Speaker 1: John, Hello man, Hello, Now, John, I've got a question
Speaker 1: for you.
Speaker 2: Go ahead.
Speaker 1: I want you to imagine, and I know you've got
Speaker 1: a good imagination to imagine. They're a hugely successful entrepreneur.
Speaker 1: You had a brilliant idea, maybe eight years ago, maybe
Speaker 1: only five years ago, really good idea. You've worked very hard,
Speaker 1: you've implemented your idea. Well, you've built up a business,
Speaker 1: You've hired a parlor of people, you're making a parlor money.
Speaker 1: And now you're thinking to yourself, do you know what
Speaker 1: getting on a bet? Not you, personally, John, were all
Speaker 1: in the world of imagination.
Speaker 3: Now getting on a bet.
Speaker 1: I think in the next ten years, fifteen years or so,
Speaker 1: i'd like to retire. I'm going to list this company.
Speaker 1: I'm going to let other people share in the growth here.
Speaker 3: I'm going to list. So that's You's like me. It's
Speaker 3: so like you. And then you look around the world
Speaker 3: and you think, ah, where should I list? So here's
Speaker 3: my question. You're going to choose the UK right because
Speaker 3: you live here.
Speaker 4: You like it.
Speaker 3: It's a good place, aren't you.
Speaker 1: Yeah?
Speaker 5: I mean absolutely, of course I'm a Patriot. Although no,
Speaker 5: wait a minute, what's this. I'm hearing the siren song
Speaker 5: from across the Atlantic that says, well, what does it say?
Speaker 5: Maland because this is the point of your excellent column
Speaker 5: this week.
Speaker 1: Ah, excellent, I like that. What it says that siren
Speaker 1: call is it says money, money, Let me give you
Speaker 1: more money. And we know that you're financially incentivized, right
Speaker 1: because you've done this amazing thing already. So what the
Speaker 1: call says is, come to us, Come to us in
Speaker 1: New York, and you can list your company at maybe
Speaker 1: forty percent more, and you could list it at home,
Speaker 1: and you get to keep all that lovely money of
Speaker 1: the percent of the company that you list, and then
Speaker 1: then you can stay on a CEO for as long
Speaker 1: as you like, and we'll pay you double, maybe triple,
Speaker 1: maybe cold druple what you might get if you were
Speaker 1: a CEO in the UK. And you know, if you
Speaker 1: stayed in the UK after nine years or so, all
Speaker 1: the big investors in the UK will be going, oh,
Speaker 1: do you know what, that's kind of our limits. You've
Speaker 1: got to go now, even if you were the dry
Speaker 1: being forced behind the company, even if you've been taking
Speaker 1: brilliant decisions all the way through those institutional investors will
Speaker 1: be going, yeah, we're gonna have to vote against you.
Speaker 3: Sorry.
Speaker 5: See that sounds awful. Why would anyone less than the
Speaker 5: UK let a lot? Also in the small numbers that
Speaker 5: are actually doing it, where is.
Speaker 1: That small number they're not?
Speaker 3: I mean that's the problem.
Speaker 1: We have very few listings in the UK at the
Speaker 1: moment we had any of this year, five six, something
Speaker 1: like that.
Speaker 3: Very few listings.
Speaker 1: There are a lot of listings going on with China
Speaker 1: is the big is a big place for listing to
Speaker 1: them when most companies are listing there, or more companies
Speaker 1: are listing there. There've been I think fifty six or
Speaker 1: something in the US so far this year, and there's
Speaker 1: been a reasonable smattering in Europe. But there is very
Speaker 1: little incentive right now to list in the UK because
Speaker 1: we have spent so much time by trying to make
Speaker 1: ourselves to the gold standard of international governance. You know,
Speaker 1: if you list in the UK, you are going to
Speaker 1: be regulated into the ground. There's literally nothing you can
Speaker 1: do that doesn't mean referring to to a code of
Speaker 1: some kind or a compliance department of some kind.
Speaker 3: And all the big institutions in.
Speaker 1: The UK have huge stewardship and sustainability departments as a result,
Speaker 1: and a lot of your life is going to be
Speaker 1: spent talking to them. And if you talk to a
Speaker 1: fund manager in the UK, they will say, you know
Speaker 1: the guy who the woman who actually manages the money,
Speaker 1: they will they spent they spend half their life listening
Speaker 1: to the sustainability and stewardship company is telling them how
Speaker 1: they have to vote against this, and vote against that
Speaker 1: and vote against this. So it becomes a very kind
Speaker 1: of a tight area to work. And of course everyone
Speaker 1: was on your case about money. You get paid too much.
Speaker 1: You shouldn't get that much, but you should be paid less.
Speaker 1: This isn't right, You should leave, et cetera, et cetera.
Speaker 4: Et cetera.
Speaker 3: You go to the US and all it kind of vanishes.
Speaker 3: So why wouldn't you at all?
Speaker 5: But one one on this is on the compliance said
Speaker 5: and the ESG saide.
Speaker 2: I mean this sort of.
Speaker 5: Stuff is is global, isn't it? How has it got
Speaker 5: so much? Was in the UK? I mean the p
Speaker 5: thing is is clear leave very different and always has been.
Speaker 4: Well.
Speaker 1: I think you know, we love a bit of regulation,
Speaker 1: we love a bit of bureaucracy. We've got endless people
Speaker 1: and endless different organizations creating codes and sets of guidance
Speaker 1: or remember a lot of stuff is guidance. But if
Speaker 1: you're a company and you don't follow the guidance, then
Speaker 1: nonetheless the big institutions will vote against you because they've
Speaker 1: got sort of that stuck in their head as well.
Speaker 1: So you know, there's there's a lot of different organizations,
Speaker 1: different sets of guidance, different regulators or telling you that
Speaker 1: you have to do this, and you have do that,
Speaker 1: and you have to do this.
Speaker 3: And when you you.
Speaker 1: Know, each individual piece, if the likes of you and
Speaker 1: I are ordinary investors look at it, we're like, well
Speaker 1: that that's entirely reasonable. People should have to do that,
Speaker 1: and people should have to do that, and people should
Speaker 1: have to do that. But as it piles up and
Speaker 1: up and up and up and up, it gets the
Speaker 1: point where, you know, what about the actual business, what
Speaker 1: about the innovation, what about the wealth creation, what about
Speaker 1: the value creation, what about the productivity? You know, it
Speaker 1: becomes a sort of a heavy blanket lying over the
Speaker 1: real activity of a company. So then you get this,
Speaker 1: this this feeling from CEOs they're not allowed to do
Speaker 1: what they do best, which is run a business. And worse,
Speaker 1: they're not allowed to do what they do best, and
Speaker 1: they're also not allowed to get paid for doing it,
Speaker 1: maybe not as well as they'd like to do, if
Speaker 1: that makes sense. Whereas you can go somewhere else and
Speaker 1: get all those things out. There's so many problems here.
Speaker 1: You know, good governance is great. We're all very pro
Speaker 1: good governance, but you cannot make investing safe. You shouldn't
Speaker 1: even try and make investing safe because risk is the
Speaker 1: price of growth.
Speaker 3: That's how it works.
Speaker 5: I mean, yeah again doing desicree home, might you this
Speaker 5: is just about the US have insucked all the oxygen
Speaker 5: equity markets in jeninal over the last ten years because
Speaker 5: everyone's been all these party growth stocks let's go. You know,
Speaker 5: you test Etctera, et cetera, and Neil Harton to be
Speaker 5: over there as oppose. They's a specific problem with the UK.
Speaker 1: Yeah, that comes back to something that you and I've
Speaker 1: talked about a lot about this, this idea that evaluation
Speaker 1: gap in the US and the UK is is slightly
Speaker 1: out of control. It's wider than it's ever been with
Speaker 1: running what near forty percent still, but we've also looked
Speaker 1: at you and I had a lot of the research
Speaker 1: and the data that shows that even if you pull
Speaker 1: out the growth, if you are just for that, there's
Speaker 1: still a valuation gap between the US and the UK.
Speaker 3: And so the question is really to ask what is
Speaker 3: that all about?
Speaker 1: Why is it that a companies prefer to list in
Speaker 1: the US but be one of the obvious reasons for
Speaker 1: that is the valuation gap. You know, you spent all
Speaker 1: this time creating a company, building up a company, and
Speaker 1: putting the private equity dynamic to side for one moment
Speaker 1: we're just talking about genuine entrepreneurs. You've done all that,
Speaker 1: Why wouldn't you get the best price for it? Why
Speaker 1: wouldn't you want to get the best price for it?
Speaker 1: So why wouldn't you think about listing in the place
Speaker 1: you can get the best price. So we can't argue
Speaker 1: about whether the evaluations in the US are wrong or
Speaker 1: right and whether they'll mean revert or not mean revert,
Speaker 1: But right now that's where we are. So there's this problem.
Speaker 1: And then the other problem, of course, is the actual
Speaker 1: pay of CEOs. And we like to think, don't we
Speaker 1: all us that you know, once you get above ten
Speaker 1: million or so, it's neither here nor there how much
Speaker 1: you get paid. But if the question is ten million
Speaker 1: or two hundred million, I guess maybe it is here
Speaker 1: or there. And we can also say, and I agree
Speaker 1: with this, that CEOs are paid too much across the
Speaker 1: board in general in the US and in the UK.
Speaker 1: But even if I feel that and you feel that,
Speaker 1: that doesn't mean that we feel that strongly enough that
Speaker 1: we prefer companies listed somewhere else.
Speaker 5: Yeah, I mean, I guess. I mean this is the
Speaker 5: This is the tricky part of all of this, isn't it.
Speaker 5: Because on the one hand, we want this because, as
Speaker 5: you point out in your book, we want to have
Speaker 5: a thriving shareholder democracy and that's really important for the
Speaker 5: creation of capital and having a dynamic economy and all
Speaker 5: the rest of those great things. And on the other hand,
Speaker 5: a lot of the things that we don't like are
Speaker 5: the things that America A lows. So it is things like,
Speaker 5: you know, founders being able to have all of the
Speaker 5: voting shares without actually owning that much of the company.
Speaker 5: Things like founders and more. Actually, I don't mind founders
Speaker 5: so much getting paid in saying amounts of money, but
Speaker 5: I do have a problem were essentially kind of like
Speaker 5: middle management executive equivalents who have become the chief executive
Speaker 5: getting generational, life changing wealth, which is one of the
Speaker 5: objections that people have had to, you know, things like
Speaker 5: the ridiculous the big bonus that the Persimmon guy got.
Speaker 3: Well, here's the big battery, isn't he. There's always those
Speaker 3: outliers for everybody.
Speaker 2: Yeah, helped that. That was government subsidized as well.
Speaker 1: But we're not going to go to help to buy today. No,
Speaker 1: no beginning to get a rage going already. We're not
Speaker 1: doing help to buy.
Speaker 5: But yeah, things like how do we or rather can
Speaker 5: we get the best of both worlds? I mean, I
Speaker 5: suppose one of the things I was thinking in a
Speaker 5: Regier column was does this boil down the act of
Speaker 5: institutional investors needn't to be more engaged and to focus
Speaker 5: on certain things that they're not focused and just know
Speaker 5: because I mean, see, you don't get enough pupike on
Speaker 5: my wage? Is any we in a we you want
Speaker 5: more of that?
Speaker 1: Get quite a lot in the UK Now there's quite
Speaker 1: a lot of this. There's endless voting again to our tips, etc.
Speaker 1: I think that that has really come a long way
Speaker 1: since you and I started bitching about it. Fifteen twenty
Speaker 1: years ago, so that there's been a shift there. But
Speaker 1: I suppose that the real thing is that we need
Speaker 1: to find it a middle way as usual, you know,
Speaker 1: and the FCA and everywhere they are beginning to recognize
Speaker 1: that the UK has gone too far in wrapping its
Speaker 1: corporates up in endless regulation and too far towards trying
Speaker 1: to make everything safe. And as you know, I'm a
Speaker 1: huge advocate of shareholded democracy than my bookshere Power you
Speaker 1: were just mentioning, is all about that. So I'm a
Speaker 1: huge fan of that. But I'm also much more than
Speaker 1: I'm a fan of anything. I'm a fan of economic
Speaker 1: growth and fan of productivity growth, and a fan of
Speaker 1: us finding ways to grow our economy. That means that
Speaker 1: the entire country can benefit. And if we don't have deep, popular,
Speaker 1: liquid capital markets in the UK, we don't get to
Speaker 1: have any of the rest. So it seems to me
Speaker 1: incredibly important that we look at what's happening now and say,
Speaker 1: do you know what, this isn't working. We've gone too far,
Speaker 1: so we've got to pull back from it a bit.
Speaker 1: And when you see the fund managers coming out and going, oh, well,
Speaker 1: I don't know that doesn't feel safe anymore. I just
Speaker 1: want to go out and shake all of them and say,
Speaker 1: this is.
Speaker 3: Actually your job. Your job. Your job is to.
Speaker 1: Go out there, look through the oputy markets, give it
Speaker 1: a good sift around, and find the companies that are good,
Speaker 1: that you know, aren't going to have governance issues, that
Speaker 1: aren't going to go bust, that aren't going to you know,
Speaker 1: turn out to be fraudulent, etc. That is your actual job.
Speaker 1: So you know, don't be turning around and saying to
Speaker 1: the regulators you need to do more because I can't
Speaker 1: be asked to do the governance myself. Enough of this enough.
Speaker 5: The one thing I actually did want to say, and
Speaker 5: this is something you didn't mention to call them, but
Speaker 5: I was just curious as to how much of this
Speaker 5: you think ties in with the rise of passive investing,
Speaker 5: both in terms of perhaps you know, because I mean
Speaker 5: a lot of the kind of ESG stuff has ended
Speaker 5: up being driven by people like black Rock to try
Speaker 5: and differentiate their offering from other providers passive, and also
Speaker 5: a lot of the fact that the a lot of
Speaker 5: the auxygen being sucked out the global equity markets has
Speaker 5: been partly because obviously passive funds the money. It gravitates
Speaker 5: to where the most money is. And therefore, as other
Speaker 5: markets I've got, as the US has got big, that's
Speaker 5: attracted ever more money.
Speaker 2: I just wonder how much.
Speaker 5: Of this is kind of doubted that almost I don't know,
Speaker 5: kind of automation equity markets have kind of lost some
Speaker 5: of that.
Speaker 2: Sparkle. I guess that then ended up going to Krypto.
Speaker 4: You're an old romantic, aren't you.
Speaker 2: Chance Well, yes, obviously.
Speaker 1: The aswer is I don't know. I just don't know,
Speaker 1: And you and I are always because we great believer
Speaker 1: is in active management or I am anyway, you know,
Speaker 1: I'm always keen to blame passive for absolutely everything, but
Speaker 1: but I'm not convinced that that's what it is here.
Speaker 1: It's driven by the do goodery of the far management companies,
Speaker 1: of course, and as you say, their efforts to differentiate
Speaker 1: themselves by by selling stewardship, ESG, etc.
Speaker 3: But that's not necessarily part of passive.
Speaker 1: But it's also driven by, I think, in the main,
Speaker 1: by the regulatory environment in the UK, where we really
Speaker 1: want to make everything a gold standard and we've done
Speaker 1: our absolute best to add the best governance in the
Speaker 1: world and to make one of the reasons why you
Speaker 1: want to list in the UK because it has the
Speaker 1: best governance. But in fact, you know what the best
Speaker 1: governance isn't necessarily the best.
Speaker 3: Thing for growth. So you know, we have to find
Speaker 3: a middle way.
Speaker 1: That's that's my view. I don't know quite how that
Speaker 1: little way works, but I do know that the the
Speaker 1: reforms to the listing environment the FCA came out with
Speaker 1: earlier this week are an excellent start, but only a start.
Speaker 1: Welcome to Merin Talks Money, the podcast in which people
Speaker 1: who know the markets explain the markets.
Speaker 4: I'm Merrit Sunset Web.
Speaker 1: This week we are going to have a conversation with
Speaker 1: Simon Elliott, who's a managing director at JP Morgan Asset Management.
Speaker 1: He works as the client director for his absolutely vast
Speaker 1: investment trust business. Now, Simon, you and I have been
Speaker 1: talking about investment trust for I don't know how many years,
Speaker 1: both getting old, Yeah, a good, good decade, possibly two decades,
Speaker 1: maybe even more.
Speaker 4: We've been talking about investment trust.
Speaker 1: Now I want to start because I'm not sure that
Speaker 1: all of our audience will be totally okay with what
Speaker 1: makes an investment trust great.
Speaker 4: So before, I believe makes them great.
Speaker 1: So before we get into talking about the sector's problems,
Speaker 1: it's difficulties and the fascinating things that are happening unders
Speaker 1: so many bonnets at the moment, let's start by just
Speaker 1: running through what it is that makes an investment trust
Speaker 1: a special kind of investment. Yeah.
Speaker 2: Well, at the end of the day, an investment trust
Speaker 2: is a PLC. It's a publicly listed company. It has
Speaker 2: the advantage over other forms of collectives of being a
Speaker 2: captive pool of capital, so in theory at least, it
Speaker 2: shouldn't be a full seller at times when market conditions
Speaker 2: become more difficult. It also has a number of advantages
Speaker 2: in terms of dividend payments. So this concept of dividend
Speaker 2: heroes those investment trust companies that have records of twenty
Speaker 2: or more years of consecutive dividend growth, of which I
Speaker 2: think they're about eighteen or so at the moment, led
Speaker 2: by City of London Investment Trusting. That's up to about
Speaker 2: fifty five years now of consecutive diffident growth. In addition
Speaker 2: to that, we've seen a number of investment trust take
Speaker 2: on powers to pay out enhance dividends as well, so clearly,
Speaker 2: dividends can be cut or can be suspended for investment companies,
Speaker 2: but they've got a number of advantages which provides a
Speaker 2: degree of creat dividends certainty.
Speaker 4: Yeah, dividends is quite interesting, isn't it.
Speaker 1: Because it used to be that you weren't allowed to
Speaker 1: pay dividends out of capital. You couldn't, we couldn't effectively
Speaker 1: change capital into income and pay it out.
Speaker 4: As a dividend, and there were very good reasons for that.
Speaker 1: But now it is possible, quite a lot of trust
Speaker 1: of picking it up, and it's still quite a divisive.
Speaker 4: Issue, isn't it. Yeah, No, it is.
Speaker 2: You're right. There was a tax change a number of
Speaker 2: years ago which meant it was possible. A few investment
Speaker 2: trusts have gone down that route, including a few and
Speaker 2: the JP Morgan ranges. It happens, and I think we've
Speaker 2: got six pain enhanced dividends at the moment. I mean,
Speaker 2: it's something to keep an eye on. I mean, the
Speaker 2: arguments against it is that it's tax inefficient. Effectively, you're
Speaker 2: turning capital into income, and we know the differential in
Speaker 2: terms of tax rates between income and capital gains tax,
Speaker 2: so you know, you could argue that perhaps it doesn't
Speaker 2: quite make sense. However, the reality is it does appeal
Speaker 2: seem to appeal to a wider range of investors, and
Speaker 2: particularly retail investors who frankly, you know, are looking for
Speaker 2: sources of income. So if I mean, probably the best
Speaker 2: example is the JP Walgan Global Growth and Income Fund
Speaker 2: that has a four percent enhanced evidend. It's probably gone
Speaker 2: a natural yield between two two and a half and
Speaker 2: then it converts an element of capital and that's proven
Speaker 2: very popular with retail investors and really been a big
Speaker 2: part of its story.
Speaker 4: It's interesting and it.
Speaker 1: Kind of makes those big trusts, I mean, that's a
Speaker 1: classic of the genre.
Speaker 4: Global Growth and Income kind of makes them into you.
Speaker 4: It makes them into annuities to a degree.
Speaker 1: I mean, if you think about what the retail investor
Speaker 1: is after, and one of the reasons why perhaps a
Speaker 1: retail investor is much bothered by the tax element of
Speaker 1: this is because they hold a lot of these big
Speaker 1: trusts inside their I sell or in particular, inside their
Speaker 1: SIP and in the old days, you know, when it
Speaker 1: came to pension time, you'd take all that money that
Speaker 1: you'd saved up and you'd hand it over in exchange
Speaker 1: for an annuity which was effectively turning your capital into
Speaker 1: income over the period until you're death right. And if
Speaker 1: you get one of these big trusts now and you
Speaker 1: can see that they're only making a natural yield of
Speaker 1: one percent or two percent or two and a half percent,
Speaker 1: and they say, well, we're going to pay you four
Speaker 1: and a half percent Now.
Speaker 4: They may or may not.
Speaker 1: Be making the capital game to back that up, but
Speaker 1: they're becoming a type of annuity for the retail investor.
Speaker 2: I mean, I think you make a good point about
Speaker 2: where these investments are held. I mean, tax efficient rappers
Speaker 2: are hugely important and probably explain why there has been
Speaker 2: a good uptake from retail investors for these type of funds.
Speaker 2: I mean, there are people in the wealth management community
Speaker 2: who have greater issues with it, but I think as
Speaker 2: the years have gone by and the kind of strategy
Speaker 2: has become more proven, I think you know, you're likely
Speaker 2: to see even more uptake.
Speaker 4: Yeah, you're not picking up my innuity point.
Speaker 1: I'm trying, really trying, really hard to get the investment
Speaker 1: trust industry to take one of these great big trusts
Speaker 1: and explicitly say, hey, guys, you know what we can make.
Speaker 4: This indur in a nuity for you. You still get
Speaker 4: to control the remaining capital.
Speaker 1: But so far no one has taken my bait, and
Speaker 1: I sense you're not going to either disappointing.
Speaker 2: Well, we'll see. I mean, I think what I would
Speaker 2: say about investment trust is that there's always innovation across
Speaker 2: the sector. I mean, you know, as you well know,
Speaker 2: it's in one hundred and fifty five years history of
Speaker 2: investment trusts, and they have proven to be very adaptable
Speaker 2: and innovative. So you know, things like enhanced dividends or
Speaker 2: other policies or of a strategies that they pursued. I mean,
Speaker 2: there's a reason why they've survived for so long.
Speaker 4: Yeah, and it's not just survive.
Speaker 1: I'm one of the fascinating things about investment trust is
Speaker 1: they have a long history of regularly outperforming other types
Speaker 1: of investment vehicles. So if we just be really simple
Speaker 1: and call investment trusts closed down vehicles and the other
Speaker 1: kind open ended vehicles in the main, over time, investment
Speaker 1: trusts have outperformed, haven't they.
Speaker 4: And we're never entirely sure why.
Speaker 1: You know, we live at it and we say, well,
Speaker 1: all the all the advantages that you listed earlier.
Speaker 4: Which one is that that makes the difference.
Speaker 2: Yeah, that's right. I mean, I think there there have
Speaker 2: been some very interesting academic studies over the years that
Speaker 2: would have you know, would would would suggest that that
Speaker 2: is the case, and I mean there's various reasons why
Speaker 2: that might be so. I mean, the fact that investment
Speaker 2: trusts can deploy a modest amount of gearing obviously helpful
Speaker 2: in a kind of rising market situation. The fact that
Speaker 2: they can invest in less liquid companies is obviously important,
Speaker 2: but I think it allows the portfolio managers to take
Speaker 2: longer term investment decisions, you know, they don't have to
Speaker 2: worry about any potential short term redemptions, which is obviously
Speaker 2: the case for open ended funds or even just managing
Speaker 2: flows in and out. I think that captive paula capital is,
Speaker 2: you know, is a huge advantage, and particularly in the
Speaker 2: times that we find ourselves in.
Speaker 1: There's also been cost doesn't then that historical investment trusts
Speaker 1: have been cheaper than open ended funds, which has been
Speaker 1: one of the things that has probably driven out performance
Speaker 1: And one of the things the industry might be concerned
Speaker 1: about at the moment is that that cost gap has fallen.
Speaker 2: Yeah, so certainly kind of pre RDR, which is one
Speaker 2: of those horrible acronyms that the financial industry loves. But
Speaker 2: there was a change. I mean, back in the day,
Speaker 2: open ended funds would often have mechanisms to pay commission
Speaker 2: to people advising them. Obviously that's in history books now
Speaker 2: that's falling away, but that was one of the reasons
Speaker 2: why investment trusts were something more cost effective than open
Speaker 2: ended funds. That's no longer the case. But what we
Speaker 2: have seen across the investment trust sector probably for a
Speaker 2: number of years now, probably best amount of ten years,
Speaker 2: is a repricing of management fees in particular, and I
Speaker 2: think this is where one of the other grade advantages
Speaker 2: of investment trust really comes into play, and that's the
Speaker 2: role of an independent board. I mean, in my experience,
Speaker 2: boards have been very much on the front foot to
Speaker 2: ensure that the management fees, in fact, all the kind
Speaker 2: of costs involved in running an investment company are kept
Speaker 2: us as keen as possible.
Speaker 4: Yeah, I mean, it is absolutely stranginary. We won't talk
Speaker 4: about this now, but it still.
Speaker 1: Blows my mind every time we remember the pre RDR
Speaker 1: days when you went to a financial advisor and you
Speaker 1: arranged to invest in a unit trust, and then they
Speaker 1: paid that financial advisor of commission forever half of percent
Speaker 1: or whatever it was of your investment went back to
Speaker 1: that advisor as long as you held that investment, even
Speaker 1: if you'd only spoken to him for half an hour.
Speaker 4: It's amazing, wasn't it.
Speaker 2: A different age?
Speaker 4: Yeah? Thank goodness?
Speaker 1: Right.
Speaker 4: I mean, I agree with you, by the way, on
Speaker 4: these things.
Speaker 1: I do think that the cost is important, but also
Speaker 1: the fact that there is a board of directors, and
Speaker 1: regular listeners will know that I have a history of
Speaker 1: sitting on investment trust boards, and I like to think
Speaker 1: that those boards of directors do make a difference because
Speaker 1: they're always there to stand up for the shareholder.
Speaker 4: But obviously investors will turn to that for themselves.
Speaker 1: Now, moving on all these wonderful things we have been
Speaker 1: talking about the things that make this sector stand out,
Speaker 1: the things that make it sound really fantastic. But last
Speaker 1: year wasn't a good one, was it.
Speaker 4: No?
Speaker 2: It wasn't.
Speaker 1: So.
Speaker 2: I mean, the numbers for the investment trust company sector
Speaker 2: last year I think it was in the sector underperform
Speaker 2: the wider UK market substantially. And actually that's what we're
Speaker 2: seeing this year. So the numbers are that the investment
Speaker 2: companies were down about seventeen percent or so last year.
Speaker 2: That compares with a slight increase in the UK market
Speaker 2: and the form of the foot Seat all share. So
Speaker 2: far this year, I think we've got investment companies stand
Speaker 2: about one point seven percent and that compares will rise
Speaker 2: of five point three for the all share. So when
Speaker 2: I'm talking about investment companies there it's worth noting there
Speaker 2: all the investment companies that form part of the foots
Speaker 2: all share, so there's about one hundred and ninety or
Speaker 2: so at the moment. It's market gap weighted, so those
Speaker 2: large investment trust companies you know, have a greater bearing
Speaker 2: on that performance. But you know, take a step back.
Speaker 2: Suffice to say, it has been a tough period for
Speaker 2: investment companies And is.
Speaker 4: That partly because in periods like we saw last year,
Speaker 4: not only are their underlying.
Speaker 1: Investments falling in value, but their discounts are widening. So
Speaker 1: you get a negative account of negative double whammy with
Speaker 1: an investment trust in difficult times.
Speaker 2: Yeah, that's absolutely right. So if you look at the
Speaker 2: sector average discount at the end of twenty twenty one,
Speaker 2: it was probably stood about two two and a half percent,
Speaker 2: so we did see a big d rating going back
Speaker 2: to March twenty twenty at the time of the pandemic.
Speaker 2: Obviously markets were very uncertain that that period of time,
Speaker 2: but then there was a quick recovery since then. But
Speaker 2: going through last year, I mean, the secretaries discount widened
Speaker 2: out about thirteen percent at the end of last year,
Speaker 2: and it's continued to widen this year. So I think
Speaker 2: you hit about seventeen just more than seventeen percent at
Speaker 2: one stage. It's recovered a little but still stands at
Speaker 2: about sixteen percent, So historically that's at quite a wide level.
Speaker 2: I mean, just to put some numbers on that, go
Speaker 2: back to March twenty twenty, that pandemic period, I think
Speaker 2: we bounced off about a twenty two percent sector average
Speaker 2: discount you go back to the GFC probably a not
Speaker 2: dissimilar level. So to be at sixteen seventeen percent does
Speaker 2: suggest that there's something a little amiss in the world
Speaker 2: of investment companies.
Speaker 4: Okay, interesting.
Speaker 1: I mean some retail investors would look at that and
Speaker 1: immediately go, well, I'm going to buy everything insight because
Speaker 1: when investment trust discounts are at loads like this, it's
Speaker 1: usually historically it's been a bisignal.
Speaker 2: Yeah, And look, I mean you're absolutely right. There are
Speaker 2: I mean not just regal investors, frankly, but there are
Speaker 2: those investors who will look at the discounts that were
Speaker 2: seeing across investment companies at the moment and consider them
Speaker 2: an opportunity. I mean, there's a few things to note here.
Speaker 2: I mean, certainly, you know, investment companies have historically played
Speaker 2: well to control and investors, So those that have looked
Speaker 2: to take advantage of out of favor asset classes on
Speaker 2: wide discounts and then wait for those asset classes to
Speaker 2: come in favor and those discounts narrow, so you kind
Speaker 2: of get a double whammy effect. But then the other consideration,
Speaker 2: and this will be true particularly for those investment trust
Speaker 2: companies exposed to private markets or private companies, is you know,
Speaker 2: can we rely on those navy valuations because it's all
Speaker 2: very well notionally saying it's on an x percent discount,
Speaker 2: But if the NAV is not something that perhaps you
Speaker 2: could rely on, then you've got to be a little
Speaker 2: bit wary, clearly.
Speaker 1: Okay, So let's talk about that because This is one
Speaker 1: of the big questions in the sector at the moment
Speaker 1: is about this trend there has been over the last
Speaker 1: decade for investment trust to hold not just publicly listed
Speaker 1: investments but private investments at the same time. And I'm
Speaker 1: not going to ask you to talk to me about
Speaker 1: companies such as Bailey Gived in particular, but they have
Speaker 1: been the big leader here. You know, they went in
Speaker 1: very strong making sure that the majority of their trust
Speaker 1: hoold held not just listed investments, but private investments as well,
Speaker 1: on the basis that on the perfectly correct basis that
Speaker 1: that's where the growth was. If you want to be
Speaker 1: invested in growth across the spectrum, then you.
Speaker 4: Shouldn't distinguish what is public and what is private.
Speaker 1: And then let result is that lots of other companies
Speaker 1: follow this lead, and we now have an awful lot
Speaker 1: of companies out there, investment companies that hold both public
Speaker 1: and private companies as well as the traditional private equity
Speaker 1: companies which.
Speaker 4: Are only private. So that's where a lot of the
Speaker 4: big discounts are, right.
Speaker 2: Yeah, that's right. I mean, look, it's worth noting that
Speaker 2: for those investment trust companies that are exposed to public
Speaker 2: listed companies that's on a mark to market basis when
Speaker 2: you invariably get daily navs, and frankly, you're still seeing
Speaker 2: quite wide a discounts on those investment trusts as well.
Speaker 2: So I mean, if you look at the JP Morgan
Speaker 2: stable and we've got nineteen investment trusts with one exception,
Speaker 2: they're all publicly listed underlying companies, and yet I think
Speaker 2: our average discount is just inside a ten percent at
Speaker 2: the moment, so you know, narrow or tighter than the
Speaker 2: sect average discount, but still you know, relatively wide discount.
Speaker 2: But then you're right if you look at those investment
Speaker 2: companies that are exposed to private companies or private markets
Speaker 2: or infrastructure whatever it will be. I mean, there's a
Speaker 2: range of valuation methods used to kind of calculate those navs.
Speaker 2: And frankly, I'm sure your listeners will be turning off
Speaker 2: in their droves if we start going through each in turn.
Speaker 2: But it is a question mark sure, I'm quite sure
Speaker 2: they wouldn't.
Speaker 4: By the way, i'mquite sure they wouldn't absolutely love it to.
Speaker 2: Be fascinated, fascinated by it that you carry on well, no,
Speaker 2: I mean, I think the point is that you know
Speaker 2: there are various different valuation ways of doing this, and
Speaker 2: you know, it can be quite a complicated area. But
Speaker 2: we've been there before, so I mean, if you go
Speaker 2: back to I mean, I started covering the investment company
Speaker 2: sector back in the early noughties, so in the aftermath
Speaker 2: of the tech boom, and obviously we saw the global
Speaker 2: financial crisis in twenty and eight, and at both those
Speaker 2: periods of time, there was this move, there was kind
Speaker 2: of risk off move, and anything with exposure to to
Speaker 2: private assets was derated by and large. I mean, some
Speaker 2: of the list of private equity companies got hit very
Speaker 2: hard by the GFC and there were a number of
Speaker 2: issues there, but valuation amongst them. But there's this idea
Speaker 2: of you know, how do value can we rely on
Speaker 2: the valuation? I mean, ultimately it is a very difficult area,
Speaker 2: and I have a huge degree of sympathy for people
Speaker 2: involved in that because ultimately, you know, what is something
Speaker 2: well we're talking about price discovery here, and ultimately it's
Speaker 2: worth what someone is prepared to pay for it. So
Speaker 2: you can use your various different valuation methods, being you know,
Speaker 2: discounted cash flows and you change your discount rates. You
Speaker 2: can look at predicted earnings versus comparable PE ratios, and
Speaker 2: you know, all these different ways of doing it, but
Speaker 2: ultimately it is very difficult, and we are at that
Speaker 2: stage of the market where there is a degree of
Speaker 2: skepticism about valuations.
Speaker 4: Yeah, well, you know.
Speaker 1: I mean, I'm often very simplistic about things, which you
Speaker 1: can criticize for me or not. But one of the
Speaker 1: things I look at when I look at the trust
Speaker 1: that the whole both, and you can see that their
Speaker 1: publicly listed assets have fallen significantly more in value than
Speaker 1: they're privately listed assets have been revalued at. And I
Speaker 1: loved it, And I think to myself, what seems to
Speaker 1: me that an environment like it such as this, the
Speaker 1: value of the private assets should have fallen at least
Speaker 1: as much, possibly more than the publicly listed assets, because
Speaker 1: of course the private ones should have a massive liquidity
Speaker 1: discount attached to them, and also, in the case of
Speaker 1: it are not profit making a hefty discount for that
Speaker 1: as well. So it likely seems to me that if
Speaker 1: you look at a trust that holds both and the
Speaker 1: private assets haven't been written down at least as much,
Speaker 1: if not more than the public assets, then there's definitely
Speaker 1: more to come.
Speaker 4: Is that overly simplistic and unfair of me.
Speaker 1: Yeah.
Speaker 2: I mean, look, people on the other side of that
Speaker 2: would argue, yes, but what you don't take into consideration
Speaker 2: there is the fact that we might not hold pure equity.
Speaker 2: We might be holding preference shares or some form of
Speaker 2: security that gives us some protection when valuations fall. They'd
Speaker 2: also say, well, look, you know we've had a you know,
Speaker 2: funding round recently and this was the valuation that was
Speaker 2: set by that particular funding round. Or they might say, well,
Speaker 2: look we've actually disposed of some assets. So you know,
Speaker 2: you look at we're talking about you know, private equity
Speaker 2: and private companies, but you look at what's going on
Speaker 2: in the property market at the moment. Obviously we have
Speaker 2: seen a big derating their valuations have come down, but
Speaker 2: we also have seen disposals. You know, some of these
Speaker 2: assets have been disposed of in very recent times, and
Speaker 2: obviously there are exceptions, but you know, equally we've seen
Speaker 2: some uplifts on carrying values as well. So it's a
Speaker 2: it's a hugely complicated subject. I totally understand investors' wareness,
Speaker 2: and frankly, that's one of the reasons we've seen discounts
Speaker 2: widen out over the last eighteen months or so. However,
Speaker 2: as I keep saying, you know, we have been there before,
Speaker 2: it is that stage of the cycle. And I think
Speaker 2: the kind of bottom line is it's it's a market
Speaker 2: or it's a kind of situation where it pays to
Speaker 2: do your homework, you know, it's you know, to your
Speaker 2: listeners who are quite fascinated by the valuation issue, then
Speaker 2: this is this is the time to kind of roll
Speaker 2: up you sieves and get your hands dirty, actually have
Speaker 2: a look at these things carefully.
Speaker 4: And what should we've.
Speaker 1: Talked about the boards of these investment trusts? What should
Speaker 1: a board do if their discount is very wide? So
Speaker 1: you've got assets on your books, and let's let's go
Speaker 1: back to inve'sment acrus that only hold listed companies, right,
Speaker 1: so we can see very clearly what they're actual as
Speaker 1: a value of the portfolio is, and we can see
Speaker 1: what the market value of the investment trust is. And
Speaker 1: there's a gap there, let's say, for example, of fifteen
Speaker 1: twenty percent, what do a board of the investment trust do?
Speaker 4: Well?
Speaker 2: Obviously some it differs is a short time, So I
Speaker 2: mean there are some boards have been incredibly proactive. I mean,
Speaker 2: there are a number of investment trusts that have pursued
Speaker 2: a zero discount policy and have done for a number
Speaker 2: of years and you know successfully.
Speaker 1: So you know, that just means making it known that
Speaker 1: they are going to buy back until the discount hits
Speaker 1: zero and once the market absolutely understands that the discount
Speaker 1: really moves out.
Speaker 2: Yes, that's right. So you look at Personal Assets Trust
Speaker 2: or Capital Gearing Trust, I mean, they've pursued that policy
Speaker 2: very very successfully. And then there are other investment trust
Speaker 2: companies who've used their buy back policy to kind of
Speaker 2: dampen down volatility share price volatility. So you know, in
Speaker 2: the jpm stay board, we've got the American Fund. They've
Speaker 2: been very active in their buybacks this year and it's
Speaker 2: probably you know, turned out about between a three and
Speaker 2: a four percent discount, and that's very much intentional. But
Speaker 2: you're right, there is criticism across the sector that you know,
Speaker 2: there isn't enough being done in terms of buybacks. I mean,
Speaker 2: we've seen a sixty four percent increase quarter on quarter.
Speaker 2: In the first three months of this year. Eight hundred
Speaker 2: and forty million pounds was brought back across investment trust
Speaker 2: so there is certainly activity, but it can be difficult
Speaker 2: as well. I mean, some investment trust companies are very
Speaker 2: conscious of their size. Size is an issue in the
Speaker 2: investment trust company sector, not least because of the trends
Speaker 2: that were seen across the investor base, with consolidation in
Speaker 2: the wealth management sector, for instance, being one factor. So
Speaker 2: investment trust companies are quite wary at shrinking to become
Speaker 2: too small that they become uninvestable. So other considerations as well.
Speaker 2: But you're right, I mean there has been a number
Speaker 2: of voices saying, well, look, if you've been prepared to
Speaker 2: issue on a premium rating when the sun has been
Speaker 2: shining equally, you should be the other side of that.
Speaker 4: Yeah, But then you come to that problem.
Speaker 1: I always feel that, you know, so you issue a
Speaker 1: lot of shares when things are going well and your
Speaker 1: shares are trading at a prim view on let us
Speaker 1: in value, and that that feels good. But nonetheless it
Speaker 1: does mean but instead of having a fixed pool of capital,
Speaker 1: you are bringing in more money that you then expect
Speaker 1: your manager to take care of. And then if you
Speaker 1: then do the opposite, you start to buy back your
Speaker 1: shares when you're at a discount to try and them
Speaker 1: back up to let use at value. Then you are
Speaker 1: asking your manager to release cash in order to allow
Speaker 1: you to buy those shares back.
Speaker 4: So you're doing you're taking away.
Speaker 1: One of the great advantages of investment trusts, which is
Speaker 1: that your investment manager never has to think about inflows
Speaker 1: and outflows. He or she has got the pot of
Speaker 1: money and they deal with that pot of money. So
Speaker 1: as soon as you in produce very intense buybacks to
Speaker 1: try and close your discount, you take some of the
Speaker 1: attention of your manager away from trying to improve its performance.
Speaker 4: Which, in the end is the thing. The closest discounts automatically.
Speaker 4: Is that fair?
Speaker 2: Yeah, I think there's a lot of merit in that argument,
Speaker 2: to be honest. I mean, I've heard other people say
Speaker 2: that effectively becoming a semi open ended fund. So you know,
Speaker 2: what's the point I think, you know, my personal view
Speaker 2: is I think if boards are considering discounts, they should
Speaker 2: be very clear at what they're trying to achieve. Is
Speaker 2: it a case of there just you know, providing a
Speaker 2: kind of flaw on their discount so, you know, effectively
Speaker 2: signaling to sholders and some are very you know, explicit
Speaker 2: about it that we will not let our discount go
Speaker 2: wider than say ten percent or whatever the level that
Speaker 2: they feel comfortable is. And also you're looking across your
Speaker 2: your peer group as well, because if you're in an
Speaker 2: area of the market that is out of favor. So
Speaker 2: I mean, where are we at the moment? UK mid
Speaker 2: and small cup would be a good case in point.
Speaker 2: You know, we have seen that area de rated. It
Speaker 2: has been a very tough part of the market now
Speaker 2: for a number of years, and we have seen discounts
Speaker 2: widen out. So to be the investment trust that says, right,
Speaker 2: we're going to pursue a zero discount policy in that space,
Speaker 2: I think would be quite problematic. You're likely to shrink
Speaker 2: your vehicle in very very quicker order.
Speaker 4: Okay, let's go back to talking about science. You're saying
Speaker 4: that investors us are very, very wary about buying that
Speaker 4: too much or doing anything they might.
Speaker 1: Reduce their overall size because that makes them uninvestable for
Speaker 1: the well managers who need to hold a certain size.
Speaker 1: What is the minimum size that an investment trust can be? Now,
Speaker 1: do you think it can be to be attractive for.
Speaker 4: The wealth managers and therefore have reasonable liquidity emissions.
Speaker 2: Yeah, this is this is one of the great talking
Speaker 2: points of investment trust companies and has been for the
Speaker 2: couple of decades I've been involved in it. I mean,
Speaker 2: to be honest, it used to be one hundred million.
Speaker 2: You needed to have about market level one hundred million
Speaker 2: to be viable. That number suggest is you know, a
Speaker 2: multiple of that now. I mean anecdotally you here four
Speaker 2: hundred million. But there's also kind of concentration risk as well.
Speaker 2: I think most investors, or institutional investors or wealth managers
Speaker 2: would be you know, uncomfortable becoming too great a proportion
Speaker 2: of the sholder registers. So whether that level's you know,
Speaker 2: ten percent, fifteen percent, it will vary, frankly, but I
Speaker 2: think it is important. I mean, again a personal view,
Speaker 2: I would expect to see more consolidation across the investment
Speaker 2: trust sector. I mean we have seen a number of
Speaker 2: deals in recent years. Again, we talked about the JPM
Speaker 2: Global Growth and Income Fund earlier and that had an
Speaker 2: emerged with Scottish Investment Trust, which was completed last year,
Speaker 2: and in fact it then went on to merge with
Speaker 2: GP Morgan elect So it's not two mergers in the
Speaker 2: last year, and that would be my expectation. That said,
Speaker 2: it becomes more difficult to pursue a consolidation of mergers
Speaker 2: at a time when discounts are wide. You know, not always,
Speaker 2: but invariably, you've seen those investment trust companies that have
Speaker 2: been the beneficiaries of mergers invariably training on strong, not
Speaker 2: premium ratings to their nav and frankly, they're not that
Speaker 2: many of those around anymore.
Speaker 1: Yeah, So might it be that some of the smaller
Speaker 1: investment trusts stay languishing on quite big discounts indefinitely.
Speaker 4: And one of the things that retail investors listening to this.
Speaker 1: Might say, well, you know, if if the big wealth
Speaker 1: managers aren't going to get into some of those smaller
Speaker 1: investment trusts, that's a great opportunity for me.
Speaker 4: But maybe it's just a long term trust.
Speaker 2: Yeah, I mean, just on that particular point, I mean
Speaker 2: this idea that consolidation in plays to larger investors, there's
Speaker 2: a lot in it for smaller investors as well, Franklin.
Speaker 2: And if you look at the spread, the bid off
Speaker 2: for spread on the share price of investment trust companies,
Speaker 2: that spread can be very wide. When you kind of
Speaker 2: dip below a certain level and probably about one hundred
Speaker 2: million pounds or so, as a rule of thumb, you
Speaker 2: know equally the cost of running investment trust companies as well.
Speaker 2: We talked about how important it was to make sure
Speaker 2: that you know these vehicles are pricedly keen. But there
Speaker 2: is an element of fixed costs with investment trust companies.
Speaker 2: And again if you get if you're too small, and
Speaker 2: probably one hundred million is the number, then those kind
Speaker 2: of fixed cost elements can ratchet up. So I think,
Speaker 2: you know, for retail investors, they should certainly be aware
Speaker 2: of the spread, they should certainly be aware of the
Speaker 2: ongoing charges, and I think consolidation does play to them
Speaker 2: as well.
Speaker 4: Let's talk about the wider market as a whole.
Speaker 1: I mean, JP Morgan has gone on so many investment
Speaker 1: trusts that it doesn't matter what you want to invest in,
Speaker 1: you you can find something right.
Speaker 4: Where do you see the value?
Speaker 1: In his serious question for you, where do you see
Speaker 1: the value in global stock markets right now?
Speaker 2: Gosh, again a great debating point. I always think it's
Speaker 2: certainly with investment trust companies it does pay to be
Speaker 2: to take a bit of a controlling approach, and certainly,
Speaker 2: you know, talking to investors across the sector and you know,
Speaker 2: are very good in house people as well. I mean,
Speaker 2: people will talk about the value that exists in Japanese
Speaker 2: equities at the moment. People will talk about the opportunity
Speaker 2: set for European companies. I mean, the European investment trust
Speaker 2: sector is one of the best performing so far here
Speaker 2: to date. Obviously had a pretty tory time for understandable
Speaker 2: reasons last year, but that has come back. People talk
Speaker 2: about emerging markets at a time when you know, arguably
Speaker 2: that the dollar is weakening. But it's interesting that you
Speaker 2: know this big debate, you know, growth versus value. Have
Speaker 2: we seen a complete change? And one suspects that it
Speaker 2: is going to be a more difficult period for growth investors.
Speaker 2: And yet if you look at what's happened here today,
Speaker 2: growths outperformance value on a kind of global equity basis. Now,
Speaker 2: maybe that's because of a small handful of tech companies,
Speaker 2: but I don't think you write off growth ultimately. I
Speaker 2: find that the debate between growth and value a little simplistic.
Speaker 2: I think you've got to get behind that a bit.
Speaker 1: Can I ask you about a couple of the trust
Speaker 1: in particular, there's the jp of mergaging Europe, Middle East
Speaker 1: and Africa Securities PLC.
Speaker 4: Now that used to be the Russian Trust, right correct?
Speaker 4: Is that the one I'm afraid I have to confess
Speaker 4: to holding that.
Speaker 1: Over the years on the basis that companies in Russia
Speaker 1: was so cheap, so cheap, they pretty much discounted a
Speaker 1: returned to communism and that didn't seem very likely.
Speaker 4: Well, that'll teach me.
Speaker 1: So that trust has now been expanded to invest in
Speaker 1: in all sorts of different areas.
Speaker 4: Tell me a little bit about the kind of thing
Speaker 4: it invests in.
Speaker 2: Yes, so you're absolutely right. So sharltles have approved a
Speaker 2: change of mandate there so it can invest in Africa,
Speaker 2: so obviously South Africa a key part of that particular market,
Speaker 2: and also the Middle East as well, so you know
Speaker 2: Saudi Q eight and so on and so forth. So
Speaker 2: you know, a broader a broad to mandate, but still
Speaker 2: relative early days following that strategy.
Speaker 4: Okay, so worth watching, I think.
Speaker 1: And then let's say we're worried about inflation, which of
Speaker 1: course we all are, which are.
Speaker 4: The trust would serve us best?
Speaker 3: There?
Speaker 1: What's in global call real assets for example, is that
Speaker 1: something that we could buy as an inflation heah, yeah, No.
Speaker 2: There's there's a range of exposure in that particular portfolio.
Speaker 2: So it has what I ask, commercial property, so that
Speaker 2: that's in the US and Asia Pacific. It then has
Speaker 2: a whole range of kind of infrastructure type plays in
Speaker 2: there as well, so transport being part of the story.
Speaker 2: And yeah, I'm in very much keeping a close eye
Speaker 2: on the inflation story and hoping to, you know, if
Speaker 2: not be a beneficiary, certainly kind of navigate those those
Speaker 2: turbulent waters.
Speaker 1: And is the view from you that inflation is likely
Speaker 1: to continue at the high level globally?
Speaker 4: So what's the JP Morgan view on this?
Speaker 2: Yeah, in a nutshell, yes, I think you know, inflation
Speaker 2: will obviously come down. I mean we all know that
Speaker 2: mathematically it has to come down, but it's not going
Speaker 2: to settle at levels that we have become used to,
Speaker 2: I think would be the view in house. What that
Speaker 2: level is remains to be seen. But I think in
Speaker 2: terms of interest rates, we're not going back to deminimous
Speaker 2: interest rates anytime soon. So you know, you talk to
Speaker 2: Karen Ward in our market insights team, for instance, and
Speaker 2: she's clear, you know, particularly with regard to the UK market.
Speaker 2: Then in fact inflation runs hotter for a period of time.
Speaker 2: So you know, this idea of that the two percent target,
Speaker 2: you know, almost falls away in the kind of the
Speaker 2: short and medium term until we kind of get the
Speaker 2: economy moving again.
Speaker 4: No, someone told the Bank of England.
Speaker 2: Well, you know, there's a difference between their messaging and
Speaker 2: the reality. I think you'll find.
Speaker 4: Yeah, now, I think we will all find that.
Speaker 1: We've had lots of conversations on this podcast about jam
Speaker 1: whether that two percent target will change or to the
Speaker 1: extent of which it will be fudged and become as
Speaker 1: little two to four percent excent. And let also lots
Speaker 1: of conversations about how we ended up with the two
Speaker 1: percent target in the first place, because anything anyone can
Speaker 1: really quite remember how it came about that two percent
Speaker 1: was the answer to all inflation.
Speaker 4: Okay, So.
Speaker 1: I think that pretty much casts it actually on the
Speaker 1: basics of the investment trust industry and where we are.
Speaker 1: But the key thing I supposed to say is that
Speaker 1: you have full confidence going forward that this is a
Speaker 1: sector that will remain successful and despite a dodgy year
Speaker 1: or two.
Speaker 2: Yeah, Look, it's a challenging period for investment trust companies.
Speaker 2: I mean, nobody can die that at the moment, I
Speaker 2: would expect to see an upticking corporate activity, and we've
Speaker 2: already seen that. So investment trust companies decided to give
Speaker 2: up the ghost, or return money to shareholders, or look
Speaker 2: to pursue mergers or change of managers. I mean, I
Speaker 2: think that's the period that we're in. That was certainly
Speaker 2: the experience in the early noughties and after the GFC.
Speaker 2: But you know, so a degree of rationalization I think
Speaker 2: is likely going forward. But you know, as mentioned, you know,
Speaker 2: this is a sector of one hundred and fifty five
Speaker 2: year history. It has been very successful at adapting. There
Speaker 2: are structural advantages that I think will stand it in
Speaker 2: good stead. And I think it's a fascinating time to
Speaker 2: be an investor in investment trass excellent, Simon.
Speaker 4: I couldn't agree with you more.
Speaker 1: And I tell you what, I didn't say that at
Speaker 1: the end of all my podcasts, thank you being with us,
Speaker 1: and thank you everyone for listening to this week's Marin
Speaker 1: Talks Money.
Speaker 4: We will be back next week, of course.
Speaker 1: In the meantime, if you like us show rape review
Speaker 1: and subscribe wherever you listen to podcasts, but do remember
Speaker 1: the basic rule, only positive reviews. This episode was hosted
Speaker 1: by me Maren Sumset Web. It was produced by Someasadi
Speaker 1: and Mohammad Farup.
Speaker 4: Additional editing by Blake Maples.
Speaker 1: Special thanks of course to Simon and to John Steppek,
Speaker 1: and finally a reminder to sign up to John's daily newsletter,
Speaker 1: Money Distilled.
Speaker 4: The link for that is in the show notes.
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Speaker 4: Thank you,