WEBVTT - Cusana’s Marshall-Lee on Founder-Led Companies 0:00:13.000 --> 0:00:16.239 Welcome to Inside Active, a podcast about active managers that 0:00:16.280 --> 0:00:19.040 goes beyond sound bites and headlines and looks deeper into 0:00:19.079 --> 0:00:23.880 the processes, challenges, and philosophies and security selection. I'm David Cohne, 0:00:23.960 --> 0:00:26.920 i lead mutual fund and active Research at Bloomberg Intelligence. 0:00:27.160 --> 0:00:30.360 Today my co host is Marvin Chen, Senior Asia equity 0:00:30.360 --> 0:00:33.920 strategist at Bloomberg Intelligence. Marvin, thank you for joining me today. 0:00:34.600 --> 0:00:36.000 Hi David, thank you for having me. 0:00:36.240 --> 0:00:40.280 So you recently published a note pretty interesting on you know, 0:00:40.360 --> 0:00:44.199 emerging market and so, you know, I just want to 0:00:44.240 --> 0:00:46.240 see what's kind of driving the markets right now. 0:00:48.320 --> 0:00:52.160 Yeah, David, So, you know emerging markets is, emerging markets 0:00:52.159 --> 0:00:54.520 are having a pretty good year, one of the best 0:00:54.560 --> 0:00:58.520 since I think around twenty seventeen. And what we like 0:00:58.600 --> 0:01:00.520 to do is, you know, we like to break down 0:01:00.520 --> 0:01:06.200 the returns of emerging markets in terms of currency change, valuations, 0:01:06.240 --> 0:01:09.679 and the earnings outlook. And what is interesting is that 0:01:09.720 --> 0:01:12.600 we're noticing that, you know, a lot we've seen some 0:01:12.680 --> 0:01:16.480 valuation rerating, particularly in you know, China, some of the 0:01:16.520 --> 0:01:20.560 North Asian markets such as Korea and Taiwan. But what 0:01:20.680 --> 0:01:23.480 has been the main driver this year is the currency 0:01:23.560 --> 0:01:28.160 change you know, the weaker dollar has helped drive returns 0:01:28.160 --> 0:01:31.360 in some of the best performing markets. If we look 0:01:31.400 --> 0:01:33.720 at some of the top performing markets such as Korea, 0:01:34.080 --> 0:01:37.680 some of the Latin American countries, you know, the currency 0:01:37.800 --> 0:01:41.520 gains have accounted for maybe ten to thirty percent of 0:01:41.560 --> 0:01:47.280 the returns. So the outlook of the dollar is quite important. 0:01:47.400 --> 0:01:49.920 I think we think going forward, you know, it has 0:01:49.960 --> 0:01:52.240 been a big driver in the first half of the year, 0:01:53.520 --> 0:01:58.000 but uh, you know, things will be changing going forward 0:01:59.000 --> 0:02:03.600 with the expected fed rache Chet cycle beginning again. 0:02:04.160 --> 0:02:07.320 Be something to watch. And speaking of emerging markets, I'd 0:02:07.320 --> 0:02:10.320 like to welcome Robert Marshall lead to the podcast. Rob 0:02:10.400 --> 0:02:14.120 is the founding partner and chief investment officer of Kusana Capital. 0:02:14.440 --> 0:02:15.919 Rob thank you for joining us today. 0:02:16.960 --> 0:02:18.359 Thanks David, it's a pleasure to be here. 0:02:18.680 --> 0:02:23.040 So let's talk about the Kasana's emerging market strategy. Your 0:02:23.440 --> 0:02:27.040 sword and shield approach is really a unique framework you 0:02:27.160 --> 0:02:33.160 kind of unpack how that philosophy shapes your portfolio decisions. 0:02:34.320 --> 0:02:37.880 I started investing in emerging markets in about nineteen ninety nine, 0:02:38.200 --> 0:02:42.120 and at that point I was a chartered accountant beforehand, 0:02:42.160 --> 0:02:44.880 and I just started investing it. I was a utilities 0:02:44.919 --> 0:02:50.280 analyst Newton Investment Management now part of BNY Mellon, and 0:02:51.320 --> 0:02:52.959 I was there at the very early stages of the 0:02:53.000 --> 0:02:55.680 kind of the industrialization of China, and it was a 0:02:55.720 --> 0:02:59.280 fascinating place to invest, and a lot of companies did 0:02:59.360 --> 0:03:02.640 very well through that that industrialization boom, which led to 0:03:02.800 --> 0:03:04.760 a commodities boom. I ended up being a mining analyst 0:03:04.800 --> 0:03:07.120 as well, and as a time, you can make ten 0:03:07.160 --> 0:03:12.560 times of money in mining sector. During my experience since 0:03:12.919 --> 0:03:17.160 ninety nine, you know, I became progressively aware that there 0:03:17.160 --> 0:03:21.079 were some very, very value generating companies in emerging markets, 0:03:21.120 --> 0:03:24.280 but they were kind of being offset by a whole 0:03:24.280 --> 0:03:26.560 bunch of companies which kind of go violently sideways or 0:03:26.600 --> 0:03:29.840 even violently down. And so when you look at the index, 0:03:29.880 --> 0:03:32.880 all you see is the combination of those two effects 0:03:32.919 --> 0:03:35.760 going on. So the compound is being offset by the 0:03:35.840 --> 0:03:39.800 value destroyers effectively, and Henry Besenbind has done some really 0:03:39.800 --> 0:03:43.080 good work on that which highlights that in pretty much 0:03:43.080 --> 0:03:46.040 any stock market over time, it's a relatively small number 0:03:46.040 --> 0:03:48.960 of companies that generate most of the returns. And that's 0:03:48.960 --> 0:03:52.040 something I kind of observed over my own experience, you know, 0:03:52.080 --> 0:03:55.320 over the first ten years of investing globally, but with 0:03:55.400 --> 0:03:58.360 you know, with a significant amount of emerging market experience 0:03:59.320 --> 0:04:03.160 in twenty eleven, and I had the fortunate ability to 0:04:03.200 --> 0:04:05.800 set up an emerging market strategy from scratch, having been 0:04:05.840 --> 0:04:08.560 a global port value manager for the a number of 0:04:08.680 --> 0:04:12.320 years before that, and because of my experience, and because 0:04:12.320 --> 0:04:15.440 I didn't have any pre existing clown promises, I could 0:04:15.480 --> 0:04:19.960 think hard about what I was trying to achieve. And 0:04:20.040 --> 0:04:21.800 what I realized is you don't want to be tracking 0:04:21.800 --> 0:04:24.839 the index. You don't want to be measuring the risk 0:04:25.520 --> 0:04:28.200 relative to an index which is not your friend. So, 0:04:28.640 --> 0:04:30.520 for example, if you've got thirty percent of the index, 0:04:30.520 --> 0:04:33.920 which is state identities, which is broadly the number, those 0:04:33.960 --> 0:04:37.240 companies are not run for shoeld of value creation. So unlike, 0:04:37.279 --> 0:04:39.560 for example, the US market, which on the whole is 0:04:39.640 --> 0:04:42.520 quite eva centric, that is absolutely not the case for 0:04:42.680 --> 0:04:45.919 large swathes of emerging markets. So although you might have, 0:04:46.160 --> 0:04:48.280 you know, for example, a commodity boom and things like this, 0:04:49.160 --> 0:04:50.840 there are some parts of the market which are creating 0:04:50.920 --> 0:04:53.000 value and a whole load of others which are destroying value, 0:04:53.040 --> 0:04:54.880 even if they have good years every now and then. 0:04:55.839 --> 0:04:57.800 So rather than chasing those ups and downs of the 0:04:57.800 --> 0:05:00.679 oil price or whatever is driving those swings back and forwards. 0:05:01.960 --> 0:05:04.960 It's much better to understand whether value creation is really happening. 0:05:05.480 --> 0:05:08.279 And there are some great companies in emerging markets with 0:05:08.360 --> 0:05:12.800 some very long, strong underlying growth pinnings. But it's understanding 0:05:12.839 --> 0:05:15.360 what attributes you're looking forward doing that and then being 0:05:15.360 --> 0:05:18.720 able to construct a portfolio which captures those without worrying 0:05:18.720 --> 0:05:21.600 about all the swings in the index. So all that 0:05:21.640 --> 0:05:23.160 kind of sign is kind of obvious, you know, where 0:05:23.160 --> 0:05:26.720 if the crazy risks from state identities and olig ar 0:05:26.720 --> 0:05:29.440 coned oil companies in Russia and those kind of things 0:05:30.920 --> 0:05:32.799 at the same time as created, you know, for example, 0:05:32.839 --> 0:05:36.240 investing in the brilliant consumer franchises in India. So you 0:05:36.279 --> 0:05:38.120 think it's well, of course, you know, why doesn't everyone 0:05:38.200 --> 0:05:42.719 do that? But the difficulty comes because everyone's kind of 0:05:42.720 --> 0:05:45.080 weighed against an index on an annual basis. You get 0:05:45.120 --> 0:05:49.799 annual bonuses within a large investment house. The market convention 0:05:49.880 --> 0:05:51.480 from media and so on is to focus on the 0:05:51.520 --> 0:05:54.679 last twelve or eighteen months or rolling three years even 0:05:55.839 --> 0:05:57.599 and if you stand out from the crowd and do 0:05:57.640 --> 0:05:59.919 something different, you can look really silly for a period 0:05:59.960 --> 0:06:02.400 of time. So if all those state owned Chinese banks 0:06:02.440 --> 0:06:05.159 rally by fifty percent like they did in mid twenty fifteen, 0:06:05.880 --> 0:06:08.000 and you don't own them because you don't want to 0:06:08.000 --> 0:06:10.920 earn them, then you look a little bit foolish for 0:06:10.960 --> 0:06:12.920 a while. And the question is can you stomach looking 0:06:12.920 --> 0:06:14.720 foolish for a while, or do you lose your job 0:06:14.800 --> 0:06:18.040 or do you use your cliants because you haven't given 0:06:18.080 --> 0:06:20.800 them reason to understand that you're going to do something different. 0:06:21.600 --> 0:06:24.719 But stepping back, you know, over the period since twenty eleven, 0:06:25.240 --> 0:06:27.760 the strategy that I started at that point and have 0:06:27.839 --> 0:06:31.000 run since then and at Kusana since twenty two has 0:06:31.080 --> 0:06:33.720 generated something like three or four times the index return 0:06:34.040 --> 0:06:37.359 cumulatively over time. So the index has gone up a 0:06:37.400 --> 0:06:40.520 little bit, you know, each year, but it goes violently 0:06:40.600 --> 0:06:43.680 up and down on in a given calendar year. But 0:06:43.880 --> 0:06:45.680 stepping back from that, you know, we've had stots which 0:06:45.720 --> 0:06:48.280 have generated here multiples of return over a sustained long 0:06:48.360 --> 0:06:52.400 term period with a much larger position size, and so 0:06:52.440 --> 0:06:54.680 you actually generate a much higher return with a lower 0:06:54.760 --> 0:06:58.760 level of absolute growth. So stronger corporate governance, high return 0:06:58.800 --> 0:07:02.120 on capital, businesses, strong balance sheets. These are the things 0:07:02.160 --> 0:07:04.480 that protect your capital. And it's a bit like when 0:07:04.839 --> 0:07:07.919 we look at the US mag seven it's a similar 0:07:08.000 --> 0:07:10.480 kind of effect. There are certain number of companies which 0:07:10.520 --> 0:07:12.080 actually generating those returns. 0:07:12.920 --> 0:07:15.400 So if you know the majority of companies in the 0:07:15.400 --> 0:07:19.520 index are value destructive, you know, how do you find 0:07:19.600 --> 0:07:21.920 the ones that aren't? Like what is your process? 0:07:22.720 --> 0:07:27.240 It's having a clear idea on the attributes that you're 0:07:27.280 --> 0:07:30.880 looking for and the warning signs or the kind of 0:07:31.400 --> 0:07:33.200 not even the warning signs, just the you know what 0:07:33.440 --> 0:07:38.480 mediocre looks like. Most businesses out there are not competitively advantage. 0:07:38.800 --> 0:07:41.400 They'll have the moment in the sun. You know, it's 0:07:41.440 --> 0:07:44.200 a steel company makes really good profits one year. Guess what, 0:07:44.280 --> 0:07:46.320 someone comes to builds another steel plant next to you, 0:07:47.440 --> 0:07:49.800 and supply demand corrects, and then you probably make really 0:07:49.840 --> 0:07:51.800 bad returns the next year. That happens with shipping the 0:07:51.840 --> 0:07:55.200 whole time, airlines. You know, that's the kind of the 0:07:55.200 --> 0:07:57.840 lower quality businesses, and it's most of the businesses, to 0:07:57.840 --> 0:08:02.840 be honest. Or in Brazil you have the corporate governance 0:08:03.480 --> 0:08:06.400 set up. The incentive structures for most management teams are 0:08:06.400 --> 0:08:09.480 focused on sales growth and EBITDAR growth, so They're focused 0:08:09.520 --> 0:08:12.760 on P and L growth, not value creation. So if 0:08:12.800 --> 0:08:14.720 I'm a manager in Brazil, what do I do? I 0:08:14.840 --> 0:08:16.840 raise capital, I do lots of M and a lots 0:08:16.840 --> 0:08:19.840 of roll ups. I get paid, and I'm not creating 0:08:19.840 --> 0:08:23.560 any sustainable growth. So the shelters will go up and 0:08:23.600 --> 0:08:25.480 down and up and down. Actually they don't, you know, 0:08:25.600 --> 0:08:28.160 they don't have a long term good good journey. 0:08:28.720 --> 0:08:33.000 So what we look for is is well managed businesses, 0:08:33.040 --> 0:08:36.640 normally founder lead, so I think sixty five plus percent 0:08:36.640 --> 0:08:39.439 of our portfolio is founder led businesses in China and 0:08:39.559 --> 0:08:40.079 India and. 0:08:40.000 --> 0:08:40.840 Brazil, et cetera. 0:08:42.120 --> 0:08:45.959 We look for high incrementalt on capital into a structural 0:08:46.000 --> 0:08:48.880 growth opportunity. So we're looking for a long one way 0:08:48.880 --> 0:08:51.160 for growth. We want to own stocks ideally for ten 0:08:51.240 --> 0:08:56.240 years plus, and we want the compounding effect of reinvesting 0:08:56.240 --> 0:08:58.120 in the growth at a high incremental return to be 0:08:58.160 --> 0:09:01.640 the core dry of our returns over time. It's far 0:09:01.679 --> 0:09:05.480 more predictable, it's lower risk. But you can find those 0:09:05.520 --> 0:09:09.760 great business franchises which actually they don't have mean reversion. 0:09:09.840 --> 0:09:12.800 They have something which is unique, which is their proposition 0:09:12.840 --> 0:09:16.880 to their customers, which they're able to charge for often 0:09:16.880 --> 0:09:19.560 with capitalized businesses with big barriers to entry. 0:09:19.600 --> 0:09:21.120 It could be network effects. 0:09:21.800 --> 0:09:24.320 So for example, we have make my Trip, which is 0:09:24.320 --> 0:09:27.199 like the booking dot com of India. It has sixty 0:09:27.200 --> 0:09:29.200 percent market share. The next peer is at ten percent. 0:09:29.240 --> 0:09:31.520 But you have very strong network effects and a high 0:09:31.600 --> 0:09:34.360 return business model. And that's when you can you can 0:09:34.400 --> 0:09:37.199 start kind of banking on the kind of the sustained reinvestment. 0:09:37.679 --> 0:09:39.920 And it is a completely different perspective on value. If 0:09:39.960 --> 0:09:42.079 you think you've got a cash earnings per sure which 0:09:42.120 --> 0:09:44.160 is companning at twenty percent, it's got a very different 0:09:44.240 --> 0:09:47.080 value from the mediocre which is compounding at four or 0:09:47.080 --> 0:09:48.199 five percent if you're lucky. 0:09:49.080 --> 0:09:52.040 So you mentioned governance, you know, and gave an example 0:09:52.160 --> 0:09:56.480 in Brazil. You know, in emerging markets governance can be opaque. 0:09:57.240 --> 0:09:58.840 So how do you vet the skin in the game? 0:09:58.920 --> 0:10:04.079 You know, where managers have their interests aligned with other shareholders? 0:10:07.080 --> 0:10:07.760 Is behavioral? 0:10:07.800 --> 0:10:09.920 I mean, really you try and to judge companies over 0:10:09.960 --> 0:10:13.600 as long a period as possible. You should buy IPOs 0:10:13.720 --> 0:10:15.640 very very warily because you didn't have that kind of 0:10:15.640 --> 0:10:20.080 track record. We look for alignment of interest. Sometimes it's clear, 0:10:20.160 --> 0:10:23.160 sometimes it's a little less clear. You can have a 0:10:23.200 --> 0:10:25.800 really good professional management team which is doing all the 0:10:25.840 --> 0:10:28.800 right stuff. So, for example, TSMC was effectively a founder 0:10:28.880 --> 0:10:32.439 led business and has become effectively a professional management but 0:10:32.480 --> 0:10:35.280 they're reinvesting wisely for the long term. They're trying to 0:10:35.360 --> 0:10:38.800 do the best for their customer base and the industry 0:10:38.800 --> 0:10:42.160 as well as making very acceptable profits for themselves. So 0:10:42.200 --> 0:10:44.120 that's a kind of a nice, you know, a nice 0:10:44.120 --> 0:10:50.600 symbiotic relationship. We like founder led businesses, but ones that 0:10:50.640 --> 0:10:53.680 don't rip you off, which is kind of in stark 0:10:53.720 --> 0:10:56.880 contrast to you know, I don't know a Russian steel 0:10:57.320 --> 0:11:00.520 company owned by an oligarch who will be buying a 0:11:00.559 --> 0:11:02.960 shipping port for ten million dollars and then selling it 0:11:03.000 --> 0:11:05.959 to the LISCO for one hundred million dollars, extracting value 0:11:05.960 --> 0:11:09.800 at your expense. And the obvious thing to do to 0:11:10.480 --> 0:11:12.440 look for that is look at return on capital and 0:11:12.440 --> 0:11:15.559 return on equity and cashlow measures of that on a 0:11:15.640 --> 0:11:17.720 through the cycle basis, so you can often see what 0:11:17.760 --> 0:11:21.160 warning signs things that don't make sense. So we had 0:11:21.840 --> 0:11:25.200 we looked at a fast moving consumer goods company which 0:11:25.200 --> 0:11:27.760 made choco pies in South Korea, and we can't understand 0:11:27.800 --> 0:11:30.840 why it didn't seem to be profitable enough, and it's 0:11:30.840 --> 0:11:32.960 because they would make really nice cash flows, and then 0:11:32.960 --> 0:11:34.600 every now and then they go and buy a related 0:11:34.640 --> 0:11:39.120 party company an elevated valuation, so the effectively disenfranchising the 0:11:39.160 --> 0:11:42.080 minority investors. So we're looking at a whole raft of 0:11:42.080 --> 0:11:44.280 different things. We have what we call the investment checklist, 0:11:44.320 --> 0:11:47.439 which is really all the learning points of my career 0:11:47.480 --> 0:11:50.920 since nineteen ninety nine as an investor and actually even 0:11:50.920 --> 0:11:54.400 before that was a chartered accountant, thinking about what are 0:11:54.400 --> 0:11:57.960 the things that allow us to have confidence in those businesses? 0:11:58.440 --> 0:12:00.640 What are the warning signs? We won't get over perfect. 0:12:00.840 --> 0:12:03.720 But what we're trying to do is cut out nineteen 0:12:03.800 --> 0:12:06.440 ninety five percent of the market and focus on the 0:12:06.480 --> 0:12:09.679 top five or ten percent in order to identify the 0:12:10.080 --> 0:12:13.440 best twenty five or thirty opportunities for us to invest 0:12:13.440 --> 0:12:15.800 in with a five year horizon. 0:12:16.080 --> 0:12:19.320 So what does the typical holding period look like? You know, 0:12:19.360 --> 0:12:21.800 how often do you reassess thesis? 0:12:22.440 --> 0:12:25.200 So the way we work is because we're trying to 0:12:25.200 --> 0:12:29.480 give that compounding effect enough time to manifest itself, we 0:12:29.559 --> 0:12:31.480 inherently go and win with a five year horizon. 0:12:31.559 --> 0:12:34.280 So everything we're doing in terms of. 0:12:34.960 --> 0:12:38.920 How we're assessing the backdrop, how we're thinking about the company, 0:12:38.960 --> 0:12:41.520 how we're thinking about its reinvestment of earnings. We want 0:12:41.559 --> 0:12:43.720 to have the ability for it to be recycling capital 0:12:43.760 --> 0:12:46.880 through the business and understanding the power of that. So 0:12:47.120 --> 0:12:49.680 we find that five years is a period which is 0:12:49.720 --> 0:12:53.199 long enough to allow the compounding to become the material driver. 0:12:53.440 --> 0:12:55.839 So you're a one year investor, it's kind of eighty 0:12:55.880 --> 0:12:57.560 percent about the multiple, which is that kind of the 0:12:57.600 --> 0:13:01.400 voting mechanism in Buffett's peak, versus twenty percent the kind. 0:13:01.240 --> 0:13:03.839 Of the earnings power. Whereas if you. 0:13:03.800 --> 0:13:06.360 Take the compounding of effect forward, then it becomes more 0:13:06.440 --> 0:13:10.280 like twenty percent multiple move and eighty percent about the earnings. 0:13:10.360 --> 0:13:13.360 So although you might think further out, it becomes less certain. 0:13:13.400 --> 0:13:16.040 In many ways, it becomes more certain. The difference between 0:13:16.080 --> 0:13:19.280 the good ones and the bad ones becomes clearer. And 0:13:19.360 --> 0:13:22.320 so when we're we're valuing the companies, when we're assessing 0:13:23.080 --> 0:13:27.040 the different scenarios that we see before us, everything we're 0:13:27.040 --> 0:13:29.640 doing is with a five year view, and therefore, inherently 0:13:29.720 --> 0:13:31.960 that tends to kind of tie in pretty well with 0:13:32.080 --> 0:13:36.880 our typical holding period. Now, because in the real world, 0:13:36.880 --> 0:13:39.960 share prices don't follow a nice classic compounding curve, even 0:13:40.000 --> 0:13:41.760 of the earnings per share and the cash earnings per 0:13:41.840 --> 0:13:45.560 shure moved in a perfectly smooth fifteen percent compound. 0:13:45.120 --> 0:13:46.040 Growth rate curve. 0:13:46.559 --> 0:13:48.959 There's always different stuff happening in the markets. There's always 0:13:48.960 --> 0:13:51.800 a lot of noise around, which encourages people to trade 0:13:51.800 --> 0:13:55.319 backwards and forwards, and that means the share price is oscillate. 0:13:56.000 --> 0:13:58.040 So the kind of the anchor of the share price 0:13:58.080 --> 0:14:01.880 is effectively that cash earnings perssure curve, but the share 0:14:01.920 --> 0:14:04.720 price will re rate and derate depending on the views 0:14:04.720 --> 0:14:08.520 on risk reward around the broader market, and that presents 0:14:08.559 --> 0:14:11.959 us opportunities to trim backstocks which are done well and 0:14:12.480 --> 0:14:14.440 ad to stops which are done less well. So we're 0:14:14.559 --> 0:14:17.960 using a time advantage. If we're assessing things on a 0:14:17.960 --> 0:14:19.520 five year view and everyone else is working on a 0:14:19.560 --> 0:14:21.480 twelve eighteen month view, which is the kind of the 0:14:22.440 --> 0:14:24.960 typical in our view in the market, and perhaps even 0:14:24.960 --> 0:14:29.040 shorter in places like China. Then we find great stocks 0:14:29.080 --> 0:14:31.920 on sale periodically, and sometimes they get bid up to 0:14:31.920 --> 0:14:35.480 crazy prices, like internet companies did in late twenty twenty. 0:14:35.840 --> 0:14:37.520 So we want to be taking money off the table. 0:14:37.560 --> 0:14:40.360 The risk reward is less good than other. 0:14:40.200 --> 0:14:41.200 Opportunities that we have. 0:14:42.040 --> 0:14:44.560 So bringing all of that together, what we're trying to 0:14:44.600 --> 0:14:48.360 do is optimize from today with a five year view. 0:14:48.440 --> 0:14:50.880 Every single day we're trying to optimize our capital allocation 0:14:51.240 --> 0:14:53.120 in terms of our view on the balance of risk. 0:14:52.960 --> 0:14:55.920 Rewards for the next five years. 0:14:56.200 --> 0:14:59.160 And so some stocks will be an eight percent position, 0:14:59.240 --> 0:15:01.880 some might be a one position, some will be going 0:15:01.880 --> 0:15:05.160 out sometimes. And actually, when we're performing very well, our 0:15:05.200 --> 0:15:07.560 turnover tends to go up because we have to recycle more. 0:15:08.120 --> 0:15:12.880 And when our performance is lagging the market, which actually 0:15:12.920 --> 0:15:15.520 did earlier this year, then actually our turnover tends to 0:15:15.880 --> 0:15:18.000 drop back. Because we're pretty happy with our positions, we 0:15:18.000 --> 0:15:20.280 don't need to change much. We might concentrate it more 0:15:20.280 --> 0:15:23.640 into our top holdings, for example, and that's a sign 0:15:23.680 --> 0:15:27.800 of confidence and a sign of a steady temperament. Every 0:15:27.840 --> 0:15:30.200 now and then there's a reason why you need to 0:15:30.280 --> 0:15:32.200 change things more. So when we came to the end 0:15:32.200 --> 0:15:35.640 of twenty twenty, it was we moved from an deflationary 0:15:35.640 --> 0:15:38.840 period into an inflationary period. That does kind of cause 0:15:38.880 --> 0:15:41.040 you to want to kind of make some adjustments. So 0:15:41.080 --> 0:15:43.760 we shouldn't be afraid of managing. We don't manage to 0:15:43.760 --> 0:15:47.360 a turnover level. But at our name term turnover, which 0:15:47.360 --> 0:15:49.600 is kind of reflective of how we invest, is around 0:15:49.640 --> 0:15:53.200 twenty percent. And then we have a kind of a 0:15:53.280 --> 0:15:56.720 topping entailing within the portfolio, as I said, trimming the 0:15:56.760 --> 0:15:58.920 kind of the strong performance and topping up some of 0:15:58.920 --> 0:16:03.680 the weaker ones. And that is so the actual turnout 0:16:03.800 --> 0:16:05.040 is more like forty or fifty percent. 0:16:07.360 --> 0:16:11.160 So rab bit upon the macro outlook. I mean, we've 0:16:11.240 --> 0:16:13.440 talked about how em is having one of the best 0:16:13.480 --> 0:16:16.320 years since you know, twenty seventeen. I guess the big 0:16:16.400 --> 0:16:20.040 question now is it sustainable? And you know, how does 0:16:20.080 --> 0:16:23.680 the FED outlook and expectations for you know, the race cycle. 0:16:24.440 --> 0:16:28.200 Will that be the next catalyst for emerging markets in 0:16:28.240 --> 0:16:31.720 the near term? 0:16:31.840 --> 0:16:35.680 Yes, I mean I think I guess I'm not the 0:16:36.400 --> 0:16:39.640 kind of the ultimate expert on macro. I'm a stock investor, 0:16:40.240 --> 0:16:42.320 but the macro is still is important in supporting the 0:16:42.520 --> 0:16:49.840 best franchises. And I have some observations. So generally the 0:16:49.880 --> 0:16:53.320 emerging markets tend to outperform in a very correlated fashion 0:16:53.480 --> 0:16:56.920 against the Dixie so the trade weighted US dollar, and 0:16:56.960 --> 0:16:59.320 of course that gets moved around by you know, fed 0:16:59.400 --> 0:17:01.840 rates and and so on. So you see this year 0:17:01.920 --> 0:17:08.480 with moving to more dissinflationy backdrop, and there's money exiting 0:17:08.480 --> 0:17:11.760 the US dollar from very extended levels after a ten 0:17:11.840 --> 0:17:15.120 year bill market. We're clearly seeing the dollar trading often. 0:17:15.160 --> 0:17:17.800 That tends to be very good for emerging market relative 0:17:17.800 --> 0:17:22.919 performance at the index level. Some of the reasons behind that. 0:17:22.960 --> 0:17:27.960 So you know, when the currency drops, it improves the 0:17:28.040 --> 0:17:31.280 kind of purchasing power within the emerging markets. Cost of 0:17:31.280 --> 0:17:35.960 capital tends to drop. So we've seen bond yeals in 0:17:36.000 --> 0:17:39.080 many emerging markets going way below developed market bond yeals. 0:17:39.440 --> 0:17:41.760 It's a particularly interesting time actually, you know, I think 0:17:42.000 --> 0:17:45.439 the developed world is sort of hitting the limits in 0:17:45.520 --> 0:17:48.720 terms of fiscal affordability, you know, with aging populations and 0:17:48.800 --> 0:17:53.120 immigration and excessive promises, and so the market is done 0:17:53.160 --> 0:17:55.960 to call time on that by raising the cost of capital, just. 0:17:55.920 --> 0:17:57.200 Like we see in an emerging market. 0:17:57.359 --> 0:17:59.800 So like Brazil in twenty fourteen, things like this, you know, 0:17:59.840 --> 0:18:03.080 the country lives beyond its means. The market will enforce 0:18:03.080 --> 0:18:05.359 discipline through the currency and through the cost of capital. 0:18:05.359 --> 0:18:08.240 And I think we see that happening in the US, 0:18:08.280 --> 0:18:09.119 but also in Europe. 0:18:09.359 --> 0:18:09.959 And Japan. 0:18:11.680 --> 0:18:14.119 But if for emerging markets, you know, you have a 0:18:14.160 --> 0:18:15.880 slightly different situation on the whole. 0:18:15.920 --> 0:18:16.400 So we have. 0:18:18.560 --> 0:18:21.440 A shift from an inflationary period into a disinflationary period. 0:18:21.480 --> 0:18:23.720 We see that very clearly, and quite a lot of markets, 0:18:24.000 --> 0:18:26.680 China really into kind of pretty much on the edge 0:18:26.680 --> 0:18:30.120 of deflation, which is perhaps a little kind of worse 0:18:30.160 --> 0:18:32.800 in a way, but it's just bright teetering on the edge. 0:18:33.680 --> 0:18:35.600 But broadly, we seeing cost of capital going down and 0:18:35.640 --> 0:18:39.040 bond yields moving down. That of course reduces the cost 0:18:39.119 --> 0:18:42.159 of money for people, and it reduces the cost of 0:18:42.200 --> 0:18:47.439 capital when you're valuing the equity market. It can stimulate growth, 0:18:47.440 --> 0:18:51.560 that can stimulate investment, that can stimulate earnings growth. And 0:18:51.600 --> 0:18:53.919 when you see more earnings growth coming through, particularly on 0:18:54.000 --> 0:18:58.239 domestic oriented companies, then the multiples tend to go up 0:18:58.240 --> 0:19:00.399 as well. So you end up having the current see 0:19:00.840 --> 0:19:04.720 and the earnings growth and bond yules and hence multiples 0:19:04.720 --> 0:19:07.480 all kind of moving together at the same time. So 0:19:08.720 --> 0:19:11.000 most of the market is intend to have a very 0:19:11.000 --> 0:19:13.240 short term memory, so everyone kind of thinks about what's 0:19:13.240 --> 0:19:15.640 happened over the last ten years. When the US market's 0:19:15.640 --> 0:19:19.840 done well and emerging market's done relatively poorly, But if 0:19:19.880 --> 0:19:21.639 you look at the decade before that, people kind of 0:19:21.640 --> 0:19:23.920 forget that emerging markets did a two hundred and fifty 0:19:23.960 --> 0:19:26.480 percent dollars a turn in the ten years up to 0:19:26.680 --> 0:19:29.159 twenty eleven, and then it's only since twenty eleven that 0:19:29.160 --> 0:19:34.440 there's been a kind of a tougher relative period, whereas 0:19:34.480 --> 0:19:37.359 the US market has done well where it did not 0:19:37.480 --> 0:19:39.280 so well in the previous decades. So these things do 0:19:39.440 --> 0:19:42.320 tend to go in kind of waves, and arguably, you know, 0:19:42.359 --> 0:19:44.720 there's a there's a pretty strong possibility that we're in 0:19:44.800 --> 0:19:46.320 kind of one of those ways of transition. 0:19:47.119 --> 0:19:47.399 Great. 0:19:47.760 --> 0:19:51.560 Yeah, So, I mean you mentioned, you know, China. China 0:19:51.600 --> 0:19:53.920 has been one of the you know, market says has 0:19:54.000 --> 0:19:58.480 divided investors over the past couple of years. I mean, 0:19:58.840 --> 0:20:02.240 you know, it's been called an investible what's your take 0:20:02.320 --> 0:20:05.280 on China and how do we find the value and 0:20:05.680 --> 0:20:07.800 the opportunities in that market? 0:20:08.000 --> 0:20:10.520 Yeah, China is complicated, but it's got some amazing companies 0:20:10.560 --> 0:20:14.600 as well. The way I characterize China is that the 0:20:14.920 --> 0:20:20.639 market is probably eighty percent plus not very attractive, but 0:20:20.760 --> 0:20:26.760 there's probably a ten percent or so core of very attractive, 0:20:27.480 --> 0:20:30.120 you know, high quality growth companies, perhaps even more than that. 0:20:31.000 --> 0:20:33.479 And given it's a very large, deep market, that presents 0:20:33.520 --> 0:20:37.040 a very interesting opportunity set. And here I'm not talking 0:20:37.119 --> 0:20:39.280 about the big banks or the big steel companies or 0:20:39.320 --> 0:20:41.880 the property companies who should have been going pop. I'm 0:20:41.880 --> 0:20:47.159 talking about the founder lad entrepreneurial growth companies, often technology 0:20:47.200 --> 0:20:50.399 and scale and efficiency leaders that have been moving up 0:20:50.400 --> 0:20:54.760 the value spectrum. And whereas historically China would import a 0:20:54.760 --> 0:20:58.160 lot of high quality or high technology goods, these days 0:20:58.200 --> 0:21:00.879 they're competing in the global market, so that Chinese are 0:21:00.960 --> 0:21:03.400 really world classed. And I was at in Shanghai back 0:21:03.440 --> 0:21:06.280 in January and just traveling around the Yangti Delta, you know, 0:21:06.280 --> 0:21:10.000 two hundred and fifty million people, an incredible manufacturing complex. 0:21:10.440 --> 0:21:13.080 It's very very hard for the Japanese or Koreans and 0:21:13.400 --> 0:21:17.880 Europeans and US to compete. They're so efficient, they're so good. 0:21:18.359 --> 0:21:20.400 And then going to Malaysia and finding out everything there's 0:21:20.400 --> 0:21:22.560 a cost thirty or forty percent more. That's kind of 0:21:22.560 --> 0:21:26.040 one of the China plus one places. They just they 0:21:26.200 --> 0:21:28.280