WEBVTT - Why Holding For the Long Term Is For Amateurs 0:00:03.120 --> 0:00:08.480 Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.440 --> 0:00:13.160 Hello, it's Maren sums up web here. If you are 0:00:13.240 --> 0:00:15.920 a regular listen to the show, and I'm sure you are, 0:00:16.079 --> 0:00:18.680 you'll already know. But this is just a reminder. I 0:00:18.800 --> 0:00:20.919 will be at the Fringe Festival in Edinburgh once again 0:00:20.960 --> 0:00:24.599 this year, hosting four very interesting conversations in Adam Smith's 0:00:24.640 --> 0:00:27.880 old home, Panma House. I'll be there August the seventeenth 0:00:27.960 --> 0:00:30.280 to August the twentieth. You can get your tickets by 0:00:30.280 --> 0:00:33.640 heading to the main Fringe website and searching for Maren. 0:00:33.680 --> 0:00:35.840 We have some brilliant guests this year. Normally I don't 0:00:35.880 --> 0:00:37.680 tell you who the guests are until you know the 0:00:37.840 --> 0:00:40.760 absolute last minute, but I will reveal that we do 0:00:40.840 --> 0:00:42.159 have the marvelous Ed Conway. 0:00:42.200 --> 0:00:42.519 This year. 0:00:42.560 --> 0:00:45.680 We've got the fantastic Russell Napier, and we have James 0:00:45.680 --> 0:00:47.879 Ferguson who was on the podcast last week and had 0:00:48.320 --> 0:00:51.320 a lot more to say, and other wi guests I 0:00:51.320 --> 0:00:53.560 will reveal as the time gets closer. 0:00:53.600 --> 0:00:54.720 All the way, I should tell you, of course, that 0:00:55.040 --> 0:00:56.240 John will be on. 0:00:56.040 --> 0:00:59.440 One day now back to our regular programming twodays. Actual, John, 0:00:59.440 --> 0:01:00.720 Are you gonna come in two days? 0:01:01.440 --> 0:01:01.720 Yeah? 0:01:01.840 --> 0:01:03.520 Unless you get anyone better. 0:01:03.720 --> 0:01:06.039 That's what usually happens, jacksone better and chuck you off 0:01:06.040 --> 0:01:08.720 that of course that's not going to happen. Right back 0:01:08.760 --> 0:01:11.200 to our regular programming. This week on the show, I 0:01:11.240 --> 0:01:13.440 speak with Adam Ragley. It's the fund manager at Cape 0:01:13.480 --> 0:01:16.200 Wrath Capital rather the fund manager at Case for a Capital, 0:01:16.240 --> 0:01:19.880 a UK equity boutique with a deep value investment philosophy. 0:01:19.920 --> 0:01:20.960 We like deep value. 0:01:21.280 --> 0:01:24.440 Dowgate Wealth integrated the Cape Wrath investment team late last year. 0:01:24.480 --> 0:01:27.760 We talked about all sorts of things, including why small caps, 0:01:28.120 --> 0:01:30.760 why the UK, and what he would buy if I 0:01:30.760 --> 0:01:34.080 wouldn't let him buy either of those things. But first, 0:01:34.120 --> 0:01:36.920 as a senior reporter and author of Money Distilled newsletter, 0:01:37.080 --> 0:01:38.240 John Staffer gets with me. 0:01:38.360 --> 0:01:42.200 John, Hello, Maden. Isn't it great to have the adults 0:01:42.240 --> 0:01:44.840 back in the room. I feel that's the traditional way 0:01:44.880 --> 0:01:46.600 to open a podcast at this point. 0:01:46.880 --> 0:01:48.800 Yes. And isn't it great to live in a beacon 0:01:48.840 --> 0:01:50.360 of stability? Oh? 0:01:50.440 --> 0:01:51.080 Fantastic? 0:01:51.240 --> 0:01:52.280 I know that's the thing we say. 0:01:52.320 --> 0:01:54.800 If I read one more article that starts with the 0:01:54.920 --> 0:01:58.720 UK is now speacon of stability in a volatile world, 0:01:59.040 --> 0:02:01.080 it might get quite at Although I think I might 0:02:01.120 --> 0:02:03.640 have said it and possibly even have written it myself. 0:02:03.760 --> 0:02:05.880 And you know what's going to be awful if it 0:02:05.920 --> 0:02:08.200 turns out that we are not a beacon of stability. 0:02:09.639 --> 0:02:10.640 What if this goes wrong? 0:02:11.000 --> 0:02:13.760 You know, we're really bigging up the stability here and 0:02:13.800 --> 0:02:16.200 I can't really see any reason why we go drastically 0:02:16.200 --> 0:02:17.520 wrong in the short term, but none of the else. 0:02:17.520 --> 0:02:19.959 It's going to be really really embarrassing if something something 0:02:20.040 --> 0:02:23.079 happens that makes the UK look not stable again. 0:02:23.600 --> 0:02:27.240 We'd be embardison to be if your expectations are fairy 0:02:27.360 --> 0:02:28.760 law or have been. 0:02:28.880 --> 0:02:29.600 No, they're not low. 0:02:29.720 --> 0:02:33.040 Expectations are very high for stability, maybe not very high 0:02:33.120 --> 0:02:36.360 for other stuff, but very very high for nothing happening. 0:02:36.360 --> 0:02:37.400 They might scare the horses. 0:02:37.680 --> 0:02:42.320 True, Okay, right, fingers crossed, everything crossed, because we don't 0:02:42.360 --> 0:02:45.760 want to have to start these podcasts with, oh my god, volatility. 0:02:46.480 --> 0:02:47.040 Don't want that. 0:02:47.480 --> 0:02:52.120 Right, You've been writing this week about the amount of 0:02:52.280 --> 0:02:55.240 tax that the government is managed to get from something 0:02:55.320 --> 0:02:56.959 they really shouldn't be able to get it from. 0:02:57.040 --> 0:03:01.560 Right, Yes, the interest on your savings I've got. I 0:03:01.600 --> 0:03:06.359 really found this number quite shocking simply because of the 0:03:06.680 --> 0:03:09.359 size of it. So Before we do this, I just 0:03:09.400 --> 0:03:12.040 want to say, like, so, for context, in twenty three 0:03:12.160 --> 0:03:16.680 twenty four tax year, inheritance tax which everyone hates and 0:03:17.040 --> 0:03:22.160 understand why, raised about seven point five billion pounds for HMRC, 0:03:23.440 --> 0:03:27.520 and stamp duty on property raised about eleven and a 0:03:27.520 --> 0:03:32.120 half billion pounds. So that's the context for this number. 0:03:32.639 --> 0:03:35.360 So savan's interest in twenty twenty one to twenty two, 0:03:35.760 --> 0:03:39.520 when basically interest rates were at zero and so no 0:03:39.560 --> 0:03:41.840 one was getting paid interest, and also the amount of 0:03:42.000 --> 0:03:44.800 interest you could earn before you paid income tax on 0:03:44.840 --> 0:03:50.280 it was higher. HMRS made one point three billion from 0:03:50.440 --> 0:03:52.760 tax on that income. This year. 0:03:52.880 --> 0:03:55.400 The expense is killing me. Jump, the suspense is literally 0:03:55.480 --> 0:03:58.520 killing me. Just give us the number. Give us the number. 0:03:59.200 --> 0:04:03.480 Ten four billion this year there's more than the inheritance 0:04:03.520 --> 0:04:06.680 tax take. It's almost as much as the property transaction 0:04:06.840 --> 0:04:10.640 tax take. It's a significant number. Yeah, And. 0:04:12.560 --> 0:04:15.680 Imagine I'm interrupting, Sorry to interrupt, but imagine how many 0:04:15.720 --> 0:04:19.000 people don't know that they have to pay tax on 0:04:19.040 --> 0:04:21.360 the income from their savings because they haven't had to 0:04:21.520 --> 0:04:23.560 for so long, and people brought up in a very 0:04:23.560 --> 0:04:24.520 low income environment. 0:04:24.560 --> 0:04:24.919 You may I. 0:04:25.000 --> 0:04:26.920 Suddenly have savings because of course a lot of people 0:04:27.000 --> 0:04:30.000 have savings. Now they may suddenly have savings on which 0:04:30.080 --> 0:04:31.920 tax should be paid and they're not aware of it. 0:04:31.960 --> 0:04:33.840 So I bet there's a bigger tax gap there than 0:04:33.839 --> 0:04:34.400 you'd expect. 0:04:34.400 --> 0:04:38.120 As well, there probably is stuff that people should be 0:04:38.120 --> 0:04:41.320 declared on their self assessment forms that then not yeah, we. 0:04:41.360 --> 0:04:42.920 Don't have self assessment forms. 0:04:43.080 --> 0:04:43.479 Yeah. 0:04:43.520 --> 0:04:46.080 But the point this is a lot of money, and 0:04:46.200 --> 0:04:50.800 given the ser size of the allowances that we have 0:04:51.360 --> 0:04:56.560 to avoid paying this quite you know above broadly, it 0:04:56.680 --> 0:05:00.839 just surprises me that there is this much going to HMRC, 0:05:01.240 --> 0:05:04.320 and it feels like it's probably largely a voluntary tax 0:05:04.400 --> 0:05:05.520 on an apathy tax. 0:05:05.760 --> 0:05:07.720 That is interesting, isn't it? Because you don't have to 0:05:07.720 --> 0:05:09.560 do this. You can put your money inside a sick 0:05:09.640 --> 0:05:11.960 You can put it inside and I say, you can 0:05:12.000 --> 0:05:14.120 get one of the national savings accounts that does not 0:05:14.160 --> 0:05:17.560 attract tax, et cetera. There is absolutely no reason unless 0:05:17.600 --> 0:05:20.920 you really have maxed all that stuff out, there's very 0:05:20.920 --> 0:05:23.080 little reason to have savings that attract tax. 0:05:23.279 --> 0:05:25.159 No, And even then, if you've got so much money 0:05:25.200 --> 0:05:27.240 you've been able to max that, you can start looking 0:05:27.279 --> 0:05:30.040 at things that are even you know, whack your light 0:05:30.160 --> 0:05:32.880 enterprise investment schemes and venture capital trusts. If you really 0:05:32.960 --> 0:05:34.400 do have that amount of money, Yeah. 0:05:34.240 --> 0:05:36.440 If you've maxed all that out, what are you doing 0:05:36.480 --> 0:05:39.000 with your cat sitting around in a savings count of 0:05:39.040 --> 0:05:40.080 Barkley's in the first place. 0:05:40.760 --> 0:05:42.960 Exactly in the weird kind of way, this tax just 0:05:42.960 --> 0:05:48.240 shouldn't exist, This tax take shouldn't exist. And so yeah, 0:05:48.279 --> 0:05:50.960 get your finger out and sort of your personal finances 0:05:50.960 --> 0:05:53.359 if you're one of these people. And it is mostly 0:05:53.400 --> 0:05:56.960 additional rate tax payers, by the way, so the vast 0:05:56.960 --> 0:05:58.880 majority of this is coming from people in the forty 0:05:58.920 --> 0:06:02.160 five percent tax ban. So you know, go and have 0:06:02.200 --> 0:06:05.520 a look at billion money as and if it's somewhere 0:06:05.600 --> 0:06:08.799 it's paying that amount e tax on your interest income, 0:06:09.200 --> 0:06:10.640 then find something to do with it. 0:06:11.200 --> 0:06:13.760 On the other hand, I suppose what you might say is, 0:06:13.800 --> 0:06:15.800 if you don't pay tax this way, you're definitely going 0:06:15.880 --> 0:06:18.400 to pay it another way. You know, you can pay 0:06:18.680 --> 0:06:20.560 your interest, but something else is going to come. I'm 0:06:20.640 --> 0:06:22.640 quite internested in this idea by the way of means 0:06:22.720 --> 0:06:26.000 testing the state pension. It came up last week and 0:06:26.000 --> 0:06:28.040 we haven't heard much more about it this week, but 0:06:28.400 --> 0:06:30.520 it seems like one of those things that you would 0:06:30.560 --> 0:06:32.680 constantly say, if you're in the treasury. 0:06:32.360 --> 0:06:33.839 Why don't you mean Texas state beensine? 0:06:33.880 --> 0:06:34.360 What do you mean? 0:06:34.400 --> 0:06:36.120 Says the state pension? And then you look at it 0:06:36.160 --> 0:06:38.159 more closely and you think, well, this is really hard. 0:06:38.560 --> 0:06:40.800 This is really hard because if you means test a 0:06:40.880 --> 0:06:42.760 state pension, what is it you mean touched? 0:06:43.200 --> 0:06:44.440 Do you look at just. 0:06:44.440 --> 0:06:46.720 Someone's pension income so you look at their dB and 0:06:46.760 --> 0:06:48.479 their DC and you look at what they're getting from that, 0:06:48.880 --> 0:06:50.800 or do you look at their income outside that? 0:06:50.960 --> 0:06:51.960 And if you start looking at. 0:06:51.839 --> 0:06:55.279 Them their income outside their pension assets, then you have 0:06:55.360 --> 0:06:57.360 to look not just at the income that they have, 0:06:57.680 --> 0:07:01.280 but the assets that they have that could be used 0:07:01.279 --> 0:07:03.640 to generate income. Right, So if you're can look at 0:07:03.640 --> 0:07:06.320 someone's pension and you say, well, I'm just looking at 0:07:06.320 --> 0:07:08.920 their income and then everyone immediately shifts everything over it 0:07:08.960 --> 0:07:11.240 to growth stocks that they don't have an income, then 0:07:11.280 --> 0:07:12.960 you think, well, hang on, that's not okay. So now 0:07:12.960 --> 0:07:15.400 we need to tax it as though they were in 0:07:15.400 --> 0:07:18.160 dividend producing socks. Now that doesn't work, So how do 0:07:18.200 --> 0:07:20.080 you do it? So suddenly what is it? 0:07:20.080 --> 0:07:21.920 Oh, it's a wealth tax. 0:07:22.120 --> 0:07:25.240 Because the only thing you can do is look at 0:07:25.400 --> 0:07:31.520 the absolute value of the potentially income generating assets people have, 0:07:32.400 --> 0:07:33.560 and tax on the base of that. 0:07:34.080 --> 0:07:36.120 I was thinking about this that there's no way that 0:07:36.160 --> 0:07:37.280 you can means. 0:07:37.080 --> 0:07:41.440 Test the state pension without effectively introducing a wealth tax. 0:07:42.520 --> 0:07:45.000 And I give that to you, Rachel Reeves, for free. 0:07:46.360 --> 0:07:50.480 I think that's a really good point law. And I 0:07:50.520 --> 0:07:53.400 think actually there is something then that which points to 0:07:53.440 --> 0:07:56.000 the thing that you are always talking about, which is 0:07:56.040 --> 0:07:58.440 that rather than having inheritance tax, we should have a 0:07:59.080 --> 0:08:05.920 gift tax. And that sort of encourages it both encourages 0:08:05.960 --> 0:08:09.280 wealth transferils. You only get tax when they've are something's crystallized, 0:08:09.360 --> 0:08:13.160 so you don't have all the evaluation golf hartening. And 0:08:13.200 --> 0:08:17.080 it is a wealth tax, but it's a wealth a 0:08:17.120 --> 0:08:20.360 wealth tax that has got far fewer skewed incentives than 0:08:20.520 --> 0:08:21.239 anything else. 0:08:23.080 --> 0:08:25.760 Yep, make it easy, make it easy, Make it easy. 0:08:25.840 --> 0:08:28.320 I mean, when we talk about growth, and there's new government, 0:08:28.400 --> 0:08:30.480 and all credit to them for this, at least they 0:08:30.560 --> 0:08:32.760 talk about nothing but growth, How to generate growth. I'm 0:08:32.760 --> 0:08:34.080 not sure they're going about it the right way, but 0:08:34.120 --> 0:08:36.040 we'll find out that over the next couple of years. 0:08:36.400 --> 0:08:38.840 But they talk about it all the time. But one 0:08:38.880 --> 0:08:40.840 of the things that you and I often talk about. 0:08:40.840 --> 0:08:44.239 One thinks that would make it easier for the economy 0:08:44.280 --> 0:08:47.080 to grow would be for the tax system to be 0:08:47.320 --> 0:08:50.160 more simple. I mean I had a little example myself 0:08:50.160 --> 0:08:52.839 this week, a boy with the details, but a little 0:08:52.880 --> 0:08:55.680 tax thing, and the admin neally defeated me. And I 0:08:55.720 --> 0:08:57.640 looked at it and I thought, I just don't think 0:08:57.640 --> 0:08:59.959 I'll bother with that. But we'll do that thing again 0:09:00.280 --> 0:09:02.640 because I can't deal with the admin. 0:09:02.920 --> 0:09:05.520 Now take that tiny. 0:09:05.200 --> 0:09:08.720 Little personal problem up to large companies, to small companies, 0:09:08.720 --> 0:09:11.920 to medium size companies all the time dealing with endless, 0:09:11.920 --> 0:09:16.200 relentless complications. If you just make it easier, I think 0:09:16.240 --> 0:09:19.640 you would find that growth would follow simplicity, and you 0:09:19.760 --> 0:09:23.559 might not need the endless parade of new institutions that 0:09:23.600 --> 0:09:25.839 we're hearing about at the moment, which moves me very 0:09:25.960 --> 0:09:31.040 nicely to the National Wealth Fund, yes, which is not 0:09:31.280 --> 0:09:33.439 really a national wealth fund. 0:09:33.480 --> 0:09:36.480 Well no, because that would imply that we hid some 0:09:36.920 --> 0:09:41.360 wealth and that as opposed to mass of debts on 0:09:41.559 --> 0:09:45.680 the public balance sheet. So deally, it's just it's basically 0:09:45.679 --> 0:09:48.280 it's fine. Look, I mean, we've both been trying to 0:09:48.320 --> 0:09:52.439 work what there says, But it's basically a seed capital 0:09:52.800 --> 0:09:57.559 fund for projects that the private sector is not investing 0:09:57.600 --> 0:10:02.960 in because they don't offer every tourns that match the risk. Yeah, 0:10:04.559 --> 0:10:07.240 and I mean that's whatever kind of discussion we have 0:10:07.280 --> 0:10:10.440 about it is that's sort of the fundamental problem that 0:10:10.440 --> 0:10:13.080 you're going to come back to, is that no one 0:10:13.160 --> 0:10:16.000 is doing this stuff in the first place because it 0:10:16.080 --> 0:10:20.600 doesn't offer decent enough returns and therefore it needs a 0:10:20.640 --> 0:10:25.080 public subsidy some way. That subsidy doesn't need to necessarily 0:10:25.120 --> 0:10:29.360 be directly financial, but it's you know, if it's in 0:10:29.400 --> 0:10:32.320 the form of a guarantee or in the form of 0:10:32.520 --> 0:10:36.679 you know, favoritizing legislation or allowing you. 0:10:36.679 --> 0:10:39.600 To raise capital, lower rate or anything like that, anything 0:10:39.640 --> 0:10:41.960 that takes some of the sting out of the risk. 0:10:42.040 --> 0:10:44.280 But however you cut it, if they call it a. 0:10:44.200 --> 0:10:49.679 Public private partnership, it's a subsidy of some kind. And 0:10:49.720 --> 0:10:52.679 it talks about catalytic capital, which is a very nice 0:10:52.679 --> 0:10:54.160 phrase and when he use a lot of these days, 0:10:54.400 --> 0:10:57.760 but it also talks about crowding in private investment. 0:10:58.160 --> 0:10:59.800 Yes, that's a lovely phrase. 0:11:00.200 --> 0:11:02.760 And this is this is an interesting phrase that I 0:11:02.800 --> 0:11:04.680 don't think we've already seen used in this kind of 0:11:04.720 --> 0:11:05.560 context before. 0:11:05.880 --> 0:11:09.480 If you're crowding in private investment, what are you doing? 0:11:10.120 --> 0:11:12.200 I guess If you're crowding, then then you either have 0:11:12.240 --> 0:11:15.520 to have something extremely appealing for them to crowd down too, 0:11:16.080 --> 0:11:17.439 or you need to be running behind them with a 0:11:17.520 --> 0:11:21.080 cattle proude to force them crowed into the thing. So 0:11:21.720 --> 0:11:24.000 it's either a sold out tail, a swift coincert or 0:11:24.120 --> 0:11:27.000 a Japanese subway train. What about a board? 0:11:27.080 --> 0:11:30.640 Very good, John, that's very good, very thank you. It 0:11:30.640 --> 0:11:32.760 feels to me a little more like a subway train. 0:11:33.800 --> 0:11:36.120 Yeah, I didn't think it was going to be swifty. Unfortunately. 0:11:36.200 --> 0:11:37.920 Well, it kind of depends on the projects, I bet. 0:11:37.960 --> 0:11:39.520 But I do worry. I do worry that. 0:11:39.800 --> 0:11:41.400 You know, when we talk about who are going to 0:11:41.400 --> 0:11:43.200 be the co investor here, who is it going to 0:11:43.200 --> 0:11:46.319 be that it might be our pension funds. And how 0:11:46.360 --> 0:11:49.280 does our pension fund money get from a Viva legal 0:11:49.320 --> 0:11:51.520 in general whatever into the national welfund? 0:11:51.600 --> 0:11:54.040 How does that work? What is the incentive or what 0:11:54.160 --> 0:11:54.640 is the problem. 0:11:54.720 --> 0:11:56.920 We don't know that yet and hopefully we'll find that 0:11:56.960 --> 0:11:59.040 out over the next few weeks. But the key thing 0:11:59.080 --> 0:12:03.040 to remember is that one way or another you'll be paying. 0:12:07.320 --> 0:12:08.480 Welcome to Maren Talks. 0:12:08.320 --> 0:12:10.160 Money, the podcast in which people who know the markets 0:12:10.200 --> 0:12:12.680 explain the markets. I'm mere in Sunset Web and here 0:12:12.800 --> 0:12:14.559 is my conversation with Adam Ragley. 0:12:14.360 --> 0:12:17.280 Fund manager with Cape Breath Capital, a UK equity. 0:12:17.040 --> 0:12:21.280 Boutique with deep value investment philosophy. 0:12:22.200 --> 0:12:24.280 Adam, thank you so much for joining us today. Very 0:12:24.360 --> 0:12:24.760 kind of you. 0:12:25.360 --> 0:12:26.120 Thanks for having me. 0:12:26.960 --> 0:12:27.160 Now. 0:12:27.200 --> 0:12:28.880 The last time we spoke, we were in Hey on 0:12:28.920 --> 0:12:32.040 why right, at the Financial Festivals of Mistakes. 0:12:32.000 --> 0:12:32.480 That's right. 0:12:32.520 --> 0:12:35.040 Yeah, a lot of fun and Adam. 0:12:34.760 --> 0:12:37.240 By the way listeners, was extremely kind because I'd been 0:12:37.280 --> 0:12:38.840 on how many panels had I'd been on by then? 0:12:38.960 --> 0:12:40.240 Or paneled out? 0:12:40.360 --> 0:12:43.360 So I felt I thought, I'm taking audience members in 0:12:43.480 --> 0:12:46.679 for my next panel, and Adam was was dragged from 0:12:46.720 --> 0:12:49.200 obscurity onto the stage, well not exactly obscurity, and we 0:12:49.240 --> 0:12:51.000 had it. We had a great conversation. 0:12:50.720 --> 0:12:53.079 Then, and we're going to have another one now, right, 0:12:53.960 --> 0:12:54.120 y ah. 0:12:54.280 --> 0:12:56.920 Yeah, that was a lot of fun. I enjoyed it. 0:12:56.920 --> 0:12:59.720 It was I'm sad we don't have a live audience 0:12:59.720 --> 0:13:01.920 today to heckle and ask questions, but you know that's 0:13:01.960 --> 0:13:05.520 something comments. So, Adam, let's start by talking about how 0:13:05.559 --> 0:13:09.360 you invest. You run a pretty focused fund that invests 0:13:09.400 --> 0:13:13.800 in UK small caps, So let's start by asking why 0:13:13.880 --> 0:13:16.840 the UK? Why small caps? Why then when you started 0:13:16.880 --> 0:13:18.000 the fund and why now? 0:13:18.600 --> 0:13:24.439 Sure, so I've always invested, or most of my career, 0:13:24.480 --> 0:13:28.640 I've been involved in small cap investing, either in the 0:13:28.760 --> 0:13:31.560 UK or kind of UK and Europe. I think small 0:13:31.640 --> 0:13:38.000 caps a really interesting market because it's generally less well 0:13:38.080 --> 0:13:43.360 covered than larger companies. Smaller companies generally have fewer analysts 0:13:43.440 --> 0:13:45.480 looking at them, fewer people interested in them, and that 0:13:45.559 --> 0:13:50.280 makes it a less efficient market, and so I think 0:13:50.280 --> 0:13:54.240 there's a bigger opportunity in small caps as an active 0:13:54.280 --> 0:13:56.600 manager to generate alpha. 0:13:57.280 --> 0:13:59.720 So that's kind of why small cap is that. 0:13:59.640 --> 0:14:02.000 More the case now then it was even a decade ago, 0:14:02.040 --> 0:14:04.080 And that regularly change in the UK has meant that 0:14:04.120 --> 0:14:06.680 there are even fewer analysts following a lot of our 0:14:06.720 --> 0:14:09.720 small cap companies and they were ten to fifteen years ago. 0:14:09.920 --> 0:14:13.320 With a kind of whole unbundling thing. There's definitely less 0:14:13.400 --> 0:14:17.280 research coverage around than there was, and so there are 0:14:17.840 --> 0:14:20.440 many reasonable site well for it. For us a reasonable 0:14:20.440 --> 0:14:22.360 sized company, there are kind one hundred two undred million 0:14:22.360 --> 0:14:26.200 pound companies that might have just the house broker covering them, 0:14:26.760 --> 0:14:31.320 and in those situations, the housebroker you know, is working 0:14:31.400 --> 0:14:34.360 very closely with the management team and so their forecast 0:14:34.520 --> 0:14:37.440 may reflect more what the management team would like them 0:14:37.480 --> 0:14:39.200 to say than what you know, necessarily the kind of 0:14:39.240 --> 0:14:42.080 independent view of the of the analysts. So there's all 0:14:42.120 --> 0:14:44.280 sorts of things kind of going on there. But what 0:14:44.320 --> 0:14:47.400 it means is, yes, I think the coverage is probably 0:14:47.400 --> 0:14:49.880 not as good as it was ten years ago, and 0:14:49.920 --> 0:14:52.840 that can create more opportunities for active So. 0:14:53.360 --> 0:14:55.760 Small caps make sense because of that risen But why 0:14:56.000 --> 0:14:57.040 UK small caps? 0:14:57.640 --> 0:15:01.240 So I think that plenty to go for in the 0:15:01.320 --> 0:15:05.600 UK basically, I mean I have looked at European small 0:15:05.640 --> 0:15:10.120 caps in the past. I think there is a benefit 0:15:10.320 --> 0:15:13.400 from operating kind of in your in your home market 0:15:13.480 --> 0:15:16.600 in terms of understanding the culture and the language. And 0:15:16.960 --> 0:15:21.200 I think, you know, investing in Europe some countries probably 0:15:21.200 --> 0:15:23.320 worse than others. There was always a sense that there 0:15:23.480 --> 0:15:27.400 was a local cabal of investors who probably had you know, 0:15:27.440 --> 0:15:31.560 an edge versus us sitting in the UK because they 0:15:31.600 --> 0:15:34.240 were that much closer to the management or you know, 0:15:34.480 --> 0:15:37.240 the information flow is was you know, it was easier. 0:15:37.280 --> 0:15:39.560 So I think there is a benefit to investing in 0:15:39.720 --> 0:15:41.360 UK companies if you're sitting in the UK. 0:15:42.160 --> 0:15:44.640 But there's also value in the UK, A. 0:15:44.520 --> 0:15:47.000 Lot of value. Yeah, huge amount of value in the UK. 0:15:47.080 --> 0:15:50.000 I mean, this is the I mean I've been investing 0:15:50.040 --> 0:15:52.560 in the UK for kind of twenty odd years. I've 0:15:52.560 --> 0:15:57.280 been running a kind of deep value strategy for fifteen 0:15:57.360 --> 0:16:00.440 years or so, and I'd say this is, you know, 0:16:00.640 --> 0:16:04.120 post COVID, we are in a fantastic market for value 0:16:04.480 --> 0:16:08.160 in the UK, particularly in smaller companies. Over the last 0:16:08.240 --> 0:16:12.320 five years, smaller companies in the UK and globally have 0:16:12.440 --> 0:16:15.560 underperformed their larger peers, and I think that's not surprising 0:16:15.600 --> 0:16:19.160 given the environment we've been in. If you're expecting a recession, 0:16:19.720 --> 0:16:21.880 then you don't invest in small caps because generally they're 0:16:21.960 --> 0:16:25.920 kind of more more volatile, more leveraged into economic growth. 0:16:25.960 --> 0:16:28.080 And in the last five years we've had you know, 0:16:28.120 --> 0:16:30.960 the whopper of all recessions with COVID in the UK. 0:16:31.040 --> 0:16:33.240 We had a short kind of technical recession at the 0:16:33.320 --> 0:16:35.760 end of last year. So it's not been a kind 0:16:35.800 --> 0:16:40.040 of fantastic economic environment and that's reflected in the underperformance 0:16:40.120 --> 0:16:42.560 of small versus large. So I think over the last 0:16:42.560 --> 0:16:45.760 five years in the UK, small's probably underperformed large by 0:16:45.760 --> 0:16:48.720 about twenty percent. But if you look over kind of 0:16:48.760 --> 0:16:51.840 longer time frames, I mean, smaller companies generally have high 0:16:51.880 --> 0:16:55.400 growth rates, and if you go back, say over a 0:16:55.440 --> 0:16:58.400 twenty five year timeframe, there's significant our performance of small 0:16:58.520 --> 0:16:59.400 versus large in the. 0:16:59.400 --> 0:17:00.960 UK and globally. 0:17:01.080 --> 0:17:03.360 So you know, looking at some numbers in front of me, 0:17:03.360 --> 0:17:05.680 you know about two hundred and fifty percent out performance 0:17:05.760 --> 0:17:08.639 of UK small cap indu cries and the UK versus 0:17:09.080 --> 0:17:11.960 UK large cap in the Sea. So I think there's 0:17:12.160 --> 0:17:16.680 there's a strong argument, a very compelling argument for holding 0:17:16.720 --> 0:17:19.600 smaller companies for the long term. If you've got a 0:17:19.600 --> 0:17:22.600 more tactical approach, then it will depend on your outlook 0:17:22.640 --> 0:17:24.879 for the economic environment. But if there was a market 0:17:24.920 --> 0:17:27.280 I wanted to be being for my career and I 0:17:27.280 --> 0:17:29.720 could choose small versus large, I'd chose small every day. 0:17:30.080 --> 0:17:31.760 And do you think that that's still the case for 0:17:31.800 --> 0:17:34.399 the UK given the regular outflows we've seen from the 0:17:34.480 --> 0:17:37.000 UK market, you know, month after month after month for 0:17:37.080 --> 0:17:39.000 so many months now, it's getting ridiculous. So there are 0:17:39.080 --> 0:17:41.520 hints that we're beginning to see some domestic inflows again, 0:17:41.800 --> 0:17:44.520 But there are so many reasons that we given on 0:17:44.520 --> 0:17:46.400 this podcast and all over the place as to why 0:17:46.480 --> 0:17:49.359 the UK market is a continuing mess. 0:17:49.920 --> 0:17:52.240 Yeah, I mean, I think as a value invests in, 0:17:52.320 --> 0:17:56.040 one of the key things you believe in is mean reversion, 0:17:57.200 --> 0:18:00.719 and the question always is when, and that's the answer 0:18:00.760 --> 0:18:06.159 that you can't you could rarely provide with much accuracy. 0:18:06.280 --> 0:18:09.600 So you know, I think that these things go in cycles. 0:18:09.720 --> 0:18:12.160 And also, I mean a bit more kind of anecdotally 0:18:12.240 --> 0:18:14.360 the types of conversations I've been having, I think there's 0:18:14.359 --> 0:18:17.399 a lot more interest, a growing interest from outside of 0:18:17.440 --> 0:18:20.760 the UK in the UK market and talking to global 0:18:20.800 --> 0:18:24.600 managers for example, based in the US. There is a 0:18:24.880 --> 0:18:28.359 very kind of wariness around the valuations in the US market, 0:18:28.400 --> 0:18:31.800 and people look over to the UK and it's extremely 0:18:31.880 --> 0:18:34.680 cheap relative to other markets, relative to its own history. 0:18:35.640 --> 0:18:37.679 And so if you do, you know, believe in that 0:18:37.840 --> 0:18:41.000 mean reversion argument, then there's got to be a fantastic 0:18:41.040 --> 0:18:44.520 opportunity in the UK. And in terms of catalysts, I mean, 0:18:44.840 --> 0:18:49.679 obviously there's there's a lot of discussion about takeovers in 0:18:49.720 --> 0:18:52.680 the UK market, things very cheap, things getting taken private. 0:18:53.000 --> 0:18:55.560 There's a lot more buybacks happening in the UK. I've 0:18:55.600 --> 0:18:59.879 noticed the last six to twelve months or so companies, 0:19:00.080 --> 0:19:01.760 more and more companies have been coming out buying back 0:19:01.800 --> 0:19:03.760 their own shares. So I think there are a few 0:19:04.040 --> 0:19:08.000 possible catalysts there, certainly, you know, on a case by 0:19:08.040 --> 0:19:09.439 case basis. 0:19:09.680 --> 0:19:12.040 Yeah, And it is there's less the buybacks and more 0:19:12.040 --> 0:19:14.800 of the takeovers that might attract international attention and make 0:19:14.880 --> 0:19:17.080