WEBVTT - Is Beyoncé Recession-Proof? 0:00:13.840 --> 0:00:17.440 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.640 --> 0:00:19.880 My name is Mike Reagan. I'm a senior editor at 0:00:19.880 --> 0:00:23.680 Bloomberg and I'm Aldana Higher across Asset reporter with Bloomberg. 0:00:24.320 --> 0:00:26.680 And this week on the show, Well, as we record 0:00:26.760 --> 0:00:30.760 this episode, the SMP five hundred is down from its 0:00:30.840 --> 0:00:34.800 last record, since you closer to that threshold that marks 0:00:34.800 --> 0:00:37.920 what most people considered to be a bear market. But 0:00:38.040 --> 0:00:41.360 what's interesting is that what we're once considered the most 0:00:41.440 --> 0:00:44.880 innovative companies and really the most profitable stocks to own, 0:00:44.920 --> 0:00:48.680 are faring much worse. The NASDAC one hundred, for example, 0:00:48.840 --> 0:00:53.040 is down almost So what exactly is it about our 0:00:53.040 --> 0:00:56.800 current environment with red hot inflation and a sprint higher 0:00:56.800 --> 0:01:01.160 in interest rate that is kryptonite for innovative niece and 0:01:01.160 --> 0:01:04.160 what will take to make those types of stocks market leaders? Again, 0:01:04.720 --> 0:01:06.680 we're going to get into it with the chief investment 0:01:06.720 --> 0:01:09.840 officer for public equities at a major Wall Street acid 0:01:09.959 --> 0:01:13.360 management firm. But first, Beltano, I have to say, I 0:01:13.440 --> 0:01:16.759 hope you did not go around last week telling everyone 0:01:16.800 --> 0:01:20.080 your high school nickname. Did you know? I haven't? Okay? Good? 0:01:20.120 --> 0:01:23.600 Because as you know, that is a hot commodity and 0:01:23.680 --> 0:01:26.759 podcast land. I think we've already gotten a few more 0:01:27.240 --> 0:01:31.760 reviews on Apple podcast by holding out the promise of 0:01:31.800 --> 0:01:33.720 your high school nickname. So I think if we get 0:01:33.760 --> 0:01:37.520 to three and fifty ratings, we'll reveal it. Does that 0:01:37.560 --> 0:01:40.080 sound good? So you're holding out one, You're you're letting 0:01:40.080 --> 0:01:42.919 this drag out a little bit longer. Absolutely, yeah, Okay, 0:01:42.959 --> 0:01:46.160 Well just let the record show and let the listeners 0:01:46.200 --> 0:01:48.720 show that this was your idea to hold them hostage. 0:01:49.080 --> 0:01:51.200 They know that, not mine. Yes, no, that I think 0:01:51.200 --> 0:01:54.600 it's well known that any crazy scheme, any gimmick on 0:01:54.640 --> 0:01:57.320 this show is usually my terrible idea, but it works, 0:01:57.360 --> 0:02:00.360 and I will say it works. And uh so, go 0:02:00.440 --> 0:02:04.240 on your Apple podcast app and give us a rating. 0:02:04.240 --> 0:02:06.560 I'm not saying it has to be five stars, but 0:02:06.640 --> 0:02:10.600 you know, hey, that's the highest rating. And give micro 0:02:10.680 --> 0:02:14.840 rating and write us a review, right, maybe even suggest 0:02:14.880 --> 0:02:17.280 new nicknames for us. Whatever it takes, well, we'll take it. 0:02:17.320 --> 0:02:19.280 But that's the way that we sort of spread the 0:02:19.320 --> 0:02:22.399 word about the podcast. Uh and and give listeners who 0:02:22.560 --> 0:02:25.959 are just finding it on Apple a little hint at 0:02:26.880 --> 0:02:29.320 what kind of show it is and how well received. 0:02:29.440 --> 0:02:31.600 We're not well received it is. I don't know. I 0:02:31.600 --> 0:02:34.200 don't know. We'll find out. Well, we'll see how well 0:02:34.240 --> 0:02:39.640 this idea of yours to hold listeners hostage work. In 0:02:39.720 --> 0:02:43.200 the meantime, I'm hoping we can hear from our guest 0:02:43.240 --> 0:02:46.560 this week, Katie Koch. She's the chief investment Officer of 0:02:46.560 --> 0:02:49.840 public equity at Goldman Sachs Asset Management, is joining us 0:02:49.840 --> 0:02:51.919 this week. Katie, thank you so much for coming back 0:02:51.919 --> 0:02:53.919 on the show. Oh, it's my pleasure to be here. 0:02:54.000 --> 0:02:58.160 Thanks for having us. She came back and we didn't 0:02:58.160 --> 0:03:02.520 even make her reveal any nicknames. Who's did you? Just 0:03:02.560 --> 0:03:04.960 to start, we have this stat your team had sent 0:03:05.040 --> 0:03:07.760 us over. They said that you manage something like twenty 0:03:07.760 --> 0:03:11.840 billion dollars of tech slash innovation assets and yet at 0:03:11.880 --> 0:03:14.440 the same time, we know that growth has been underforming 0:03:14.480 --> 0:03:16.200 year today. So I was hoping you could talk to 0:03:16.240 --> 0:03:21.760 us about this and tell us how you're thinking about it. Sure. Absolutely, um, 0:03:21.800 --> 0:03:24.800 I will say. When I knew I needed to do 0:03:24.840 --> 0:03:27.200 this podcast today, I wanted to start with some advice 0:03:27.280 --> 0:03:29.640 to you guys. I think the podcast is called what 0:03:29.760 --> 0:03:35.800 Goes Up, and it's it's a short less you might 0:03:35.840 --> 0:03:37.960 want to you might want to rename it for for 0:03:38.080 --> 0:03:41.800 the dear term, but at a very serious note, um 0:03:41.840 --> 0:03:46.200 it Uh. We are big believers on investing client capital 0:03:46.280 --> 0:03:49.800 into the innovation space. I did just want to impress 0:03:49.880 --> 0:03:53.520 upon something that we've been saying for the last several years, 0:03:53.600 --> 0:03:56.360 which is that we think when people step into these 0:03:56.440 --> 0:03:59.120 innovation themes and we can unpack them in more detail, 0:03:59.440 --> 0:04:02.680 they really needed to really need to be committed for 0:04:02.720 --> 0:04:04.840 the long term. I don't I don't think any of 0:04:04.880 --> 0:04:07.560 these things are tactical traits generally. I think it's really 0:04:07.560 --> 0:04:09.800 tough the time to markets, but I think it's particularly 0:04:09.840 --> 0:04:13.160 true and a lot of these high innovation areas. So 0:04:13.200 --> 0:04:15.360 I do want to say that at the outset that 0:04:15.400 --> 0:04:18.640 we think it's strategic, not tactical. Um. The second thing 0:04:18.640 --> 0:04:21.239 that I would say is that I do think that 0:04:21.440 --> 0:04:26.200 the dislocation has been very severe, particularly in public markets. UM. 0:04:26.440 --> 0:04:28.600 Just you had asked earlier why that is. I mean, 0:04:28.600 --> 0:04:31.840 the very basic explanation for that is that growth assets, 0:04:31.880 --> 0:04:34.680 the cash flows or the furthest out, so they're kind 0:04:34.680 --> 0:04:37.960 of the longest duration assets, if you will, and they're 0:04:38.000 --> 0:04:40.279 the most hurt when it looks like rates are going 0:04:40.320 --> 0:04:43.120 to rise, which is obviously the environment we're in UM 0:04:43.240 --> 0:04:45.279 and so that was that's a big leg down of 0:04:45.360 --> 0:04:48.080 most of the pain that's been experienced in in tech 0:04:48.680 --> 0:04:52.920 UM and they're everything is correlated effectively to one UM 0:04:52.960 --> 0:04:56.599 and so that's been a painful absolute return experience. But 0:04:56.680 --> 0:04:59.039 we think people who are already in these assets should 0:04:59.040 --> 0:05:02.400 have patients around it because eventually growth it will will 0:05:02.440 --> 0:05:05.400 be in a world where growth is scarce UM and 0:05:05.400 --> 0:05:07.479 and these assets should rerate on the back of that. 0:05:08.080 --> 0:05:10.359 And if you don't think you have enough exposure to 0:05:10.440 --> 0:05:13.200 this part of the market, I think the recent correction 0:05:13.480 --> 0:05:17.200 actually provides some really compelling entry points to get exposure 0:05:17.279 --> 0:05:21.360 to technology as a as a secular theme. So that's 0:05:21.400 --> 0:05:23.320 kind of how I would think about it. Tech is 0:05:23.400 --> 0:05:26.080 down at the moment, but it's not out. Don't give 0:05:26.160 --> 0:05:28.120 up on it. And I'm very happy to go into 0:05:28.160 --> 0:05:30.039 more detail in terms of why we think it's going 0:05:30.080 --> 0:05:33.000 to work from here and what we like. That would 0:05:33.000 --> 0:05:35.200 be great, Katie. I'd love to unpack that some more. 0:05:35.320 --> 0:05:37.360 But I will say one thing that is going up 0:05:37.440 --> 0:05:42.320 is interest rates, so we can talk about and that's 0:05:42.400 --> 0:05:47.040 true and inflation of course too. There are some things 0:05:47.040 --> 0:05:49.039 going up, just just not a lot in the innovation 0:05:49.120 --> 0:05:51.799 space today, but there in lies the opportunity. I guess 0:05:52.320 --> 0:05:57.560 I think I think blood pressure among portfolio management. But 0:05:57.800 --> 0:06:01.719 I wanted to sort of get your ache on what 0:06:01.920 --> 0:06:06.919 is so toxic about inflation and rising interest rates, specifically 0:06:06.920 --> 0:06:09.920 for those long duration tech companies that that you mentioned. 0:06:09.920 --> 0:06:13.279 I mean, we'll often here, sort of from the macro level, 0:06:13.320 --> 0:06:16.760 a couple of reasons why rising rates are so bad. Obviously, 0:06:17.080 --> 0:06:19.720 you know, if a company is heavy, heavily levered up 0:06:19.880 --> 0:06:22.680 and has you know, to take on new debt, you know, 0:06:22.960 --> 0:06:25.640 rolling over debt into higher interest rates, that that's an 0:06:25.680 --> 0:06:28.680 obvious one. Also, you know, just the risk free rate 0:06:28.760 --> 0:06:31.920 of the market and treasuries going higher sort of as 0:06:31.960 --> 0:06:35.000 you point out, you know, is is really kind of 0:06:35.080 --> 0:06:38.520 dangerous for those long duration assets. But yeah, I look 0:06:38.560 --> 0:06:40.640 at the SMP five hundred at least as a whole, 0:06:40.680 --> 0:06:44.080 and it seems like, you know, the leverage, the balance 0:06:44.160 --> 0:06:48.120 sheets are are healthy, healthier than past years based on 0:06:48.200 --> 0:06:51.599 most metrics. Now, your your debt to prize value or 0:06:51.640 --> 0:06:54.560 your your debt to earnings ratios at any sort of 0:06:54.600 --> 0:06:56.960 debt to fill in the blank ratio seems to be 0:06:57.320 --> 0:07:00.719 fairly healthy. So is this all about that risk free rate. 0:07:00.760 --> 0:07:03.960 You know, we can finally get three percent in treasuries, 0:07:04.240 --> 0:07:07.800 and the assumption being that you know inflations, one day, 0:07:08.000 --> 0:07:09.880 knock on what, we'll go back to two percent and 0:07:10.000 --> 0:07:13.160 we'll get a positive reralio. Is that the main catalyst? 0:07:13.160 --> 0:07:16.600 Do you think? I think that certainly plays a part 0:07:16.680 --> 0:07:19.400 in what's happening here. Again, as rates go up, these 0:07:19.440 --> 0:07:22.200 cash flows are further out. It puts pressure downward pressure 0:07:22.200 --> 0:07:25.560 on these stocks. But it's not that in isolation. UM. 0:07:25.680 --> 0:07:29.360 I'd say a second issue is just where evaluations were. 0:07:29.880 --> 0:07:35.040 So valuations for broad equity markets UM were in their 0:07:35.120 --> 0:07:40.160 high ninety percentile most expensive relative to history. You you 0:07:40.240 --> 0:07:42.640 mentioned that the outset that equity markets have correct its 0:07:42.640 --> 0:07:45.720 seventeen percent from the highs. Roughly it moves around a 0:07:45.720 --> 0:07:49.360 little bit, but that's about true. And valuations are still 0:07:49.360 --> 0:07:53.720 in their ninety most expensive percentile. So there's only two 0:07:53.800 --> 0:07:56.520 things that can really drive equity markets, which is multiples 0:07:56.520 --> 0:08:01.280 and learnings. And the multiples were already quite I demanding 0:08:02.400 --> 0:08:05.040 mostly good news, and actually what we've gotten this mostly 0:08:05.080 --> 0:08:07.760 bad news. So I think the valuations are certainly part 0:08:07.760 --> 0:08:10.680 of it. So you have this this long duration issue 0:08:10.680 --> 0:08:14.160 of cash flows working against you. You have the multiple 0:08:14.760 --> 0:08:18.920 was too high, arguably broadly and intech specifically. And then 0:08:18.920 --> 0:08:20.720 I think, you know, related to a lot of this 0:08:20.800 --> 0:08:24.640 is the inflationary pressures and this dawning realization that the 0:08:24.760 --> 0:08:28.240 central bank put is gone. Um. In other words, the 0:08:28.280 --> 0:08:31.080 market kind of got used to the reality that when 0:08:31.080 --> 0:08:33.640 things were difficult, the central bank would come in and 0:08:33.679 --> 0:08:38.280 cut rates. But if they're actually forming another performing another 0:08:38.360 --> 0:08:41.280 important test, which is trying to control and inflation, they're 0:08:41.320 --> 0:08:43.360 less likely to do that in the absence of a 0:08:43.400 --> 0:08:45.920 major recession. And so it's a combination of all of 0:08:45.960 --> 0:08:49.240 those issues that are really weighing down on this part 0:08:49.240 --> 0:08:51.560 of the market. But if you want to step in here, 0:08:51.760 --> 0:08:56.599 because I think actually, ultimately this is a deeply secular opportunity. UM. 0:08:56.640 --> 0:08:59.280 I had mentioned this to you guys, but the CEO 0:08:59.360 --> 0:09:02.640 of Microsoft u uh Statta Dallas that on his call 0:09:02.800 --> 0:09:05.160 he was being pushed on this very issue, the macro 0:09:05.280 --> 0:09:07.720 environment stuff. How are you going to operate through this? 0:09:07.840 --> 0:09:09.520 And he kind of gave an answer that was I 0:09:09.720 --> 0:09:12.199 don't focus so much on that day to day because 0:09:12.240 --> 0:09:15.319 over the next decade, tech is a percentage of GDP. 0:09:15.559 --> 0:09:18.160 GDP spend rather is going to double. So there's an 0:09:18.240 --> 0:09:22.360 incredible opportunity. And we know that company managements all over 0:09:22.400 --> 0:09:25.040 the world are kind of continue to invest in innovation 0:09:25.240 --> 0:09:27.920 just to survive and also to take market share, and 0:09:27.960 --> 0:09:30.560 so this these things will work and they're gonna work really, 0:09:30.600 --> 0:09:33.720 really well. Um, it's just at the moment we have 0:09:33.880 --> 0:09:36.679 that has been dislocated. And as I said earlier, I 0:09:36.720 --> 0:09:38.880 would think about that as an opportunity if you have, 0:09:39.360 --> 0:09:41.760 if you have patient capital to come in and step 0:09:41.800 --> 0:09:44.840 in here, um and and buy some of these assets. 0:09:44.880 --> 0:09:47.600 I just think you have to be balanced. It's not 0:09:47.880 --> 0:09:49.880 I have very little conviction on that on a twenty 0:09:49.920 --> 0:09:52.040 four hour, one week, even a couple of months view. 0:09:52.080 --> 0:09:54.120 I think it will work out over the long term, 0:09:54.160 --> 0:09:56.280 but you have to be patient and you have to 0:09:56.320 --> 0:09:58.920 be balanced about it. We are not, in my view, 0:09:59.400 --> 0:10:02.760 going to have v shaped recovery like people might be 0:10:02.800 --> 0:10:05.479 a recent data point in people's mind given the pandemic, 0:10:05.559 --> 0:10:07.839 but that's not what we're set up for here. We're 0:10:07.920 --> 0:10:09.880 kind of set up for the hard work of hopefully 0:10:09.920 --> 0:10:13.840 stabilizing the multiple and these companies delivering earnings, and so 0:10:13.920 --> 0:10:16.520 in my view, there will be strong recoveries and return 0:10:16.559 --> 0:10:19.840 opportunities from here. UM, but it's going to take longer 0:10:19.920 --> 0:10:23.440 for for that to be realized. Can you, Katie, maybe 0:10:23.559 --> 0:10:26.200 narrow down that list for us? So what specifically are 0:10:26.240 --> 0:10:29.000 you looking at, what are you finding attractive and maybe 0:10:29.000 --> 0:10:33.320 what are you guys buying right now? So areas themes 0:10:33.360 --> 0:10:36.079 that we've focused on, just because we're talking about innovation now. 0:10:36.120 --> 0:10:38.040 I mean the way we do will do this is 0:10:38.120 --> 0:10:40.200 we think about how is the world's going to change 0:10:40.600 --> 0:10:43.600 over the next decade, what are the big themes and 0:10:43.640 --> 0:10:46.640 then obviously trying to pick the right companies within those themes. 0:10:47.080 --> 0:10:50.000 So the themes that we're focused on here is the 0:10:50.160 --> 0:10:54.080 energy transition. UM. We also so this is you know 0:10:54.160 --> 0:10:57.400 climate for example. UM. We also are interested in the 0:10:57.400 --> 0:11:00.240 future of tex so the technology companies be on the 0:11:00.440 --> 0:11:03.760 banks down the market cap around the world. UM. We 0:11:03.840 --> 0:11:07.720 like the future disruptive future of of healthcare UM and 0:11:07.760 --> 0:11:10.800 how that's going to change the world. Uh, the consumer, 0:11:11.320 --> 0:11:14.240 particularly the millennial and Gen Z consumer. And then we're 0:11:14.280 --> 0:11:17.320 invested in the real estate and infrastructure that will underpin 0:11:17.440 --> 0:11:21.320 all of that. So those are some of the major themes. UM. 0:11:21.400 --> 0:11:23.679 I wanted to come back to this point on on balance, 0:11:23.720 --> 0:11:25.160 and then we can dig into any of those in 0:11:25.200 --> 0:11:28.040 more detail. But I do think it is prudent. We 0:11:28.120 --> 0:11:30.200 always believe this to be prudent. This is the reason 0:11:30.320 --> 0:11:32.920 some of our thermatic strategies have have done better than 0:11:32.960 --> 0:11:35.920 the peer group. It's always prudent to have some balance 0:11:35.960 --> 0:11:38.240 in these strategies. So, yes, we like these themes, but 0:11:38.280 --> 0:11:40.760 we don't have to just be in companies that are 0:11:40.840 --> 0:11:44.880 growth at any price. We can own more expensive innovative companies, 0:11:44.920 --> 0:11:50.240 for example, software a snowflake which still trades at twenty 0:11:50.280 --> 0:11:52.920 times on e V two sales. These are bills despite 0:11:52.920 --> 0:11:56.440 the correction rich multiples, but they're high growth companies. We 0:11:56.480 --> 0:11:59.640 can own that in the future of tech alongside, for example, 0:11:59.720 --> 0:12:02.760 something in the semi space which trades that much more 0:12:02.880 --> 0:12:07.600 reasonable valuations discount to where it's been relative to the 0:12:07.679 --> 0:12:10.440 last ten years in certain instances, and get that balance 0:12:10.480 --> 0:12:14.040 in the portfolio between the high growth names um and 0:12:14.040 --> 0:12:17.400 and some of those more value or cyclical oriented names. 0:12:17.400 --> 0:12:20.439 And we do that really across every theme. In healthcare, 0:12:20.520 --> 0:12:23.040 we own some of the medical device companies which are 0:12:23.040 --> 0:12:25.959 more valuation grounded, and then we own stuff in the 0:12:26.000 --> 0:12:29.520 genomic space, which is obviously very high growth oriented. So 0:12:29.600 --> 0:12:32.200 we focus on the themes picked the companies and try 0:12:32.200 --> 0:12:34.360 and have a balance within those themes of those high 0:12:34.440 --> 0:12:37.480 growth companies along with some of the more cyclically exposed 0:12:37.559 --> 0:12:41.200 value oriented names as well. You Know what I find 0:12:41.240 --> 0:12:44.920 interesting when we talk about innovation, uh and what stocks 0:12:44.920 --> 0:12:47.800 will benefit from that is we've almost had sort of 0:12:47.800 --> 0:12:50.080 the opposite problem with those you know, you mentioned the 0:12:50.080 --> 0:12:53.640 big fang companies you know. To me, you know, and 0:12:53.679 --> 0:12:56.319 these companies just got so huge, you know, Apple at 0:12:56.440 --> 0:12:58.360 what two and two and a half trillion whatever it 0:12:58.400 --> 0:13:02.199 is at the moment. To me, Apple is kind of 0:13:02.320 --> 0:13:05.080 uh struggling with innovation these days. You know, you've got 0:13:05.200 --> 0:13:07.600 you've got the iPhone, you wait for that sort of 0:13:07.800 --> 0:13:12.280 iPhone replacement cycle. You've got the mac uh, You've got 0:13:12.520 --> 0:13:17.160 the services revenue is strong, um, but the promise of 0:13:17.240 --> 0:13:20.160 sort of more innovation from from saying Apple, you know, 0:13:20.200 --> 0:13:22.800 there was talk of them getting in the TVs or 0:13:23.280 --> 0:13:26.600 automo electric vehicles. Um. And not just to pick on Apple, 0:13:26.640 --> 0:13:28.720 but I feel like Amazon might be struggling with the 0:13:28.760 --> 0:13:32.719 same thing. You know. Here, Amazon started by disrupting the 0:13:32.960 --> 0:13:37.000 book industry, went on to disrupt every sort of retail 0:13:37.080 --> 0:13:39.559 industry there is then I found a lot of growth 0:13:39.559 --> 0:13:43.120 in the cloud business, but I feel like for you know, 0:13:43.200 --> 0:13:47.360 a lot of these big companies, Facebook included, um, they've 0:13:47.400 --> 0:13:50.640 sort of reached saturation. So you know, the question is, 0:13:50.640 --> 0:13:55.040 when you're looking for innovation, does it really necessarily require 0:13:55.160 --> 0:13:58.880 going down the ladder as far as market size and 0:13:58.920 --> 0:14:02.920 finding you know, undiscovered sort of small cap stocks were 0:14:02.960 --> 0:14:05.120 you know, is there a case to be made of 0:14:05.360 --> 0:14:07.880 any of these companies sort of being leaders in innovation? Again, 0:14:08.280 --> 0:14:11.160 I guess the one, you know, the one alluring thing 0:14:11.200 --> 0:14:14.479 everyone likes to talk about is the metaverse, you know, withcebook. 0:14:14.720 --> 0:14:17.400 I'm not sure anyone's buying that though you know the 0:14:17.520 --> 0:14:20.040 the growth potential there, But how do you think about that? 0:14:20.120 --> 0:14:22.440 I know this is a very long winned winted question, 0:14:22.480 --> 0:14:25.160 which is my specialty, but how do you how do 0:14:25.200 --> 0:14:28.040 you think about that notion of you know, the size 0:14:28.080 --> 0:14:31.640 factor of a stock as it relates to their potential 0:14:31.680 --> 0:14:34.200 to innovate and disrupt? Well, I mean, it's a it's 0:14:34.240 --> 0:14:36.440 a hugely It may have been a long question, but 0:14:36.480 --> 0:14:39.640 it's an important one too because these companies dominate a 0:14:39.720 --> 0:14:41.800 lot of a lot of the market, right so we 0:14:41.840 --> 0:14:44.560 have one percent of the number of companies taking up 0:14:44.600 --> 0:14:47.680 still despite all of the movement out there, more than 0:14:48.480 --> 0:14:50.560 the market cap, I will say, in a sign of 0:14:50.640 --> 0:14:54.880 the times, UM, Apple is actually no longer the world's 0:14:54.880 --> 0:15:00.800 most viable company. That changed if we exactly UM. But 0:15:01.000 --> 0:15:03.080 big picture here's I want to make a couple of 0:15:03.080 --> 0:15:07.160 big picture comments briefly about those top dominant companies and 0:15:07.240 --> 0:15:08.800 kind of where we see them going from here, and 0:15:08.840 --> 0:15:10.840 then I'm going to end with an argument that like, yeah, 0:15:10.840 --> 0:15:12.640 I do think you need to own stuff well beyond 0:15:12.680 --> 0:15:15.840 them and around the world, but in those in those 0:15:15.840 --> 0:15:19.040 companies themselves, they you made up. You made the comment 0:15:19.160 --> 0:15:22.680 around UM saturation. I mean, it's one way of looking 0:15:22.680 --> 0:15:26.960 at They're also facing some regulatory challenges to UM. But 0:15:27.080 --> 0:15:28.960 just looking at the long arc of history, if we 0:15:29.000 --> 0:15:32.560 look at the ten largest companies twenty years ago UM 0:15:32.640 --> 0:15:35.320 and then compare them to the ten today, there's actually 0:15:35.320 --> 0:15:38.479 only two companies that are still on that list, Microsoft 0:15:38.560 --> 0:15:41.680 one of them. UM. The other eight went on to 0:15:41.800 --> 0:15:45.040 destroy close to four hundred billion dollars of market cap 0:15:45.240 --> 0:15:49.520 during a great bull market for equities. So I kind 0:15:49.560 --> 0:15:51.760 of look at it and think a lot about and 0:15:51.800 --> 0:15:55.560 our team does the creative destruction. How difficult it is 0:15:56.080 --> 0:15:59.320 for those companies to stay persistently amongst the largest companies 0:15:59.320 --> 0:16:00.640 in the world for some of the reasons that you 0:16:00.720 --> 0:16:03.520 just outlined in terms of the challenges that they are facing. 0:16:04.160 --> 0:16:06.880 So that is a reason we think people need to 0:16:06.960 --> 0:16:10.400 diversify away from those companies to find the future winners 0:16:10.400 --> 0:16:12.160 that will be able, that that are going to show 0:16:12.240 --> 0:16:14.000 up on that list, because obviously that's one of the 0:16:14.040 --> 0:16:18.240 great ways to create wealth. I would just balance those comments. Um, 0:16:18.280 --> 0:16:20.520 we do own some of those large incumbents, not all 0:16:20.560 --> 0:16:22.800 of them, but we take positions in some of them 0:16:22.800 --> 0:16:26.920 because you can't forget, particularly an environment like this, how 0:16:26.960 --> 0:16:30.720 incredibly strong the balance sheets of these companies are. And 0:16:30.760 --> 0:16:34.280 when you're sitting in thirty fifty hundred in some cases 0:16:34.360 --> 0:16:37.520 more billion dollars of cash on the balance sheet, that 0:16:37.600 --> 0:16:40.600 gives you clearly the ability to navigate an uncertain environment, 0:16:40.680 --> 0:16:45.600 but also the ability to buy or invest in the 0:16:45.640 --> 0:16:48.400 next big thing you talked about metaverse wolves. Facebook can 0:16:48.440 --> 0:16:51.160 do that because they're highly free cash flow generative, and 0:16:51.160 --> 0:16:53.560 they have thirty billion dollars of cash on the balance sheet, 0:16:53.880 --> 0:16:56.080 and they were able to get into the next property 0:16:56.120 --> 0:16:59.280 which was UM you know, for example, Instagram, because they 0:16:59.280 --> 0:17:01.080 were able to buy that. So I just think you've 0:17:01.080 --> 0:17:03.200 got to take into account that they have a lot 0:17:03.200 --> 0:17:07.120 of firepower UM to navigate a difficult environment and also 0:17:07.240 --> 0:17:09.679 to get on the right side of innovation and disruption. 0:17:10.000 --> 0:17:12.639 The question is whether or not they have the management 0:17:12.640 --> 0:17:16.160 team UM and the execution capability to continue to do that. 0:17:16.240 --> 0:17:18.440 And it's true vent true over time that not all 0:17:18.480 --> 0:17:20.080 of them do it. So you've got to be selective 0:17:20.119 --> 0:17:23.080 about that. Pick your spots and those big companies, but 0:17:23.200 --> 0:17:27.600 definitely diversify U into the future leaders UM. And then 0:17:27.640 --> 0:17:31.080 in addition to that, looking around the world because UM, 0:17:31.400 --> 0:17:34.159 because of the ubiquity of cloud and five G, a 0:17:34.160 --> 0:17:36.200 lot of these companies are going to be actually found 0:17:36.359 --> 0:17:39.199 outside of Silicon Valley and outside the US. It's the 0:17:39.240 --> 0:17:41.679 markets not showing us that right now because some of 0:17:41.720 --> 0:17:44.320 those companies are are facing a lot of pressure on 0:17:44.359 --> 0:17:46.280 a day to day basis, but they are going to 0:17:46.359 --> 0:17:48.879 be disruptive and they may be the future winners. And 0:17:48.920 --> 0:17:52.160 that growth, by the way, is actually very much on sale. 0:17:52.200 --> 0:17:55.679 The growth rates are higher clearly outside of the big incumbents. 0:17:55.960 --> 0:17:58.600 And right now, if you took the highest quintile growth 0:17:58.920 --> 0:18:02.879 and the lowest quintile growth. It has the tightest valuation 0:18:03.000 --> 0:18:05.760 compression that we've had in a very very long time. 0:18:05.800 --> 0:18:08.080 In other words, you don't right now have to pay 0:18:08.119 --> 0:18:11.280 a big premium to get into the growthier parts of tech. 0:18:11.480 --> 0:18:13.800 And I'll end by saying there's lots of stuff we 0:18:13.840 --> 0:18:17.520 like and are excited about outside of the things, including stemmies, 0:18:17.560 --> 0:18:20.879 which we talked about briefly, software, and then also cyber 0:18:20.920 --> 0:18:23.320 which we haven't mentioned, but we think is an incredible 0:18:23.400 --> 0:18:25.520 space with actually a big tail one because of the 0:18:25.600 --> 0:18:36.240 current geopolitical tension. Katie, I remember when COVID first broke 0:18:36.280 --> 0:18:38.280 out a couple of years ago, you and I ended 0:18:38.320 --> 0:18:40.520 up talking and you told me all about the names 0:18:40.560 --> 0:18:43.080 that you were looking at. You know, you mentioned, you know, 0:18:43.240 --> 0:18:46.119 the future of things, and you were talking about this 0:18:46.200 --> 0:18:49.239 post COVID world, and back then you said you had 0:18:49.280 --> 0:18:51.840 been looking at companies that were heavily discounted, and you 0:18:51.920 --> 0:18:56.639 were looking also at back to workplace leading childcare names 0:18:56.640 --> 0:18:59.960 focused on services, spending and stuff that's fun. I think 0:19:00.119 --> 0:19:02.919 you had said, so what do you what do you 0:19:02.960 --> 0:19:06.560 make of of those types of companies at this point? Yeah, 0:19:06.640 --> 0:19:09.919 So people like to have fun. That's a pretty pretty 0:19:09.920 --> 0:19:14.480 persistent theme through different economic cycles, and that we like 0:19:14.680 --> 0:19:19.320 things in the real economy. Um, And having fun is 0:19:19.320 --> 0:19:22.479 related to the consumer the right now. Data on the 0:19:22.480 --> 0:19:26.159 consumer is very strong. We ingest credit card data all 0:19:26.240 --> 0:19:28.520 day every day like many of our peers. In addition 0:19:28.560 --> 0:19:30.919 to running a fundamental business, if we're talking about a 0:19:30.920 --> 0:19:32.639 lot here, I have the privilege of also running a 0:19:32.680 --> 0:19:34.680 quant business where we ingest a lot of that data 0:19:34.680 --> 0:19:37.080 and I can tell you across all metrics, the consumer, 0:19:37.119 --> 0:19:40.880 particularly the US consumer, looks very strong. Um. We are 0:19:41.000 --> 0:19:45.320 preparing portfolios for a world in which that consumer may 0:19:45.359 --> 0:19:48.040 weaken because of some of the macro stresses that we've 0:19:48.080 --> 0:19:51.840 already talked about here, inflation being at the top of 0:19:52.040 --> 0:19:55.439 the top of that list. Um. And so what does 0:19:55.480 --> 0:19:57.119 that mean as it relates to some of the ideas 0:19:57.119 --> 0:19:59.000 that you just brought up, and also this concept of 0:19:59.040 --> 0:20:01.880 having fun. If you're in the right part of having fun, 0:20:01.920 --> 0:20:05.760 it can actually be recession resistant. So there's parts of 0:20:05.840 --> 0:20:08.919 the consumer basket the come under pressure during a recession, 0:20:09.040 --> 0:20:11.560 and and and travel for example, might be one of those. 0:20:11.760 --> 0:20:15.160 But we like affordable experiences because we do think that 0:20:15.200 --> 0:20:20.080 this millennial preference for experience over things is incredibly persistent UM, 0:20:20.240 --> 0:20:23.240 and so we lean into those experiences, but more affordable 0:20:23.280 --> 0:20:26.800 experiences in the event that the macro environment deteriorates. And so, 0:20:26.880 --> 0:20:30.800 for example, we have exposure to concert companies both here 0:20:30.800 --> 0:20:33.040 in the US as well as in Europe. UM. So 0:20:33.080 --> 0:20:35.680 in the US we own Live Nation, for example, because 0:20:35.720 --> 0:20:42.720 Beyonce is the ultimately recession resistant UM and and maybe 0:20:42.720 --> 0:20:44.879 that's so many things, but that too. But then in 0:20:45.119 --> 0:20:48.160 addition to that would be a category like beauty UM, 0:20:48.480 --> 0:20:51.000 which can do well when times are good and also 0:20:51.080 --> 0:20:53.520 shows a lot of resilience UM even if you get 0:20:53.520 --> 0:20:56.480 into an economic correction. So we do own parts of 0:20:56.480 --> 0:20:59.359 the real economy for sure. That comes back to having 0:20:59.359 --> 0:21:02.359 balance in the portfolio. On the consumer rights say, we 0:21:02.359 --> 0:21:04.520 do have exposure, but we're trying to make sure that 0:21:04.560 --> 0:21:07.480 we are eyes wide open about some of the downward 0:21:07.480 --> 0:21:13.600 pressure they may face down the road. Beyonce is recession resistant. 0:21:13.600 --> 0:21:17.440 I think we found our headline there for the specific 0:21:17.520 --> 0:21:19.720 on that is that like just to to give data, 0:21:19.800 --> 0:21:22.080 So it sounds like a flipping comment, but this company 0:21:22.119 --> 0:21:24.320