WEBVTT - Guinness’ Jonathan Waghorn on Sustainable Energy 0:00:14.800 --> 0:00:17.959 Welcome to Inside Active, a podcast about active managers that 0:00:18.000 --> 0:00:21.119 goes beyond sound bites and headlines and looks deeper into 0:00:21.160 --> 0:00:26.200 the processes, challenges, and philosophies and security selection. I'm David Cohne, 0:00:26.280 --> 0:00:29.360 i lead Mutual fund and active Research at Bloomberg Intelligence. 0:00:29.720 --> 0:00:32.879 Today my co host is Brian Dharty, head of Thematic 0:00:32.960 --> 0:00:36.840 Strategy at Bloomberg Intelligence. Brie, thank you for joining. 0:00:36.560 --> 0:00:39.360 Me today, as always a pleasure, David, thanks for having 0:00:39.400 --> 0:00:39.839 me so. 0:00:40.040 --> 0:00:45.320 In bi's theme library, there's a category of physical environment 0:00:45.479 --> 0:00:50.280 themes ranging from decentralized energy to nuclear to solar to 0:00:50.560 --> 0:00:55.080 transition metals, and some of your recent research has highlighted 0:00:55.080 --> 0:00:56.840 that after a rough start to the year, some of 0:00:56.840 --> 0:01:00.280 these themes might have found some fresh footing. Talk to 0:01:00.360 --> 0:01:01.560 us a little bit more about that. 0:01:02.520 --> 0:01:05.400 Absolutely, energy is always pretty dear to my heart, having 0:01:05.440 --> 0:01:07.720 spent a lot of years in the industry, but you're 0:01:07.720 --> 0:01:10.360 absolutely right what we've been seeing. So we have thirty 0:01:10.400 --> 0:01:13.280 three themes in our BI theme library across three categories, 0:01:13.280 --> 0:01:16.520 accelerating Tech, consumerism, and then physical environment. As you said, 0:01:16.640 --> 0:01:21.240 twelve in physical environment, pretty broad range of themes. Those 0:01:21.280 --> 0:01:23.399 themes are, you know, there's a lot of overarching secular 0:01:23.400 --> 0:01:26.319 growth trends associated with those themes. One most prevalent one 0:01:26.400 --> 0:01:32.360 naturally being the acceleration and of electrification needs, both here 0:01:32.360 --> 0:01:35.200 in the US and actually globally. So those themes, there's 0:01:35.200 --> 0:01:36.960 a lot of different type of exposures to that, to 0:01:37.000 --> 0:01:43.839 that big strong secular growth trend and decentralized energy nuclear wind, obviously, hydrogen, solar, 0:01:43.840 --> 0:01:46.720 there's a whole bunch of themes associated with that. It's 0:01:46.800 --> 0:01:50.520 been a complicated year. I think that's probably the best 0:01:50.560 --> 0:01:53.240 way to frame this, in the sense that there's actually 0:01:53.280 --> 0:01:55.520 been a little bit of a breakout in a subset 0:01:55.560 --> 0:01:58.640 of those names. So you might've seen we track our 0:01:58.720 --> 0:02:01.720 thirty one multi theme So these are actual equities within 0:02:01.760 --> 0:02:04.400 our BI theme library that are mapped more than to 0:02:04.480 --> 0:02:08.040 four or more BI themes. The physical environment names in 0:02:08.080 --> 0:02:11.640 that list have done really really well in twenty twenty four. 0:02:12.080 --> 0:02:15.720 The broad thirty one equities across all three categories have 0:02:15.880 --> 0:02:18.959 done extremely well, you know, outpacing the B five hundred 0:02:19.360 --> 0:02:22.560 in twenty twenty four by over twenty percent. But actually 0:02:22.639 --> 0:02:25.520 the physical environment specific ones, so again those are those 0:02:25.520 --> 0:02:27.880 are names who have exposure to four more BI themes, 0:02:27.880 --> 0:02:31.480 but with a physical environment biased to them, I guess 0:02:31.600 --> 0:02:33.600 would be the best way to describe it. They have 0:02:33.720 --> 0:02:37.640 outperformed those accelerating tech names quite dramatically, so I think 0:02:37.680 --> 0:02:39.760 they're up forty four percent, or in one age they're 0:02:39.840 --> 0:02:43.799 up forty four percent versus something more like nineteen percent 0:02:43.840 --> 0:02:46.200 from the accelerating tech names. So it was a really 0:02:46.200 --> 0:02:49.120 good year for those multi theme physical environment names. For 0:02:49.200 --> 0:02:51.239 the themes themselves, though, it was really hard for a 0:02:51.240 --> 0:02:53.400 lot of themes to find their footing. Nuclear did okay, 0:02:54.040 --> 0:02:56.760 but ultimately it was a relatively pained one h in 0:02:56.840 --> 0:02:59.200 two h As you mentioned, it seems to be a 0:02:59.240 --> 0:03:03.480 slightly different story. So actually all of our twelve physical 0:03:03.560 --> 0:03:07.880 environment themes are currently outpacing the World Energy Index in 0:03:07.919 --> 0:03:10.560 the second half of twenty twenty four, and six of 0:03:10.560 --> 0:03:12.720 them I think it was six as of my last count, 0:03:12.800 --> 0:03:14.440 are actually help pacing the B five hundred and the 0:03:14.440 --> 0:03:17.080 second half of twenty twenty four. So with all that said, 0:03:17.120 --> 0:03:19.920 we're excited about how these themes are potentially going to 0:03:19.919 --> 0:03:22.000 persist through the end of twenty twenty four and what's 0:03:22.000 --> 0:03:23.280 ahead in twenty twenty five. 0:03:24.000 --> 0:03:24.600 Given the fact that. 0:03:24.600 --> 0:03:27.680 We've seen this pretty decent inflection point in the middle 0:03:27.680 --> 0:03:28.480 of twenty twenty four. 0:03:28.480 --> 0:03:32.840 Here sounds interesting and be interesting to watch. And speaking 0:03:33.000 --> 0:03:36.840 of energy, I'd like to welcome our guest, Jonathan Waghorn, 0:03:37.120 --> 0:03:40.640 a portfolio manager at Guinness. He manages the Guinness Global 0:03:40.720 --> 0:03:45.320 Energy Strategy in the Guinness Sustainable Energy Strategy. Jonathan, thank 0:03:45.360 --> 0:03:46.600 you for joining the podcast. 0:03:47.040 --> 0:03:49.160 That's my pleasure. Thank you very much for having me. 0:03:51.000 --> 0:03:52.880 So to start. You know, we'd really love to hear 0:03:52.920 --> 0:03:54.880 about how you got your start in investing. 0:03:57.240 --> 0:03:59.880 Sure, I'm probably a little bit different to many of 0:03:59.920 --> 0:04:03.160 the world of investing in that when I finished my 0:04:03.560 --> 0:04:07.560 degree in a science background, I decided I wanted to 0:04:07.640 --> 0:04:09.920 join the energy industry. I thought it sounded like a 0:04:09.960 --> 0:04:13.240 fascinating industry. I was lucky enough to get a job 0:04:13.680 --> 0:04:17.520 with Shell International as a drilling engineer, and I did 0:04:17.520 --> 0:04:21.280 that for a while before realizing probably that the technical 0:04:21.360 --> 0:04:24.440 side of things engineering wasn't for me, so I got 0:04:24.440 --> 0:04:28.760 to move across into finance. Ultimately spent a few years 0:04:29.400 --> 0:04:33.040 working at Goldman's as a cell side analyst covering European 0:04:33.080 --> 0:04:35.840 oil and gas and writing global research, and then lucky 0:04:35.920 --> 0:04:39.960 enough to move across to the Byside and since two 0:04:40.000 --> 0:04:42.919 thousand and eight. Then I've been a manager of long 0:04:43.000 --> 0:04:46.080 only energy funds, so I've gone from a sort of 0:04:46.120 --> 0:04:50.800 an energy background into a finance specialism and it's always 0:04:50.839 --> 0:04:53.000 been very helpful. I found it very, very useful to 0:04:53.040 --> 0:04:55.640 have that sort of knowledge of what really happens in 0:04:55.680 --> 0:04:57.920 the industry in which I'm trying to invest. 0:04:58.360 --> 0:05:01.159 And so you're now ed Guinnis and for some of 0:05:01.200 --> 0:05:03.760 our US based listeners that might not be familiar with 0:05:03.800 --> 0:05:06.679 the firm, can you kind of give us the firm's 0:05:07.720 --> 0:05:08.720 investment philosophy. 0:05:09.480 --> 0:05:12.200 Sure, a little bit of history and sorry to disappoint, 0:05:12.240 --> 0:05:14.000 we're nothing to do with the beer. We are. The 0:05:14.279 --> 0:05:16.919 Guinness Global Investors is the brand name that we have. 0:05:17.960 --> 0:05:23.919 We're London based long only value oriented managers. It's a 0:05:24.000 --> 0:05:29.279 privately manager owned organization. We have about eleven billion dollars 0:05:29.680 --> 0:05:32.240 under management at the minute. We have that in three 0:05:32.320 --> 0:05:37.400 key areas. Dominating we have our global equities business. We 0:05:37.480 --> 0:05:40.080 then have Energy that I sit within managing the two 0:05:40.360 --> 0:05:43.760 energy funds, conventional and sustainable energy, and then we also 0:05:43.839 --> 0:05:48.599 have a specialism in Asia as well. We're growing, growing nicely. 0:05:48.640 --> 0:05:51.440 I think we're about eighty five people at the current 0:05:51.480 --> 0:05:54.599 time and we have a pretty consistent philosophy and approach 0:05:54.800 --> 0:05:59.560 to sort of value orientation or growth reasonable value delivering 0:05:59.560 --> 0:06:03.800 ourios in a concentrated manner, typically in an equal weighted 0:06:03.960 --> 0:06:07.200 philosophy as well, depending upon the volatility of each of 0:06:07.279 --> 0:06:10.400 our each of our sectors. And that's againest story. We 0:06:10.440 --> 0:06:13.400 were just celebrating our twenty year anniversary. 0:06:12.920 --> 0:06:18.200 Last year, congrats, and you know, we'd like to focus 0:06:18.240 --> 0:06:21.880 kind of on the Guinness Sustainable Energy and so you know, 0:06:21.920 --> 0:06:25.320 how does Guinness define responsible investing? 0:06:26.440 --> 0:06:28.920 Sure, so I think we lean, you know, somewhat heavily 0:06:28.920 --> 0:06:32.520 on the unpri I So the United Nations Principles for 0:06:32.600 --> 0:06:36.400 Responsible Investing and the framework that they have, and that 0:06:36.560 --> 0:06:41.240 framework is one that incorporates ESG factors when building a 0:06:41.279 --> 0:06:46.120 portfolio and then has stewardship activities thereafter. So if we 0:06:46.120 --> 0:06:50.040 think about how that plays out in our Sustainable Energy fund, 0:06:50.800 --> 0:06:53.920 we integrate and incorporate ESG data from a top down 0:06:53.960 --> 0:06:57.800 point of view, understanding the energy transition, the economics, and 0:06:57.839 --> 0:07:00.960 the speed of the various different new forms of energy 0:07:00.960 --> 0:07:05.240 coming in. We think about bottom up ESG integration, understanding 0:07:05.560 --> 0:07:09.320 ESG factors qualitatively by reviewing each of our companies and 0:07:09.360 --> 0:07:14.360 doing detailed ESG work. We're compliant with our Norchesbank exclusion list, 0:07:14.440 --> 0:07:17.080 and also within the fund we write an impact report. 0:07:17.160 --> 0:07:20.520 So there's some of the aspects of incorporating and reporting 0:07:20.520 --> 0:07:23.320 on ESG factors in the fund. And then alongside that 0:07:23.360 --> 0:07:26.720 there's an engagement program. We do that at a corporate level, 0:07:27.120 --> 0:07:29.280 We do that as an investment team, and we have 0:07:29.360 --> 0:07:32.680 some collaborative engagement as well, and then we also have 0:07:32.720 --> 0:07:36.080 proxy voting that goes alongside that. All of that then 0:07:36.440 --> 0:07:39.520 done very much by the investment team, very much as 0:07:39.560 --> 0:07:42.480 part of the process that we go through in trying 0:07:42.520 --> 0:07:47.160 to understand the risks and the opportunities in ESG make 0:07:47.240 --> 0:07:49.440 sure that we capture those in the work that we 0:07:49.480 --> 0:07:52.720 do intock the stock selection that we do as well. 0:07:54.000 --> 0:07:56.160 You've raised a couple interesting points there. I'm going to 0:07:56.160 --> 0:07:58.440 dig in a little bit on that stock selection. Obviously 0:07:58.480 --> 0:08:03.480 relatively concentrated portfolio and the sustainable energy fund that you 0:08:03.520 --> 0:08:08.040 guys have, So I'm interested in I understand, looking bottom 0:08:08.080 --> 0:08:10.880 up from the ESG perspective, how did you go about 0:08:10.920 --> 0:08:14.680 approaching or from the onset of the fund. How did 0:08:14.720 --> 0:08:17.560 you think as you look across the broad energy space. 0:08:18.120 --> 0:08:20.880 Exactly which aspects of that energy space you were going 0:08:20.960 --> 0:08:23.400 to focus on within the fund or does that change 0:08:24.200 --> 0:08:27.680 relatively frequently. I'm interested in your kind of more top 0:08:27.760 --> 0:08:30.880 down energy perspectives and how that's integrated into the process. 0:08:31.560 --> 0:08:34.360 Sure, it's a very important part. If we think about 0:08:34.720 --> 0:08:38.000 sort of the stock selection process as a whole, we've 0:08:38.000 --> 0:08:39.800 got top down and we have bottom up, and we 0:08:39.840 --> 0:08:42.120 think of it being sort of fifty percent to each. 0:08:43.080 --> 0:08:45.600 That's the way it's always been across the energy funds 0:08:45.640 --> 0:08:49.440 the last twenty years or so, the top down work. 0:08:49.520 --> 0:08:53.719 Then for us as managers of both global energy hydrocarbons 0:08:53.720 --> 0:08:57.160 as well as sustainable energy wind, solar, and efficiency, we 0:08:57.240 --> 0:09:00.679 need to understand the breadth of the transition. We need 0:09:00.720 --> 0:09:05.800 to understand the economics, the policy of each of these 0:09:05.840 --> 0:09:10.320 individual forms and how we can build a future around them. 0:09:11.440 --> 0:09:14.840 So we build a global energy model that covers at 0:09:14.880 --> 0:09:18.600 the top level both of our strategies. We think about 0:09:19.160 --> 0:09:24.080 the key drivers of growth, of scarcity, of barriers to entry, economics, 0:09:24.480 --> 0:09:27.640 trying to help understand each of these individual areas, and 0:09:27.679 --> 0:09:30.319 then that forms really I guess, how we think about 0:09:30.360 --> 0:09:36.560 allocating portfolio assets into individual themes. So that informs our 0:09:36.600 --> 0:09:39.760 sort of our sub sector allocation, if you would, between 0:09:39.880 --> 0:09:44.920 companies involved in displacement, companies involved in the broader electrification theme, 0:09:45.440 --> 0:09:49.960 those involved in generating renewable power, and those involved in 0:09:49.960 --> 0:09:53.480 installing and creating the equipment to allow all of that 0:09:53.640 --> 0:09:57.360 to happen. And that's been a pretty constant process and 0:09:57.400 --> 0:10:00.839 thinking over time. That then is complemented by the sort 0:10:00.840 --> 0:10:02.880 of the bottom up work and the stock selection and 0:10:02.920 --> 0:10:03.480 the evaluation. 0:10:06.200 --> 0:10:09.360 So is there a stock screening process. 0:10:10.200 --> 0:10:11.960 Yes, there is, and that we think of as being 0:10:12.040 --> 0:10:15.640 part of the bottom up work. So the approach at 0:10:15.640 --> 0:10:17.839 Guinness is to build a universe, and we have a 0:10:17.920 --> 0:10:22.280 universe of about two hundred and fifty companies within sustainable energy. 0:10:22.720 --> 0:10:26.240 They all have fifty percent of their business activity at 0:10:26.320 --> 0:10:29.679 least fifty percent of their business activity in sustainable energy, 0:10:29.720 --> 0:10:33.679 and we build a quantitative screen. We screen that two 0:10:33.800 --> 0:10:37.520 hundred and fifty companies every month and we score each 0:10:37.559 --> 0:10:41.480 of the companies accordingly. We screen on value, We screen 0:10:41.559 --> 0:10:45.360 on quality, being high return on capital employed, We look 0:10:45.400 --> 0:10:49.080 for positive earnings momentum, and then our fourth sort of 0:10:49.120 --> 0:10:53.440 component is positive stock price momentum. We score the companies 0:10:53.520 --> 0:10:56.040 and then we go through those on a regular basis 0:10:56.160 --> 0:11:02.200 as a team, and that then prioritizes company, prioritizes sub sectors, 0:11:02.280 --> 0:11:04.360 areas that we should go off and do some more 0:11:04.600 --> 0:11:07.720 sort of deeper due diligence. It doesn't tell us what 0:11:08.000 --> 0:11:12.240 to buy, but it's a screen that we can interrogate 0:11:12.520 --> 0:11:14.600 to try to understand and give us a very good 0:11:14.640 --> 0:11:17.199 overview of what is going on pretty quickly in a 0:11:17.280 --> 0:11:18.240 quantitative manner. 0:11:18.679 --> 0:11:21.040 So can you elaborate a little more on the due 0:11:21.080 --> 0:11:24.120 diligence process? I mean, do you meet with management teams? 0:11:25.280 --> 0:11:27.720 Yes, so we don't have to meet with management teams. 0:11:27.720 --> 0:11:31.200 It's not a requirement, but we do like to consume 0:11:31.559 --> 0:11:33.600 data through whatever form we can get that, and that 0:11:33.720 --> 0:11:38.840 sometimes will involve communication with management. Think of us as 0:11:38.840 --> 0:11:41.600 being a little bit more desk based, I guess in 0:11:41.679 --> 0:11:45.560 terms of the way that we work will buy background. 0:11:45.600 --> 0:11:50.800 My co manager evaluation specialist, and myself as a self 0:11:50.800 --> 0:11:53.560 said analyst, we love doing a little bit of valuation 0:11:53.679 --> 0:11:56.520 work and trying to understand sort of the intrinsic value 0:11:56.520 --> 0:11:59.040 of the companies that we are that we are buying. 0:11:59.840 --> 0:12:03.240 The second half of that due diligence process is to 0:12:03.280 --> 0:12:07.360 build some pretty involved company models. We have a standard 0:12:07.400 --> 0:12:11.400 template that we use for every company income statement, cash 0:12:11.400 --> 0:12:14.760 flow balance sheet, you' the usual criteria. We have a 0:12:14.840 --> 0:12:20.560 range of multiples based valuation methodologies are consistent DCF and 0:12:20.640 --> 0:12:22.960 where relevant, we have some of the parts work as well. 0:12:22.960 --> 0:12:25.559 And ultimately, what we're trying to do here is look 0:12:25.600 --> 0:12:28.640 at valuation through various different lenses and if we can 0:12:28.640 --> 0:12:32.440 see patterns of value, then that makes us feel comfortable 0:12:32.440 --> 0:12:34.760 that we're probably looking at a stop that could play 0:12:34.800 --> 0:12:38.400 a part in our portfolio. So we can get good 0:12:38.480 --> 0:12:42.439 value from EXCEL sitting at our desks using various different 0:12:42.480 --> 0:12:45.880 valuation tools. Where big users of the WHOLT system from 0:12:46.040 --> 0:12:49.240 UBS as well. It doesn't require a trip to go 0:12:49.280 --> 0:12:52.200 and see a management team, it doesn't require a trip 0:12:52.240 --> 0:12:55.920 to go and see a manufacturing facility. We're pretty comfortable 0:12:55.960 --> 0:12:57.440 if we can look at the data, we can make 0:12:57.480 --> 0:13:01.400 those decisions here without having to be doing the inefficiencies 0:13:01.400 --> 0:13:05.480 of long distance trips to go to go and view assets. 0:13:06.040 --> 0:13:08.000 I have to go back to your start in the 0:13:08.080 --> 0:13:10.720 energy industry a little bit here, and it's one percent 0:13:10.720 --> 0:13:13.240 because I'm biased to somebody who you know. I was 0:13:13.280 --> 0:13:15.360 in commodities natural gas, specifically for a lot of years 0:13:15.360 --> 0:13:18.040 and was covering the equity side as well. So I'm 0:13:18.120 --> 0:13:22.120 somebody who deeply respects people who've had their hands in 0:13:22.160 --> 0:13:24.160 the energy industry at some aspect in the career and 0:13:24.160 --> 0:13:26.560 the fact that it gives them a really interesting perspective 0:13:26.559 --> 0:13:34.600 and understanding of the logistics around energy. So I'm very 0:13:34.600 --> 0:13:37.120 interested to hear your perspective, especially having been in the 0:13:37.160 --> 0:13:40.640 industry for a while. How has it changed over the years. 0:13:40.760 --> 0:13:42.360 What are your perspectives on right now when you look 0:13:42.360 --> 0:13:45.400 across these different energy solutions if you will to meet 0:13:45.400 --> 0:13:50.280 elect growing electrification needs, what are are you guys thinking 0:13:50.320 --> 0:13:54.240 as far as best positioned to be an integral portion 0:13:54.440 --> 0:13:58.720 of that ultimate energy solution? So, you know, basically looking 0:13:58.800 --> 0:14:02.680 up battery versus versus win versus hydro versus maybe something 0:14:02.720 --> 0:14:05.719 that's nuclear, something that's coming around the corner, how are 0:14:05.760 --> 0:14:10.120 you guys reconciling that with your process of actually delivering 0:14:10.280 --> 0:14:12.440 on the mandate for the fund And. 0:14:13.000 --> 0:14:15.520 Let's think about the role of fossil fuels in all 0:14:15.559 --> 0:14:16.040 of that as well. 0:14:16.160 --> 0:14:18.080 Yes, absolutely, I didn't mean to discount that. 0:14:18.120 --> 0:14:22.120 Absolutely, it's a very very broad range. Indeed, if we 0:14:22.160 --> 0:14:25.960 think about the transition and the reasons why we believe 0:14:26.000 --> 0:14:28.600 this is happening. We think of the world, if I 0:14:28.640 --> 0:14:31.320 may say, becoming a bigger place, more people, more demand 0:14:31.320 --> 0:14:35.760 for energy, and more diverse forms of energy to satisfy that. 0:14:36.320 --> 0:14:39.720 We think about the external threats of climate change impacting 0:14:39.880 --> 0:14:42.400 I guess more the developed world, but we think about 0:14:42.440 --> 0:14:45.160 air pollution as being more of a pressure in the 0:14:45.320 --> 0:14:51.520 developing world. Energy security is increasingly becoming a key key topic, 0:14:52.200 --> 0:14:57.160 especially post the Russian invasion of Ukraine, and we for 0:14:57.280 --> 0:14:59.760 years said no country wants to rely upon Opek for 0:14:59.760 --> 0:15:04.160 it oil or Russia for its natural gas. But key 0:15:04.200 --> 0:15:06.040 for us in the work that we do and the 0:15:06.080 --> 0:15:10.200 thinking we do is economics is trying to understand where 0:15:10.240 --> 0:15:14.440 are the cheapest forms of energy in whatever form coming 0:15:14.440 --> 0:15:17.720 into this market, and how will that disrupt and change 0:15:17.760 --> 0:15:20.160 things for the future. Now, if we think about how 0:15:20.200 --> 0:15:23.560 that has changed, certainly over my career in the energy space, 0:15:23.800 --> 0:15:27.040 it's been a dramatic, dramatic change, not so much in 0:15:27.080 --> 0:15:30.440 the fossil fuels, but in the renewable space. I don't 0:15:30.480 --> 0:15:32.240 have the data going all the way back to sort 0:15:32.240 --> 0:15:34.560 of the mid nineteen nineties, but you look at the 0:15:34.600 --> 0:15:39.160 cost of generating electricity from solar. Over the last sort 0:15:39.160 --> 0:15:43.720 of ten or thirteen years, it's fallen ninety percent offshore 0:15:43.760 --> 0:15:48.960 wind onshore wind. Again, dramatic reductions in cost as technology 0:15:49.200 --> 0:15:52.720 or scale has allowed these industries to get going, and 0:15:52.760 --> 0:15:56.040 that has allowed been solar PB onshore wind as an example, 0:15:56.080 --> 0:15:58.480 to be very much at the bottom end of the 0:15:58.520 --> 0:16:01.720 cost curve on a leveled basis in terms of generating 0:16:01.800 --> 0:16:05.520 new power, and that really is what is driving the transition. 0:16:05.920 --> 0:16:10.440 Policy support is there to accelerate it, but otherwise we 0:16:10.440 --> 0:16:13.160 think it is very much down, very much down to 0:16:13.200 --> 0:16:16.000 the economics and the transition there. And it's not just 0:16:16.080 --> 0:16:18.880 those technologies go through the transition. We see it in batteries. 0:16:19.520 --> 0:16:23.280 The learning rate for batteries is seventeen percent for lithium 0:16:23.280 --> 0:16:27.840 ion batteries. So for every doubling of capacity of manufacturing 0:16:27.840 --> 0:16:30.600 capacity of lithium I in batteries, the cost of a 0:16:30.640 --> 0:16:34.440 battery has been falling by seventeen percent. And if we 0:16:34.480 --> 0:16:37.520 think about where that takes us, hopefully in about three 0:16:37.600 --> 0:16:40.840 years time, we'll have batteries at one hundred dollars per 0:16:40.920 --> 0:16:44.200 killer what hour as being a pretty kind of regular cost. 0:16:44.480 --> 0:16:48.280 That's when I think the electrification of transportation really starts 0:16:48.320 --> 0:16:50.680 to take off. And if we think about the technology 0:16:50.720 --> 0:16:56.480 roadmap ahead on batteries, it continues solid state batteries, lithium anodes. 0:16:57.080 --> 0:17:00.680 We think about the new technology that is in labs 0:17:00.680 --> 0:17:03.600 at the minute, we can see dramatic cost reductions from here, 0:17:03.680 --> 0:17:06.520 So there's a real journey ahead. By no means have 0:17:07.200 --> 0:17:09.600 we come to the end here, and that all points 0:17:09.640 --> 0:17:14.440 towards electrification and away from fossil fuels. But then we're 0:17:14.440 --> 0:17:19.640 also satisfying growing energy demand, So we need to think 0:17:19.640 --> 0:17:22.320 about the fact that fossil fuels will be around for 0:17:22.359 --> 0:17:25.120 a fair few more years. Yet coal will be the loser, 0:17:25.440 --> 0:17:28.760 but we don't see oil peaking in demand until twenty thirty, 0:17:28.960 --> 0:17:32.240 natural gas is probably twenty forty, and even by twenty 0:17:32.320 --> 0:17:35.560 fifty there is still good demand for those two fossil 0:17:35.600 --> 0:17:38.080 fuels because it takes a long time for this to 0:17:38.119 --> 0:17:40.280 work all the way through the system. So this is 0:17:40.680 --> 0:17:44.160 a pretty slow moving transition that we're going through here. 0:17:44.200 --> 0:17:49.280 It will play out over over decades still. 0:17:48.800 --> 0:17:50.920 So when you look at your fund and specifically and 0:17:51.240 --> 0:17:52.960 this is I know you have a more traditional energy 0:17:52.960 --> 0:17:56.159 fund as well, right, and yes, sustainable one and the 0:17:56.240 --> 0:18:01.320 sustainable one specifically equal weight across all the equities. Do 0:18:01.359 --> 0:18:06.199 you have a do you try to provide a certain 0:18:06.480 --> 0:18:10.159 weighted exposure to or equal weight exposure to the different 0:18:10.160 --> 0:18:12.240 type of technologies. So be it you want only a 0:18:12.320 --> 0:18:14.720 portion exposed to solar or the rest you want to batter, 0:18:14.920 --> 0:18:17.119 you know, however that might split might be. Is that 0:18:17.160 --> 0:18:21.280 relatively stable or do you guys on your rebalances. Are 0:18:21.280 --> 0:18:24.840 you consistently looking at how that diversity across the technologies 0:18:24.880 --> 0:18:28.040 looks within the fund and versus you know, the actually 0:18:28.080 --> 0:18:29.080 underlying equities. 0:18:29.600 --> 0:18:32.040 Sure, if you think of the that top down and 0:18:32.040 --> 0:18:34.359 bottom up process that we do, where we're coming up 0:18:34.400 --> 0:18:38.000 and selecting stocks which have a good thematic top down 0:18:38.400 --> 0:18:41.800 that show good valuation, upside and intrinsic value in terms 0:18:41.800 --> 0:18:43.520 of the bottom up work we do. That goes into 0:18:43.520 --> 0:18:48.120 a portfolio broadly equal weight. But this is a reasonably 0:18:48.200 --> 0:18:51.480 volatile space, so we will allow momentum to play out, 0:18:51.600 --> 0:18:56.000 so we don't necessarily rebalance every stock on a regular basis. 0:18:56.000 --> 0:18:59.679 We'll let things run a little bit further. The reasons 0:18:59.680 --> 0:19:02.879 why we the equal waiting. Incidentally, we think of that 0:19:02.960 --> 0:19:07.560 as giving good concentration, so thirty best ideas. Every idea 0:19:07.920 --> 0:19:11.840 makes a difference. It does control stock specific risk, so 0:19:11.960 --> 0:19:15.199 nothing ever gets too big within the portfolio. We have 0:19:15.240 --> 0:19:18.000 a structural cell discipline, so if I want to buy something, 0:19:18.600 --> 0:19:21.159 I need to sell something. And then we think that 0:19:21.320 --> 0:19:26.000 regular rebalancing, which is an informed rebalancing process, is a 0:19:26.040 --> 0:19:30.680 sensible route to creating good returns in the portfolio as well. 0:19:31.200 --> 0:19:34.640 We build that portfolio up, we look at the waitings, 0:19:34.760 --> 0:19:37.760 be those geographic, be those by sector, and we look 0:19:37.760 --> 0:19:39.840 at that relative to our universe. We think about the 0:19:39.880 --> 0:19:44.680 relative overweights and underweights that we have, and then ultimately 0:19:44.760 --> 0:19:48.480 we'll allow those positions to sort of trend over time 0:19:49.000 --> 0:19:53.199 depending on where we feel things are more advantaged or 0:19:53.240 --> 0:19:56.199 not at different points. It's low turnover, so typically this 0:19:56.240 --> 0:19:58.640 is sort of ten to fifteen maybe twenty percent turnover 0:19:58.640 --> 0:19:58.960 a year. 0:19:59.240 --> 0:20:01.560 Is there anything that's prized you? And I mean I 0:20:01.600 --> 0:20:03.520 can think to myself as too, if you were to 0:20:03.560 --> 0:20:06.800 ask me twenty years ago which ones of these technologies 0:20:06.840 --> 0:20:08.920 maybe would be at the forefront right now, I don't 0:20:08.920 --> 0:20:10.840 know necessarily that I'd be giving the same answer twenty 0:20:10.880 --> 0:20:12.600 years ago as i'd be saying right now. So I'm 0:20:12.600 --> 0:20:16.359 curious from your perspective, is there anything that surprised you 0:20:16.560 --> 0:20:21.919 in how this transition has thus far manifested and kind 0:20:21.960 --> 0:20:24.680 of where we're at right now with respect to these 0:20:24.720 --> 0:20:28.440 different types of technologies. Again, you know, we solar hydrogen 0:20:28.480 --> 0:20:31.440 win batteries. Do you think that we were you expecting 0:20:31.520 --> 0:20:33.840 us to be further ahead in some aspects or are 0:20:33.840 --> 0:20:36.199 we further ahead than you thought we would be? 0:20:36.960 --> 0:20:39.080 Yeah, I'd probably could say we're further ahead than where 0:20:39.080 --> 0:20:43.120 I would have thought we would be. If you think 0:20:43.119 --> 0:20:46.320 of the investment going into clean energy just recently, I 0:20:46.320 --> 0:20:48.720 mean last year was one point seven trillion dollars into 0:20:48.760 --> 0:20:52.680 clean energy. That was a level that was up three 0:20:52.720 --> 0:20:55.840 times relative to the expenditure in twenty nineteen. Okay, so 0:20:56.440 --> 0:20:59.919 there is a clear effort and push towards this in a, 0:21:00.119 --> 0:21:04.440 you know, in a very very significant manner. So in 0:21:04.960 --> 0:21:07.680 that respect, there's a lot that's being done. If we're 0:21:07.680 --> 0:21:10.360 going to believe a net zero scenario, that investment needs 0:21:10.359 --> 0:21:12.480 to be four or five trillion dollars per annum. So 0:21:12.520 --> 0:21:14.440 there's still, you know, an awful long way to go. 0:21:15.359 --> 0:21:17.080 When I kind of I sit back and I think 0:21:17.119 --> 0:21:20.480 about how things are evolving, I think nuclear is an 0:21:20.520 --> 0:21:24.879 area that really satisfies many of the demands that we 0:21:24.960 --> 0:21:30.119 have in terms of clean, carbon free baseload power, and 0:21:30.160 --> 0:21:33.280 it's somewhat surprising that that is still as small as 0:21:33.320 --> 0:21:35.440 it is and that the industry has not got better 0:21:35.520 --> 0:21:38.960 at developing nuclear Clearly very topical at the current time 0:21:39.000 --> 0:21:41.639 if you think of the Microsoft's and the Googles and 0:21:41.640 --> 0:21:44.440 the Amazons signing up to get nuclear in the US 0:21:44.480 --> 0:21:49.520 because of artificial intelligence. So that's surprising that that hasn't progressed. 0:21:49.920 --> 0:21:53.800 And then I'd say I find the hydrogen industry slightly confusing. 0:21:54.560 --> 0:21:57.200 A lot of excitement and enthusiasm the last five years 0:21:57.240 --> 0:22:00.800 about the great hope of hydrogen, and I still think 0:22:00.840 --> 0:22:05.840 that is an industry that is still very, very economically stretched, 0:22:07.040 --> 0:22:11.080 just in the cost of generating green hydrogen, the cost 0:22:11.080 --> 0:22:14.439 of doing that, the energy loss that goes through doing that, 0:22:14.840 --> 0:22:18.320 the cost of storing hydrogen is really quite significant. So 0:22:18.400 --> 0:22:21.080 I've still yet to be convinced with with the likes 0:22:21.080 --> 0:22:23.480 of hydrogen. So I find that a bit of a 0:22:23.840 --> 0:22:26.160 bit of a surprise relative to what I would have expected. 0:22:26.960 --> 0:22:29.000 I wanted to follow up. You mentioned you have a 0:22:29.040 --> 0:22:33.520 structured cell process. Is it you know, better opportunities or 0:22:33.640 --> 0:22:37.800 valuations that would you know, make you you know, sell 0:22:37.840 --> 0:22:38.200 a stock. 0:22:39.400 --> 0:22:42.520 Yeah, I guess the investment process we go through, we 0:22:42.560 --> 0:22:45.199 come up with an intrinsic value, you know, what do 0:22:45.240 --> 0:22:47.720 we think this company is really worth on a sort 0:22:47.720 --> 0:22:51.719 of a through cycle normalized valuation methodology. So seeing that 0:22:51.760 --> 0:22:56.000 share price being or that value being breached would indicate 0:22:56.040 --> 0:22:57.800