of area where you could 0:16:59.880 --> 0:17:01.800 have it made a mistake, which is you bought it 0:17:02.000 --> 0:17:04.840 or you didn't. If you then bring in an active 0:17:04.880 --> 0:17:07.840 fund manager, you've got the second degree of separation, which 0:17:07.880 --> 0:17:10.720 is where you've got that market decision. But then you 0:17:10.760 --> 0:17:14.040 can also blame yourself for having picked the wrong active 0:17:14.080 --> 0:17:16.479 fund manager. So you've got two areas where you've got 0:17:16.640 --> 0:17:19.480 room for self doubt, and that, to me is the 0:17:19.480 --> 0:17:21.040 big difference, and that's where a lot of people can 0:17:21.119 --> 0:17:24.359 fall down, is that you've end up a lot of 0:17:24.440 --> 0:17:27.119 cases buying a very good active fund manager, but you 0:17:27.280 --> 0:17:29.480 just buy them at the wrong time, And that to 0:17:29.600 --> 0:17:31.359 me is the problem a lot of people have with 0:17:31.520 --> 0:17:34.120 active fund managers. They're very good at picking good fund managers, 0:17:34.720 --> 0:17:38.000 they are just appalling at timing it because they will 0:17:38.040 --> 0:17:40.160 buy them after the fund manager has done five years 0:17:40.200 --> 0:17:44.000 of good performance, and that invariably heralds two or three 0:17:44.080 --> 0:17:46.520 years of poor performance. That's a feature of a great 0:17:46.560 --> 0:17:49.119 fund manager. It's not a flaw, and so you end 0:17:49.240 --> 0:17:51.760 up just experiencing the downside of these fund managers, the 0:17:51.800 --> 0:17:54.040 bits where they underperform. And you do that once with 0:17:54.160 --> 0:17:56.360 a growth fund, you do it twice with a value fund, 0:17:56.359 --> 0:17:57.760 and then the third time you think it's all a 0:17:57.840 --> 0:18:01.040 giant con I can't be bothered anymore. Are just go passive. 0:18:01.320 --> 0:18:04.360 So there's more to understand if you're buying an active fund, 0:18:04.359 --> 0:18:06.560 which makes it more complicated. But that doesn't mean you 0:18:06.600 --> 0:18:10.960 don't need to understand what's in a passive fund, because yeah, 0:18:11.359 --> 0:18:14.320 for most part it makes sense and it's been a 0:18:14.320 --> 0:18:17.000 great investment. But there are certain times, and there have 0:18:17.119 --> 0:18:19.960 been certain times in history where what is contained within 0:18:20.040 --> 0:18:23.520 that benchmark can become dangerous and make the whole thing 0:18:24.280 --> 0:18:26.119 more dangerous than maybe you imagined it would be. 0:18:26.800 --> 0:18:28.200 We're going to come back to that bit, but I 0:18:28.359 --> 0:18:32.200 just want to ask you something. I have memories of 0:18:32.320 --> 0:18:35.320 a piece of research that you wrote a while, a 0:18:35.359 --> 0:18:39.000 long while that probably about how we always say that 0:18:39.440 --> 0:18:43.720 active funds on average underperform the market, But it may 0:18:43.880 --> 0:18:48.159 be that investors in active funds on average do not 0:18:48.400 --> 0:18:52.520 underperform the market because they're better at picking active funds 0:18:52.560 --> 0:18:54.560 than you might think. And if there are more of 0:18:54.640 --> 0:18:56.879 them in the big successful ones, then there might be 0:18:56.960 --> 0:19:00.400 in the others. Then it's entirely possible. And I remember 0:19:00.640 --> 0:19:03.000 you doing some researcher back this up. It's entirely possible 0:19:03.040 --> 0:19:06.639 that the individual retail investor on average does not underperform. 0:19:07.320 --> 0:19:09.520 It is, Yes, I do remember doing that. Yeah, I 0:19:09.600 --> 0:19:12.720 went deep geek for a number of months and recreated 0:19:12.800 --> 0:19:15.760 my own sector averages. Because when you look at when 0:19:15.760 --> 0:19:18.000 you see a lot of stats, the commonly used stats 0:19:18.040 --> 0:19:20.800 of the industry about active funds or funds in general, 0:19:21.359 --> 0:19:23.960 it doesn't apply any effect of the size of those 0:19:24.040 --> 0:19:27.200 funds are on performance, and so that can change the 0:19:27.240 --> 0:19:29.520 picture massively. I remember at the time, so we're going 0:19:29.600 --> 0:19:31.840 back ten years now, and I think I've just done 0:19:31.840 --> 0:19:33.919 it after a period when there'd been quite a bit 0:19:33.920 --> 0:19:36.920 of turbulence in emerging markets in Asia, and at that 0:19:37.119 --> 0:19:41.080 time you saw that actually the average Asian equity fund 0:19:41.520 --> 0:19:44.040 had done pretty badly, had underperformed the markets most people 0:19:44.040 --> 0:19:46.720 would have expected it would have done. But when you 0:19:46.840 --> 0:19:49.760 look within that and you looked at who the big 0:19:49.840 --> 0:19:52.600 funds were, and at the time, this was when firms 0:19:52.680 --> 0:19:57.040 like Steward Investors or even Aberdeen were the kind of 0:19:57.160 --> 0:19:59.560 fan favorites, the ones that were widely held. They were 0:19:59.600 --> 0:20:03.359 amazing funds, particularly the Stuart Investor funds run by Angus Tulko. 0:20:03.440 --> 0:20:06.520 I know you're aware of a lot of people back him. 0:20:06.880 --> 0:20:08.560 There was a lot of money invested in those and 0:20:08.640 --> 0:20:12.600 that meant that actually more people in that sector were benefiting. 0:20:12.680 --> 0:20:15.080 And actually you saw that active management was doing an 0:20:15.080 --> 0:20:17.280 amazing job for investors in that part of the market 0:20:17.280 --> 0:20:18.919 because everyone to have picked the great fund manager. 0:20:19.240 --> 0:20:21.600 Yeah, so that makes all the difference, or could make 0:20:21.640 --> 0:20:23.719 all the difference. Yeah, Okay, let's go back to then 0:20:23.760 --> 0:20:26.600 what you were just talking about times. And obviously this 0:20:26.720 --> 0:20:28.840 is the first time in the history of markets where 0:20:28.840 --> 0:20:31.440 we've reached any point with this percentage of assets under 0:20:31.480 --> 0:20:34.560 management inside passive, So we haven't got that much history 0:20:34.640 --> 0:20:37.920 to work with here. But there may be times, and 0:20:38.119 --> 0:20:40.960 possibly this might be one of those times where passive 0:20:41.040 --> 0:20:43.080 isn't the best place to be. Is that a fair 0:20:43.119 --> 0:20:44.200 reflection of what you're thinking? 0:20:44.680 --> 0:20:48.399 It is, absolutely, Yeah, it's something that would worry me 0:20:49.320 --> 0:20:52.680 about holding a pure global equity track, or particularly a 0:20:52.800 --> 0:20:57.560 US equitary tracker currently. Is that level of exposure to 0:20:57.760 --> 0:21:00.920 a handful of companies like The great advantage of or 0:21:00.960 --> 0:21:02.840 one of the great advantages of passive funds, is that 0:21:02.920 --> 0:21:06.760 they are supposedly diversified investments. You should have a lot 0:21:06.760 --> 0:21:08.680 of stocks, and you shouldn't have too much invested in 0:21:08.760 --> 0:21:12.480 any particular one stock. But every now and again, certain 0:21:12.560 --> 0:21:16.320 indices become very heavily concentrated in certain stocks. So go 0:21:16.440 --> 0:21:18.639 back to twenty ten, if you happen to be tracking 0:21:18.680 --> 0:21:22.840 a Latin America index, you were basically twenty thirty percent 0:21:22.880 --> 0:21:25.639 of your money in two or three oil companies or 0:21:25.760 --> 0:21:30.080 natural resource companies. Today we face a situation where the 0:21:30.160 --> 0:21:33.720 concentration in the S and P five hundred in am 0:21:33.840 --> 0:21:36.119 using turn of the year statistics. This has changed a 0:21:36.200 --> 0:21:39.959 bit since then, but in those Magnificent seven is twenty 0:21:40.119 --> 0:21:42.760 nine percent. So you got twenty nine percent invested in 0:21:42.880 --> 0:21:47.720 seven companies that are, to all extents and purposes variations 0:21:47.800 --> 0:21:51.800 on tech. Now you compare that to two thousand, which 0:21:51.880 --> 0:21:54.159 was the last time I think risks are built up 0:21:54.359 --> 0:21:57.520 to this any kind of this type of level that 0:21:57.720 --> 0:22:00.240 is more concentrated. So twenty nine percent today it was 0:22:00.280 --> 0:22:04.840 about twenty one percent in two thousand, and also in 0:22:04.920 --> 0:22:07.280 two thousand you had companies like Exon or Walmart which 0:22:07.320 --> 0:22:10.360 were in that top seven as well, which were diversified 0:22:10.359 --> 0:22:13.200 at least they weren't just tech companies. And I think 0:22:13.280 --> 0:22:17.040 that is a really instructive period, that two thousand because 0:22:17.080 --> 0:22:20.720 in the long march of passive from the nineteen seventies 0:22:20.760 --> 0:22:22.520 through today, that it's tempting to think of the whole 0:22:22.560 --> 0:22:24.359 thing as just a straight line where everyone has just 0:22:24.400 --> 0:22:28.640 been consistently buying passive. But it went into recession from 0:22:28.680 --> 0:22:31.080 about two thousand to two thousand and seven. Actually people 0:22:31.119 --> 0:22:34.080 were net selling Vanguard's biggest s and P five hundred 0:22:34.160 --> 0:22:39.080 tracker after two thousand. That was because of how badly 0:22:39.320 --> 0:22:43.520 it had done versus most active fund managers. And the 0:22:43.560 --> 0:22:48.040 reason for that was because it's concentration in megacaps, how 0:22:48.119 --> 0:22:52.280 expensive those megacaps had become, and then what happened in 0:22:52.400 --> 0:22:55.600 two thousand when all of that turned. It's quite a 0:22:55.720 --> 0:22:58.359 sort of instructive lesson for those of us who are 0:22:58.400 --> 0:22:59.280 interested in history. 0:23:00.040 --> 0:23:02.159 So could we say that over that period in general 0:23:02.240 --> 0:23:03.800 active outperformed. 0:23:04.000 --> 0:23:05.720 Ah, yeah, absolutely you can. I mean it was the 0:23:05.800 --> 0:23:08.760 time of when a lot of legends made the names 0:23:08.800 --> 0:23:11.800 in the UK. Anthony Bolton was the one that came forward. 0:23:11.960 --> 0:23:14.639 Already mentioned Angus Tullock. I'm not sure if I should 0:23:14.840 --> 0:23:18.119 mention his name, but Lord Voldeford became of age at 0:23:18.119 --> 0:23:20.199 that time. He was did an amazing job for investors 0:23:20.200 --> 0:23:22.200 at that point. Obviously we know how that ended in 0:23:22.320 --> 0:23:24.600 due course, but it was a period when those investors 0:23:24.680 --> 0:23:26.639 had been brave enough and stuck to their guns and 0:23:26.680 --> 0:23:29.760 believed in fundamentals and value and all that stuff, and 0:23:30.000 --> 0:23:34.760 had therefore avoided those megacap growth stocks that were too 0:23:34.800 --> 0:23:38.280 expensive just shot the lights out over the bear market 0:23:38.359 --> 0:23:41.399 that followed. You had Anthony Bolton in his UK fund 0:23:41.800 --> 0:23:44.159 actually made money over that three year bear mark. It 0:23:44.200 --> 0:23:46.800 wasn't just that he fell by less than the mega 0:23:46.840 --> 0:23:49.320 caps did. He actually made money. And then obviously in 0:23:49.359 --> 0:23:52.080 the ballmarket it followed, they absolutely went to the moon 0:23:52.119 --> 0:23:54.840 that the returns you got from the likes of a 0:23:54.880 --> 0:23:58.359 Fidelity UK special situations were orders of one hundreds of 0:23:58.400 --> 0:24:00.560 percent better than you were getting from a Gloebil equity 0:24:00.720 --> 0:24:03.440 tracker at that time. So it really was the last 0:24:03.480 --> 0:24:06.159 real golden age of active fund managers, and conditions for 0:24:06.280 --> 0:24:10.719 me look very similar to how they looked in two thousand. 0:24:11.560 --> 0:24:13.240 So I suppose to be clear, we should say that 0:24:13.359 --> 0:24:17.280 if you stay impassive right now, you're going to have 0:24:17.720 --> 0:24:21.600 a very big exposure to these giant companies. If they 0:24:21.760 --> 0:24:24.200 turn you're going to lose a lot of money. And 0:24:24.320 --> 0:24:27.080 at the same time, maybe that active funds that have 0:24:27.200 --> 0:24:29.320 the freedom to go wherever they want find the best 0:24:29.359 --> 0:24:33.080 opportunities are not in those giant dogs, and you may 0:24:33.119 --> 0:24:34.920 find that you perform a long letter, I'm just trying 0:24:34.960 --> 0:24:36.480 to be simplistic about this. 0:24:36.840 --> 0:24:39.320 Yeah, there's a case study that I always use, which 0:24:39.480 --> 0:24:41.520 is and I remember this. So I started in the 0:24:41.560 --> 0:24:44.800 city in ninety six, ninety seven around then, and I 0:24:44.920 --> 0:24:47.880 remember at the time seeing buses advertising what was called 0:24:47.920 --> 0:24:51.440 the Mercury Global Titans Fund. I mean, amazing name for 0:24:51.480 --> 0:24:53.639 a fund. It was basically it was a bit of 0:24:53.680 --> 0:24:56.440 a closet tracker, but it was tracking the dal Jones 0:24:56.760 --> 0:25:00.520 Titans fifty index, which had performed amazingly coming into two thousand. 0:25:00.560 --> 0:25:03.240 The marketing people loved it, so they launched this fund 0:25:03.320 --> 0:25:06.440 and to a great fanfare, and the message was you'd 0:25:06.480 --> 0:25:09.360 be stupid to buy anything other than the world's biggest 0:25:09.440 --> 0:25:12.719 and most powerful companies. Why would you do that if 0:25:12.760 --> 0:25:14.919 you were buying anything that was domestic, or that was small, 0:25:15.000 --> 0:25:16.879 or it was UK or that was value. You're a 0:25:16.960 --> 0:25:18.960 bit of a square and you've missed the plot, and 0:25:19.000 --> 0:25:21.440 all that stuff is risky, and the big stuff is 0:25:21.560 --> 0:25:23.080 very safe and it's going to make you a ton 0:25:23.119 --> 0:25:26.280 of money. Mercury, who were later bought by black Rock, 0:25:26.440 --> 0:25:29.680 launched that fund. I think it was in March two thousand. 0:25:30.040 --> 0:25:32.760 It wasn't a badly run fund, but it lost you 0:25:32.920 --> 0:25:36.160 fifty percent of your money over the next three years 0:25:36.720 --> 0:25:39.680 and it didn't even break even. Seven years later, it 0:25:39.760 --> 0:25:42.360 was still underwater. And because of the weight of those 0:25:42.440 --> 0:25:45.920 fifty companies, the Global Tracker did a similar thing, lost 0:25:46.000 --> 0:25:48.480 you best part of fifty percent, and then it took 0:25:48.560 --> 0:25:51.760 you seven years from the turn of two thousand to 0:25:51.840 --> 0:25:55.000 two thousand and seven to break even again. And that 0:25:55.160 --> 0:25:58.560 is a long time to have made no money whatsoever. 0:25:59.440 --> 0:26:01.639 But when fund was launched, it must have felt like 0:26:01.720 --> 0:26:03.879 it's felt over the last year or so, that there 0:26:03.880 --> 0:26:06.080 really isn't any choice but to hold these very big 0:26:06.160 --> 0:26:08.840 companies because if you don't, you're going to underperform. Sleep 0:26:09.080 --> 0:26:10.959 everyone in a track of any kind is holding them 0:26:11.000 --> 0:26:13.600 but active funds as well, if they're not holding them 0:26:13.680 --> 0:26:16.280 at least at the benchmark level, they're going to underperform 0:26:16.320 --> 0:26:19.359 almost by default. So if you're an active fund manager, 0:26:19.560 --> 0:26:21.200 if you're an active fun raannger and you've been sitting 0:26:21.240 --> 0:26:22.639 there for the last three or four years, going that 0:26:22.760 --> 0:26:25.960 stuff's too expensive, I can see the concentration. I'm worried 0:26:25.960 --> 0:26:29.919 about this. Valuations are too high. It's been a disaster 0:26:30.080 --> 0:26:30.280 for you. 0:26:30.720 --> 0:26:32.440 It has been a disaster to the point where you've 0:26:32.480 --> 0:26:35.199 either given up or you've been sacked, or you're one 0:26:35.280 --> 0:26:37.200 of the very few who've managed to sit it out. 0:26:38.119 --> 0:26:40.280 And those are basically the fund managers them after because 0:26:40.320 --> 0:26:42.800 they're very conviction driven. They believe in what they do. 0:26:42.960 --> 0:26:45.080 They know that you should value a company, that you 0:26:45.080 --> 0:26:47.119 shouldn't get carried away, that you shouldn't just copy what 0:26:47.160 --> 0:26:50.119 everyone else is doing. But they become a vanishing breed 0:26:50.480 --> 0:26:53.480 as time passes by. And again, yeah, to take it 0:26:53.520 --> 0:26:55.320 back to the Anthony Bolton thing, that's what he was. 0:26:55.400 --> 0:26:57.200 It's one of the few who managed to survive with 0:26:57.280 --> 0:26:59.960 his job intact and allowed to continue doing what he did. 0:27:00.240 --> 0:27:03.480 And then you just saw the dividends afterwards when the 0:27:03.560 --> 0:27:06.680 world turned as it always does, and then he had. 0:27:06.600 --> 0:27:08.800 That disaster, didn't he It's not for today. But when 0:27:08.880 --> 0:27:12.120 he launched the China Special Situations Fund and everyone thought 0:27:12.119 --> 0:27:15.000 he was a god and then oh yeah, wrong, didn't 0:27:15.040 --> 0:27:16.880 it round and around? It goes in active fund? 0:27:17.000 --> 0:27:18.560 It does to say it, But he was I would 0:27:18.560 --> 0:27:21.399 defend him on that. He actually, contrary to popular belief, 0:27:21.440 --> 0:27:24.359 actually beat his benchmark over his tenure on that fund. 0:27:24.880 --> 0:27:26.560 He just didn't do anywhere near as well as he'd 0:27:26.600 --> 0:27:28.480 done in UK Special sit So he's got a bit 0:27:28.480 --> 0:27:30.200 of a bad rep for that. But yeah, compared to 0:27:30.280 --> 0:27:31.920 what he'd done on the UK side of him, it 0:27:32.000 --> 0:27:33.360 was a pale limitation for sure. 0:27:33.800 --> 0:27:36.320 I just remember being cross about the charging structure. Anyway, 0:27:37.400 --> 0:27:39.719 a different story. Well, he won't go back to that now. 0:27:40.000 --> 0:27:43.120 So let's talk about the survivors, right, Let's talk about 0:27:43.160 --> 0:27:45.240 this premise that that you have and that I have 0:27:45.359 --> 0:27:47.320 huge sympathy with, and I think you're absolutely right that 0:27:47.400 --> 0:27:49.639 we're coming to the end of this great run for 0:27:49.720 --> 0:27:52.280 these huge companies and and for the modern titans, and 0:27:52.720 --> 0:27:55.520 a shift in the assumption that passive is always the 0:27:55.560 --> 0:27:59.159 place to be. So who are the fund managers what 0:27:59.280 --> 0:28:01.800 is the fund managing companies and the managers who have 0:28:01.880 --> 0:28:04.880 survived this period and you think are going to come 0:28:04.920 --> 0:28:07.520 out the next decade and give us another mini Golden 0:28:07.560 --> 0:28:10.360 Age or maybe mega Golden Age for active fund management. 0:28:10.840 --> 0:28:13.679 You could find them in any market. They are still around. 0:28:13.840 --> 0:28:15.879 A lot did fall by the wayside, but a lot 0:28:16.200 --> 0:28:18.960 have carried on. You can find them in big houses. 0:28:19.160 --> 0:28:21.320 They're likes, you know, the Schroder Value team, a very 0:28:21.359 --> 0:28:23.359 good team because they've got a support network there and 0:28:23.440 --> 0:28:25.600 they've got a good story about it. So that's a 0:28:25.640 --> 0:28:28.320 good place to look if there's a big list of them. 0:28:28.320 --> 0:28:29.840 If you go on our website and look at our 0:28:29.920 --> 0:28:32.840 funds and our holders, we're very open about funds that 0:28:32.960 --> 0:28:35.000 we own because we like the fund managers. We invest 0:28:35.040 --> 0:28:36.119 with them, we want them to do well and we 0:28:36.160 --> 0:28:38.120 want them to raise assets. If you were to look 0:28:38.200 --> 0:28:41.240 through the UK, you're going to see names like Castle 0:28:41.320 --> 0:28:44.920 Bay in there, like Gresham House, like Cape Wrath. You're 0:28:44.960 --> 0:28:47.560 going to see very sooner fun from Tyndall. You're going 0:28:47.600 --> 0:28:49.280 to see I'm going to feel bad now because I'm 0:28:49.280 --> 0:28:50.520 going to leave someone out and they're going to be 0:28:50.600 --> 0:28:54.440 quite cross with me. But yeah, there are these are 0:28:54.480 --> 0:28:57.800 basically if they've got anything in common, they are obsessives. 0:28:58.120 --> 0:29:02.080 They're people who loving them testing and would be horrified 0:29:02.120 --> 0:29:04.240 to think that they are going to end up just 0:29:04.360 --> 0:29:05.280 copying the market. 0:29:05.920 --> 0:29:08.480 Well, and some of those ones you mentioned are very small. 0:29:08.560 --> 0:29:10.880 I mean Kate Rath for example. That's a tiny fund, 0:29:10.920 --> 0:29:11.880 doesn't it It is? 0:29:12.040 --> 0:29:14.720 Yeah, very small. I think there's a big misunderstanding in 0:29:14.760 --> 0:29:17.760 the industry that a small fund equals a risky fund. 0:29:17.920 --> 0:29:19.560 To give you an example of a fund we held 0:29:19.560 --> 0:29:24.200 in the past, which is tv IT. It's Edinburgh based 0:29:24.240 --> 0:29:26.560 Smaller Companies fund. We don't currently hold it because it's 0:29:26.560 --> 0:29:28.720 had manager changes, so it's just watching that as it 0:29:28.800 --> 0:29:32.120 beds down. But when in my previous job, I was 0:29:32.160 --> 0:29:33.680 in a company called Premier Might and we had a 0:29:33.720 --> 0:29:36.320 lot more assets under management. When we first bought that fund, 0:29:36.360 --> 0:29:40.120 it was about five or six million pounds in size. Tiny, yeah, 0:29:40.200 --> 0:29:42.280 but all of that money was the fund manager's money. 0:29:42.480 --> 0:29:44.920 We put forty five million pounds in it and a 0:29:44.960 --> 0:29:47.920 lot of people gasp begin to take a breath when 0:29:47.920 --> 0:29:50.640 they hear that amount. What you held forty five million 0:29:50.720 --> 0:29:53.840 of a fifty million pound fund. But it's like the 0:29:53.880 --> 0:29:56.000 old adage about banks. If you owe the bank a 0:29:56.080 --> 0:29:58.160 million pounds, they own you. If you own the bank 0:29:58.320 --> 0:30:01.520 ten billion pounds, you own them. If we're the owner 0:30:01.600 --> 0:30:03.800 of a smaller fund and we know that we're not 0:30:03.880 --> 0:30:06.240 about to sell because we're not flaky investors who are 0:30:06.280 --> 0:30:07.960 going to run for the hills at the first sign 0:30:08.000 --> 0:30:10.240 of underperformance, and we know that the other money is 0:30:10.240 --> 0:30:13.320 the fund manager, then there's no liquidity risk like there 0:30:13.480 --> 0:30:15.840 was with the Woodford thing. The Woodford thing was because 0:30:15.880 --> 0:30:19.320 there were bigger holders who are perhaps didn't understand the 0:30:19.360 --> 0:30:21.680 way the fun worked, the way it was supposed to work, 0:30:22.200 --> 0:30:24.360 and they all ran for the exits at the same time. 0:30:25.320 --> 0:30:27.280 It's not about the size of the fund. It's the 0:30:27.280 --> 0:30:30.480 important things about what is held within the fund. You 0:30:30.600 --> 0:30:32.600 need to make sure that the stocks that are held 0:30:33.040 --> 0:30:35.400 a liquid and an appropriate for the size of that fund. 0:30:35.520 --> 0:30:39.320 For example, a five million pound fund that owns megacaps. 0:30:39.920 --> 0:30:42.440 That's a good thing because if the fund needs to 0:30:42.480 --> 0:30:45.479 close down, they can sell it within the next seven minutes. 0:30:45.720 --> 0:30:48.280 It's not an issue. The problem and why people are 0:30:48.320 --> 0:30:51.800 paranoid about small funds, ironically is again because of the 0:30:51.800 --> 0:30:55.480 Woodford scandal, which is weird because it wasn't a small fund. 0:30:55.720 --> 0:30:58.760 It was ten billion pounds. But again it wasn't necessarily 0:30:58.840 --> 0:31:00.600 the size of the fund so much. Has the stuff 0:31:00.640 --> 0:31:04.560 that he was holding unlisted massive stakes in tiny companies. 0:31:05.160 --> 0:31:07.880 That's where the liquidity problem came from. It wasn't because 0:31:08.160 --> 0:31:11.000 the fund was small, because it wasn't a small fund. 0:31:11.640 --> 0:31:13.200 Have you signed up for Woodford Views? 0:31:14.040 --> 0:31:17.240 I saw that came out. Yeah, that's gonna yeah. Fun enough. 0:31:17.440 --> 0:31:19.600 Our firewall at work is blocking that, which may be 0:31:19.680 --> 0:31:22.120 a bit of satire or commentary. I don't know, but 0:31:22.240 --> 0:31:24.160 I haven't been able to see it yet. I'm intrigued. 0:31:24.440 --> 0:31:27.080 There's nothing to see it. Don't worry that your firewall 0:31:27.120 --> 0:31:29.680 hasn't punished you in any way it normally does. The 0:31:29.760 --> 0:31:32.000 first few hasn't come out. There's still time, all right, 0:31:32.040 --> 0:31:33.840 Let's go back to small funds because I've written quite 0:31:33.840 --> 0:31:35.000 a lot in the past, and I think that you've 0:31:35.080 --> 0:31:36.960 had input into these columns. I've written in the past 0:31:37.000 --> 0:31:39.600 about how to find a good fund manager, what's what 0:31:39.720 --> 0:31:41.600 of the parameters to look for in the fund, And 0:31:41.680 --> 0:31:43.480 one of the things that often pops up is that 0:31:43.720 --> 0:31:48.200 actually funds run by excellent managers tend to do particularly 0:31:48.280 --> 0:31:50.680 well in their first four or five years. So when 0:31:50.720 --> 0:31:53.560 there's small, when they're new, when the fund manager has 0:31:53.600 --> 0:31:56.160 their best ideas, A good manager is going to launch 0:31:56.200 --> 0:31:58.080 a new fund when they see a great opportunity, right, 0:31:58.080 --> 0:31:59.880 They're not going to just do it randomly into an 0:32:00.000 --> 0:32:01.920 average market. They're going to say, there's a reason for this, 0:32:02.080 --> 0:32:04.520 and I can see it. And so those first four 0:32:04.600 --> 0:32:06.800 or five years when the fund is small may actually 0:32:06.880 --> 0:32:08.440 be the best ones to be invested. 0:32:08.840 --> 0:32:13.400 Absolutely, there's reasons for that in terms of motivation. Maybe 0:32:13.440 --> 0:32:14.920 the age of the fund manager. I think there's a 0:32:15.000 --> 0:32:17.120 kind of mistake and belief that you want an old 0:32:17.160 --> 0:32:20.200 fund manager. There's nothing against old fund managers, but actually 0:32:20.200 --> 0:32:22.480 I think there's a sweet spot for fund managers where 0:32:23.080 --> 0:32:25.480 they've got enough experience and maybe they're into their thirties 0:32:25.600 --> 0:32:27.840 or the forties, but they've still got the enthusias and 0:32:27.880 --> 0:32:29.720 they're still building their track record. They've still got a 0:32:29.760 --> 0:32:31.600 point to prove, and to me, that is the real 0:32:31.840 --> 0:32:34.480 point to own a fund manager. And quite often that's 0:32:34.520 --> 0:32:36.320 the time they're running their first fund, or it's the 0:32:36.400 --> 0:32:39.160 first opportunity to go outside of a big company that 0:32:39.200 --> 0:32:41.800 we're at and begin something that is truly represents the 0:32:41.880 --> 0:32:43.560 way they think that it should have be done. So 0:32:43.640 --> 0:32:45.480 there is a human element to it, but there's also 0:32:45.520 --> 0:32:48.320 a fund size element to it as well. Now we've 0:32:48.360 --> 0:32:51.760 talked about the benefits of big great funds, but the 0:32:51.840 --> 0:32:53.640 only thing that's better than a big great fund is 0:32:53.680 --> 0:32:57.160 a small great fund because as a fund manager, it's 0:32:57.240 --> 0:33:00.760 so much easier to run a smaller fund finding better 0:33:00.840 --> 0:33:03.840 ideas and small caps and typically that's where you're going 0:33:03.920 --> 0:33:06.440 to find better ideas, less efficient part of the market, 0:33:07.160 --> 0:33:10.880 more room for growth for smaller companies to become bigger companies. 0:33:11.720 --> 0:33:14.080 Then having more access to that and the ability to 0:33:14.160 --> 0:33:17.040 come into and out of stocks without moving their price 0:33:17.120 --> 0:33:21.040 too much is a massive advantage. So absolutely all of 0:33:21.160 --> 0:33:23.480 the experience I've had in the past of when we've 0:33:23.520 --> 0:33:26.640 outperformed as a fund of funds has come from finding 0:33:26.720 --> 0:33:28.800 fund managers who are at the start of that journey 0:33:29.440 --> 0:33:32.360 rather than at the end, because all of the advantages 0:33:32.360 --> 0:33:35.760 are stacked in their favor. And the real benefit currently 0:33:35.920 --> 0:33:39.120 is that because the rest of the market, the UK 0:33:39.280 --> 0:33:41.800 fun buying market because of consolidation, because of a whole 0:33:41.840 --> 0:33:45.240 load of other stuff that's going on, career risk herding 0:33:45.440 --> 0:33:48.480 sheep like behavior. No one is prepared to buy these 0:33:48.600 --> 0:33:51.000 smaller boutiques because I don't know, they're all afraid of 0:33:51.040 --> 0:33:53.480 getting egg on their face because they're back to a 0:33:53.600 --> 0:33:55.680 fund that was operating out of the barn in Oxford, 0:33:56.040 --> 0:33:56.560 or they were. 0:33:56.760 --> 0:33:59.440 It wasn't something You've got to let this go, simon, 0:33:59.600 --> 0:34:00.680 I know you gotta let it go. 0:34:01.120 --> 0:34:03.600 No, I don't. I never have to let it go, absolutely, 0:34:03.760 --> 0:34:06.719 But the point of being that now these funds are 0:34:06.760 --> 0:34:10.360 offering much better fees. So the classic fee for a 0:34:10.440 --> 0:34:12.680 boutique fund going back fifteen years is one and a 0:34:12.719 --> 0:34:16.399 half percent. We're typically now paying half a percent as 0:34:16.440 --> 0:34:19.440 an early investor in these funds, which we're obviously passing 0:34:19.560 --> 0:34:21.960 back onto our clients as well. So I don't need 0:34:22.000 --> 0:34:23.960 to let it go now. I can just benefit from 0:34:24.000 --> 0:34:26.399 the great performance and have less of it eaten away 0:34:26.440 --> 0:34:27.040 by our fees. 0:34:28.440 --> 0:34:30.640 As tough for a new fund manager to survive on 0:34:30.760 --> 0:34:32.719 fees that low, I mean, I'm very pro fees as 0:34:32.760 --> 0:34:34.760 low as possible, But if you're launching a new funded 0:34:34.800 --> 0:34:37.360 you've only got or you mentioned TV eight earlier, starting 0:34:37.480 --> 0:34:41.319 with five six million, surviving on fifty basis points, and I'm. 0:34:41.400 --> 0:34:44.440 Unbelievable well, it's tough, right, It's tough. It's and it's 0:34:44.480 --> 0:34:47.439 wrong as well, because I think a thriving market, any market, 0:34:47.480 --> 0:34:49.440 it doesn't matter whether it's a financial market or a 0:34:49.560 --> 0:34:51.480 product or whatever it is, you need a lot of 0:34:51.680 --> 0:34:53.920 entrance into that market to give you choice. But we 0:34:54.040 --> 0:34:56.880 are now in the unfortunate situation where because of regulatory 0:34:56.960 --> 0:34:59.200 costs and the pressure of people not being prepared to 0:34:59.400 --> 0:35:01.960 kind of risk reputation and back a new fun it 0:35:02.080 --> 0:35:04.520 means that you are only getting funds who have got 0:35:04.680 --> 0:35:07.839 tremendous backing behind them. So they've either got personal wealth 0:35:07.880 --> 0:35:10.160 for they know a lot of rich people, or they're 0:35:10.160 --> 0:35:12.200 having to go to a company and if effectually give 0:35:12.200 --> 0:35:14.440 away their own kind of IP and skills. So it's 0:35:14.520 --> 0:35:17.560 unbelievably tough and it's not healthy for the funds market 0:35:17.680 --> 0:35:18.000 for sure. 0:35:18.640 --> 0:35:21.440 Okay, let's talk a bit about the other things to 0:35:21.560 --> 0:35:24.239 look for when you're looking for a good fund. Let's 0:35:24.280 --> 0:35:26.880 start by saying that there is this idea that a 0:35:26.920 --> 0:35:29.640 smaller fund is better. So let's say we're an ordinary 0:35:29.719 --> 0:35:31.719 retail versitor. We're out there thinking I'm going to go 0:35:31.760 --> 0:35:33.800 a bit active. Now I get this, I understand what 0:35:33.920 --> 0:35:35.719 Simon's saying, so I'm going to shift some of my 0:35:35.800 --> 0:35:39.000 money away from passive into actor. I like this idea 0:35:39.040 --> 0:35:41.040 of looking for a small fund. I get that. What 0:35:41.160 --> 0:35:44.400 are the other parameters that people might take into account? 0:35:45.000 --> 0:35:47.240 Well, I mean there's technical parameters, but then there's obviously 0:35:47.360 --> 0:35:50.400 human parameters. And so to give you a good example 0:35:50.600 --> 0:35:53.080 and to keep it relevant to what we're doing today, 0:35:53.520 --> 0:35:57.080 I know you spoke with Jonathan Asante a few months back, 0:35:57.280 --> 0:36:00.840 and I suspect if you scroll up you'll see his podcast. 0:36:01.040 --> 0:36:03.880 Basically have a listen to that. We don't back Jonathan 0:36:03.920 --> 0:36:06.560 Asante's fund yet, it's a relatively new one. We're looking 0:36:06.600 --> 0:36:09.239 at it, but he is exactly the type of fund 0:36:09.320 --> 0:36:13.640 manager that we like because he's entirely trustworthy. He's entirely 0:36:13.719 --> 0:36:16.040 focused on a particular way of investing that we know 0:36:16.280 --> 0:36:19.040 works in the past. And so if you can get 0:36:19.120 --> 0:36:22.080 access to hearing that fund manager talk and hear it 0:36:22.200 --> 0:36:24.840 or reading about their philosophy, and we've all read the 0:36:24.920 --> 0:36:27.960 letters of Warren Buffett or a Jeremy Grantham, and what 0:36:28.160 --> 0:36:33.200 comes across is the consistency their trustworthiness, their kind of 0:36:33.440 --> 0:36:36.400 focus on what they do. So those human factors. If 0:36:36.400 --> 0:36:38.640 you find a fund manager who fulfills all of those 0:36:38.760 --> 0:36:40.239 and has done it for a while and you just 0:36:40.400 --> 0:36:43.319 have a good feeling about don't dismiss that just because 0:36:43.360 --> 0:36:47.279 there's not a kind of mathematical factor behind it. Absolutely, 0:36:47.360 --> 0:36:49.440 that's important, and it's the biggest part of what I do. 0:36:49.719 --> 0:36:52.000 I'm lucky enough to be able to meet all these 0:36:52.040 --> 0:36:53.839 fund managers and see the whites of the eyes if 0:36:53.880 --> 0:36:56.279 you like, but that's essentially what I'm doing. Can I 0:36:57.200 --> 0:36:59.400 establish trust with this far manager? Do I believe that 0:36:59.440 --> 0:37:01.839 they're sort of and won't turn the heads and give 0:37:01.960 --> 0:37:04.520 up and invest in the global titans when they should 0:37:04.520 --> 0:37:06.640 be buying Japanese small caps. 0:37:07.080 --> 0:37:10.440 Yeah, because that's where a fum manager can become unreliable. 0:37:10.520 --> 0:37:12.720 Right when you talk about the reliability of the passive, 0:37:12.800 --> 0:37:15.000 you know what they're going to keep doing. Whereas you 0:37:15.040 --> 0:37:17.680 can choose a fund manager and he can effectively be unreliable. 0:37:17.760 --> 0:37:19.600 You buy the fund because you think he's a solid 0:37:19.719 --> 0:37:22.000 value investor, and next thing you know, he's chucked in 0:37:22.080 --> 0:37:23.080 the towel and brought in video. 0:37:23.680 --> 0:37:25.680 Yeah, exactly. That's the thing to watch out for. Aubert's 0:37:25.719 --> 0:37:27.920 warning signs that if you've bought a UK small cup 0:37:28.000 --> 0:37:29.960 fund and you see in video on the top list, 0:37:30.040 --> 0:37:32.960 then it's not a UK small cup value fund anymore. 0:37:33.040 --> 0:37:35.239 So it's yeah, there are little bits and pieces like that, 0:37:35.400 --> 0:37:38.680 but by and large, I think people's instincts about what 0:37:38.840 --> 0:37:40.680 is a good fund and what is a bad funder, right, 0:37:41.040 --> 0:37:44.000 it's just the timing that they foul up too often. 0:37:44.400 --> 0:37:47.160 What about the extent which a fund is active? How 0:37:47.239 --> 0:37:49.719 active does an active fund have to be to be 0:37:49.880 --> 0:37:51.759 considered active? Right? So you get a lot of funds 0:37:51.760 --> 0:37:54.320 out there that call themselves active but relative for the benchmark, 0:37:54.360 --> 0:37:57.080 but'll maybe a bit closer than you might expect. I 0:37:57.080 --> 0:37:59.560 think when we've discussed this in the past, you've talked 0:37:59.560 --> 0:38:02.680 about it being reasonable for a fund that called itself 0:38:02.800 --> 0:38:05.320 active to have what they call an active share a 0:38:05.640 --> 0:38:08.160 difference relative for the market of something in the region 0:38:08.239 --> 0:38:11.480 of seventy eighty maybe higher, whereas if you're down at 0:38:11.560 --> 0:38:15.040 say fifty or sixty, whereas it where you're pretty close 0:38:15.160 --> 0:38:17.120 to the market as a whole. So maybe you're not 0:38:17.200 --> 0:38:19.160 a fully active fund exactly. 0:38:19.640 --> 0:38:21.880 We look at a kind of cut off probably at 0:38:21.880 --> 0:38:23.600 about eighty percent. We might have one or two that 0:38:23.680 --> 0:38:26.239 have DipEd slightly below that, but not a lot. We're 0:38:26.280 --> 0:38:28.760 only interested in finding the active fund managers, and active 0:38:28.760 --> 0:38:30.920 share is a really good way of doing it. Basically 0:38:31.000 --> 0:38:33.799 measures What that eighty percent refers to is that if 0:38:33.840 --> 0:38:36.840 you look at you compared the fund to the market, 0:38:37.040 --> 0:38:39.239 eighty percent of it is different, twenty percent of it 0:38:39.440 --> 0:38:41.400 is the same, so they've got stock overlap with a 0:38:41.440 --> 0:38:45.160 few stocks, and so it's different enough. Our average active 0:38:45.200 --> 0:38:47.200 share of the funds we pick is ninety three percent, 0:38:47.440 --> 0:38:50.120 So we really do go for it in terms of 0:38:50.200 --> 0:38:53.040 we want active fund managers in terms of the theory 0:38:53.120 --> 0:38:55.960 why that works. Basically, what you want is someone who 0:38:56.120 --> 0:38:59.120 is just trying to find good ideas. And again we've 0:38:59.120 --> 0:39:01.320 mentioned nagus Tell a couple of times. I always remember 0:39:01.960 --> 0:39:04.359 one of his rules was in the past that if 0:39:04.400 --> 0:39:07.160 any of his team actually even mentioned the benchmark, who said, oh, 0:39:07.239 --> 0:39:08.880 hang on a minute, we've only got four percent in 0:39:08.960 --> 0:39:11.359 this and it's six percent of the benchmark, he sent 0:39:11.440 --> 0:39:12.080 them out of the room. 0:39:12.520 --> 0:39:15.720 And that, to me, I can imagine as doing. 0:39:15.640 --> 0:39:17.840 That exactly, and that's the perfect way to do it. 0:39:17.920 --> 0:39:20.640 It should be. You should just pick those companies that 0:39:20.760 --> 0:39:23.600 you like for whatever reason you like them, and invest 0:39:23.880 --> 0:39:26.560 more in the companies that you like more because they're cheaper, 0:39:26.640 --> 0:39:28.040 or you think they're going to grow more, whatever it 0:39:28.160 --> 0:39:31.120 might be, and ignore what everyone else is doing. That 0:39:31.360 --> 0:39:33.800 is what you want from your active fund managers. You 0:39:33.880 --> 0:39:36.759 want the ones who don't care about the benchmark. But 0:39:36.840 --> 0:39:39.000 obviously the quid pro quo of that is that those 0:39:39.080 --> 0:39:41.960 fund managers will look different from the benchmark, and that 0:39:42.080 --> 0:39:44.080 is not always going to be in a good way. 0:39:45.000 --> 0:39:48.480 And does a high active share automatically mean that you've 0:39:48.520 --> 0:39:52.440 got a relatively small concentrated portfolio you had one hundred, 0:39:52.480 --> 0:39:54.760 If you had one hundred and fifty holdings, your active 0:39:54.800 --> 0:39:57.560 share would automatically go up, wouldn't it, By and. 0:39:57.640 --> 0:39:59.880 Large, Yeah, the more holdings you've got, it should do. 0:40:00.080 --> 0:40:01.640 But if you had if you were a USA sorry 0:40:01.719 --> 0:40:04.640 go down, yes, down, I see what you mean. But 0:40:04.760 --> 0:40:06.960 if you're a US equity holder and you held one 0:40:07.040 --> 0:40:09.759 hundred and fifty small caps and your benchmark was the 0:40:09.920 --> 0:40:12.040 S and P five hundred, you could still have a 0:40:12.160 --> 0:40:14.520 very high active share because you're not holding in videos 0:40:14.560 --> 0:40:17.359 and the microsofts and the Google. Yeah, it's not as 0:40:17.400 --> 0:40:20.399 simple as as that. It tends to be what you're 0:40:20.400 --> 0:40:22.880 doing at the top end of what's in your market 0:40:23.440 --> 0:40:26.000 quite often. So if you take Microsoft as being I 0:40:26.040 --> 0:40:29.680 don't know, seven percent of its market currently, you can 0:40:30.200 --> 0:40:32.960 if you just buy Microsoft at four percent, you've reduced 0:40:33.000 --> 0:40:36.320 your active share by four percent against yesterday when you 0:40:36.360 --> 0:40:38.400 didn't hold it at all. So there's a bit of 0:40:38.480 --> 0:40:40.520 nuance to it, but it does. It's the best rule 0:40:40.560 --> 0:40:42.680 of thumb, or the best kind of rough guide that 0:40:42.760 --> 0:40:43.600 we have for sure. 0:40:43.840 --> 0:40:46.839 Yeah. Okay, so we've got us more fund we've got 0:40:47.120 --> 0:40:50.560 a manager we trust, we've got a high active share. 0:40:51.120 --> 0:40:52.000 Have we got anything else? 0:40:52.960 --> 0:40:55.400 Well, what else have you got for me? One of 0:40:55.440 --> 0:40:57.480 the things we rule out is people doing things that 0:40:57.560 --> 0:40:58.040 don't work. 0:40:58.440 --> 0:41:01.880 Sounds obvious, right, yeah, agaven, but tell us about it. 0:41:02.080 --> 0:41:04.919 Yeah, we don't back macro investors. So if the first 0:41:05.000 --> 0:41:07.239 thing you hear coming out of a fund manager's mouth 0:41:07.360 --> 0:41:09.839 is we're pulling out the market because we think it's 0:41:09.840 --> 0:41:12.560 going to go down, or we're going to go overweight 0:41:12.640 --> 0:41:14.680 to us because we're worried about the war in Europe, 0:41:14.800 --> 0:41:16.840 trying to guess what's going to happen in the US election. 0:41:17.640 --> 0:41:22.359 If they're positioning into industries because of their top down view, 0:41:22.480 --> 0:41:24.319 it sounds like the sort of thing that should make 0:41:24.400 --> 0:41:26.759 you a lot of money if you can get it right, 0:41:26.880 --> 0:41:29.759 but in practice, no one's ever really been able to 0:41:29.800 --> 0:41:32.480 get it right. So when you think of the greats, 0:41:32.560 --> 0:41:35.000 the Warren Buffets, the Peter Lynch's, the Anthony Bolt, what 0:41:35.120 --> 0:41:37.879 they did was to pick stocks and had different ways 0:41:37.920 --> 0:41:40.200 of doing it, but ultimately what they weren't doing is 0:41:40.280 --> 0:41:43.719 trying to guess the direction of economies or of politics 0:41:43.960 --> 0:41:47.799 or elections, or trying to spot a war coming, which 0:41:47.920 --> 0:41:50.600 nobody's ever been able to do really successful if they 0:41:50.680 --> 0:41:53.480 have for a very limited amount of time. So, yeah, 0:41:53.520 --> 0:41:56.520 you want stock because absolutely people are just assessing companies, 0:41:56.680 --> 0:41:58.520 sticking to their small part of the world that they're 0:41:58.520 --> 0:41:58.839 good at. 0:41:59.280 --> 0:42:02.320 Okay, when I look at what you've been saying about 0:42:02.560 --> 0:42:04.400 the last time, that track has turned out to be 0:42:04.440 --> 0:42:07.120 a problem, and what turned out to be the anti 0:42:07.239 --> 0:42:11.640 tracker effectively in the following period. So domestic stocks, value stocks, 0:42:11.920 --> 0:42:14.839 small cap stocks, and we can expect that to happen 0:42:14.920 --> 0:42:18.040 again this time around. Obstuly, nothing is identical, but it 0:42:18.080 --> 0:42:20.320 seems likely that if there was going to be a rotation, 0:42:20.440 --> 0:42:23.520 it would be into those underperforming areas. So if that 0:42:23.640 --> 0:42:26.160 were the case, which fund managers. Would you think would 0:42:26.160 --> 0:42:28.680 be interesting for ordinary investors to look at the moment? 0:42:29.400 --> 0:42:31.759 H yeah, it would be remissing me not to bang 0:42:31.800 --> 0:42:32.520 my own drum here? 0:42:32.680 --> 0:42:33.520 Could you go for it? 0:42:33.640 --> 0:42:33.960 Diamon? 0:42:34.160 --> 0:42:36.320 So the reason I set up down in Fox is 0:42:36.440 --> 0:42:39.920 exactly this problem, because you've probably had the same issue. 0:42:39.920 --> 0:42:42.359 So if someone asks you, Mary, can you recommend an 0:42:42.400 --> 0:42:45.120 investment for me? I know you're a big investment trust fan, 0:42:45.280 --> 0:42:47.960 so you might say, I don't know, Scottish mortgage. That 0:42:48.200 --> 0:42:50.759 might be a one you'd pick, but you. 0:42:50.719 --> 0:42:52.640 Would not right now, not right right now? 0:42:52.719 --> 0:42:54.760 Yeah, okay, not right now, Okay, So pick a trust 0:42:54.800 --> 0:42:57.000 for you, recommend a trust for me now, Marin, No, 0:42:57.120 --> 0:42:57.759 I can't do that. 0:42:57.800 --> 0:43:01.040 Because I'm not an investment professional. I'm merely Ah. You're, 0:43:01.040 --> 0:43:03.120 on the other hand, Simon, you're, on the other hand, 0:43:03.160 --> 0:43:04.160 are an investment professor. 0:43:04.239 --> 0:43:06.960 I haven't noticed that shyness of opinion in the past, Merrion. 0:43:07.040 --> 0:43:08.560 But okay, I'll take it now. But let's say it 0:43:08.640 --> 0:43:11.640 was Scottish mortgage. The trouble is, whenever you make a 0:43:11.680 --> 0:43:14.040 recommendation like that me as a professional investor, and people 0:43:14.080 --> 0:43:17.000 do ask me for fun picks all the time. I 0:43:17.120 --> 0:43:19.240 think that could be a great fund over ten years, 0:43:19.640 --> 0:43:21.440 but it's going to be a nightmare to hold it 0:43:21.560 --> 0:43:25.000 almost It definitely will be because the greatest fund managers 0:43:25.040 --> 0:43:28.000 are so focused on their little thing they do growth value. 0:43:28.760 --> 0:43:32.879 It'll look it'll look amazing for five years, and it'll 0:43:32.920 --> 0:43:35.279 look god awful for three years, and for two years 0:43:35.320 --> 0:43:38.120 it might be somewhere about average. Over ten years, that'll 0:43:38.160 --> 0:43:40.600 make you a ton of money. But in that two 0:43:40.640 --> 0:43:43.120 to three year period when it looks awful, people are 0:43:43.160 --> 0:43:45.440 going to hate me. They're going to think, what Simon 0:43:45.560 --> 0:43:47.839 done here? Why has he told me this? Particularly if 0:43:47.880 --> 0:43:50.399 it kicks off into that period straight away. 0:43:50.760 --> 0:43:50.920 Yea. 0:43:51.400 --> 0:43:54.400 So the reason for me to launch down in Fox 0:43:54.520 --> 0:43:57.160 was basically to find all these active fund managers and 0:43:57.280 --> 0:43:59.320 then just to put them all in the same portfolio 0:43:59.360 --> 0:44:01.880 so that you're not just in value managers, you're not 0:44:02.040 --> 0:44:04.719 just in growth fund managers. They take the edges off 0:44:04.760 --> 0:44:07.759 each other. So in twenty twenty two, for example, we 0:44:07.880 --> 0:44:09.680 held growth fund managers and they were having a really 0:44:09.719 --> 0:44:13.480 tough time of it. We also held value managers who 0:44:13.800 --> 0:44:16.840 actually made money in that year. So we call it 0:44:17.120 --> 0:44:19.440 the heroic Journey. All of our fund managers are on 0:44:19.520 --> 0:44:21.520 the heroic journey. We can get peaks and troughs and 0:44:21.600 --> 0:44:26.080 triumphs and slayings of dragons and near death experiences, but 0:44:26.320 --> 0:44:29.480 the average investor cannot handle that. Bailey Gifford have been 0:44:29.480 --> 0:44:32.480 an amazing fundhouse. I think they're very good investors, yes, 0:44:32.800 --> 0:44:34.759 but holding a Bailey gift of fund is a very 0:44:34.800 --> 0:44:37.319 hard thing to do unless you are a professional fund 0:44:37.360 --> 0:44:39.200 manager and you've been trained for it. You know that 0:44:39.239 --> 0:44:41.439 there are cycles that funds will go up and they'll 0:44:41.480 --> 0:44:43.000 go down, and you'll be in favor and you'll be 0:44:43.080 --> 0:44:45.719 out of favor. Most people aren't trained for that. They're 0:44:45.760 --> 0:44:46.799 not ready for that, so. 0:44:47.080 --> 0:44:49.000 It's been very uncomfortable for a lot of people. 0:44:49.400 --> 0:44:51.719 It has been. Yeah, and you always do the worst thing. 0:44:51.760 --> 0:44:53.719 You always end up selling. You say no, lost, I've 0:44:53.719 --> 0:44:55.759 had enough of this fund. It's a give up on 0:44:55.880 --> 0:44:58.160 it and Sod's law. That's always the moment that it 0:44:58.239 --> 0:45:01.520 does really well. That is the whole point of downing 0:45:01.560 --> 0:45:03.800 Fox is for us to find these amazing fund managers, 0:45:04.360 --> 0:45:06.200 but to blend them together into such a way that 0:45:06.239 --> 0:45:08.680 actually you still get the advantages over ten years. If 0:45:08.719 --> 0:45:11.920 we hold thirty amazing fun managers, you're going to get 0:45:11.920 --> 0:45:14.120 the average of their returns, which if we do our 0:45:14.160 --> 0:45:16.880 job properly, is going to be amazing, but it's not 0:45:17.000 --> 0:45:19.319 going to be as intense as just holding one of them. 0:45:19.320 --> 0:45:22.439 There's almost a magic effect that when you put these 0:45:22.680 --> 0:45:26.200 funds together in a portfolio, they cancel each other out 0:45:26.239 --> 0:45:29.000 in terms of the wild swings, but you get left 0:45:29.040 --> 0:45:30.320 with the good stuff at the end of it. And 0:45:30.440 --> 0:45:34.520 so that recommendation having me trying to avoid giving people 0:45:34.600 --> 0:45:38.000 recommendations exactly why I launched the Downing Fox funds because 0:45:38.040 --> 0:45:40.560 it's a relatively easy thing for people to hold. It's 0:45:40.560 --> 0:45:43.200 all about the kind of user experience of holding it, 0:45:43.239 --> 0:45:47.080 which the industry, but the active industry hasn't been perhaps 0:45:47.200 --> 0:45:49.720 good enough at managing for people in the past. 0:45:50.520 --> 0:45:52.560 So people can just go and hang around on your 0:45:52.600 --> 0:45:54.279 website and see if they can find the names of 0:45:54.360 --> 0:45:56.680 funds and have a look at how your business. That 0:45:56.719 --> 0:45:57.160 would be great. 0:45:57.280 --> 0:46:00.480 Yeah, for sure, there are amazing funds in there. There's 0:46:00.520 --> 0:46:02.759 all sorts, and I'll get in trouble for mentioning one 0:46:02.880 --> 0:46:04.880 or two of them. I know you're a Japan fund, 0:46:05.320 --> 0:46:07.799 so I'll give you a Japan tip zena Japan. It's 0:46:07.880 --> 0:46:10.399 one fund we've held for a couple of years now. 0:46:10.680 --> 0:46:12.920 Again all that stuff about it being a small fund, 0:46:13.280 --> 0:46:17.120 intense managers, but they launched that particularly to capture that 0:46:17.560 --> 0:46:19.759 corporate governance change that's happening there. 0:46:20.360 --> 0:46:22.839 We've had them on the podcast. Is there anyone who 0:46:22.840 --> 0:46:24.560 wants to hear more from them? Can just go back 0:46:24.560 --> 0:46:25.480 and find that episode. 0:46:25.719 --> 0:46:27.759 What's another example of a great fund manager? Yeah, so 0:46:27.880 --> 0:46:30.120 you listen to that, listen to the Jonathan santi one 0:46:30.280 --> 0:46:32.600 and you'll get examples of the kind of managers that 0:46:32.680 --> 0:46:34.719 we think where you should have your money. 0:46:35.200 --> 0:46:37.840 Brilliant Simon. Let me finish by taking you well outside 0:46:37.840 --> 0:46:40.360 your comfort zone. We always ask at the end of 0:46:40.440 --> 0:46:42.120 this podcast, and I can't drop it now. It's going 0:46:42.200 --> 0:46:45.319 to go on forever, however boring it gets. Weather. Okay, 0:46:45.640 --> 0:46:47.640 you've got ten years. I'm going to take away all 0:46:47.760 --> 0:46:50.320 your funds. You can't have any of your lovely active 0:46:50.360 --> 0:46:54.520 funds at all. You're only allowed to have either gold 0:46:55.040 --> 0:46:58.759 or bitcoin, and you've got to hold whichever one you choose, 0:46:58.880 --> 0:47:01.319 and you can only choose one for ten years. What's 0:47:01.360 --> 0:47:01.759 it going to be. 0:47:02.320 --> 0:47:05.640 It's absolutely going to be gold. I do own some 0:47:05.800 --> 0:47:08.360 gold outside of my funds. We don't hold gold in 0:47:08.480 --> 0:47:10.000 the fund because it's a lump of metal and you 0:47:10.040 --> 0:47:12.440 shouldn't be paying me a management fee to hold it 0:47:12.440 --> 0:47:14.400 in a fund. You can do that yourself. The reason 0:47:14.440 --> 0:47:16.640 why I like gold is it's pretty good against light 0:47:16.880 --> 0:47:19.319 monetary debasement. It's going to be pretty good against heavy 0:47:19.800 --> 0:47:23.239 monitord's debasement, and unlike cryptocurrency, in the event of the 0:47:23.360 --> 0:47:25.600 zombie apocalypse, you're still going to be able to buy 0:47:25.640 --> 0:47:28.120 stuff with little lumps of metal that you won't be 0:47:28.160 --> 0:47:31.880 able to log onto your laptop and use cryptocurrency to 0:47:31.920 --> 0:47:34.360 buy the last bag of grain in the village. So 0:47:34.760 --> 0:47:35.600 absolutely gold. 0:47:36.040 --> 0:47:39.280 So if you're hedging against a genuine and the world meltdown, 0:47:39.320 --> 0:47:40.040 it's got to be gold. 0:47:40.200 --> 0:47:42.760 Cryptocurrency is zero use in that scenario. 0:47:43.560 --> 0:47:45.040 Brilliant Simon, Thank you so much. 0:47:45.520 --> 0:47:46.319 Pleasure, Thank you. 0:47:52.560 --> 0:47:54.839 So John. As interesting as you hope we just get 0:47:54.840 --> 0:47:55.719 a little bored in that one. 0:47:56.120 --> 0:47:59.759 I thought I was great. I do think to be 0:48:00.080 --> 0:48:05.400 over passive and active really interesting because good because that's 0:48:05.440 --> 0:48:10.360 a job exactly. But also you know, I agree with 0:48:11.320 --> 0:48:13.400 I think passive is like a great thing and it 0:48:13.520 --> 0:48:15.719 makes a lot of sense. I mean, I thought the 0:48:15.920 --> 0:48:20.160 distinction there that you both made about active basically requiring 0:48:20.320 --> 0:48:25.040 another step of removal from the process was actually spot on. 0:48:25.440 --> 0:48:30.560 It's like, I wouldn't recommend any of our listeners be 0:48:30.840 --> 0:48:34.000 individual stock pickups unless that's something they want to do, 0:48:34.080 --> 0:48:37.200 and I've prepared to do a lot of work. And similarly, 0:48:37.800 --> 0:48:43.560 I probably wouldn't recommend that, you know, every listener go 0:48:43.880 --> 0:48:46.600 and try and pick an active fund over a passive fund, 0:48:46.640 --> 0:48:49.640 because that also requires a bit more work. And I 0:48:49.719 --> 0:48:54.839 think that's an interesting distinction that is maybe not well. 0:48:55.239 --> 0:49:00.160 Partly lies it the part of the polarization. So it 0:49:00.239 --> 0:49:04.120 does make a lot of sense for most people, especially 0:49:04.200 --> 0:49:08.200 if they're already not really doing anything with the money. 0:49:10.160 --> 0:49:14.520 Easy, simple, straightforward, cheap and as he says, reliable continues 0:49:14.760 --> 0:49:17.239 he said it was going to do. I mean, it's 0:49:17.280 --> 0:49:20.840 the try that mars get what you pay for, You 0:49:20.920 --> 0:49:23.400 get what you pay for. But the you know, we 0:49:23.480 --> 0:49:27.640 took a lot in this, in this conversation about active 0:49:27.760 --> 0:49:30.120 or passitive, about how they both work, et cetera. But 0:49:30.239 --> 0:49:32.840 one of the things that I find most interesting in 0:49:32.960 --> 0:49:36.200 it is the conversation about how to actually pick a 0:49:36.320 --> 0:49:40.200 reasonably good fund manager. You know, when we ten fifteen 0:49:40.280 --> 0:49:42.239 years ago when we were writing about fund managers, you 0:49:42.280 --> 0:49:45.799 could accuse them of all sorts of terrible things, you know, greed, complacency, 0:49:45.920 --> 0:49:48.920 index are getting overcharging, whatever, all sorts of things. You 0:49:49.000 --> 0:49:52.520 can still accuse a lot of the active management industry 0:49:52.640 --> 0:49:55.640 of those things, particularly of being obsessed with their benchmarks 0:49:55.719 --> 0:49:58.120 rather than with the absolute returns that like siph you 0:49:58.160 --> 0:50:00.480 and I might prefer them to be obsessed with. We're 0:50:00.520 --> 0:50:02.399 not really interested in whether a fund manager is lost 0:50:02.520 --> 0:50:05.600 less than somebody else were, instant whether they actually managed 0:50:05.640 --> 0:50:06.880 to make us more money than we had in the 0:50:06.920 --> 0:50:09.080 first place. There's sort of thing. There's lots of places 0:50:09.120 --> 0:50:12.160 where you can dive into the active sector and say, god, 0:50:12.239 --> 0:50:16.040 this is awful, But in fact there are also a 0:50:16.120 --> 0:50:21.000 lot of really great managers in the sector, and several ways, 0:50:21.200 --> 0:50:24.560 as Simon was saying, to try and figure out which 0:50:24.640 --> 0:50:27.320 ones might do well from here, because they are always 0:50:27.320 --> 0:50:30.239 going to be obviously piles underperform the index. And of 0:50:30.360 --> 0:50:33.120 course if you want to do better than a passive fund, 0:50:34.480 --> 0:50:37.520 you have to do fairly significantly better than them before charges, 0:50:37.560 --> 0:50:39.440 before you even get to what happens after charges. So 0:50:39.719 --> 0:50:41.520 there are a lot of good fund managers out there, 0:50:41.560 --> 0:50:44.120 And what I'm really interested in is the part of 0:50:44.160 --> 0:50:46.320 the conversation with Simon where we talk about how to 0:50:46.480 --> 0:50:47.040 find them. 0:50:48.200 --> 0:50:52.120 Yeah, and I mean quotes a lot of the things 0:50:52.160 --> 0:50:52.840 that I would have. 0:50:54.640 --> 0:50:55.560 Assumed, so. 0:50:57.520 --> 0:51:01.759 Like the kind of the boutique kind of manager, the 0:51:01.880 --> 0:51:04.200 kind of manager that's will and they go off way, 0:51:04.440 --> 0:51:07.239 you know, a couple of million under their belt and 0:51:07.320 --> 0:51:12.640 therefore essentially not really earning a salary at all for investing, 0:51:13.480 --> 0:51:16.480 which which also I always find, I mean, I supposed 0:51:16.480 --> 0:51:18.880 to tell a frustrating thing because the smaller the fund, 0:51:19.480 --> 0:51:22.080 the harder it is to get into, particular as a 0:51:22.160 --> 0:51:24.680 retail investor, because you know, you look at all these 0:51:24.719 --> 0:51:27.719 reinvestment trusts are still in the stock exchange, and then 0:51:27.719 --> 0:51:30.359 you look at the spreads in terms of what you're 0:51:30.480 --> 0:51:33.040 you know, the gap between the buying and the selling price, 0:51:33.440 --> 0:51:35.600 and some of them are just awful. You know, you're 0:51:35.600 --> 0:51:38.719 effectively paying ten percent to get into the fund in 0:51:38.800 --> 0:51:45.560 the first place. So doing scale, ironically is a big 0:51:45.960 --> 0:51:46.839 issue there. 0:51:46.960 --> 0:51:49.640 Well, I think the problem with new smaller funds I'm 0:51:49.840 --> 0:51:51.840 I'm interested saying. I don't know if you've noticed, but 0:51:52.080 --> 0:51:53.960 there have been a couple of shifts away from big 0:51:54.000 --> 0:51:57.080 companies recently well nowfore managers leaving and talking about setting 0:51:57.120 --> 0:52:00.200 up their own businesses. There was Ben is It More 0:52:00.239 --> 0:52:03.120 at Jupiter, and then yesterday today we heard about Peter 0:52:03.239 --> 0:52:06.680 Rutter leaving Royal London. And these are both very well established, 0:52:06.760 --> 0:52:08.759 well known fund managers saying Okay, I'm going to go 0:52:08.840 --> 0:52:11.080 set up on my own now. And when you look 0:52:11.120 --> 0:52:12.840 at that, you think, well, this is brave. This is 0:52:12.920 --> 0:52:16.520 brave because maybe they already have large amounts of committed 0:52:16.560 --> 0:52:19.760 funds behind them, but setting up, think of the regulation, 0:52:19.920 --> 0:52:23.120 think of the compliance alone. And you can't go out 0:52:23.120 --> 0:52:25.920 there charging two percent anymore if you're if you're charging 0:52:26.000 --> 0:52:27.640 over one percent, no one's going to look at you 0:52:27.840 --> 0:52:29.759 when it comes to giving you seed capital. So it's 0:52:29.800 --> 0:52:32.680 got to be a low price. Everything is expensive, and 0:52:32.840 --> 0:52:35.960 so it's a really risky thing to do, but I 0:52:36.000 --> 0:52:39.680 think it's an interesting time to do it, because I mean, 0:52:39.760 --> 0:52:41.279 Simon and I have talked about this a lot in 0:52:41.320 --> 0:52:43.200 the Partner, I've written about it a bit. When you 0:52:43.360 --> 0:52:46.080 look at the types of funds that tend to perform well, 0:52:46.360 --> 0:52:50.359 they're very often smaller funds set up by people who 0:52:50.400 --> 0:52:53.279 have successful careers behind them and they tend to do 0:52:53.440 --> 0:52:55.920 well in the first four or five years before they 0:52:55.960 --> 0:52:56.799 get particularly big. 0:52:57.800 --> 0:53:00.839 Yeah, and I suppose there are things you've you've got 0:53:00.920 --> 0:53:04.759 that ability to be like properly active. And I guess 0:53:05.000 --> 0:53:06.839 this is the other thing that gives the selling point. 0:53:06.880 --> 0:53:09.040 I mean, one of the things that certainly to my 0:53:09.200 --> 0:53:13.240 mind has driven the private equity and private assets business 0:53:13.280 --> 0:53:17.720 in general. It's not just low interest rates a lot obviously, 0:53:17.800 --> 0:53:19.880 I think that's pushed a lot of it. There is 0:53:19.960 --> 0:53:22.640 also the rise of passive in the kind of you know, 0:53:23.080 --> 0:53:25.800 the move by the kind of asset management industry to 0:53:25.880 --> 0:53:29.840 try and differentiate itself. And so you get more of 0:53:29.920 --> 0:53:33.000 these funds that are going into these companies and then 0:53:33.040 --> 0:53:37.000 actually say taking big stakes in them and then saying, actually, 0:53:37.040 --> 0:53:38.880 we want you to do this or we want you 0:53:38.960 --> 0:53:42.920 to get better at that. And I think that's that's 0:53:43.120 --> 0:53:46.600 that's a proper differentiator from the passive funds, because you're 0:53:46.640 --> 0:53:48.920 never going to get a passive fund doing that. You 0:53:49.080 --> 0:53:51.600 might find a passive fund that can loosely give you 0:53:52.200 --> 0:53:55.600 a value strategy alow even then, I mean, one of 0:53:55.640 --> 0:53:57.919 the other main reasons I would go for active funds 0:53:57.960 --> 0:54:03.719 is simply because it's very hard to fit and nuanced strategies, 0:54:03.800 --> 0:54:05.720 you know. So like, if I want about UK value stocks, 0:54:05.760 --> 0:54:07.960 I'm probably not going to go for some kind of 0:54:08.040 --> 0:54:10.919 passive fund that pretends that that's when it does. I'd 0:54:11.000 --> 0:54:13.480 rather find a decent fund manager who knows how to 0:54:13.560 --> 0:54:16.360 tell the difference between what's actually a value stock and 0:54:16.440 --> 0:54:18.600 what's just got a low priced book ratio. 0:54:18.920 --> 0:54:22.200 Yes, and and as soon to go bust I exactly, 0:54:22.360 --> 0:54:24.480 rather than be taken over at a huge premium by 0:54:24.600 --> 0:54:25.760 a private equity company. 0:54:26.239 --> 0:54:30.000 Yes, so I do, I think only I think this 0:54:30.080 --> 0:54:32.360 is where you get down to the kind of brass 0:54:32.440 --> 0:54:35.919 tas of what a decent active investor does that pass 0:54:35.960 --> 0:54:39.360 It's not even so much the comparison between active versus passive. 0:54:39.400 --> 0:54:42.680 It's this is what active can do that passive just can't. 0:54:43.280 --> 0:54:46.360 Mm hmm. That's interesting. And it is it's this this 0:54:46.600 --> 0:54:48.960 number that I think we talk about in the in 0:54:49.040 --> 0:54:51.839 the conversation active share. Every time you look at buying 0:54:51.880 --> 0:54:54.359 an active fund, go and look at the active share 0:54:54.640 --> 0:54:57.040 and if it's I can't remember what number Simon used, 0:54:57.040 --> 0:54:59.800 but I think he's me is he said ninety or 0:55:00.120 --> 0:55:02.800 but a lot of people will say eighty. But you know, 0:55:02.840 --> 0:55:05.960 if it's anywhere below seventy, this is just not worth 0:55:06.000 --> 0:55:08.239 the bother. It's too close to the benchmark to be 0:55:08.440 --> 0:55:11.040 genuinely an active fund. You know, there used to be 0:55:11.120 --> 0:55:12.920 millions of these, the closet trackers. We used to go 0:55:12.920 --> 0:55:15.279 on them, and everyone feels like they're basically gone now, 0:55:15.360 --> 0:55:17.400 but there's still out there. And even if they're not 0:55:17.880 --> 0:55:20.040 proper closet trackers as we used to describe them in 0:55:20.040 --> 0:55:22.200 the all days, they are, there's still a little too 0:55:22.239 --> 0:55:25.040 close to the benchmark for comfort. So if you're going active, 0:55:25.200 --> 0:55:26.400 just go really active. 0:55:27.200 --> 0:55:30.000 Yeah, and then we look at the top ten Holden's 0:55:30.239 --> 0:55:32.040 and then look at the top ten holdings and the 0:55:32.440 --> 0:55:34.719 you know whatever bench market is that they fallow, and 0:55:35.080 --> 0:55:38.719 that will give you a good sense immediately it's just 0:55:38.800 --> 0:55:40.080 how active it actually is. 0:55:41.080 --> 0:55:43.120 Yeah. Did he convince you, John you're going out to 0:55:43.200 --> 0:55:45.440 change from passive to active any of your investments? 0:55:46.080 --> 0:55:46.800 I mean, I hate it. 0:55:46.880 --> 0:55:47.719 I'm not that. 0:55:51.600 --> 0:55:55.400 I didn't really need to convince it. I mean, I like, 0:55:55.520 --> 0:55:57.480 you know, I think, like I said, I've got all 0:55:57.480 --> 0:55:59.120 the time in the water pats of and I think 0:55:59.160 --> 0:56:02.600 that there's lots good uses for it. And obviously the 0:56:02.680 --> 0:56:07.640 other issue that I would probably manage more in investments 0:56:07.719 --> 0:56:09.400 much more actively if it wasn't for the job that 0:56:09.600 --> 0:56:13.840 we do, which makes it trickier to be a active 0:56:14.239 --> 0:56:18.840 minature of your own investments. But yeah, I think I 0:56:18.960 --> 0:56:21.359 think active is definitely worth way, and I think if 0:56:21.400 --> 0:56:23.000 you want to get exposure to stuff that isn't the 0:56:23.120 --> 0:56:26.279 S and P five hundred, then often active points will 0:56:26.320 --> 0:56:29.239 give you a more tailogged version of what you want 0:56:29.400 --> 0:56:30.759 than a passive fund. 0:56:32.239 --> 0:56:34.839 Before we end, I just want to point out one 0:56:34.920 --> 0:56:37.279 more thing that Simon said at the very very end 0:56:37.320 --> 0:56:39.680 when we were talking about gold and bitcoin, and that 0:56:39.800 --> 0:56:41.759 you know, when we talk about this, everyone most people 0:56:41.840 --> 0:56:44.040 go for gold, and they say it's because they understand gold, 0:56:44.040 --> 0:56:46.800 because it's got a long history, et cetera. But Simon 0:56:46.920 --> 0:56:49.279 actually went right to the cructer of the matter and 0:56:49.360 --> 0:56:51.640 said that in the end, in the event of a 0:56:51.800 --> 0:56:54.560 zombie apocalypse, you're still going to be able to use 0:56:54.600 --> 0:56:56.440 your gold. You're not going to be able to use 0:56:56.480 --> 0:57:00.440 your laptop or your cryptocurrency. So you know, he's right 0:57:00.520 --> 0:57:03.680 if you if you're thinking about something that is there 0:57:03.760 --> 0:57:07.360 to hedge everything else, should it be something that is 0:57:07.600 --> 0:57:10.880 also as value in the event of there being no 0:57:11.000 --> 0:57:12.160 such thing as the Internet. 0:57:13.000 --> 0:57:16.600 Yeah, I thought it was really interesting that Simon went 0:57:16.680 --> 0:57:20.520 to that so coinfidentally because he's clearly thought about gold, 0:57:20.840 --> 0:57:24.360 Because I kin I thought he's a he's a financial 0:57:24.440 --> 0:57:27.160 as it's guy, he's not going to have thought about gold. 0:57:27.320 --> 0:57:30.920 Might but he clearly actually knows his stuff about about it. 0:57:31.720 --> 0:57:33.200 So I thought that was quite interesting. 0:57:33.800 --> 0:57:36.120 Yeah, although anyone with a zombie apocalypse on their mind, 0:57:36.120 --> 0:57:37.680 I think it might be a prepper. I'm going to 0:57:37.720 --> 0:57:39.360 call Simon and find out if he's a prepper, and 0:57:39.440 --> 0:57:40.880 if he is, I'm going to put it in the notes. 0:57:41.080 --> 0:57:43.120 I'm also going to put in the notes various links 0:57:43.200 --> 0:57:44.480 to some of the things that John and I have 0:57:44.560 --> 0:57:47.040 written on the passive Active debate over the years, as 0:57:47.120 --> 0:57:49.160 so you can have a look and have a think 0:57:49.240 --> 0:57:51.000 about it all. And one thing that we have written 0:57:51.000 --> 0:57:53.120 about recently I think is quite important at the moment 0:57:53.440 --> 0:57:56.880 as the US, in particular loser's momentum at the top 0:57:57.200 --> 0:58:01.040 and as the rally broadens out. Important possibly to be 0:58:01.120 --> 0:58:04.200 in an equal weight ETF, not a market cap weighted 0:58:04.280 --> 0:58:06.720 ETF if you're investing in the US. 0:58:06.840 --> 0:58:09.640 Is that fair, John, I think that's fair But the 0:58:09.720 --> 0:58:11.760 one thing I would say is that is then that's 0:58:11.800 --> 0:58:12.800 an active choice. 0:58:13.520 --> 0:58:15.560 Everything is an active choice. 0:58:15.520 --> 0:58:17.200 That's what I mean. I mean, that's that's quite a 0:58:17.360 --> 0:58:22.120 substantial departure from the benchmark. So you're actually you get 0:58:22.120 --> 0:58:25.040 away from the transparency passive I mean, you know what 0:58:25.160 --> 0:58:27.160 it's aiming for, but you don't actually know what you're 0:58:27.200 --> 0:58:29.400 then going to get this and p FI fund could 0:58:29.480 --> 0:58:31.560 go up twenty percent, but it was all Apple on 0:58:31.680 --> 0:58:35.440 the video. I don't I actually agree that Timing wise, 0:58:35.680 --> 0:58:37.880 I would prefer an equal weight ETF, but I don't 0:58:37.880 --> 0:58:39.880 think it's that definite to go in for an active fund. 0:58:40.680 --> 0:58:42.160 Well, I would say, if you're going to go down 0:58:42.320 --> 0:58:45.320 that road, that there literally is no such thing as 0:58:45.360 --> 0:58:47.080 a passive fun I'd like to take out the fact 0:58:47.120 --> 0:58:48.960 that I said literally because I am not a teenager. 0:58:49.200 --> 0:58:51.960 But there is no such thing as a passive fun. 0:58:52.000 --> 0:58:54.480 Do you make an active choice whatever you buy? I mean, 0:58:54.600 --> 0:58:59.240 even if you go and buy a global passive fund, 0:58:59.720 --> 0:59:02.200 you've made an active choice to own an awful lot 0:59:02.240 --> 0:59:03.400 of American technology. 0:59:04.240 --> 0:59:07.400 Absolutely, And then that boils, don't Everyone has to be 0:59:07.480 --> 0:59:09.920 an active investorm when it comes to that asset allocation. 0:59:10.640 --> 0:59:13.320 And then it's about knowing what you want and then 0:59:14.080 --> 0:59:19.120 finding the best ways to execute on that investment. But 0:59:19.880 --> 0:59:27.080 that is then, yes, I saider, Well this is it. 0:59:27.160 --> 0:59:29.360 It's like, how do you actually debate the semantics of this? 0:59:29.560 --> 0:59:31.960 Passive is just a cheap way to get exposure to 0:59:32.720 --> 0:59:35.080 an asset class that you want exposure to. 0:59:35.400 --> 0:59:37.480 Yes, so it's not passive. It's not passive. 0:59:37.560 --> 0:59:38.920 Yeah, it is mis name. 0:59:39.280 --> 0:59:42.520 Really, we're going to stop bickering. We have to stop this. 0:59:45.880 --> 0:59:48.560 Thanks for listening to this week's Merit Chalks Money. We'll 0:59:48.600 --> 0:59:50.120 be back next week in the meantime. If you like 0:59:50.200 --> 0:59:52.560 our show, rate review, and subscribe wherever you listen to 0:59:52.640 --> 0:59:55.320 podcasts and keep sending questions or comment. It's a Merit 0:59:55.320 --> 0:59:57.480 and Money at Bloomberg dot net. We read all the emails, 0:59:57.480 --> 0:59:59.080 we really do, and we're working through some of the 0:59:59.160 --> 1:00:01.680 ideas for futures, but will also start answering some of 1:00:01.720 --> 1:00:04.560 the questions in the Friday edition of John's newsletter Money 1:00:04.600 --> 1:00:06.200 to Stelt, which by the way, is ex Clinton if 1:00:06.240 --> 1:00:08.320 you haven't signed up to what you really really should. 1:00:08.720 --> 1:00:11.200 This episode was hosted by me Maren Sumset Web was 1:00:11.280 --> 1:00:14.360 produced by some Sosiety. Additional editing by Blake Maples. Special 1:00:14.400 --> 1:00:16.600 thanks to Simon, Evan Cook and John Stepfork