WEBVTT - Under-the-Radar Growth 0:00:13.840 --> 0:00:17.439 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.560 --> 0:00:21.040 My name is Mike Reagan. I'm a senior editor at Bloomberg, 0:00:21.720 --> 0:00:23.760 and this week on the show, well, if you look 0:00:23.760 --> 0:00:26.160 at the leadership of the stock market in the second 0:00:26.239 --> 0:00:34.599 quarter so far, it's sort of a classic defensive leadership, healthcare, Utilities, Technology. Wait, technology, 0:00:35.080 --> 0:00:37.559 has the delta variant gotten so bad that tech is 0:00:37.560 --> 0:00:41.120 defensive again? Or were we crazy simply to ever think 0:00:41.200 --> 0:00:44.120 that tech would fall off the market's leaderboard for very long. 0:00:44.159 --> 0:00:46.680 To begin with, we'll get into it with a portfolio 0:00:46.760 --> 0:00:50.120 manager and tech analyst, but first I want to welcome 0:00:50.479 --> 0:00:53.800 back to the show a woman who there's a bit 0:00:53.840 --> 0:00:56.400 of mystery to her, but she's no stranger to our 0:00:56.440 --> 0:00:59.680 our listeners here on What Goes Up. She's coming back 0:00:59.720 --> 0:01:04.280 for another co hosting gig. Her name is Vildonna Hirich. Vildonna, 0:01:04.400 --> 0:01:08.399 welcome back. Thanks for having me. And since you are known, 0:01:08.400 --> 0:01:11.959 you don't get the Charlie Pellett introduction treatment. I'm sorry 0:01:11.959 --> 0:01:15.039 about that, but next time I'll definitely expect it. But 0:01:15.080 --> 0:01:17.440 I'm glad to have you on, Vildona because as a 0:01:17.560 --> 0:01:20.640 proud New Jersey native like yourself, it's a big week 0:01:20.680 --> 0:01:23.480 for New Jersey women in the Olympics. Are you as 0:01:23.480 --> 0:01:25.960 excited as I am about all these gold medals that 0:01:25.959 --> 0:01:28.160 that the great state of New Jersey is winning. I'm 0:01:28.240 --> 0:01:31.200 hugely excited. And my household was like cheering and so 0:01:31.240 --> 0:01:34.240 excited all week. And a thing move is from Trenton. 0:01:34.520 --> 0:01:36.640 I'm from Trenton, so I was really really excited to 0:01:36.640 --> 0:01:39.480 see her win, right, I don't forget Sidney McLaughlin right 0:01:39.480 --> 0:01:43.040 down the road for me. Yeah, very exciting. Vildona, if 0:01:43.080 --> 0:01:45.200 you were in the Olympics, what would you be taking 0:01:45.200 --> 0:01:49.000 gold medal in? Oh my gosh, that's I mean not 0:01:49.240 --> 0:01:52.520 I'm like not athletic at all. I can't even picture 0:01:53.600 --> 0:01:55.680 some of the things they do, Like hurdles. I can't 0:01:55.680 --> 0:01:58.440 even picture anybody ever looking at one and thinking I'm 0:01:58.440 --> 0:02:01.160 going to jump over that, let alone jump over it 0:02:01.320 --> 0:02:04.800 very very quickly. So I'm a big fan. I'm a 0:02:04.800 --> 0:02:06.320 big fan of the hurdles, and I'm a big fan 0:02:06.360 --> 0:02:09.280 of the Jamaican team, even though not as big of 0:02:09.280 --> 0:02:11.200 a fan as the New Jersey Condensed of the Olympic. 0:02:11.280 --> 0:02:14.560 But the Jamaican track team is so so athletic. Well, Donna, 0:02:14.600 --> 0:02:17.240 you would win gold in the Craziest Things of the Olympics, 0:02:17.240 --> 0:02:19.919 though I will say the craziest things. If there was 0:02:19.960 --> 0:02:22.480 an event for craziest things in the markets in a week, 0:02:22.560 --> 0:02:25.640 you would win the gold. And I will say, anyone 0:02:25.639 --> 0:02:27.800 else who out there has seen something crazy, by all means, 0:02:27.800 --> 0:02:30.720 give us a call on the Bloomberg Podcast hotline. I've 0:02:30.720 --> 0:02:33.240 been very negligent and not giving out the number for 0:02:33.320 --> 0:02:36.240 several episodes, but by all means, call us up at 0:02:36.280 --> 0:02:40.320 six four six three to four three four nine zero. 0:02:40.440 --> 0:02:43.399 Again that's six four or six three two four three 0:02:43.480 --> 0:02:45.880 four nine zero. Our lines are open. As they say 0:02:45.919 --> 0:02:47.720 on radio, I think I don't know something like that, 0:02:48.040 --> 0:02:50.360 but I leave us a voicemail on the hotline with 0:02:50.440 --> 0:02:52.919 the craziest thing you saw on markets and maybe we'll 0:02:52.919 --> 0:02:56.240 play it on the show. Well down, another proud New 0:02:56.280 --> 0:02:58.320 Jersey and I believe at least his firm is located 0:02:58.440 --> 0:03:01.240 in New Jersey is this week's guest. As I said, 0:03:01.280 --> 0:03:05.079 he's a portfolio manager at Harding Lovener. His name is 0:03:05.160 --> 0:03:08.480 Chris Mack. Chris, welcome to the show, Thanks Mike, and 0:03:08.600 --> 0:03:11.960 yes you're right New Jersey born and raised, so absolutely 0:03:12.160 --> 0:03:15.000 Jersey roots here and a leaf yet grad to boot 0:03:15.000 --> 0:03:18.400 which is kind of like almost New Jersey esque in 0:03:18.440 --> 0:03:21.919 Pennsylvania right over the river. Uh, kind of a rival 0:03:21.960 --> 0:03:23.880 to my Delaware Blue Hens. But I'm not gonna I'm 0:03:23.880 --> 0:03:27.120 not gonna get on your case about that. That's okay. 0:03:27.360 --> 0:03:29.360 And movie Hi is the only rivalry that counts. B 0:03:30.040 --> 0:03:33.160 That's that's true. I can't compete with you all in football, 0:03:33.240 --> 0:03:36.200 but we've we've gotten uh so yeah, I'll pretend it's 0:03:36.200 --> 0:03:40.520 a rivalry basketball. So it's a decent mashup sometimes. But 0:03:40.520 --> 0:03:42.160 but Chris, let's get into it. I know you have 0:03:42.280 --> 0:03:45.880 a pretty heavy tech focus at your firm and the 0:03:45.880 --> 0:03:49.280 funds you helped manage um. What is going on with 0:03:49.360 --> 0:03:51.480 tech being back in the leadership? I think the simple 0:03:51.920 --> 0:03:55.640 explanation narrative is that everyone's worried about the virus again. 0:03:55.680 --> 0:03:58.080 But as I said in the intro, I mean, did 0:03:58.120 --> 0:04:00.440 it ever make sense to sort of bet again this tech? 0:04:00.600 --> 0:04:03.600 I mean, is is it just a perennial leader that 0:04:03.640 --> 0:04:06.640 we should kind of always look to an absence of 0:04:06.720 --> 0:04:10.120 some other reason for say, the cyclical stop performed? How 0:04:10.160 --> 0:04:11.880 are you thinking about just the sector as a whole 0:04:11.960 --> 0:04:14.600 right now? Sure? Yeah, and you know, we could talk 0:04:14.640 --> 0:04:17.120 about maybe since the pandemic or even some of the 0:04:17.120 --> 0:04:20.560 trends that have been taking on a longer term perspective. 0:04:21.000 --> 0:04:23.720 You know, it's interesting about technology, and I think you 0:04:23.880 --> 0:04:26.560 mentioned in your comments earlier you start talking about cyclical 0:04:26.680 --> 0:04:29.200 or defensive, right, And if you look at the how 0:04:29.360 --> 0:04:33.360 the the the sector has evolved in terms of index representation, 0:04:33.880 --> 0:04:36.919 software has become a much much larger percentage of the 0:04:36.920 --> 0:04:39.760 index as opposed to go way back when it's much 0:04:39.800 --> 0:04:44.560 more hardware. Semiconductor is pretty strong, so you know, and 0:04:44.640 --> 0:04:47.680 even software as a whole has because their business model 0:04:47.680 --> 0:04:50.080 has shifted, right, a little bit more of recurring revenue, 0:04:50.400 --> 0:04:54.440 less counting on cyclical launches of versions of software, a 0:04:54.480 --> 0:04:57.839 little bit less CAPEX intensive, right, and so it has 0:04:57.880 --> 0:05:00.080 become a little bit more at the margin defense to 0:05:00.320 --> 0:05:03.680 your point, But when you look back over the past year, 0:05:04.000 --> 0:05:06.719 it's been different segments leading tech. There was a period 0:05:06.720 --> 0:05:08.840 of time when it was all about the semiconductor shortage 0:05:09.120 --> 0:05:11.640 and that cyclical rebound, and so semis were leading the 0:05:11.640 --> 0:05:14.719 way you go back last year it was more about 0:05:14.760 --> 0:05:18.560 software and digitalization of everything, um and then you know, 0:05:18.600 --> 0:05:22.279 particularly smaller cap software where maybe these companies are not 0:05:22.360 --> 0:05:25.000 yet profitable that they're growing really fast because they're acquiring 0:05:25.160 --> 0:05:28.200 users and can come more profitable more quickly. Um. So 0:05:28.240 --> 0:05:32.440 it's been different, different turns in leadership. One point, small 0:05:32.520 --> 0:05:36.320 caps semiconductors, now back to the big tech, which, to 0:05:36.360 --> 0:05:39.880 your points, a little bit more defensive. Chris, I remember 0:05:39.960 --> 0:05:44.080 last year when people positioning in tech companies actually was 0:05:44.200 --> 0:05:47.800 signaling that potentially we could be seeing a much longer 0:05:47.839 --> 0:05:51.279 time period of the recovery from the pandemic. But I 0:05:51.320 --> 0:05:53.800 also wanted to ask you if you could maybe tell 0:05:53.920 --> 0:05:57.839 us a bit more about your top holdings, because I 0:05:57.880 --> 0:06:00.320 think you guys owned some things, but then the same 0:06:00.320 --> 0:06:03.920 time you also own some regional banks, which, uh is 0:06:04.040 --> 0:06:06.600 an interesting play given what's going on with interest rates. 0:06:06.600 --> 0:06:08.200 So maybe you can tell us a bit more about 0:06:08.200 --> 0:06:10.640 how you guys are positioning. Sure, and it kind of 0:06:10.640 --> 0:06:12.920 gets too I guess you would say, the debts. Okay, 0:06:12.920 --> 0:06:15.640 what are we doing? Uh? You know, we we take 0:06:15.680 --> 0:06:19.000 a look at businesses. We look at combination of quality 0:06:19.000 --> 0:06:22.200 of the business, the profitability, growth, and then lastly valuation. 0:06:22.520 --> 0:06:25.520 So evaluation tends to dictate where we move. So tech 0:06:25.560 --> 0:06:29.200 has been a structural large weight for us health care 0:06:29.240 --> 0:06:31.640 as well. Um, we'll touch on that a little bit later, 0:06:31.680 --> 0:06:34.120 but I'll get to your point on banks. Uh, we 0:06:34.200 --> 0:06:37.120 are relativity index overweight on banks has become a larger 0:06:37.480 --> 0:06:40.280 position for US. But it's not been so much a 0:06:40.279 --> 0:06:43.520 cyclical trade, if you will. It's been much more about 0:06:43.600 --> 0:06:46.400 how are we finding under the radar growth financials that 0:06:46.440 --> 0:06:49.800 are able to grow irrespective of what interest rates are 0:06:49.800 --> 0:06:51.800 going to happen. Right. So example of that is a 0:06:51.839 --> 0:06:54.800 company like First Republic, which is a big holding for US. 0:06:55.160 --> 0:06:59.840 They're primarily growing a lot of relationship wise through refer 0:07:00.000 --> 0:07:05.080 calls um fee based income from from wealth management advice. Uh, 0:07:05.200 --> 0:07:07.920 So that is a little bit less dependent upon what's 0:07:07.920 --> 0:07:10.120 happening with interest rates. It will certainly help them too, 0:07:10.960 --> 0:07:13.000 but you know, if you look back, seventy percent of 0:07:13.040 --> 0:07:16.880 their growth has been coming from existing customers uh and 0:07:16.960 --> 0:07:19.200 just growing their wealth over time. So there's a certain 0:07:19.240 --> 0:07:21.800 element here that that's not relying on any particular cycle. 0:07:23.520 --> 0:07:26.320 Those are those are kind of financials that appeal to us. 0:07:26.400 --> 0:07:28.760 I was looking at those holdings to it's it's fascinating 0:07:28.800 --> 0:07:32.680 to me. So First Republic and SVB Financial what I 0:07:33.440 --> 0:07:35.600 find I guess it's not funny. But I kind of 0:07:35.600 --> 0:07:37.640 find it funny is that these are stocks that are 0:07:37.680 --> 0:07:40.360 in both value and growth indexes. So it's kind of 0:07:40.360 --> 0:07:43.880 like everyone's deciding to rotate from growth growth to value 0:07:43.880 --> 0:07:45.440 A why not by the ones that are that are 0:07:45.440 --> 0:07:48.320 in both indexes? But I mean, when you think about it, 0:07:48.360 --> 0:07:51.920 is that almost a viable strategy? What? As you said, 0:07:51.920 --> 0:07:54.320 what are the growth stocks that are that are priced 0:07:54.320 --> 0:07:56.800 like value stocks in a way. I mean, it seems 0:07:57.280 --> 0:08:01.320 you know, that's the conversation that doesn't get brought into 0:08:01.320 --> 0:08:04.840 the growth value roots rotation. It seems like, yeah, no, 0:08:04.880 --> 0:08:06.680 that's absolutely true. And I think that's so I think 0:08:06.680 --> 0:08:08.960 this a lot of times it's framed there's this false 0:08:09.000 --> 0:08:11.400 dichonomy is it growth or is it value? And there's 0:08:11.440 --> 0:08:13.480 there could be quite a little overlap. You look at 0:08:13.840 --> 0:08:17.600 historically companies like Apple that have been in both UH 0:08:17.680 --> 0:08:20.480 and you so so there's this this false conception and 0:08:20.520 --> 0:08:22.280 you have to pick more or the other. And so 0:08:22.360 --> 0:08:24.880 we're looking for growth, but just reasonably price growth, and 0:08:24.920 --> 0:08:27.280 sometimes that leads us into something that's more value esque. 0:08:28.120 --> 0:08:29.960 But then you know, even think take the case for 0:08:30.080 --> 0:08:35.680 value today, there it's it's about could value stock could 0:08:35.679 --> 0:08:38.520 the underlying businesses grow more quickly coming out of the 0:08:38.520 --> 0:08:40.880 pandemic then the growth businesses that are trading out of 0:08:40.920 --> 0:08:44.520 premium right. Um So even even the value case has 0:08:44.559 --> 0:08:48.000 got some element of growth to it. UM. So for us, 0:08:48.040 --> 0:08:50.160 the lines blur. It's really looking at what are the 0:08:50.200 --> 0:08:54.400 strongest position businesses within their industries, Uh, you know, where 0:08:54.400 --> 0:08:57.439 the where the structure is the strongest um and then 0:08:57.480 --> 0:09:00.520 less than looking at that valuation. So financials paired with 0:09:00.600 --> 0:09:03.480 technology makes a lot of sense to us. Um even 0:09:03.480 --> 0:09:05.800 if you know you could have a financial related technology 0:09:05.800 --> 0:09:08.400 company like in payments, like PayPal, which is one of 0:09:08.400 --> 0:09:12.679 our larger holdings. Um. You know, given digital payments and 0:09:12.679 --> 0:09:16.320 and so on, um And so combining that with healthcare 0:09:16.360 --> 0:09:20.000 for example, and a decent amount of industrials with some 0:09:20.040 --> 0:09:23.920 cyclical exposure. That's the way we're navigating this current environment. 0:09:23.960 --> 0:09:26.960 Because we can't predict what's happening with the delta variant. 0:09:27.640 --> 0:09:29.800 We don't know what's going to happen with interest rates. 0:09:30.040 --> 0:09:32.080 I could certainly give you my opinion, but I could 0:09:32.160 --> 0:09:35.080 wouldn't put a whole lot of weight in that opinion. 0:09:35.160 --> 0:09:37.280 So how do we manage those uncertainties is through a 0:09:37.280 --> 0:09:50.200 globally diversified portfolio. I'm glad you brought up the delta 0:09:50.280 --> 0:09:52.080 variant again because I wanted to ask you how you 0:09:52.120 --> 0:09:54.360 and your team are thinking about what's been going on 0:09:54.520 --> 0:09:57.720 and in terms of what the bond market is signaling. 0:09:57.960 --> 0:10:00.600 That's it signal that potentially we could have a slower 0:10:00.640 --> 0:10:03.960 growth environment or are some of the signals from the 0:10:03.960 --> 0:10:06.600 bond market a bit more technical in nature. How are 0:10:06.640 --> 0:10:08.400 you thinking about it? And how much of a threat 0:10:08.720 --> 0:10:14.439 is the delta variant to growth and growth propects us? 0:10:14.480 --> 0:10:16.760 Certainly a threat, and I think when it goes back 0:10:16.760 --> 0:10:22.760 to thinking about the pandemic recovery and vaccinations globally and 0:10:23.160 --> 0:10:26.440 just this notion that okay, certainly not every country is 0:10:26.480 --> 0:10:29.240 able to get either access to the vaccinations, are able 0:10:29.280 --> 0:10:32.800 to distribute them broadly enough that we have this uneven 0:10:32.840 --> 0:10:36.240 recovery if it's all about just the pandemic, right, And 0:10:36.280 --> 0:10:38.520 so that's already been coming into play. Now the delta 0:10:38.600 --> 0:10:40.560 variant just brings it home to roost, and now it 0:10:40.559 --> 0:10:43.360 comes home here in the US. That is threatening because 0:10:43.480 --> 0:10:45.360 vaccinations didn't quite get to the level that we had 0:10:45.400 --> 0:10:47.920 all been hoping for, and so now it just makes 0:10:47.960 --> 0:10:50.960 everyone tap the brakes again. So if you think about 0:10:51.040 --> 0:10:54.200 the whole case for you know, the higher interest rates, 0:10:54.440 --> 0:10:56.959 it gets back to this, what's going to happen with inflation? Right? 0:10:57.000 --> 0:11:00.400 And to what extent are Yeah, we have this stronger 0:11:00.440 --> 0:11:03.840 demand coming out of the pandemic because fortunately it wasn't 0:11:03.880 --> 0:11:05.839 as damaging as it could have been. You also had 0:11:05.880 --> 0:11:10.199 some flancial you know, economic incentive packages that have helped 0:11:10.240 --> 0:11:13.760 out there. Uh ease the blow if you will, um, 0:11:13.840 --> 0:11:17.079 but you know, trying to get the supply up and running. 0:11:17.080 --> 0:11:19.079 We see it in a semi connector sector for example, 0:11:19.200 --> 0:11:22.760 right or semi connector industry or building look at the 0:11:22.760 --> 0:11:25.560 price of you know, of building materials and what's happened. 0:11:25.880 --> 0:11:27.840 So we had this period we're up until May, everyone 0:11:27.880 --> 0:11:31.160 was anticipating inflation, and then that great CPI number comes 0:11:31.160 --> 0:11:32.920 in and you could see some of these you know, 0:11:32.960 --> 0:11:36.200 timber prices and everything just roll over right, And so 0:11:36.640 --> 0:11:39.560 I think everything would point to the FED being on 0:11:39.600 --> 0:11:41.680 the right path and saying that it is it will 0:11:41.720 --> 0:11:45.720 be transient. If you ask me, um, question is how 0:11:45.760 --> 0:11:49.280 long is transient? Because it's certainly these things are bottled 0:11:49.360 --> 0:11:51.800 up and it's some haven't come down the Pike yet right, 0:11:52.360 --> 0:11:54.640 it's gonna take some time for the semi connector shortage 0:11:54.920 --> 0:11:57.080 to ease. You know that there's gonna be more demand 0:11:57.160 --> 0:11:59.920 for sem reason things like autos and you know, tried 0:12:00.000 --> 0:12:04.440 buying an auto, trying running a car right now, it's impossible. Um, 0:12:04.559 --> 0:12:06.080 And so that's going to take some time for that 0:12:06.120 --> 0:12:09.559 manufacturing supply chain to to to respond. And then if anything, 0:12:09.600 --> 0:12:11.680 you go into next year, hey, maybe we are going 0:12:11.720 --> 0:12:14.880 to swing on the other side over capacity and back 0:12:14.920 --> 0:12:18.480 into the story of deflation and everything else that has 0:12:18.480 --> 0:12:22.760 been such a technology lead thing through digitalization. So a 0:12:22.800 --> 0:12:27.360 bit you know going on there. But um, to your point, Yeah, 0:12:27.360 --> 0:12:30.840 if you look at the tenure yield on treasury that's 0:12:31.280 --> 0:12:33.040 rolled up, you wouldn't have thought any of this has happened, 0:12:33.120 --> 0:12:37.880 right back to the old big tech deflation type trade. Uh. 0:12:37.920 --> 0:12:40.600 And you know, so there's no way of knowing exactly 0:12:40.600 --> 0:12:43.280 what's gonna happen in the future. I would argue that 0:12:43.640 --> 0:12:47.120 the longer term past is much more likely than the 0:12:47.200 --> 0:12:49.960 more recent past that seems to be more temporary nature 0:12:50.040 --> 0:12:53.199 due to pandemic related effects. Every time I hear the 0:12:53.240 --> 0:12:55.360 word transy and I think of those old hoboes that 0:12:55.480 --> 0:12:57.480 used to wander around with like the stick and the 0:12:57.600 --> 0:12:59.000 and the bag on the end of the stick and 0:12:59.080 --> 0:13:00.760 ride in the rails. Anyway, thats just me that that 0:13:00.880 --> 0:13:04.200 that's neither that's neither here nor there. But Chris I 0:13:04.360 --> 0:13:06.920 said something early on that I think is so important. 0:13:06.960 --> 0:13:12.200 You know that there's so many different subsectors within technology UM. 0:13:12.240 --> 0:13:15.520 You know, obviously they've tried to sort of break out, 0:13:15.559 --> 0:13:18.360 you know, the the Amazons and the facebooks and the 0:13:18.360 --> 0:13:21.079 Googles out of the main tech index and put them 0:13:21.080 --> 0:13:25.800 in discretionary or communications. I think there's an argument to 0:13:25.840 --> 0:13:28.199 be made that maybe the index providers could do that again, 0:13:28.480 --> 0:13:31.520 maybe a couple of times, and break up hardware and whatever. 0:13:31.559 --> 0:13:37.440 But specifically thinking about chip stocks, you know, the fascinating 0:13:37.440 --> 0:13:40.360 thing to me is this shortage of chips this year 0:13:41.360 --> 0:13:45.120 exposed the reality that basically every company, what company is 0:13:45.160 --> 0:13:48.240 not at at its core somehow exposed the tech these days. 0:13:48.280 --> 0:13:50.840 I mean, if you can't, if you can't build up 0:13:50.880 --> 0:13:54.600 an automobile without the supply of chips, uh, you know, 0:13:55.400 --> 0:13:57.760 it's just remarkable, and on up and down the line. 0:13:57.760 --> 0:14:02.480 Financial companies UM are in large sense mostly technology companies. 0:14:02.520 --> 0:14:06.080 These days, but specifically with chips. It's been such a 0:14:06.160 --> 0:14:10.080 shocking year for the chip sector with these shortages and 0:14:10.120 --> 0:14:13.880 the ripple effects caused by them. In your mind, does 0:14:13.920 --> 0:14:17.280 it seem like like a sort of tipping point type 0:14:17.280 --> 0:14:19.960 of event that will change the industry forever? In other words, 0:14:20.040 --> 0:14:22.560 will we sort of get away from that just in 0:14:22.640 --> 0:14:25.920 time type of manufacturing uh, that so many companies had 0:14:26.000 --> 0:14:30.840 relied on. Uh? Can we actually expect some foundries in 0:14:30.880 --> 0:14:34.160 the US at some point? I mean, and more companies 0:14:34.240 --> 0:14:37.280 you know talking about you know, fabricating their own ships 0:14:37.360 --> 0:14:39.280 or is that is that kind of a pipe dream? 0:14:39.320 --> 0:14:41.920 I mean, it's so expensive to to to get into 0:14:41.960 --> 0:14:44.800 that game. How do you see that all playing out? 0:14:44.960 --> 0:14:48.280 Sort of as a long term effect of everything we've 0:14:48.280 --> 0:14:53.280 seen in the past year. Yeah, on a longer term view, Um, 0:14:53.320 --> 0:14:56.280 you know, I think over time there is that potential 0:14:56.960 --> 0:15:00.480 that you do have a broader manufacturing footprint as it 0:15:00.520 --> 0:15:03.520 becomes more strategic. But to your point, it's easier said 0:15:03.520 --> 0:15:06.400 than done, right, It's very it's only becoming more and 0:15:06.480 --> 0:15:10.840 more and more expensive to manufacturers smaller and smaller chips, uh, 0:15:10.880 --> 0:15:13.600 and certain transistors, and so if you look at how 0:15:13.680 --> 0:15:17.640 someone like Taiwan Semiconductor. It's also holding of ours has 0:15:17.720 --> 0:15:20.760 become so dominant. Uh, it's in part because of these 0:15:20.760 --> 0:15:24.040 economies of scale that a crew and the expertise for 0:15:24.080 --> 0:15:26.680 them operating this foundry model, which if you go way 0:15:26.680 --> 0:15:30.440 back when companies used to produce their own chips here 0:15:30.440 --> 0:15:32.840 in the US for example, UH, and then they decided 0:15:32.880 --> 0:15:35.440 to outsource them. Why they outsource them because of the 0:15:35.520 --> 0:15:40.560 volatility in cycles made it very costly endeavor for them 0:15:40.600 --> 0:15:43.040 to predict. So you you would bear the brunt of 0:15:43.080 --> 0:15:45.000 all this capital expenditure and then a few time the 0:15:45.040 --> 0:15:47.720 cycle wrong, you take the financial hit. So working with 0:15:47.760 --> 0:15:51.160 someone like a Time one semiconductor outsourcing that manufacturing, that 0:15:51.240 --> 0:15:53.840 company is able to now diversify across all the different 0:15:53.880 --> 0:15:56.440 end markets and their customers that they have, and they 0:15:56.440 --> 0:15:59.760 could soften the blow and run much more profitable model 0:15:59.760 --> 0:16:02.160 over time that allows them to continue investing in cathotics 0:16:02.160 --> 0:16:04.920 and so on and so forth. Um, So you know, 0:16:05.000 --> 0:16:07.200 I think you're they're going to try to there's certainly 0:16:07.200 --> 0:16:09.640 more government incentives to try to do for them to 0:16:10.160 --> 0:16:13.760 manufacture elsewhere, whether it's in the US. Europe is also 0:16:13.840 --> 0:16:16.680 talking the same type of thing. What does it change 0:16:16.760 --> 0:16:20.600 longer term. I'm not sure it changes too much. Um. 0:16:20.640 --> 0:16:22.000 I think at the end of the day comes back 0:16:22.080 --> 0:16:26.360 to industry structure. Yeah, it comes back to you know, 0:16:26.400 --> 0:16:29.360 who are the who. I think you're seeing more customization 0:16:29.760 --> 0:16:32.680 and chips for things like artificial intelligence, Google design their 0:16:32.680 --> 0:16:36.400 own ships, Amazon, Apple, and that only fragments the end market, 0:16:36.400 --> 0:16:39.840 which gives more strength to the end manufacturer at the 0:16:39.920 --> 0:16:59.400 end of the day. Yeah, Chris, I wanted to ask 0:16:59.400 --> 0:17:01.160 you about small caps. I know one of the funds 0:17:01.160 --> 0:17:03.480 you helped manage is A is a small cap fund, 0:17:03.640 --> 0:17:06.040 and we talk about the rugs sort of getting pulled 0:17:06.040 --> 0:17:08.960 out of that as an asset class. Um. You know, 0:17:08.960 --> 0:17:10.960 it was supposed to be one of the big beneficiaries 0:17:11.200 --> 0:17:16.159 of the reopening, the reflation trade, and that's kind of uh, 0:17:16.359 --> 0:17:19.200 you know, the that's kind of turned around. I mean, 0:17:19.200 --> 0:17:24.320 I guess, um, when you're an active manager, it's arguably 0:17:24.320 --> 0:17:27.560 easier to to navigate than when you know you're buying 0:17:27.640 --> 0:17:31.400 just the two thousand index, the Russell two thousand index. Um. 0:17:31.600 --> 0:17:34.960 But what is your thinking about small caps as an 0:17:34.960 --> 0:17:37.119 asset class right now? I mean where how are you 0:17:37.160 --> 0:17:41.200 sort of sifting through everything and finding finding the best, 0:17:41.280 --> 0:17:45.600 most promising companies given this turnaround we've seen in the 0:17:45.600 --> 0:17:51.480 the index level small cap situation. Yeah, so if anything, so, yeah, 0:17:51.560 --> 0:17:54.520 it's an interesting environment for us as being more growth 0:17:54.560 --> 0:18:00.440 for focused Uh, the headwind that the effects value simpall 0:18:00.520 --> 0:18:03.840 cap value in particular was outperforming growth by a wide 0:18:03.840 --> 0:18:08.480 margin um and so we benefited from the growth tail 0:18:08.560 --> 0:18:10.479 end last year and then we're suffering a little bit 0:18:10.480 --> 0:18:12.960 from it this year. So the fact you know, seeing 0:18:13.000 --> 0:18:15.960 somewhere all over, we're not complaining too much about that, 0:18:16.040 --> 0:18:19.480 but as that's happened, it's given us opportunities to look at, 0:18:19.920 --> 0:18:22.560 you know, smaller growth companies that have been left behind. 0:18:22.880 --> 0:18:25.399 Like one of the areas that's kind of interesting is 0:18:26.200 --> 0:18:30.760 us specialty retail. There's a lot of talk that you know, 0:18:30.800 --> 0:18:33.159 it's just an Amazon world. It's all e commerce, right, 0:18:33.160 --> 0:18:36.479 And there's some small companies or smaller companies that are 0:18:36.520 --> 0:18:39.080 interesting that we own in the in the all cap fund, 0:18:39.720 --> 0:18:41.520 like an Etsy for example, that used to be a 0:18:41.520 --> 0:18:44.080 small cap and now it's no longer. But there are 0:18:44.119 --> 0:18:47.840 brick and mortar retailers that are doing okay in this environment. 0:18:47.880 --> 0:18:51.000 They're managing that, they're growing their stores, they are taking 0:18:51.040 --> 0:18:54.520 advantage of the disruption from the pandemic and the weak 0:18:54.640 --> 0:18:59.359 weaker financial strength of competitors to acquire more land and 0:18:59.440 --> 0:19:02.520 real estate and build and so some examples companies that 0:19:02.560 --> 0:19:07.280 are doing that. Company Ali's allis discount retail. They're growing 0:19:07.320 --> 0:19:10.800 their stores year every year. UM. They've actually been able 0:19:10.800 --> 0:19:13.680 to They have this discount model where you know, people 0:19:13.680 --> 0:19:15.359 are always still there's a really there's a reason to 0:19:15.440 --> 0:19:19.760 visit the store every day. They have a loyalty system UM, 0:19:19.800 --> 0:19:21.439 and so they've been able to grow their customers in 0:19:21.480 --> 0:19:24.840 part because through the pandemic they've were able to sell 0:19:24.960 --> 0:19:28.720 more UM essential items, cleaning products and so on, but 0:19:28.760 --> 0:19:30.880 they offer other things and so they have a good 0:19:30.880 --> 0:19:32.560 buying that we're kind of like a small t J 0:19:32.760 --> 0:19:36.560 mat Max if you will. UM. Another one is five below, 0:19:37.160 --> 0:19:42.480 this little niche targeting that teenage tween type segment with 0:19:42.600 --> 0:19:46.040 quirky different things at a reason you know, but at 0:19:46.280 --> 0:19:49.199 they're occupying this niche that is something that people go 0:19:49.280 --> 0:19:52.879 for that experience and it's not an Amazon type world. 0:19:53.280 --> 0:19:55.600 It's a different type of buyer and people look forward 0:19:55.600 --> 0:19:57.679 to going to that store. And they've been able to 0:19:57.680 --> 0:20:01.359 survive and then thrive through it too, So you know 0:20:01.400 --> 0:20:04.280 the answer to your question is just being very careful 0:20:04.400 --> 0:20:07.840 looking for insisting very strongly on that financial strength because 0:20:07.880 --> 0:20:10.439 we don't know when there's going to be cyclical changes, 0:20:10.800 --> 0:20:13.000 but we want to make sure, particularly as a smaller company, 0:20:13.280 --> 0:20:15.120 you've got that margin of safety that you know they're 0:20:15.160 --> 0:20:18.080 going to come out from it stronger and take advantage. 0:20:18.080 --> 0:20:20.080 And some of those retailers. I think that's an interesting 0:20:20.480 --> 0:20:22.760 area that you know, in the world everyone just think 0:20:22.880 --> 0:20:25.119 is about bigger and better in e commerce, there's some 0:20:25.160 --> 0:20:29.080 companies that are growing with financial strength in retail. Yeah. 0:20:29.200 --> 0:20:31.520 As a father of three daughters, well done, I'm very 0:20:31.560 --> 0:20:35.600 familiar with five below. I uh, A lot of disposable 0:20:35.600 --> 0:20:38.680 income gets dumped into that place. It's remarkable though, that 0:20:38.800 --> 0:20:41.879 is talk about it. Impulse purchase Meca. You know, I 0:20:41.960 --> 0:20:44.159 found myself buying, you know, going in there, taking a 0:20:44.200 --> 0:20:46.680 kid there to get some art supplies or whatever, and 0:20:46.680 --> 0:20:50.480 and finding myself some impulse fights some stuff that. Actually, 0:20:50.680 --> 0:20:52.800 that's how I feel about t J Max, which you 0:20:52.880 --> 0:20:56.560 just mentioned, and one of their other brands is Marshals, 0:20:56.600 --> 0:20:59.040 which I feel like I could go there every day 0:20:59.080 --> 0:21:03.119 and just buy like millions of things I have absolutely 0:21:03.160 --> 0:21:07.080 no use for I'm one of those I'm one of 0:21:07.080 --> 0:21:09.680 those consumers. I could tell you. I mean, you may 0:21:09.720 --> 0:21:12.320 attest when you know things start to reopen. Last year, 0:21:12.600 --> 0:21:14.879 there were lines out the door and around the corner 0:21:14.880 --> 0:21:16.600 to get back into t J Max. And that just 0:21:17.000 --> 0:21:19.200 we have this debate all the time about the pandemic 0:21:19.280 --> 0:21:21.879 and where the lasting changes. Where are the new habits 0:21:21.920 --> 0:21:23.280 that are going to be formed, and where are the 0:21:23.280 --> 0:21:25.399 old ones? And it just goes to show you that 0:21:25.440 --> 0:21:27.600 even though a lot of us are spending more on 0:21:27.640 --> 0:21:30.399 e commerce, there's certain experiences that we want to have 0:21:30.440 --> 0:21:33.920