WEBVTT - The Argument Against Relative Performance 0:00:06.160 --> 0:00:14.400 Bloomberg Audio Studios, Podcasts, radio news. Hello, it's Meren sumsat 0:00:14.480 --> 0:00:16.880 web here. This week our guest is John Warren, co 0:00:16.920 --> 0:00:19.600 founder of Telworth Investments and manager of the TM Telworth 0:00:19.720 --> 0:00:22.720 UK Select Funder. He's got eighteen years of investment experience, 0:00:22.760 --> 0:00:24.960 but that's not why we asked him on. He runs 0:00:25.000 --> 0:00:27.680 an absolute return fund, which is something that John and 0:00:27.760 --> 0:00:30.840 I find particularly interesting. So we talk about the way 0:00:31.040 --> 0:00:34.720 that works. But before we get to that very exciting conversation, 0:00:34.960 --> 0:00:37.440 as we always do, we start with what I think 0:00:37.520 --> 0:00:40.080 most of you consider to be the best part of 0:00:40.120 --> 0:00:42.840 the show, a conversation with money to Silve newsletter author 0:00:42.920 --> 0:00:45.720 John Steppek, John, let's talk and I'll tell you what. 0:00:45.840 --> 0:00:48.959 Let's talk about your absolutely favorite subject. 0:00:49.080 --> 0:00:51.520 New high after new high after new high. 0:00:51.800 --> 0:00:55.880 Who wouldn't want to hold the buddsy one hundred exactly? 0:00:56.400 --> 0:00:59.280 And we've got another new high today as we're recording. 0:01:00.040 --> 0:01:03.600 In fact, actually I may need double check this, but 0:01:03.840 --> 0:01:06.679 Simon French over at paneers Gordon the other day tweeted 0:01:06.720 --> 0:01:09.400 out to me saying that if the food see manages 0:01:09.440 --> 0:01:12.000 to close a new record high twelve times in a 0:01:12.080 --> 0:01:13.600 row within a month, this will be like the first 0:01:13.640 --> 0:01:16.560 time that's happened since I don't know, years and years 0:01:16.560 --> 0:01:18.480 and years. So that's very exciting. 0:01:20.240 --> 0:01:23.480 What's making it happen. What's making it happen. 0:01:23.240 --> 0:01:27.400 John, the fact that fund managers are essentially held animals, 0:01:27.600 --> 0:01:29.600 and they've seen something hit and you high in the 0:01:29.680 --> 0:01:32.920 suddenly like, oh my god, there's a bandwagon in this movie. 0:01:33.440 --> 0:01:38.360 After interrupted briefly, we don't we don't call them herd animals. 0:01:38.360 --> 0:01:43.319 We don't call them. Oh yes, investor, Well we had 0:01:43.319 --> 0:01:45.680 this conversation before momentum investors. 0:01:45.880 --> 0:01:47.039 That's the politically correct. 0:01:48.360 --> 0:01:53.280 Okay, So finally global investors have noticed that the UK 0:01:53.520 --> 0:01:56.160 is cheap, that Brexit has not been the end of 0:01:56.160 --> 0:01:59.040 the world, and that there are some really great companies 0:01:59.040 --> 0:02:01.440 in the UK and they can have a significantly lesson 0:02:01.480 --> 0:02:04.600 they can buy companies elsewhere. But even after all these 0:02:04.680 --> 0:02:06.960 new highs, I think the UK is still in nineteen 0:02:06.960 --> 0:02:08.680 percent discounty global pays. 0:02:08.480 --> 0:02:12.880 Right, Yeah, Still it's still cheap, and it is. It 0:02:12.919 --> 0:02:14.840 is interesting because I had a quick looks. So my 0:02:15.000 --> 0:02:16.720 go to for all of these things is the Bank 0:02:16.760 --> 0:02:20.400 of America Global Fund Manager Survey. It's actually really good 0:02:20.600 --> 0:02:24.519 sentiment indicator and it comes out every month. So I 0:02:24.600 --> 0:02:27.680 look back at the January one for this year, and 0:02:27.680 --> 0:02:29.920 the UK's been at the bottom for ages, and the 0:02:30.000 --> 0:02:34.639 January one it was rock bottom. Fund Global fund managers 0:02:34.680 --> 0:02:38.200 said that they were more underway the UK relative to 0:02:38.440 --> 0:02:41.960 history than any other asset class, and it's like twenty 0:02:42.000 --> 0:02:45.560 one different asset classes, so big, big underweight, as in 0:02:45.760 --> 0:02:50.080 they don't like it compared to the benchmark. And then 0:02:50.120 --> 0:02:53.000 I looked at the same one for last month and 0:02:53.040 --> 0:02:56.239 it's basically been the same, you know, February, March, April May. 0:02:56.400 --> 0:03:00.280 That's actually changed that they've actually moved some money into 0:03:00.480 --> 0:03:05.440 UK stocks and they're now ever so slightly just above 0:03:05.520 --> 0:03:09.079 average compared to the last twenty years. So that's been 0:03:09.120 --> 0:03:11.280 a real kind of there has been a real sentiment 0:03:11.360 --> 0:03:14.080 shift in a fairly short period of time, and it 0:03:14.120 --> 0:03:19.280 has pretty much coincided with a new record high. And 0:03:19.320 --> 0:03:21.440 to be fair, also they kind of move to value 0:03:21.840 --> 0:03:24.760 because people have started to get a bit kind of 0:03:24.840 --> 0:03:26.919 started to think that actually interest rates are going to 0:03:26.919 --> 0:03:29.760 be higher for longer. Some maybe or the growth stuff 0:03:30.280 --> 0:03:35.720 as in't necessarily the thing you stick with anymore. But yeah, 0:03:35.720 --> 0:03:38.080 but I do think mostly it's actually momentum as well, 0:03:38.080 --> 0:03:40.400 we just bought something moving and you don't want to 0:03:40.400 --> 0:03:41.080 be left behind. 0:03:41.840 --> 0:03:45.000 John, He respects. Nobody has want to see respect fund managers. 0:03:45.000 --> 0:03:47.040 He's all over there absolutely right. 0:03:47.160 --> 0:03:47.440 Listen. 0:03:47.480 --> 0:03:49.520 So we're getting note of the note of the note 0:03:49.600 --> 0:03:52.960 from various banks, brothers, et cetera telling us what we've 0:03:52.960 --> 0:03:54.480 been telling you for a long time now, that the 0:03:54.560 --> 0:03:56.000 UK is cheap and you should buy it. But I 0:03:56.040 --> 0:03:58.920 don't point you to one in particular, which is from 0:04:00.040 --> 0:04:03.320 our podcast regular James Ferguson, and he has written a 0:04:03.320 --> 0:04:04.800 note and I will do a little summary of it 0:04:04.840 --> 0:04:07.200 and stick it on John's Money to Sold newsletter for 0:04:07.400 --> 0:04:10.440 you at some point. And his it's called it's called 0:04:10.760 --> 0:04:14.520 Union Jack in the box. Right. You know this is 0:04:14.560 --> 0:04:16.640 not and this is not an ordinary ball market. This 0:04:16.720 --> 0:04:20.280 is a British ball market, right. And his argument is 0:04:20.320 --> 0:04:23.159 that as slightly different to our argument, to be honest, 0:04:23.440 --> 0:04:27.679 it is that inflation is absolutely out of the picture. 0:04:28.160 --> 0:04:30.160 He says that as far as he can see, there 0:04:30.200 --> 0:04:33.440 is very little inflationary pressure left. There's an eighteen month 0:04:33.480 --> 0:04:37.160 contraction in nominal money supply, two yearstagnation of GDPETE. There 0:04:37.200 --> 0:04:39.919 is absolutely no excuse for base rates to be knocking 0:04:39.920 --> 0:04:42.080 around to this sixteen year high of five point two 0:04:42.160 --> 0:04:45.720 five percent. So he thinks that once inflation is out 0:04:45.720 --> 0:04:47.920 of the picture, and he thinks it, everybody will realize 0:04:47.920 --> 0:04:51.000 that soon rates have a quoting here ample scope to 0:04:51.000 --> 0:04:53.560 be cut a long way, alleviating the pressure on both 0:04:53.560 --> 0:04:57.480 indebted retail and commercial property owners, stimulating productive bank growth, 0:04:57.680 --> 0:05:02.000 and all without threatening a real acceleration in prices anti closures. 0:05:02.279 --> 0:05:04.600 No wonder, the foot year is just broken out to 0:05:04.839 --> 0:05:08.760 a new six year high, and so he's looking not 0:05:08.839 --> 0:05:10.479 just at the cheapness, but at the fact that he 0:05:10.640 --> 0:05:14.000 expects interest rates to fall quite fast soon. And I 0:05:14.680 --> 0:05:17.039 did ask him about that and he said, there's just 0:05:17.080 --> 0:05:18.080 no reason for them to stay. 0:05:18.200 --> 0:05:18.320 Hi. 0:05:18.760 --> 0:05:20.720 I still feel as if I think you did, John, 0:05:20.720 --> 0:05:24.560 that that central bankers might be taking the opportunity to 0:05:24.600 --> 0:05:27.559 try and normalize the idea that rach should knock around 0:05:27.560 --> 0:05:30.360 four percent one percent, and therefore the fall is going 0:05:30.400 --> 0:05:32.480 to be slightly slower than a lot of other things. 0:05:32.560 --> 0:05:32.800 Yeah. 0:05:32.839 --> 0:05:35.520 I mean, I've got a huge amounty respect for James 0:05:35.560 --> 0:05:38.279 because he's one of the few people that we in 0:05:38.400 --> 0:05:41.680 order to explicitly got the two thousand and eight crisis 0:05:41.760 --> 0:05:44.200 right and was one a book deflation even after all 0:05:44.200 --> 0:05:48.159 the money printing, so we knows we was talking about I. 0:05:48.240 --> 0:05:51.000 Despite all that, I still struggle. We see that Hartman, 0:05:52.080 --> 0:05:53.720 and it also depends, I mean, it depends partly what 0:05:53.760 --> 0:05:56.040 he means by a fast drop in interest rates. I've 0:05:56.080 --> 0:05:57.839 read some of the note, but not the whole thing. 0:05:58.440 --> 0:06:00.599 And you know, if he means it will get to 0:06:00.720 --> 0:06:04.080 four quicker than everyone's expecting, then that's one thing. But 0:06:04.440 --> 0:06:06.960 I don't Again, I'm on the camp that says that 0:06:07.080 --> 0:06:13.159 rates don't go below three percent effectively ever again, you know, 0:06:13.880 --> 0:06:16.720 as a for a very long time. So I'd be 0:06:16.760 --> 0:06:20.000 curious to know a bit more about exactly what he's expecting. 0:06:22.560 --> 0:06:23.880 All right, I'll give him a call. 0:06:23.960 --> 0:06:24.760 I'll give him a call. 0:06:25.240 --> 0:06:28.080 We'll stick it in the newsletter. But he keeps using 0:06:28.080 --> 0:06:30.800 the word substantially. The NBC has very clear part of 0:06:30.800 --> 0:06:33.560 the courage substantially reduniate bank lending, et cetera, et cetera. 0:06:34.120 --> 0:06:37.520 His only concern, of course, is the incoming labor government 0:06:37.600 --> 0:06:38.560 and the Bank of England. 0:06:38.640 --> 0:06:40.080 Will they work together and. 0:06:40.080 --> 0:06:44.760 Keep policy relatively tight, unleashing the private sector to go 0:06:44.800 --> 0:06:46.800 for growth, or will they not? I think we can 0:06:46.800 --> 0:06:48.640 probably get see answer to that, but we'll come back 0:06:48.720 --> 0:06:53.119 that maybe in six months or so. Right down, anything 0:06:53.120 --> 0:06:57.760 else you want to say about this wonderful billmarket, No, I. 0:06:57.720 --> 0:06:59.920 Think everyone should just sit back and enjoy it. 0:07:03.160 --> 0:07:06.600 Now, before we get on to the conversation with John, 0:07:06.680 --> 0:07:09.040 I want to point you to something we talk about 0:07:09.120 --> 0:07:11.240 during it that we didn't define and we should have. 0:07:11.440 --> 0:07:14.000 We talk about Sonya, and he talks about wanting to 0:07:14.040 --> 0:07:15.840 outperform Sonya, and a lot of you are going to 0:07:15.840 --> 0:07:17.640 be looking at that and you're going to be thinking, well, 0:07:17.640 --> 0:07:20.600 what earth is Sonya? And what it is is an 0:07:20.600 --> 0:07:23.560 interest rate benchmark. It's the average price that banks paid 0:07:23.560 --> 0:07:26.280 to borrow stirring from each other overnight. So it's just 0:07:26.320 --> 0:07:30.160 a standard, straightforward measure of basic interest rates. And if 0:07:30.200 --> 0:07:32.920 you are going to attempt to outperform that, you're just 0:07:32.960 --> 0:07:35.040 going to be making more than you would in cash, 0:07:35.080 --> 0:07:37.280 which seems like a good way to run a fund, 0:07:37.320 --> 0:07:37.760 right John. 0:07:38.480 --> 0:07:41.080 It's the deplacement to libel because people may it here 0:07:41.120 --> 0:07:41.600 to libel. 0:07:42.320 --> 0:07:43.640 Ah, Okay, good point. 0:07:43.880 --> 0:07:44.040 Right. 0:07:44.080 --> 0:07:45.960 We'll come back to this in our conversation after our 0:07:46.000 --> 0:07:54.840 conversation with John. Welcome to Maren Talks Money the podcast 0:07:54.880 --> 0:07:57.120 In which people who know the market is explain the markets. 0:07:57.120 --> 0:07:59.600 I'm marrin Sumset Web. Here's my conversation with John Warren, 0:07:59.600 --> 0:08:02.840 who launched Tellworth Investments in October twenty seventeen. Before lad, 0:08:02.880 --> 0:08:05.760 he worked at Casinos Capital Ubs an investor. We begin 0:08:05.800 --> 0:08:07.960 the conversation with John explaining why the fund he runs 0:08:08.040 --> 0:08:11.520 Tmtelworth's Select just different to a standard fund. 0:08:16.320 --> 0:08:19.120 The Tailworth fund that I run, the UK Select Fund, 0:08:19.560 --> 0:08:21.920 is an absolute return fund. So what we are trying 0:08:21.960 --> 0:08:26.280 to achieve is very consistent, low volatile returns for our investors, 0:08:27.120 --> 0:08:30.280 and we achieve that by being both long and short shares. 0:08:30.800 --> 0:08:33.120 We do that by being neutral to the market, so 0:08:33.160 --> 0:08:35.440 we're not trying to take a big directional bet on 0:08:35.440 --> 0:08:38.880 the market and basically be stock pickers. So we want 0:08:38.920 --> 0:08:41.000 to buy stocks that are going up and be short 0:08:41.000 --> 0:08:43.400 of stocks that are going down, and make consistent returns 0:08:43.400 --> 0:08:46.520 with a very low volatility and importantly as well not 0:08:46.640 --> 0:08:50.319 be correlated to the direction of the market or changes 0:08:50.520 --> 0:08:54.680 in economic conditions or interest rate cycles, which is clearly 0:08:54.679 --> 0:08:58.520 a big area for dat debate at the moment, and 0:08:58.640 --> 0:09:01.640 really just we are targeting eight to ten percent returns 0:09:01.679 --> 0:09:03.920 a year on a consistent basis. That's what we're trying 0:09:03.960 --> 0:09:06.440 to achieve for our investors. 0:09:06.960 --> 0:09:09.920 Okay, that's an extraordinary thing. Eight to ten percent a year. Now, 0:09:09.920 --> 0:09:13.079 when you say absolute return, of course, we're all immediately 0:09:13.120 --> 0:09:15.560 thrilled because one of our big ripes me and John, 0:09:15.600 --> 0:09:17.640 one of our big rights of the fund management industry 0:09:17.679 --> 0:09:21.520 as a whole is benchmarking is the idea that returns 0:09:21.559 --> 0:09:24.840 are always relative to something the returns of something else. 0:09:25.000 --> 0:09:28.000 You're never judging yourself in absolute returns how much money 0:09:28.000 --> 0:09:31.080 have you actually made for people year by year by year. 0:09:31.440 --> 0:09:33.680 It's about, well, you know, I have performed this benchmark 0:09:33.720 --> 0:09:35.760 by zero point five percent, or I have performed that 0:09:35.840 --> 0:09:37.560 benchmark by one and a half percent, or. 0:09:37.559 --> 0:09:39.400 Whatever it is. And we always look at it and 0:09:39.480 --> 0:09:40.439 we think, well, hang, onlydic. 0:09:41.000 --> 0:09:44.760 If you are judging yourself relative to something, it's got 0:09:44.800 --> 0:09:47.680 to be quite hard to outperform it over the long 0:09:47.760 --> 0:09:50.080 term because you're always looking at it and going, oh god, 0:09:50.120 --> 0:09:52.840 you know, I'm scared I'm gonna underperform it. Therefore, you 0:09:53.000 --> 0:09:55.880 do end up investing in a way that is much 0:09:56.040 --> 0:09:58.960 closer to the benchmark you're tracking than then you should. 0:09:59.040 --> 0:10:01.200 Right looking at active. 0:10:00.960 --> 0:10:04.160 Active shares that the extent to which your fund is 0:10:04.200 --> 0:10:07.440 different from the indexit tracks, and so often you're still 0:10:07.480 --> 0:10:12.080 looking at at fairly low percentages of funds being genuinely 0:10:12.120 --> 0:10:13.360 different to their benchmarks. 0:10:13.360 --> 0:10:14.880 And I always think that maybe one. 0:10:14.760 --> 0:10:18.280 Of the great mistakes that this industry has ever made 0:10:19.480 --> 0:10:20.800 is being relative. 0:10:21.920 --> 0:10:25.720 I'd agree. And what are people trying to achieve with 0:10:25.760 --> 0:10:27.640 their savings and what are savings products trying to do? 0:10:27.720 --> 0:10:28.880 In investment products trying to do? 0:10:28.920 --> 0:10:29.079 Well? 0:10:29.120 --> 0:10:32.040 You're trying to grow your wealth over time. That's surely 0:10:32.080 --> 0:10:34.080 that what everyone is trying to achieve. It's certainly what 0:10:34.120 --> 0:10:36.280 I try and achieve with my personal wealth and with 0:10:36.800 --> 0:10:42.040 my investors' funds. In the in the fund. Clearly, if 0:10:42.080 --> 0:10:45.440 you are long only, there is always some elements of 0:10:45.640 --> 0:10:49.480 directional direction of them underlying market you're investing in that's 0:10:49.520 --> 0:10:53.120 going to dominate returns. So very hard to make absolute 0:10:53.120 --> 0:10:55.920 returns if the market has a big bear crash, for example. 0:10:56.240 --> 0:10:58.880 What we do, though, is by making sure that we're 0:10:58.880 --> 0:11:02.640 not taking that market. By having positions both sides, it 0:11:02.720 --> 0:11:05.720 means that we are generally should be expected to make 0:11:05.800 --> 0:11:09.680 returns irrespective of what's going on in the border economy. 0:11:09.679 --> 0:11:12.560 In the border markets, so we benchmark to cash, so 0:11:12.920 --> 0:11:15.920 we have to outperform cash, so we use Sonya for that. 0:11:16.000 --> 0:11:19.120 So clearly that wasn't much of a challenge for many years. 0:11:19.480 --> 0:11:21.680 It's more of a challenge now, but we benchmark against that, 0:11:21.760 --> 0:11:23.920 so we expect to make a return in excess of 0:11:23.920 --> 0:11:26.600 the cash return. And like I say, targeting eight to. 0:11:26.600 --> 0:11:28.520 Ten, do you think all fund managers should do that? 0:11:28.559 --> 0:11:30.800 I mean, I always think that it will be polite 0:11:30.800 --> 0:11:32.600 of fund managers to tell us they're going to make 0:11:32.679 --> 0:11:34.920 us cash plus three for example. 0:11:35.800 --> 0:11:37.559 I think it would be a nice thing to hope, 0:11:37.600 --> 0:11:40.320 and I think most people judge their wealth managers with 0:11:40.360 --> 0:11:43.000 that if you're looking at an overall portfolio. I think 0:11:43.080 --> 0:11:46.320 it's quite hard, though, if you're investing in a niche 0:11:46.320 --> 0:11:49.440 specialist fund to expect to be able to beat the 0:11:49.520 --> 0:11:51.680 direction of that fund. But I guess a lot of 0:11:51.720 --> 0:11:54.480 it comes down to your time horizon, doesn't it. And 0:11:54.600 --> 0:11:58.440 unfortunately many people now look at quarterly performance or half 0:11:58.480 --> 0:12:00.920 yearly performance. If you're looking over a five to ten 0:12:01.000 --> 0:12:02.920 year of view, then I would think that's a perfectly 0:12:02.920 --> 0:12:04.560 acceptable thing to expect to ask. 0:12:04.760 --> 0:12:06.839 Yeah, I mean, anyone charging you one and a half 0:12:06.880 --> 0:12:09.600 percent or one percent or even eighty basis points a 0:12:09.720 --> 0:12:12.720 year for their special skill should be able to give 0:12:12.760 --> 0:12:15.880 you cash plus three percentage points over a five year period. 0:12:16.000 --> 0:12:17.840 I think once you're getting into longer term periods, that's 0:12:17.880 --> 0:12:20.120 an absolutely fair, fair requirement. 0:12:20.840 --> 0:12:22.880 Okay, good with the established new rules for the fund 0:12:22.880 --> 0:12:25.640 management industry. Anyone who can find a reason to disagree 0:12:25.679 --> 0:12:27.960 with us, hate Melton John, Please, I know expect. 0:12:28.200 --> 0:12:31.400 I expect some colleagues will be getting in touch suit shortly. 0:12:31.880 --> 0:12:34.760 They always do. Okay, So here we are. You're invest 0:12:34.760 --> 0:12:35.640 in the UK market. 0:12:35.720 --> 0:12:38.040 I know that for you, it's not about direction of 0:12:38.120 --> 0:12:40.160 the market itself, because as you just said, you're short 0:12:40.200 --> 0:12:42.440 and you're long, and you're trying to be neutral. But 0:12:42.640 --> 0:12:47.480 nonetheless it feelds like I'm intensative here because you know, 0:12:47.520 --> 0:12:49.800 you can have the wrong feelings. But it feels like 0:12:49.920 --> 0:12:53.360 something is changing in the UK market. That thing people 0:12:53.360 --> 0:12:54.920 are beginning to get interested. 0:12:55.120 --> 0:12:56.559 The big banks, the ubs is, etc. 0:12:56.880 --> 0:12:59.840 The brokers are beginning to change their view and suddenly say, well, 0:12:59.880 --> 0:13:02.000 if not the market we eight most in the world. 0:13:02.160 --> 0:13:03.880 It's one of our favorite markets. 0:13:03.520 --> 0:13:07.040 Because it's cheap and it's interesting. There's a sense there 0:13:07.080 --> 0:13:09.760 might be some foreign buyers coming in with seeing new 0:13:09.800 --> 0:13:12.800 eyes and the footst forty one hundred over and over 0:13:12.840 --> 0:13:15.160 and the other and the other areas doing well too. 0:13:15.440 --> 0:13:17.880 Might even be some interest in mid and small caps 0:13:17.920 --> 0:13:21.560 coming through. Are you buying it that there's a turn here? 0:13:22.080 --> 0:13:24.640 It definitely feels like there has been a change in 0:13:24.679 --> 0:13:28.079 the sentiment into the UK market. I think that's come 0:13:28.080 --> 0:13:31.479 from a few reasons, one of which is just performance. Unfortunately, 0:13:31.760 --> 0:13:34.280 the market is a momentum chasing market in so many 0:13:34.320 --> 0:13:36.839 ways now, and the performance that the market has had 0:13:36.920 --> 0:13:39.360 is attracting some more plows of funds. I think one 0:13:39.360 --> 0:13:41.719 of the areas which has been much talked about on 0:13:41.840 --> 0:13:45.079 this podcast is the lack of equity inflows into the 0:13:45.160 --> 0:13:48.880 UK market that has been ongoing for a long long time. Interestingly, though, 0:13:49.000 --> 0:13:51.560 overseas investors have actually been met buyers of the UK 0:13:51.720 --> 0:13:55.600 for a period now, and the very noticeable factor as 0:13:55.600 --> 0:13:58.280 well has been the increase in M and A. So 0:13:58.720 --> 0:14:00.720 we always thought one of the big catalysts for the 0:14:00.800 --> 0:14:04.440 UK market sentiment change would be a footy one hundred bid. 0:14:05.240 --> 0:14:08.880 We've had that with the approach for Anglos from BHP. 0:14:09.040 --> 0:14:13.720 Clearly that hasn't actually come to any formal agreement yet, 0:14:14.000 --> 0:14:16.720 but just the fact that a business of that size 0:14:16.760 --> 0:14:18.360 is attracting M and A, and we've seen a lot 0:14:18.360 --> 0:14:20.480 of it further down the market caps as well. We 0:14:20.560 --> 0:14:22.360 invest a lot in the MidCap part of the market 0:14:22.400 --> 0:14:24.120 as well as the large cap part of the market, 0:14:24.320 --> 0:14:27.800 and we've seen lots of bid interest, so the trade 0:14:27.840 --> 0:14:32.840 buyers coming in seeing value in these companies at meaningful premiums, 0:14:33.320 --> 0:14:35.600 and the overall that just the valuation of the UK 0:14:35.720 --> 0:14:38.800 market is very very attractive on both an absolute and 0:14:38.840 --> 0:14:41.040 I hate to say it, Marian, but a relative basis 0:14:41.040 --> 0:14:44.960 as well. So when you're looking at the UK market 0:14:45.040 --> 0:14:49.480 relative to particularly the US, I think we're a second percentile, 0:14:49.640 --> 0:14:52.480 so you know, a two in one hundred year valuation 0:14:53.080 --> 0:14:56.040 cheapness against the US market. 0:14:56.280 --> 0:14:58.400 Well, we're happy to look at relative off we've already 0:14:58.440 --> 0:15:00.920 looked at absolutely so with ubernapps terms, and then it's 0:15:00.960 --> 0:15:02.880 also extremely cheap in relative terms. 0:15:02.960 --> 0:15:04.440 Then I think that's excellent news. 0:15:04.480 --> 0:15:07.160 But you said that foreign bius have been met bias 0:15:07.200 --> 0:15:08.800 for a little bit of time now, but. 0:15:08.720 --> 0:15:10.920 Domestic buiers consistently are not. 0:15:11.240 --> 0:15:13.440 And one of the other things we say we always 0:15:13.440 --> 0:15:16.520 say on this podcast to our listeners, particularly those who 0:15:16.640 --> 0:15:20.680 are UK based investors, if you don't buy these stocks 0:15:20.680 --> 0:15:21.640 somebody else? 0:15:21.920 --> 0:15:24.320 Will? We see that in the L and A Right, 0:15:24.600 --> 0:15:27.760 what is it do you think that might make UK 0:15:27.920 --> 0:15:29.280 investors start buying again? 0:15:29.360 --> 0:15:32.200 Will they dive into thisum momentum? Or they do they 0:15:32.280 --> 0:15:34.840 need something like the britt Eye Cerel something like that 0:15:34.960 --> 0:15:37.480 to make them stop with the domestic self loathing which 0:15:37.480 --> 0:15:38.880 we see not just in not just. 0:15:38.840 --> 0:15:41.080 An investment, right, we see that across the board. What 0:15:41.200 --> 0:15:43.040 might make them return to us? 0:15:43.800 --> 0:15:46.400 Well, like I say, unfortunately, some of it is fomo, 0:15:46.680 --> 0:15:48.440 so some of it is just needs to be the 0:15:48.440 --> 0:15:50.760 fear of missing out. We also have some long only 0:15:50.800 --> 0:15:53.200 funds that tell us. One of my colleagues pull Marriage, 0:15:53.280 --> 0:15:56.520 was seeing an investor only the other week and that 0:15:56.520 --> 0:15:58.320 investor said, well, I'm very happy to miss the first 0:15:58.320 --> 0:16:01.520 twenty five percent of a move. So sometimes that's the 0:16:01.520 --> 0:16:04.240 way that people want to move, and unfortunately people are 0:16:04.320 --> 0:16:06.600 trend followers and that may well be the case that 0:16:06.640 --> 0:16:10.720 we need that just that performance. I think changes from 0:16:11.040 --> 0:16:13.840 pension reforms, from the brit Isser, all of these things 0:16:13.840 --> 0:16:17.320 are great sentiment helpers. And actually I think the other 0:16:17.360 --> 0:16:20.880 point that we probably need to see is just people 0:16:20.960 --> 0:16:23.760 actually starting to look at value again and understanding what 0:16:23.880 --> 0:16:27.480 valuations mean in investing. The market has been very driven 0:16:27.560 --> 0:16:32.280 by momentum, earnings upgrades and almost wanting to buy growth 0:16:32.280 --> 0:16:36.440 at any cost. But at some point valuation does matter 0:16:37.440 --> 0:16:39.760 and that's what corporates are telling you. That's why they're 0:16:39.760 --> 0:16:42.800 buying these companies. And as we see interest rates hopefully 0:16:42.840 --> 0:16:45.560 started to move down in the UK, it seems like 0:16:45.600 --> 0:16:49.200 the UK economy is slightly different now from the US 0:16:49.280 --> 0:16:51.200 quite possible. We don't see rate cuts in the US, 0:16:51.240 --> 0:16:53.400 but we probably will see them in the UK. We 0:16:53.440 --> 0:16:55.320 think we probably get one in June, and that may 0:16:55.400 --> 0:16:57.760 well just bring people back to the UK a little 0:16:57.760 --> 0:16:58.280 bit as well. 0:16:58.560 --> 0:17:01.040 They will get one and do even with those rather 0:17:01.040 --> 0:17:03.040 than nice GDP now as we had the other day, 0:17:03.320 --> 0:17:04.960 showing that actually things are so badly. 0:17:05.040 --> 0:17:06.920 Economy is barreling along rather pleasantly. 0:17:07.840 --> 0:17:10.520 I think so, And the signaling from the NPC I 0:17:10.520 --> 0:17:13.280 thought last week was probably that we do still get 0:17:13.280 --> 0:17:17.160 one in June. I don't think it matters too much 0:17:17.200 --> 0:17:19.600 whether we get one in June or slightly later in 0:17:19.640 --> 0:17:21.720 the year. The main thing is that I think there's 0:17:21.720 --> 0:17:24.000 a very clear signaling now in the UK market that 0:17:24.119 --> 0:17:27.000 rates have peaked and the next move will be downwards. 0:17:27.080 --> 0:17:29.520 And when you look at the correlations of the Footsy 0:17:29.560 --> 0:17:33.439 two to fifty, particularly to rate expectations, and it's very strong. 0:17:33.520 --> 0:17:36.560 So if we start as those rate expectations come down, 0:17:36.760 --> 0:17:39.359 we see the Footsie two fifty starting to form really 0:17:39.440 --> 0:17:41.720 quite strongly. So I think that boats quite well for 0:17:41.720 --> 0:17:45.160 the domestic parts of the market, and maybe a broadening 0:17:45.200 --> 0:17:47.680 out of this rally that we've seen, which has actually 0:17:47.760 --> 0:17:52.080 been pretty narrow so far. It's been very driven by banks, 0:17:52.080 --> 0:17:55.359 miners and oils, and we would see that broadening out 0:17:55.359 --> 0:17:58.520 more into the Footsy two fifty as those expectations of 0:17:58.600 --> 0:18:00.840 rate cuts start getting priced into the market. 0:18:01.440 --> 0:18:05.879 Okay, so let's let's talk about where you're actually invested there. Now, 0:18:05.960 --> 0:18:09.320 you say that your your market neutral and you're set 0:18:09.400 --> 0:18:13.439 in neutral way of no specific adherence to any any favoraus, 0:18:13.440 --> 0:18:16.000 sectors or anything like that. So your pure stock pick 0:18:16.160 --> 0:18:19.760 is so where are you? Where are you finding the value? 0:18:19.800 --> 0:18:20.639 What is interesting? 0:18:21.040 --> 0:18:24.000 We do think the banks have been interesting for a while. 0:18:24.440 --> 0:18:26.560 We were a bit early into it into last year, 0:18:26.600 --> 0:18:30.360 but we still think that West Has is a fantastic business. 0:18:31.000 --> 0:18:34.840 It's got great opportunities. It's now growing its tangible and 0:18:34.920 --> 0:18:39.000 asset value. You've got the structural hedge which will have 0:18:39.080 --> 0:18:41.560 some meaningful impact on the on the P and L 0:18:41.600 --> 0:18:42.159 this year. 0:18:42.320 --> 0:18:44.760 Stop stop, go back structural hedge. 0:18:45.160 --> 0:18:48.480 So this is basically the way banks manage their balance sheets, 0:18:48.520 --> 0:18:52.840 so how they fund themselves, and that means that as 0:18:53.080 --> 0:18:57.199 interest rates expectations change and come down, that hedge starts 0:18:57.240 --> 0:19:00.560 paying them money. In simple terms, so we think at 0:19:00.640 --> 0:19:03.960 Thatwest it's about three hundred million pounds of profit a 0:19:04.040 --> 0:19:07.399 year generated from essentially the balance sheet where they have 0:19:07.480 --> 0:19:10.000 a fixed leg and a variable leg on their balance sheet. 0:19:10.080 --> 0:19:12.359 It's been a big negative impact on the P and 0:19:12.480 --> 0:19:15.040 L while rates go up, and it becomes supportive to 0:19:15.080 --> 0:19:17.000 the P and L as rates fall. 0:19:17.320 --> 0:19:19.240 Okay, so if rates don't fall, if. 0:19:19.200 --> 0:19:22.359 Rates don't fall, it will have a net zero benefit 0:19:22.400 --> 0:19:25.000 to that. You know, we won't impact. But as time 0:19:25.080 --> 0:19:27.520 moves on, you have some of that old leg of 0:19:27.560 --> 0:19:30.040 the P and L which was funded at very low 0:19:30.119 --> 0:19:33.160 rates that starts to roll off. So even if rates 0:19:33.160 --> 0:19:36.160 don't fall, just the passage of time benefits the balance 0:19:36.240 --> 0:19:36.800