Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Hello, it's Meren sumsat
Speaker 1: web here. This week our guest is John Warren, co
Speaker 1: founder of Telworth Investments and manager of the TM Telworth
Speaker 1: UK Select Funder. He's got eighteen years of investment experience,
Speaker 1: but that's not why we asked him on. He runs
Speaker 1: an absolute return fund, which is something that John and
Speaker 1: I find particularly interesting. So we talk about the way
Speaker 1: that works. But before we get to that very exciting conversation,
Speaker 1: as we always do, we start with what I think
Speaker 1: most of you consider to be the best part of
Speaker 1: the show, a conversation with money to Silve newsletter author
Speaker 1: John Steppek, John, let's talk and I'll tell you what.
Speaker 1: Let's talk about your absolutely favorite subject.
Speaker 2: New high after new high after new high.
Speaker 1: Who wouldn't want to hold the buddsy one hundred exactly?
Speaker 3: And we've got another new high today as we're recording.
Speaker 3: In fact, actually I may need double check this, but
Speaker 3: Simon French over at paneers Gordon the other day tweeted
Speaker 3: out to me saying that if the food see manages
Speaker 3: to close a new record high twelve times in a
Speaker 3: row within a month, this will be like the first
Speaker 3: time that's happened since I don't know, years and years
Speaker 3: and years. So that's very exciting.
Speaker 2: What's making it happen. What's making it happen.
Speaker 3: John, the fact that fund managers are essentially held animals,
Speaker 3: and they've seen something hit and you high in the
Speaker 3: suddenly like, oh my god, there's a bandwagon in this movie.
Speaker 1: After interrupted briefly, we don't we don't call them herd animals.
Speaker 1: We don't call them. Oh yes, investor, Well we had
Speaker 1: this conversation before momentum investors.
Speaker 3: That's the politically correct.
Speaker 1: Okay, So finally global investors have noticed that the UK
Speaker 1: is cheap, that Brexit has not been the end of
Speaker 1: the world, and that there are some really great companies
Speaker 1: in the UK and they can have a significantly lesson
Speaker 1: they can buy companies elsewhere. But even after all these
Speaker 1: new highs, I think the UK is still in nineteen
Speaker 1: percent discounty global pays.
Speaker 3: Right, Yeah, Still it's still cheap, and it is. It
Speaker 3: is interesting because I had a quick looks. So my
Speaker 3: go to for all of these things is the Bank
Speaker 3: of America Global Fund Manager Survey. It's actually really good
Speaker 3: sentiment indicator and it comes out every month. So I
Speaker 3: look back at the January one for this year, and
Speaker 3: the UK's been at the bottom for ages, and the
Speaker 3: January one it was rock bottom. Fund Global fund managers
Speaker 3: said that they were more underway the UK relative to
Speaker 3: history than any other asset class, and it's like twenty
Speaker 3: one different asset classes, so big, big underweight, as in
Speaker 3: they don't like it compared to the benchmark. And then
Speaker 3: I looked at the same one for last month and
Speaker 3: it's basically been the same, you know, February, March, April May.
Speaker 3: That's actually changed that they've actually moved some money into
Speaker 3: UK stocks and they're now ever so slightly just above
Speaker 3: average compared to the last twenty years. So that's been
Speaker 3: a real kind of there has been a real sentiment
Speaker 3: shift in a fairly short period of time, and it
Speaker 3: has pretty much coincided with a new record high. And
Speaker 3: to be fair, also they kind of move to value
Speaker 3: because people have started to get a bit kind of
Speaker 3: started to think that actually interest rates are going to
Speaker 3: be higher for longer. Some maybe or the growth stuff
Speaker 3: as in't necessarily the thing you stick with anymore. But yeah,
Speaker 3: but I do think mostly it's actually momentum as well,
Speaker 3: we just bought something moving and you don't want to
Speaker 3: be left behind.
Speaker 1: John, He respects. Nobody has want to see respect fund managers.
Speaker 1: He's all over there absolutely right.
Speaker 2: Listen.
Speaker 1: So we're getting note of the note of the note
Speaker 1: from various banks, brothers, et cetera telling us what we've
Speaker 1: been telling you for a long time now, that the
Speaker 1: UK is cheap and you should buy it. But I
Speaker 1: don't point you to one in particular, which is from
Speaker 1: our podcast regular James Ferguson, and he has written a
Speaker 1: note and I will do a little summary of it
Speaker 1: and stick it on John's Money to Sold newsletter for
Speaker 1: you at some point. And his it's called it's called
Speaker 1: Union Jack in the box. Right. You know this is
Speaker 1: not and this is not an ordinary ball market. This
Speaker 1: is a British ball market, right. And his argument is
Speaker 1: that as slightly different to our argument, to be honest,
Speaker 1: it is that inflation is absolutely out of the picture.
Speaker 1: He says that as far as he can see, there
Speaker 1: is very little inflationary pressure left. There's an eighteen month
Speaker 1: contraction in nominal money supply, two yearstagnation of GDPETE. There
Speaker 1: is absolutely no excuse for base rates to be knocking
Speaker 1: around to this sixteen year high of five point two
Speaker 1: five percent. So he thinks that once inflation is out
Speaker 1: of the picture, and he thinks it, everybody will realize
Speaker 1: that soon rates have a quoting here ample scope to
Speaker 1: be cut a long way, alleviating the pressure on both
Speaker 1: indebted retail and commercial property owners, stimulating productive bank growth,
Speaker 1: and all without threatening a real acceleration in prices anti closures.
Speaker 1: No wonder, the foot year is just broken out to
Speaker 1: a new six year high, and so he's looking not
Speaker 1: just at the cheapness, but at the fact that he
Speaker 1: expects interest rates to fall quite fast soon. And I
Speaker 1: did ask him about that and he said, there's just
Speaker 1: no reason for them to stay.
Speaker 4: Hi.
Speaker 1: I still feel as if I think you did, John,
Speaker 1: that that central bankers might be taking the opportunity to
Speaker 1: try and normalize the idea that rach should knock around
Speaker 1: four percent one percent, and therefore the fall is going
Speaker 1: to be slightly slower than a lot of other things.
Speaker 5: Yeah.
Speaker 3: I mean, I've got a huge amounty respect for James
Speaker 3: because he's one of the few people that we in
Speaker 3: order to explicitly got the two thousand and eight crisis
Speaker 3: right and was one a book deflation even after all
Speaker 3: the money printing, so we knows we was talking about I.
Speaker 3: Despite all that, I still struggle. We see that Hartman,
Speaker 3: and it also depends, I mean, it depends partly what
Speaker 3: he means by a fast drop in interest rates. I've
Speaker 3: read some of the note, but not the whole thing.
Speaker 3: And you know, if he means it will get to
Speaker 3: four quicker than everyone's expecting, then that's one thing. But
Speaker 3: I don't Again, I'm on the camp that says that
Speaker 3: rates don't go below three percent effectively ever again, you know,
Speaker 3: as a for a very long time. So I'd be
Speaker 3: curious to know a bit more about exactly what he's expecting.
Speaker 1: All right, I'll give him a call.
Speaker 2: I'll give him a call.
Speaker 1: We'll stick it in the newsletter. But he keeps using
Speaker 1: the word substantially. The NBC has very clear part of
Speaker 1: the courage substantially reduniate bank lending, et cetera, et cetera.
Speaker 1: His only concern, of course, is the incoming labor government
Speaker 1: and the Bank of England.
Speaker 2: Will they work together and.
Speaker 1: Keep policy relatively tight, unleashing the private sector to go
Speaker 1: for growth, or will they not? I think we can
Speaker 1: probably get see answer to that, but we'll come back
Speaker 1: that maybe in six months or so. Right down, anything
Speaker 1: else you want to say about this wonderful billmarket, No, I.
Speaker 3: Think everyone should just sit back and enjoy it.
Speaker 1: Now, before we get on to the conversation with John,
Speaker 1: I want to point you to something we talk about
Speaker 1: during it that we didn't define and we should have.
Speaker 1: We talk about Sonya, and he talks about wanting to
Speaker 1: outperform Sonya, and a lot of you are going to
Speaker 1: be looking at that and you're going to be thinking, well,
Speaker 1: what earth is Sonya? And what it is is an
Speaker 1: interest rate benchmark. It's the average price that banks paid
Speaker 1: to borrow stirring from each other overnight. So it's just
Speaker 1: a standard, straightforward measure of basic interest rates. And if
Speaker 1: you are going to attempt to outperform that, you're just
Speaker 1: going to be making more than you would in cash,
Speaker 1: which seems like a good way to run a fund,
Speaker 1: right John.
Speaker 3: It's the deplacement to libel because people may it here
Speaker 3: to libel.
Speaker 1: Ah, Okay, good point.
Speaker 2: Right.
Speaker 1: We'll come back to this in our conversation after our
Speaker 1: conversation with John. Welcome to Maren Talks Money the podcast
Speaker 1: In which people who know the market is explain the markets.
Speaker 1: I'm marrin Sumset Web. Here's my conversation with John Warren,
Speaker 1: who launched Tellworth Investments in October twenty seventeen. Before lad,
Speaker 1: he worked at Casinos Capital Ubs an investor. We begin
Speaker 1: the conversation with John explaining why the fund he runs
Speaker 1: Tmtelworth's Select just different to a standard fund.
Speaker 6: The Tailworth fund that I run, the UK Select Fund,
Speaker 6: is an absolute return fund. So what we are trying
Speaker 6: to achieve is very consistent, low volatile returns for our investors,
Speaker 6: and we achieve that by being both long and short shares.
Speaker 6: We do that by being neutral to the market, so
Speaker 6: we're not trying to take a big directional bet on
Speaker 6: the market and basically be stock pickers. So we want
Speaker 6: to buy stocks that are going up and be short
Speaker 6: of stocks that are going down, and make consistent returns
Speaker 6: with a very low volatility and importantly as well not
Speaker 6: be correlated to the direction of the market or changes
Speaker 6: in economic conditions or interest rate cycles, which is clearly
Speaker 6: a big area for dat debate at the moment, and
Speaker 6: really just we are targeting eight to ten percent returns
Speaker 6: a year on a consistent basis. That's what we're trying
Speaker 6: to achieve for our investors.
Speaker 1: Okay, that's an extraordinary thing. Eight to ten percent a year. Now,
Speaker 1: when you say absolute return, of course, we're all immediately
Speaker 1: thrilled because one of our big ripes me and John,
Speaker 1: one of our big rights of the fund management industry
Speaker 1: as a whole is benchmarking is the idea that returns
Speaker 1: are always relative to something the returns of something else.
Speaker 1: You're never judging yourself in absolute returns how much money
Speaker 1: have you actually made for people year by year by year.
Speaker 1: It's about, well, you know, I have performed this benchmark
Speaker 1: by zero point five percent, or I have performed that
Speaker 1: benchmark by one and a half percent, or.
Speaker 2: Whatever it is. And we always look at it and
Speaker 2: we think, well, hang, onlydic.
Speaker 1: If you are judging yourself relative to something, it's got
Speaker 1: to be quite hard to outperform it over the long
Speaker 1: term because you're always looking at it and going, oh god,
Speaker 1: you know, I'm scared I'm gonna underperform it. Therefore, you
Speaker 1: do end up investing in a way that is much
Speaker 1: closer to the benchmark you're tracking than then you should.
Speaker 2: Right looking at active.
Speaker 1: Active shares that the extent to which your fund is
Speaker 1: different from the indexit tracks, and so often you're still
Speaker 1: looking at at fairly low percentages of funds being genuinely
Speaker 1: different to their benchmarks.
Speaker 2: And I always think that maybe one.
Speaker 1: Of the great mistakes that this industry has ever made
Speaker 1: is being relative.
Speaker 6: I'd agree. And what are people trying to achieve with
Speaker 6: their savings and what are savings products trying to do?
Speaker 6: In investment products trying to do?
Speaker 1: Well?
Speaker 6: You're trying to grow your wealth over time. That's surely
Speaker 6: that what everyone is trying to achieve. It's certainly what
Speaker 6: I try and achieve with my personal wealth and with
Speaker 6: my investors' funds. In the in the fund. Clearly, if
Speaker 6: you are long only, there is always some elements of
Speaker 6: directional direction of them underlying market you're investing in that's
Speaker 6: going to dominate returns. So very hard to make absolute
Speaker 6: returns if the market has a big bear crash, for example.
Speaker 6: What we do, though, is by making sure that we're
Speaker 6: not taking that market. By having positions both sides, it
Speaker 6: means that we are generally should be expected to make
Speaker 6: returns irrespective of what's going on in the border economy.
Speaker 6: In the border markets, so we benchmark to cash, so
Speaker 6: we have to outperform cash, so we use Sonya for that.
Speaker 6: So clearly that wasn't much of a challenge for many years.
Speaker 6: It's more of a challenge now, but we benchmark against that,
Speaker 6: so we expect to make a return in excess of
Speaker 6: the cash return. And like I say, targeting eight to.
Speaker 1: Ten, do you think all fund managers should do that?
Speaker 1: I mean, I always think that it will be polite
Speaker 1: of fund managers to tell us they're going to make
Speaker 1: us cash plus three for example.
Speaker 6: I think it would be a nice thing to hope,
Speaker 6: and I think most people judge their wealth managers with
Speaker 6: that if you're looking at an overall portfolio. I think
Speaker 6: it's quite hard, though, if you're investing in a niche
Speaker 6: specialist fund to expect to be able to beat the
Speaker 6: direction of that fund. But I guess a lot of
Speaker 6: it comes down to your time horizon, doesn't it. And
Speaker 6: unfortunately many people now look at quarterly performance or half
Speaker 6: yearly performance. If you're looking over a five to ten
Speaker 6: year of view, then I would think that's a perfectly
Speaker 6: acceptable thing to expect to ask.
Speaker 7: Yeah, I mean, anyone charging you one and a half
Speaker 7: percent or one percent or even eighty basis points a
Speaker 7: year for their special skill should be able to give
Speaker 7: you cash plus three percentage points over a five year period.
Speaker 6: I think once you're getting into longer term periods, that's
Speaker 6: an absolutely fair, fair requirement.
Speaker 1: Okay, good with the established new rules for the fund
Speaker 1: management industry. Anyone who can find a reason to disagree
Speaker 1: with us, hate Melton John, Please, I know expect.
Speaker 6: I expect some colleagues will be getting in touch suit shortly.
Speaker 2: They always do. Okay, So here we are. You're invest
Speaker 2: in the UK market.
Speaker 1: I know that for you, it's not about direction of
Speaker 1: the market itself, because as you just said, you're short
Speaker 1: and you're long, and you're trying to be neutral. But
Speaker 1: nonetheless it feelds like I'm intensative here because you know,
Speaker 1: you can have the wrong feelings. But it feels like
Speaker 1: something is changing in the UK market. That thing people
Speaker 1: are beginning to get interested.
Speaker 2: The big banks, the ubs is, etc.
Speaker 1: The brokers are beginning to change their view and suddenly say, well,
Speaker 1: if not the market we eight most in the world.
Speaker 2: It's one of our favorite markets.
Speaker 1: Because it's cheap and it's interesting. There's a sense there
Speaker 1: might be some foreign buyers coming in with seeing new
Speaker 1: eyes and the footst forty one hundred over and over
Speaker 1: and the other and the other areas doing well too.
Speaker 1: Might even be some interest in mid and small caps
Speaker 1: coming through. Are you buying it that there's a turn here?
Speaker 6: It definitely feels like there has been a change in
Speaker 6: the sentiment into the UK market. I think that's come
Speaker 6: from a few reasons, one of which is just performance. Unfortunately,
Speaker 6: the market is a momentum chasing market in so many
Speaker 6: ways now, and the performance that the market has had
Speaker 6: is attracting some more plows of funds. I think one
Speaker 6: of the areas which has been much talked about on
Speaker 6: this podcast is the lack of equity inflows into the
Speaker 6: UK market that has been ongoing for a long long time. Interestingly, though,
Speaker 6: overseas investors have actually been met buyers of the UK
Speaker 6: for a period now, and the very noticeable factor as
Speaker 6: well has been the increase in M and A. So
Speaker 6: we always thought one of the big catalysts for the
Speaker 6: UK market sentiment change would be a footy one hundred bid.
Speaker 6: We've had that with the approach for Anglos from BHP.
Speaker 6: Clearly that hasn't actually come to any formal agreement yet,
Speaker 6: but just the fact that a business of that size
Speaker 6: is attracting M and A, and we've seen a lot
Speaker 6: of it further down the market caps as well. We
Speaker 6: invest a lot in the MidCap part of the market
Speaker 6: as well as the large cap part of the market,
Speaker 6: and we've seen lots of bid interest, so the trade
Speaker 6: buyers coming in seeing value in these companies at meaningful premiums,
Speaker 6: and the overall that just the valuation of the UK
Speaker 6: market is very very attractive on both an absolute and
Speaker 6: I hate to say it, Marian, but a relative basis
Speaker 6: as well. So when you're looking at the UK market
Speaker 6: relative to particularly the US, I think we're a second percentile,
Speaker 6: so you know, a two in one hundred year valuation
Speaker 6: cheapness against the US market.
Speaker 1: Well, we're happy to look at relative off we've already
Speaker 1: looked at absolutely so with ubernapps terms, and then it's
Speaker 1: also extremely cheap in relative terms.
Speaker 2: Then I think that's excellent news.
Speaker 1: But you said that foreign bius have been met bias
Speaker 1: for a little bit of time now, but.
Speaker 2: Domestic buiers consistently are not.
Speaker 1: And one of the other things we say we always
Speaker 1: say on this podcast to our listeners, particularly those who
Speaker 1: are UK based investors, if you don't buy these stocks
Speaker 1: somebody else?
Speaker 2: Will? We see that in the L and A Right,
Speaker 2: what is it do you think that might make UK
Speaker 2: investors start buying again?
Speaker 1: Will they dive into thisum momentum? Or they do they
Speaker 1: need something like the britt Eye Cerel something like that
Speaker 1: to make them stop with the domestic self loathing which
Speaker 1: we see not just in not just.
Speaker 2: An investment, right, we see that across the board. What
Speaker 2: might make them return to us?
Speaker 6: Well, like I say, unfortunately, some of it is fomo,
Speaker 6: so some of it is just needs to be the
Speaker 6: fear of missing out. We also have some long only
Speaker 6: funds that tell us. One of my colleagues pull Marriage,
Speaker 6: was seeing an investor only the other week and that
Speaker 6: investor said, well, I'm very happy to miss the first
Speaker 6: twenty five percent of a move. So sometimes that's the
Speaker 6: way that people want to move, and unfortunately people are
Speaker 6: trend followers and that may well be the case that
Speaker 6: we need that just that performance. I think changes from
Speaker 6: pension reforms, from the brit Isser, all of these things
Speaker 6: are great sentiment helpers. And actually I think the other
Speaker 6: point that we probably need to see is just people
Speaker 6: actually starting to look at value again and understanding what
Speaker 6: valuations mean in investing. The market has been very driven
Speaker 6: by momentum, earnings upgrades and almost wanting to buy growth
Speaker 6: at any cost. But at some point valuation does matter
Speaker 6: and that's what corporates are telling you. That's why they're
Speaker 6: buying these companies. And as we see interest rates hopefully
Speaker 6: started to move down in the UK, it seems like
Speaker 6: the UK economy is slightly different now from the US
Speaker 6: quite possible. We don't see rate cuts in the US,
Speaker 6: but we probably will see them in the UK. We
Speaker 6: think we probably get one in June, and that may
Speaker 6: well just bring people back to the UK a little
Speaker 6: bit as well.
Speaker 5: They will get one and do even with those rather
Speaker 5: than nice GDP now as we had the other day,
Speaker 5: showing that actually things are so badly.
Speaker 2: Economy is barreling along rather pleasantly.
Speaker 6: I think so, And the signaling from the NPC I
Speaker 6: thought last week was probably that we do still get
Speaker 6: one in June. I don't think it matters too much
Speaker 6: whether we get one in June or slightly later in
Speaker 6: the year. The main thing is that I think there's
Speaker 6: a very clear signaling now in the UK market that
Speaker 6: rates have peaked and the next move will be downwards.
Speaker 6: And when you look at the correlations of the Footsy
Speaker 6: two to fifty, particularly to rate expectations, and it's very strong.
Speaker 6: So if we start as those rate expectations come down,
Speaker 6: we see the Footsie two fifty starting to form really
Speaker 6: quite strongly. So I think that boats quite well for
Speaker 6: the domestic parts of the market, and maybe a broadening
Speaker 6: out of this rally that we've seen, which has actually
Speaker 6: been pretty narrow so far. It's been very driven by banks,
Speaker 6: miners and oils, and we would see that broadening out
Speaker 6: more into the Footsy two fifty as those expectations of
Speaker 6: rate cuts start getting priced into the market.
Speaker 1: Okay, so let's let's talk about where you're actually invested there. Now,
Speaker 1: you say that your your market neutral and you're set
Speaker 1: in neutral way of no specific adherence to any any favoraus,
Speaker 1: sectors or anything like that. So your pure stock pick
Speaker 1: is so where are you? Where are you finding the value?
Speaker 1: What is interesting?
Speaker 6: We do think the banks have been interesting for a while.
Speaker 6: We were a bit early into it into last year,
Speaker 6: but we still think that West Has is a fantastic business.
Speaker 6: It's got great opportunities. It's now growing its tangible and
Speaker 6: asset value. You've got the structural hedge which will have
Speaker 6: some meaningful impact on the on the P and L
Speaker 6: this year.
Speaker 2: Stop stop, go back structural hedge.
Speaker 6: So this is basically the way banks manage their balance sheets,
Speaker 6: so how they fund themselves, and that means that as
Speaker 6: interest rates expectations change and come down, that hedge starts
Speaker 6: paying them money. In simple terms, so we think at
Speaker 6: Thatwest it's about three hundred million pounds of profit a
Speaker 6: year generated from essentially the balance sheet where they have
Speaker 6: a fixed leg and a variable leg on their balance sheet.
Speaker 6: It's been a big negative impact on the P and
Speaker 6: L while rates go up, and it becomes supportive to
Speaker 6: the P and L as rates fall.
Speaker 2: Okay, so if rates don't fall, if.
Speaker 6: Rates don't fall, it will have a net zero benefit
Speaker 6: to that. You know, we won't impact. But as time
Speaker 6: moves on, you have some of that old leg of
Speaker 6: the P and L which was funded at very low
Speaker 6: rates that starts to roll off. So even if rates
Speaker 6: don't fall, just the passage of time benefits the balance
Speaker 6: sheet as well.
Speaker 2: So now with other banks, yeah.
Speaker 6: We are also think that One Savings Bank is interesting.
Speaker 6: This is a buy to let lender. It's had its issues,
Speaker 6: It's definitely had its issues with expectations management. Its interest
Speaker 6: margin has been its net interest margin has been under
Speaker 6: some pressure. But these are just very, very cheap equities now.
Speaker 6: So One Savings Bank is trading on a pee of
Speaker 6: less than five times, it has a you know, it
Speaker 6: will be returning some cash through dividends as well, and
Speaker 6: so we just think there's just incredible value and we
Speaker 6: have to be patient. I think it's very important to
Speaker 6: say that. Sometimes when we tell people that we're along
Speaker 6: short investors, they think hedge funds trading. All you're doing
Speaker 6: is taking short term bets. Now, we're very happy to
Speaker 6: take long term views on these businesses, and as long
Speaker 6: as we have that balance within the portfolio, we can
Speaker 6: take that long term view.
Speaker 2: Well, I accept that you're not looking at sectors.
Speaker 1: Are there any other groups of stocks that feature prominently
Speaker 1: in their portfolio?
Speaker 6: Yes, so airlines and tour operators is a part of
Speaker 6: the portfolio. We were quite encouraged. We own we own
Speaker 6: Jet two, we own easy Jet, we also own Ryanair.
Speaker 6: We think that's the sector that's in really good health
Speaker 6: at the moment. It's one thing that it seems that
Speaker 6: the UK consumer is not prepared to give up on
Speaker 6: is there summer holiday and until this weekend you can
Speaker 6: see certainly see why with the weather we've had so far.
Speaker 6: One of the areas we like to look at a
Speaker 6: lot when we're analyzing businesses in industries is the supply side,
Speaker 6: and the supply side of the package holiday industry has
Speaker 6: changed a lot. We've seen some quite big exits. Obviously,
Speaker 6: Thomas Cook going bankrupt a few years ago has made
Speaker 6: big changes to that industry. But also the other area
Speaker 6: of supply side is in the supply of planes, and
Speaker 6: it's been well publicized that Boeing and Airbus as well
Speaker 6: now are having some problems delivering new planes. That means
Speaker 6: that a lot of these airlines have some real pricing
Speaker 6: power now because capacity is not coming back into the
Speaker 6: sector as quickly as people might have expected, and therefore
Speaker 6: they're getting good pricing. So unfortunately, although everyone is going
Speaker 6: on holiday, it's costing you all a bit more this year,
Speaker 6: but that is very good for the profits of the
Speaker 6: airline companies. Fuel prices have also come down as well,
Speaker 6: so we like the dynamics of that industry. Again, the
Speaker 6: valuations they are really attractive. You know, jet to seven
Speaker 6: and a half times earnings. I think for the forecast,
Speaker 6: you know, it's longer term average P has been twelve.
Speaker 6: This is a business that's grown revenues at twenty percent
Speaker 6: over the last decade and profits at thirty trading on
Speaker 6: seven and a half times earnings. So you know, we
Speaker 6: really see there's both good drivers for the P and
Speaker 6: L and also a very attractive evaluation metrics. Across the
Speaker 6: airline sector, there's.
Speaker 1: No sense at all that people are translating there in
Speaker 1: tense anxiety about climate change into their some holiday plans.
Speaker 6: Is that it definitely isn't impacting consumer behavior at all.
Speaker 1: Is there any long term risk to holiday companies and
Speaker 1: airline companies around saying regulation on the extent to which
Speaker 1: one can fly or not fly and constantly seeing stories
Speaker 1: in the newspapers about her won't be long before we're
Speaker 1: all limited to four long haul flights in a lifetime.
Speaker 6: Let's hope not. But look, I guess there's always longer
Speaker 6: term risks for companies. The one thing I would say
Speaker 6: is that we're paying seven and a half times earning.
Speaker 6: So it's a bit like when you look back at
Speaker 6: the tobacco companies. Clearly everyone has taken the view that
Speaker 6: tobacco is not good for us, not good for anyone,
Speaker 6: and they've been heavily regulated. But you know, when you're
Speaker 6: paying very low valuations for these for these types of shares,
Speaker 6: the shares can still do a really good job for you.
Speaker 6: And that's what we would see.
Speaker 2: And also, if you're one of the incumbents, you're set pretty.
Speaker 6: Fair well, exactly. And that's the thing. It stops new
Speaker 6: new entrants coming in and wanting to try and compete
Speaker 6: away those attractive margins that you're seeing.
Speaker 1: And that's also the case in energy, because no one's
Speaker 1: going to go out now and sort of set and
Speaker 1: your oil company.
Speaker 6: Are there, no, And you know, again, oil isn't a
Speaker 6: sector that we play a lot in a bit like
Speaker 6: the miners. What we're trying to do is as stock pickers,
Speaker 6: what we want to be able to do is analyze
Speaker 6: in actual company and value of value like that. What
Speaker 6: we don't want to have to do is make these
Speaker 6: big macro calls. By being market neutral and factor neutral,
Speaker 6: what it means is that we don't have to spend
Speaker 6: our time worrying about what the next GDP figure is
Speaker 6: or what the next interest rate cut is. What we
Speaker 6: can do is have a balanced portfolio in the way
Speaker 6: that you have with an oil company. Clearly, the most
Speaker 6: important thing for how that share price performs is what's
Speaker 6: happening with the oil price, and frankly, we don't really
Speaker 6: have a clue, so we'd rather not make that decision.
Speaker 2: All the evidence tells us that nobody has a cluience.
Speaker 1: You wouldn't be alone there, You don't only be alone
Speaker 1: and in missing it exactly. So what have you added recently,
Speaker 1: what's come what's come out recently, and what's coming in recently?
Speaker 6: I would say the most recent edition would be a
Speaker 6: business called Dowlay actually, which is another stock that very
Speaker 6: much falls into that value bucket. So Dowlay was a
Speaker 6: spin out for Melrose. It's an automotive supplier, so not
Speaker 6: particularly trendy, I guess in that, you know, and maybe
Speaker 6: if we're getting into ESG world, you can can we
Speaker 6: can talk about that. But they are a leading producer
Speaker 6: of drive trains, so these are the parts of them
Speaker 6: that actually changed the engines down through the wheel. So
Speaker 6: you have a drive train that comes down the middle
Speaker 6: of the car and that puts the power from the
Speaker 6: engine into the wheel. They're the leading provider of that
Speaker 6: in the world pretty much. That have some good products
Speaker 6: for electric vehicles as well. But this is a business
Speaker 6: that has really just been completely lost in the UK midcaps.
Speaker 6: Like I say, it's spun out of Melrose, So the
Speaker 6: shares got put into the hands of Meloe shareholders, who
Speaker 6: I don't think really wanted to hold a UK MidCap
Speaker 6: auto supplier. So that's been They've been sold heavily and
Speaker 6: now these shares are trading on ap of five times
Speaker 6: with a decent balance sheet in an industry that you know,
Speaker 6: they are growing revenues, growing profits, when we just think
Speaker 6: that's you know, just too cheap. What we've been watching
Speaker 6: there has been we've been watching the shareholder register and
Speaker 6: how that's evolved, and we've seen a huge churn in
Speaker 6: that and we think that that's pretty much at the
Speaker 6: end and on that valuation, we've decided that was an
Speaker 6: interesting time to come into the stock.
Speaker 1: It does see ridiculously cheap, doesn't it. Are you seeing
Speaker 1: a lot of that kind of price in the smaller
Speaker 1: MidCap sectors at the moment, and particularly in midcaps.
Speaker 6: In midcaps, I mean, there are a lot of stocks.
Speaker 6: I mean, we did some analysis at the start of
Speaker 6: the year and I'm afraid we haven't updated it since,
Speaker 6: but we looked at the footsy two fifty. So in
Speaker 6: the footsy two there's one hundred or at the start
Speaker 6: of the year, obviously is a few less now, but
Speaker 6: there are one hundred and sixty seven trading companies. So
Speaker 6: if you take out the investment trusts, et cetera, one
Speaker 6: hundred and sixty seven now a third of those were
Speaker 6: on a free cash flow yield greater than thirteen percent.
Speaker 6: There's really really strong cash flows and the market's just
Speaker 6: ignoring them. People often thought, don't they that profits are
Speaker 6: show and cash is you know, cash, cash is the king,
Speaker 6: and if you've got that genuine cash flow coming through
Speaker 6: in these companies, it's very hard to doubt that those
Speaker 6: those valuation metrics are for real. So, yeah, we see
Speaker 6: a lot of a lot of great opportunities in the
Speaker 6: medcap space, but also in the footy one hundred as well.
Speaker 6: Like we've been talking about that, you know, the banks
Speaker 6: and the airlines are still very, very cheap yeah, and Marks.
Speaker 2: And Dispensers, is it still one of your top holding? Yes,
Speaker 2: I think I feel like I feel like in my career.
Speaker 1: Now I've been I've seen Marks and Spencers go around
Speaker 1: and so many circles.
Speaker 2: It's getting ridiculous.
Speaker 1: And so many times when people have looked at Marks
Speaker 1: Dispensers and gone on, my goodness, are so cheap.
Speaker 2: It's so cheap. It's so cheap. And and here we are, here,
Speaker 2: we are still cheap.
Speaker 6: I'm not sure myself as well how many times I've
Speaker 6: brought into a new market expenses recovery plan, but this
Speaker 6: one actually seems to be working, so yes, it's marketing
Speaker 6: expenses is actually the biggest position in the fund at
Speaker 6: the moment, single stock position. Yeah, we think it's it's actually,
Speaker 6: you know, the transition plan is working really well. The
Speaker 6: things we have looked at, particularly given US encouragement, is
Speaker 6: the full price mix. So that's improved from being in
Speaker 6: the sixty percent to eighty percent. So that's how many
Speaker 6: of their sales they're managing to sell at full price
Speaker 6: rather than having to discount.
Speaker 2: And so what's normal in the retail CITA.
Speaker 6: The best players in the industry will achieve ninety so
Speaker 6: next and Indo text will be in the nineties, so
Speaker 6: they're still a bit further to go and we would
Speaker 6: hope them to get there, but sixty was pretty awful
Speaker 6: again when you know, looking at the supply side. The
Speaker 6: one thing that's has been quite a lot of exit
Speaker 6: in clothing in the UK market. There's been lots of closures.
Speaker 6: Probably the most important one for the sector was Debenham's closing.
Speaker 6: They were the most disruptive in terms of that discounting
Speaker 6: on the high street, so that's probably helped them, but
Speaker 6: also better ranging. But interestingly, even with that move in
Speaker 6: full price sales, the gross margin hasn't really improved yet.
Speaker 6: Part of that was clearly cost inflation, but also that
Speaker 6: implies to us they're becoming much more cost competitive, which
Speaker 6: is clearly important in the economy at the moment where
Speaker 6: consumers have been a little bit under pressure, So we
Speaker 6: think that's really interesting. The food business has always been good,
Speaker 6: there's a big opportunity for them in homewares and beauty
Speaker 6: products where they don't push anywhere near their weight, and
Speaker 6: the balance sheet is much better as well. So yeah,
Speaker 6: we really like Maske expenses and as I say, it's
Speaker 6: the biggest long position in the fund of the moment
Speaker 6: as the two.
Speaker 1: The other two that I'm quite interested in. Your top
Speaker 1: holdings are the London Stock Exchange. Tell us about that
Speaker 1: a bit.
Speaker 6: London Stock Exchange is a really interesting business. We think
Speaker 6: it's one where there is lots of m and a
Speaker 6: opportunity for them. You know, we've seen consolidation in that space.
Speaker 6: Is also transferred transformed its profitability a lot into data
Speaker 6: products as well, so the Footzie and the Rustle indexes.
Speaker 6: And as a small business, we know how much we
Speaker 6: have to pay for these products. And there's definitely been
Speaker 6: strong inflation in there been a good performer for us,
Speaker 6: and it's actually been one we have been reducing because
Speaker 6: we do see that valuation as being pretty full now.
Speaker 2: So okay, so you reduce of that on a valuation basis.
Speaker 1: Is that how the shorts work as well your shorts
Speaker 1: to make your market neutrality.
Speaker 2: You've got longs and you've got shorts.
Speaker 1: The shorts are they companies that you think are lousy
Speaker 1: companies or are they companies that you think are just
Speaker 1: a little too pricey even if they're high quality.
Speaker 2: How did that work?
Speaker 6: It could be a combination of both. So generally we
Speaker 6: have about forty positions on both sides, so we have
Speaker 6: about forty longs and about forty shorts. So clearly, trying
Speaker 6: to find forty companies in the UK market that we
Speaker 6: think are going to go bust is probably unlikely. So
Speaker 6: we can't just be short bad businesses. Also, as I said,
Speaker 6: we want to be factor neutral as well, so if
Speaker 6: we're looking at the quality factor, we have to be short.
Speaker 6: If we're long quality businesses, we need to be short
Speaker 6: some quality businesses as well. So we have to accept
Speaker 6: the fact that we're going to have to be short
Speaker 6: businesses that we think are really good businesses where we
Speaker 6: just don't think the valuations are right or we think
Speaker 6: there's some risk out there. It's a tricky skill. Not
Speaker 6: many fur managers have done it successfully over the years,
Speaker 6: because you really need to have that ability to separate
Speaker 6: businesses and share prices and accept the fact that you
Speaker 6: can be a good business but you can be trading
Speaker 6: at the wrong valuation. And unfortunately we are a UK
Speaker 6: only fund here. We do a little bit in Ireland
Speaker 6: and a very small amount in Europe, but that means
Speaker 6: unfortunately we can't be short lots of the very highly
Speaker 6: overvalued businesses in the US.
Speaker 2: So it's pretty brutal stuff. Then the way that you work,
Speaker 2: you know, and there's an.
Speaker 1: Ordinary firm manager that says to meander around the bay
Speaker 1: finding something kind of like. But pretty much every time
Speaker 1: you find something that you like, you also have to
Speaker 1: find something you're prepared short.
Speaker 6: Exactly, and it is and it's hard work, and it's
Speaker 6: we need lots of ideas, but also sometimes it's accepting
Speaker 6: the fact that some of the shorts will not make
Speaker 6: you absolute returns. So you know, at the moment the
Speaker 6: last over the last month or two, it's been pretty
Speaker 6: hard to make absolute returns on your shorts because the
Speaker 6: market is going up very strongly. But as long as
Speaker 6: we can pick longs that go up by more than
Speaker 6: our shorts than clearly we are we can make good
Speaker 6: returns for our investors.
Speaker 2: Okay, but it's harder for you when the market is rising.
Speaker 2: So let's say that we're.
Speaker 1: Right, you and I, because we're bound to be right,
Speaker 1: said the UK market being in recovery and the momentum
Speaker 1: leading to more momentum, because the hardest John and I
Speaker 1: discussed last week all fund managers are really momentum managers.
Speaker 2: It doesn't matter what they tell you. Oh i'm value,
Speaker 2: i'm quality, I'm this, I'm that. Now, you're all momentum, right.
Speaker 1: So as it gets going, it'll get going more the
Speaker 1: market goes up and it becomes hard for you. You
Speaker 1: you're harder for you to consistently outperform other funds. Although
Speaker 1: we don't believe in relative but for the moment, let's
Speaker 1: talk about was relative to other funds. As the market covers,
Speaker 1: that becomes more difficult for you, not not easier. Surely,
Speaker 1: if everything's going up.
Speaker 6: It makes it more difficult to make absolute returns on
Speaker 6: our short book. That's correct. But clearly what we need
Speaker 6: to do is make sure that our lungs are going
Speaker 6: up by more than our shorts and when the market
Speaker 6: is performing very strongly, we are not going to make
Speaker 6: you the same amount of money as a long only fund,
Speaker 6: but what we will do is protect your capital much
Speaker 6: better and hopefully make you returns when the market is falling.
Speaker 6: So it is that we don't sell this fund as
Speaker 6: a UK equity fund. So most people that invest in
Speaker 6: this fund are not buying it because they think the
Speaker 6: UK equity market is going up. They might be buying
Speaker 6: it because they think the UK equity market is going
Speaker 6: down and therefore they want the ability to have that
Speaker 6: absolute return. What they're saying is this plays a part
Speaker 6: in my portfolio of where we can get that consistency
Speaker 6: of return and uncorrelateable to turns, So it's not correlated
Speaker 6: to equity markets or bond markets, and it's producing that
Speaker 6: type of return stream. But yes, I mean, you know,
Speaker 6: is always hard. Most of the market is always positive,
Speaker 6: most analysts are always positive on stocks, So you have
Speaker 6: to be prepared to be cynical. You have to be
Speaker 6: prepared to go against what most people are telling you
Speaker 6: about that company, and usually the company managements as well,
Speaker 6: because clearly company management teams always want to tell you
Speaker 6: how great things are. They don't want to highlight the
Speaker 6: bad bits. So that's definitely a skill that you have
Speaker 6: to develop for running a strategy like this.
Speaker 5: Strategically speaking, for a retail investor, if you are thinking
Speaker 5: about how to constructure your portfolio, and perhaps you have
Speaker 5: a fairly big passive component to your portfolio, this is
Speaker 5: the kind of active fund that it makes sense to
Speaker 5: hold alongside a passive portfolio.
Speaker 2: Does that make sense absolutely.
Speaker 6: I think these funds are not very well understood by investors.
Speaker 6: I think sometimes people are scared of them. I think
Speaker 6: sometimes the regulate it scared of them as well. To
Speaker 6: be honest with you, with the risk ratings we get
Speaker 6: sometimes on these funds because we do shorts companies and
Speaker 6: we use we use CfDS in the fund, so that
Speaker 6: makes the regulator sort of a bit concerned about this
Speaker 6: product and can put quite high risk ratings. But actually
Speaker 6: when you look at the return profiles, these are incredibly
Speaker 6: low risk funds. And we spend a lot of time
Speaker 6: as fund managers managing the risk of this product to
Speaker 6: make sure that we're not taking market risk, that we're
Speaker 6: not taking interest rate risk, we're not taking domestic risk
Speaker 6: as well, so we don't want to be sort of
Speaker 6: just long the domestic economy as well. So I think
Speaker 6: they hold it a really they can play a really
Speaker 6: important part in an overall investor's portfolio for that sort
Speaker 6: of ballast of something that's trying to achieve. And when
Speaker 6: most people think what's an acceptable return on my investments
Speaker 6: over the years, as we say long term returns, people
Speaker 6: might usually assume us sort five or six. So if
Speaker 6: we can generate eight or ten in any market environment.
Speaker 6: We think that's a really attractive income stream.
Speaker 1: Makes we'd all say that, of course, do you worry
Speaker 1: that passive is getting is getting.
Speaker 2: A little too much?
Speaker 1: That you know, the beginning of the drive towards passive,
Speaker 1: we were all blother thrill that the idea that you
Speaker 1: could get a perfectly adequate.
Speaker 2: Long term investment at an incredibly low cost.
Speaker 1: But now that more and more of the assets under
Speaker 1: management are passively managed, do you.
Speaker 2: Think that affects the market? All? Of course, there any
Speaker 2: long term problem.
Speaker 6: I think it does, and I think that that the
Speaker 6: industry needs to have a look at this at some
Speaker 6: point and see where is the tipping point that we're
Speaker 6: not getting proper price discovery. And I think you know
Speaker 6: that is always a good risk that passive is. You know,
Speaker 6: you're just mentioning about how every investor is a momentum investor. Well,
Speaker 6: passive is the ultimate momentum and I think it brings
Speaker 6: real risk and the idea that well, I'm passive to
Speaker 6: the market, therefore I'm reducing risk just isn't the case,
Speaker 6: and particularly not when we're at stages right now where
Speaker 6: the mags seventh for example, is taking up so much
Speaker 6: of these global indices that you're actually taking a lot
Speaker 6: of risk that you probably don't realize you're taking by
Speaker 6: being passive. And as I say, one of the reasons
Speaker 6: why I think that's so the valuation argument is not
Speaker 6: being looked at, and the valuation attractions of certain markets
Speaker 6: and certain stocks isn't being taken into account. It's because
Speaker 6: the passives aren't looking at that. The passage just look
Speaker 6: at a weight and buy it. So it definitely brings risk.
Speaker 6: I think it was highlighted very strongly last year with
Speaker 6: Silicon Valley Bank. I read some statistics that there was
Speaker 6: one quite vocal short in that stock, but no one
Speaker 6: listened to him. But I think seven out of the
Speaker 6: top ten shareholders were all passive investors. And as they
Speaker 6: said that if you look for the problems, you could
Speaker 6: have seen them. But passive investors aren't looking for problems,
Speaker 6: and that means you get very bad by discovery, and
Speaker 6: that means that you get some big issues coming into markets.
Speaker 2: You have a price discovery problem potentially also a governance problem.
Speaker 6: Absolutely, Oh that's depressing.
Speaker 2: Sorry you carry on.
Speaker 6: No, I was going to say, well, I do think
Speaker 6: there's a sick clelement to these things. And clearly the
Speaker 6: market has moved strongly into passives and that's been partly
Speaker 6: driven by a regulator as well who's very focused on cost,
Speaker 6: not just on investment outcomes. So I think a more
Speaker 6: balanced approach on that will will help as well. And
Speaker 6: you know, maybe it needs a bit of a bear
Speaker 6: market or you know, a bit of a correction in
Speaker 6: some of these really big stocks and these really big
Speaker 6: you know, the areas of crowding in the market need
Speaker 6: to have a correction that they will then shake out
Speaker 6: and make people understand that cheapness of the investment product,
Speaker 6: just so the cost of its investing is not the
Speaker 6: only Is there any thing you should be solving for
Speaker 6: in portfolios.
Speaker 1: When you look around the world, which I know you're
Speaker 1: very focused on the UK, but I'm sure you're saving
Speaker 1: an eye for the rest of the world. Are there
Speaker 1: are any other markets that you find interesting from a
Speaker 1: valuation point of view? I'm guessing you wouldn't touch see
Speaker 1: you after the barge pole.
Speaker 6: No, I wouldn't. I mean, the KPE of the US
Speaker 6: market is thirty three times, so the KP is the
Speaker 6: long term pe. So the ten year pe that's at
Speaker 6: thirty three times, which I think is only been above
Speaker 6: that twice in its history. So no, I think the
Speaker 6: US looks like it's valued for perfection to me, with
Speaker 6: margins pretty much at peaks. So I think there's a
Speaker 6: lot of risk in the US market. I do think
Speaker 6: China might be getting interesting again. I mean a very
Speaker 6: uneducated view, so please, you know I'm a UK stock specialist,
Speaker 6: so please don't on global markets.
Speaker 2: We're interested in your instincts.
Speaker 6: So I think that you know, China has looked is
Speaker 6: starting to look interesting again, and maybe a few more
Speaker 6: of the emerging markets could be you know, Japan has
Speaker 6: clearly been had a good run. I think that the
Speaker 6: Japan is maybe a good indication of what could happen
Speaker 6: in the UK. You know, the valuation has got to
Speaker 6: extreme levels in it rallyed quite hard, and I think
Speaker 6: that we could be entering a period for the UK
Speaker 6: market a little bit like the rally we've seen in
Speaker 6: Japan over the last eighteen months.
Speaker 1: I'm not sure the jab may's been thrilled to be
Speaker 1: locked in with emerging markets.
Speaker 6: Sorry, yeah, I was thinking in China in that sense,
Speaker 6: but you're correct to pull me up on that, so
Speaker 6: thank you.
Speaker 2: Okay, Now the final question.
Speaker 1: If I were to not allow you to hold any
Speaker 1: small caps, any mid camps, any large caps, in fact,
Speaker 1: absolutely no, he's at all. But for a ten year period,
Speaker 1: you had to either hold bitcoin or gold and nothing else.
Speaker 2: Which would it be.
Speaker 6: I listened to this podcast, so I know this question
Speaker 6: was coming, and I really wanted to try and find
Speaker 6: a reason why I could say bitcoin, because no one
Speaker 6: else seems to say say bitcoin, but I can't. Unfortunately,
Speaker 6: so I can't find a compelling reason to own bitcoin
Speaker 6: anything that has the volatility that it has, and being
Speaker 6: an investor that looks at volatility, that can't be any
Speaker 6: store of value. So unfortunate, I'm going to have to
Speaker 6: go with the huge consensus and say gold.
Speaker 2: I don't think it's disappointing.
Speaker 6: Well, I know, but I'd like to think we as
Speaker 6: a long short investor, we like being contrarian at times,
Speaker 6: so I wanted to try and find that. Unfortunately, I
Speaker 6: couldn't find a good reason.
Speaker 2: Had you got any gold?
Speaker 6: Yes, in my personal investments, I have a bit of
Speaker 6: explosure to gold. I also have a little bit of
Speaker 6: explosure to bitcoin as well. I must say I must
Speaker 6: admit so, but that is very much as a trading position,
Speaker 6: as a not as a long term investment.
Speaker 2: Okay, well that you know that is interesting in itself.
Speaker 1: So this is just the first time we have had
Speaker 1: anybody on the podcast who has admitted to being a
Speaker 1: bitcoin trailer on the side. So you've given us something, yes, exactly,
Speaker 1: Thank you so much.
Speaker 2: Really enjoyed talking to you.
Speaker 6: Thanks very much, Marian.
Speaker 2: John.
Speaker 1: I think I think that John John John too many John's.
Speaker 1: I think that John is really interesting and I think
Speaker 1: also worth saying before we really go into talking about
Speaker 1: what he said, is that the performance of this fund
Speaker 1: has been excellent. It's very small fund, and the small
Speaker 1: funds that are easier to make out perform than big funds.
Speaker 1: I get that. But nonetheless, last five years he's up
Speaker 1: fifty four percent for one hundred over that time thirty
Speaker 1: three percent, but still you know, rising fast now, right,
Speaker 1: so we've massively outperformed the index he would use, which
Speaker 1: would be the investment station targeted and FLETE return index.
Speaker 1: I think although honestly, as we discussed in that conversation,
Speaker 1: he's not interested in the index. He's interested in making
Speaker 1: slightly more Hopefully, Brother a lot more than you will
Speaker 1: on catch.
Speaker 3: Yeah, and I thought, I mean, I thought it was
Speaker 3: really interesting. I think the lesters all have enjoyed the
Speaker 3: fact that this has actually been quite a good tippy
Speaker 3: one sliced talk about individual companies.
Speaker 1: I know it's not easy to get fund managers to
Speaker 1: do that, you know, I'm always trying to get them
Speaker 1: to come on, give us your top holdings, tell us
Speaker 1: your top tip, what would old for ten years or whatever?
Speaker 1: But mostly I think, you know, the compliance environment has changed,
Speaker 1: and in the old days it was quite easy to
Speaker 1: get fund managers just to sort of pour out a
Speaker 1: list of tips, but now they're rather more circum circumspect
Speaker 1: about it. Well, most of them are. John John being
Speaker 1: the exception to the rule there, Thank you, John is.
Speaker 3: Staff Because the top ten holdings obviously are public information,
Speaker 3: so you know, they should be able to come on
Speaker 3: and like feel free to talk enthusiastically about them, yeah.
Speaker 1: And explain why they hold them. But mostly, as they said,
Speaker 1: it's quite hard to get them to do it, isn't it.
Speaker 3: I did think the stuff about absolutely turn was really
Speaker 3: interesting because being able to go short is actually one
Speaker 3: of the few ways the active managers can properly differentiate
Speaker 3: themselves from passively. You can't do that with a passive fund.
Speaker 3: And even the most kind of like active retail investor
Speaker 3: is going to struggle to an extent to run you know,
Speaker 3: unless you're really kind of like doing a lot of
Speaker 3: CfDS and spread bit and things like that, you're going
Speaker 3: to struggle to run a long shot portfolio the way
Speaker 3: a kind of fund manager can. So it's interesting say
Speaker 3: that sector is I mean, I know, absolutely turn got
Speaker 3: a bad name for itself because the returns were absolutely
Speaker 3: awful as opposed to actually beating interest rates, you know
Speaker 3: whatever about a decade.
Speaker 1: I mean, that's true that they were awful, and it
Speaker 1: was all a bit, you know, all a bit awkward
Speaker 1: back then, But the truth is still a more honest
Speaker 1: way to run money. And even if you even if
Speaker 1: you are a long only manager, it's still more honest,
Speaker 1: I think, to compare yourself to what we would get
Speaker 1: if we struck our money in the bank, and to
Speaker 1: work to outperform inflation rather than to outperform other fund managers,
Speaker 1: because that's what's really all we care about, you and
Speaker 1: I right, and our listeners I think too, they're not
Speaker 1: interested in being in having your money in the best
Speaker 1: performing fund manager. That would be nice. Of course, what
Speaker 1: we're interested in is protecting our capital, protecting the purchasing
Speaker 1: power of our capital, and hopefully increasing the purchasing pawer
Speaker 1: of our capital. But first of all, mainly the thing
Speaker 1: that we want is, you know, don't reduce the value
Speaker 1: of our capital. I'm saving this up from my retirement.
Speaker 2: I need my money to be a time machine.
Speaker 1: I need it to be able to buy the same
Speaker 1: stuff in the future or more than it does now,
Speaker 1: not less. So let's work on that basis. And so
Speaker 1: I do think that even though there been periods in
Speaker 1: the past when this has not worked, and periods in
Speaker 1: the past when people have treated absolute return as hedge
Speaker 1: fund as opposed to cautious absolutely return, it's still honest
Speaker 1: and valuable way of running money.
Speaker 3: Yeah, I mean, you're right. I mean, making a consistent
Speaker 3: real return is what you really want from your mind.
Speaker 3: And obviously, yeah, you do eventually get to a point,
Speaker 3: hopefully where actually capital preservation is more important than capital growth.
Speaker 3: So there's also I mean, that's another conversation as well.
Speaker 2: But well, it's one of those things, isn't it. People,
Speaker 2: Or if you are. There's a risk things.
Speaker 1: When you sign up to a wealth manager or a
Speaker 1: fund etca, which which risk level are you? And if
Speaker 1: you're at the top risk level, you're supposed to accept
Speaker 1: that it's possible that you might need a lot of
Speaker 1: your money. But no one signing up for those things
Speaker 1: really believe that to do they I don't know what
Speaker 1: really signing up to risk level five things themselves. I
Speaker 1: might use might lose forty percent of my money and
Speaker 1: I'm fine with that.
Speaker 3: Exactly thinks that, Yeah, I mean, the risk question is
Speaker 3: is daft. I mean, you're where you're invested as an
Speaker 3: overall as an allocation level should broadly be based on
Speaker 3: your time horizon and not on any imaginary facity for
Speaker 3: temporary losses. Because that's the other thing. They're not actually
Speaker 3: asking you a YOKI will losing forty percent of money.
Speaker 3: They're asking a you OK if we spreadsheet we send
Speaker 3: you every month sometimes says you've lost forty percent of
Speaker 3: your money, but at the end of that it won't
Speaker 3: be forty percent because the whole point of taking the
Speaker 3: you know the maximum risk is that you know it's
Speaker 3: a bumpier ride along the way, but you make more
Speaker 3: by the end of the twenty years or whatever it is.
Speaker 3: So I think that that whole concept at risk is very,
Speaker 3: very confused, and I mean, I appreciate it's it's a
Speaker 3: confusing subject, but that's the kind of thing that people,
Speaker 3: you know, IFAs and things like that should be explained
Speaker 3: to people.
Speaker 1: So really, really, instead of just taking a home like that,
Speaker 1: you should have a full psychiatric assessment, absolutely to make
Speaker 1: sure that you have a kind of person. Yeah, you
Speaker 1: can deal with the stress of that kind of fluctuation exactly.
Speaker 3: You can get your prozac alongside your asse.
Speaker 1: I mean, we get out a whole new layer of
Speaker 1: complicated compliance too, investing by insisting that everyone has some
Speaker 1: kind of analysis done before they're.
Speaker 3: Allowed to take five Yep, I'm I'm sure that. Yeah,
Speaker 3: I said, think of the bit of the complaints industry
Speaker 3: would thank you for that. I'm not sure the stry.
Speaker 1: But anyway, sir, I've gone off topic, John, I've gone
Speaker 1: off topic. Told me what else you found interesting about
Speaker 1: this conversation.
Speaker 3: I thought it was all very interested the well you
Speaker 3: liked it.
Speaker 2: Because he was his pro the.
Speaker 1: UK market just like, yeah, he thinks the turn is
Speaker 1: in and he's talking about trade by trade bias, seeing
Speaker 1: value that really quite impressive premiums, and he's saying, you know,
Speaker 1: this is this is trying to on absolute levels. And
Speaker 1: although who's a bit embarrassed to say the word relative,
Speaker 1: he didn't say on a relative basis as well, So
Speaker 1: you know, he's very pro all the things that were pro.
Speaker 1: So we like that.
Speaker 3: It's massive coinformation bias basically, I know loved that. And
Speaker 3: the other thing I thought was interesting was the shortened element,
Speaker 3: this idea that he's got and I must have met.
Speaker 3: There was a part, I mean, it was kind of train.
Speaker 3: It was struggling with that a bet and that I'm
Speaker 3: thinking were everything you buy a stock, you're going to
Speaker 3: have to shine. Wen't is short even if you don't
Speaker 3: think you know that are any that are great shortened candidates?
Speaker 3: But I guess that's how you make it market neutral.
Speaker 1: Yeah, well, you know, you own the really good ones,
Speaker 1: and even if they aren't any bad ones, you know
Speaker 1: you sell the less good ones.
Speaker 2: The other thing that's quite interesting.
Speaker 1: We talked a little bit in here about about ESG
Speaker 1: and about people not following through on their beliefs on
Speaker 1: climate change, et cetera with their consumer performance and that,
Speaker 1: you know, so we looked easy Jet and Ryan Air
Speaker 1: except they like and that made me think again about
Speaker 1: the divestment that we've been though I mentioned earlier. You know,
Speaker 1: how how you get there is that we don't have
Speaker 1: very many miners or oil companies. But if you were
Speaker 1: ESG minded, and if you were climate change minded, then
Speaker 1: you wouldn't want to hold any of these things, either,
Speaker 1: would you. And once you start not holding easy Jet
Speaker 1: and not holding Ryan Air and then not holding anything
Speaker 1: that creates jet fuel or anything that has a shop
Speaker 1: in the airport or anything like that, why do you.
Speaker 3: End it's the fundamental issue, isn't it. It's kind of
Speaker 3: like the fund management industry in the SG side of
Speaker 3: things is the you know, I think this is where,
Speaker 3: even at a more fundamental level, is kind of green
Speaker 3: washing anyway, because an awful lot of the harder core
Speaker 3: arguments like you know, no one should fly again, you
Speaker 3: should never die in and out of the ground, are
Speaker 3: essentially anti capitalist, and you can you know, I don't
Speaker 3: mind if you think that. I think you're stupid if
Speaker 3: you think that, But it's fine, you know, that's a
Speaker 3: valid you know, kind of it's your opinion. But at
Speaker 3: the same time, in that case, you just wouldn't invest
Speaker 3: in anything at all, because you know, you're propping up
Speaker 3: the market, you're propping up the system that you're trying
Speaker 3: to you know, unravel or destroy. So I think there's
Speaker 3: a very fundamental conflict, which is I guess coming more
Speaker 3: to light now anyway. But yeah, so not I get
Speaker 3: that's the other reason why I think in a talk
Speaker 3: a bit of this stuff at one level it's both
Speaker 3: incredibly superficial and kind of pointless in the way because
Speaker 3: it's almost like two groups of people completely talking past
Speaker 3: one another, and the people in the middle who kind
Speaker 3: of like know they have to save for their pension,
Speaker 3: but they want their pension to be doing nice stuff
Speaker 3: and inverted comments because they're somewhat scared of money. It's
Speaker 3: a whole different thing. I mean, in fact, that goes
Speaker 3: back to the psychiatric evaluation. Maybe because people get shed
Speaker 3: your taboos about money.
Speaker 4: You know, Okay, this is going to be quite a
Speaker 4: long psychiatric session for everybody. Yeah, fund management, fay, they're
Speaker 4: going to gout massively, and so wealth management.
Speaker 1: And faith we're all going to have to go shopping
Speaker 1: to get over it. I love that he's got Marks
Speaker 1: Responses in the top ten, and as I said to
Speaker 1: him during our conversation, I don't know how many cycles
Speaker 1: of Marks and Spenses is cheap. Marx Suspensive, Oh my god,
Speaker 1: Mark Suspense is awful, cell Max Suspenses. I've been through
Speaker 1: in my my quite a long career, actually, but I
Speaker 1: do I do think that right now, Mark Suspensis does
Speaker 1: look like they've finally got the hang of this retail thing. Yeah.
Speaker 3: Actually I agree. Yeah, I feel exactly the same way
Speaker 3: as you. I had kind of got to the point
Speaker 3: where I was like, I'm never believing in the Mark
Speaker 3: Suspenser's turn the round story again.
Speaker 6: But it does.
Speaker 2: Then you went to the food hole, and then you went.
Speaker 3: I mean, I've still got to see I still think
Speaker 3: why not just spend that off, split the manty two things,
Speaker 3: and then you've got, uh, you've got a clothing unit
Speaker 3: that occasionally performs, and you've got a food unit that
Speaker 3: is like, you know, a massive challenge. It likes waitros
Speaker 3: and all the rest of it.
Speaker 1: Yeah, I don't want them to do that because they
Speaker 1: might move the two areas to different sites. And I
Speaker 1: like to buy nikas and food at the same time.
Speaker 1: And I think you'll find this a lot of other people
Speaker 1: out there who do as well. A non started John
Speaker 1: as a non starter.
Speaker 2: Anyway.
Speaker 1: And this of course is why we said I said
Speaker 1: at the beginning, and I'll say again this is not
Speaker 1: just a bullmarket, it's a British bullmarket.
Speaker 3: Good right, that's good. That's good.
Speaker 1: Thanks for listening to this week's Maren Talks Money. We'll
Speaker 1: be back next week in the meantime. If you like
Speaker 1: our show, rate review and subscribe wherever you listen to
Speaker 1: your podcast, and keep sending questions or comments to Merron
Speaker 1: Money at Bloomberg dot net. This episode was hosted by
Speaker 1: me Maren Sunset Web. It was produced by some Sidy Adriginal,
Speaker 1: editing by Moses and and special thanks to John Warren
Speaker 1: and to John da