WEBVTT - Wellington’s Shilling, Shields on Secular Growth 0:00:13.160 --> 0:00:16.560 Welcome to Inside Active, a podcast about active managers that 0:00:16.600 --> 0:00:19.759 goes beyond sound bites and headlines, that looks steeper into 0:00:19.760 --> 0:00:25.160 their processes, challenges and philosophies and security selection. I'm David Cohne, 0:00:25.200 --> 0:00:28.160 i lead mutual fund and active Research at Bloomberg Intelligence. 0:00:28.480 --> 0:00:32.320 Today my cost is Gina Martin Adams, chief Equity strategist 0:00:32.320 --> 0:00:35.400 at Bloomberg Intelligence. Gina, thank you for joining me today 0:00:35.400 --> 0:00:36.200 as my co host. 0:00:36.680 --> 0:00:37.320 Thank you for. 0:00:37.240 --> 0:00:38.920 Having me and David. 0:00:39.040 --> 0:00:39.159 So. 0:00:39.320 --> 0:00:43.839 In your recent note US Equity Monthly Markets Signals, you 0:00:43.880 --> 0:00:47.479 talk about the rotation out of tech stocks and those 0:00:47.520 --> 0:00:51.680 stocks being among the worst performing as the rate cut 0:00:51.840 --> 0:00:55.480 trade persists. Can you tell our listeners what the rate 0:00:55.560 --> 0:00:59.279 cut trade is and what the sector rotation model is 0:00:59.320 --> 0:00:59.920 currently face. 0:01:00.720 --> 0:01:03.320 Yeah, A great question. You know, I think that a 0:01:03.400 --> 0:01:05.959 lot of what we've seen in the equity market volatility 0:01:06.000 --> 0:01:09.520 can be attributed to a change in monetary policy prospects. 0:01:10.600 --> 0:01:12.600 Over the course of the last couple of months, it's 0:01:12.640 --> 0:01:16.400 become clear that the FED is likely to decrease interest rates, 0:01:16.400 --> 0:01:18.880 and that sparked some interest in some sectors that were 0:01:18.920 --> 0:01:21.520 otherwise dormants, some stocks that were otherwise dormant in the 0:01:21.640 --> 0:01:24.560 s and P five hundred. So in addition to maybe 0:01:24.560 --> 0:01:28.280 some fundamental rotation, fundamentally driven rotation, you've got this kind 0:01:28.280 --> 0:01:33.080 of economic policy related factor that's driven interest in financials 0:01:33.160 --> 0:01:37.560 and utilities. Even real estate stocks are breaking out, with 0:01:37.640 --> 0:01:40.759 home builders really starting to rally here. So we're starting 0:01:40.760 --> 0:01:43.880 to see some rotation into other segments of the index. 0:01:43.920 --> 0:01:45.880 I call that the rate cut trade. I think there 0:01:45.880 --> 0:01:47.520 are a few other things behind it, and I look 0:01:47.520 --> 0:01:50.600 forward to discussing that, among other things with our guests today. 0:01:51.400 --> 0:01:54.360 Well, speaking of guests, I'd like to welcome Drew Shilling 0:01:54.480 --> 0:01:59.000 and Clark Shields from Wellington Management here. They do manage 0:01:59.040 --> 0:02:03.000 a part of the Vanguard US Growth Fund ticker BWUSX. 0:02:03.520 --> 0:02:06.800 Drew Clark, thank you for being here today. 0:02:07.520 --> 0:02:09.480 Thanks very much for having us. It's great to be here. 0:02:09.840 --> 0:02:11.360 Great to be here. David, thank you. 0:02:12.440 --> 0:02:15.120 So i'd like to start off with asking, actually both 0:02:15.160 --> 0:02:19.560 of you, how you got your starts in the investment industry. So, actually, Drew, 0:02:19.639 --> 0:02:20.400 we'll start with you. 0:02:21.120 --> 0:02:24.600 I actually was exposed to the markets from a very 0:02:24.639 --> 0:02:30.919 young age. My father was actually the first chief economist 0:02:30.919 --> 0:02:34.280 at Merrill Lynch back in the nineteen sixties. At the 0:02:34.360 --> 0:02:38.919 time the bond houses all had economists, but the stockhouses 0:02:39.400 --> 0:02:42.160 did not, and that changed and he was the first 0:02:42.240 --> 0:02:46.560 chief economist there. So I heard about markets and investing 0:02:46.600 --> 0:02:49.240 around the dinner table from a very young age. And 0:02:49.960 --> 0:02:55.480 I started investing in individual stocks as a teenager, not 0:02:55.520 --> 0:02:58.760 in a huge way, but with my lawnmowing and house 0:02:58.800 --> 0:03:02.840 painting money, and and that definitely got me more and 0:03:02.880 --> 0:03:06.440 more interested about all of the research involved and the 0:03:06.520 --> 0:03:11.440 intrigue about figuring out an investment case for security. And 0:03:11.880 --> 0:03:14.720 following that through out of college, I was in the 0:03:14.720 --> 0:03:18.000 investment banking world as a m and a analyst, and 0:03:18.040 --> 0:03:22.920 that continued my exposure to the markets. And after I 0:03:22.960 --> 0:03:26.640 graduated from business school, I came to Wellington Management and 0:03:26.720 --> 0:03:29.720 I'm in my thirtieth year here, So it started early 0:03:29.760 --> 0:03:31.280 and just developed over time. 0:03:32.040 --> 0:03:34.200 Nice Clark, how about yourself? 0:03:34.840 --> 0:03:35.720 Yeah, So I would. 0:03:35.560 --> 0:03:38.160 Say in college I kind of found my way to 0:03:38.240 --> 0:03:42.920 the business school and started studying finance and really enjoyed it. 0:03:43.040 --> 0:03:46.880 And like most college kids who liked finance, I got 0:03:47.520 --> 0:03:50.080 convinced that I had to go work in investment banking 0:03:50.120 --> 0:03:52.360 and that was the end all of you all. So 0:03:52.400 --> 0:03:53.720 I did that for a couple of years, and I 0:03:53.800 --> 0:03:56.520 really enjoyed the people I work with, but I want 0:03:56.560 --> 0:04:00.680 to be allocating capital. And so in May of two thousand, 0:04:01.520 --> 0:04:04.160 I moved to Boston and I joined an early stage 0:04:04.240 --> 0:04:07.640 venture capital firm, and it was literally within ten days 0:04:07.800 --> 0:04:10.880 of the NASDAC peak, you know, the Internet bubble peak. 0:04:10.960 --> 0:04:13.560 So my timing could have been a little bit better, 0:04:13.840 --> 0:04:15.960 but it was an amazing experience, you know that. You know, 0:04:16.040 --> 0:04:18.800 I saw the I saw the funding environment at that 0:04:18.880 --> 0:04:23.440 time where you had highly speculative businesses getting, you know, 0:04:23.560 --> 0:04:26.320 raising tons of money at very high valuations, and then 0:04:26.360 --> 0:04:29.480 all of a sudden, it just collapsed really quickly. And 0:04:29.560 --> 0:04:34.039 I have memories of going to office buildings with entrepreneurs 0:04:34.080 --> 0:04:36.719 we had invested in with and you know, literally shutting 0:04:36.760 --> 0:04:38.640 the buildings down and turning the lights off. 0:04:39.680 --> 0:04:42.920 And so I kind of saw that speculative activity and collapse. 0:04:43.000 --> 0:04:45.800 But at the same time, we had also invested in 0:04:45.880 --> 0:04:49.680 a small company in a suburb of Boston called Curing, 0:04:49.880 --> 0:04:51.160 the Coffee Company, and they only had. 0:04:51.120 --> 0:04:52.599 Thirty million dollars in revenues. 0:04:53.360 --> 0:04:57.520 They only sold coffee machines into the office space, and 0:04:57.640 --> 0:05:01.200 when I was affiliated with that company, they transitioned in 0:05:01.279 --> 0:05:03.920 the consumer space and started selling coffee machines in the 0:05:03.920 --> 0:05:07.960 consumer and that company absolutely took off and was ultimately 0:05:07.960 --> 0:05:11.120 sold for like fourteen billion dollars. And you know, Karig 0:05:11.240 --> 0:05:14.559 had a great management team. They were attacking a really 0:05:14.600 --> 0:05:18.280 big addressable market. They had competitive advantage because they had 0:05:18.279 --> 0:05:22.480 a lot of patents around the technology that they own. 0:05:22.720 --> 0:05:25.200 And so I think back then that actually started to 0:05:25.720 --> 0:05:29.400 initially shape how I thought about growth investing, being able 0:05:29.400 --> 0:05:31.680 to look at the specultive stuff that never got anywhere 0:05:31.680 --> 0:05:34.200 and blew up versus a qureig that ended up being 0:05:34.200 --> 0:05:35.440 worth fourteen billion dollars. 0:05:36.080 --> 0:05:37.679 So I did that for about four years. 0:05:37.680 --> 0:05:40.240 I went to graduate school, and then I joined t 0:05:40.440 --> 0:05:43.440 ROW for about a decade in Central Research down in Baltimore, 0:05:43.560 --> 0:05:45.880 and now I've been at Wellington for about ten. 0:05:45.800 --> 0:05:49.360 Years working with Drew here on a growth team. 0:05:50.279 --> 0:05:53.440 Well, it's funny you mentioned two thousand. That's actually I 0:05:53.480 --> 0:05:56.600 started my career in late two thousand, right when everything 0:05:56.640 --> 0:06:00.279 started going kind of crazy towards the end. So's you 0:06:00.279 --> 0:06:03.640 mentioned that, But I do want to mention for our listeners. 0:06:03.920 --> 0:06:08.360 Vanguard's active equity mutual funds are managed through external subadvisors, 0:06:08.440 --> 0:06:11.440 usually with multiple managers and I mean that's the case 0:06:11.520 --> 0:06:14.880 with the Vanguard US Growth Fund. So can you tell 0:06:14.920 --> 0:06:17.800 us what your investment process is for your slice of 0:06:17.800 --> 0:06:18.240 the fund. 0:06:20.680 --> 0:06:23.720 Sure, So I'll start, and then you know Drew can 0:06:23.760 --> 0:06:24.640 obviously jump in. 0:06:24.680 --> 0:06:28.400 I'd say the first thing we're looking for is secular growth, right, 0:06:28.440 --> 0:06:31.640 so we're looking for high levels of compounding. We want 0:06:32.080 --> 0:06:36.440 companies that are benefiting from tailwinds. Conversely, we think it's 0:06:36.480 --> 0:06:40.040 really hard to generate alpha in companies where they're structural headwinds. 0:06:40.320 --> 0:06:43.240 So that could be a physical retailer losing share to Amazon, 0:06:43.440 --> 0:06:46.480 or it could be traditional TV losing share to streaming. 0:06:47.240 --> 0:06:49.600 The second thing we look for, and perhaps this is 0:06:49.640 --> 0:06:54.880 the most important, is structural competitive advantages. So we want 0:06:54.920 --> 0:06:57.680 to invest in companies where they're doing something that's really 0:06:57.720 --> 0:07:00.679 hard for others to replicate. So if you think about 0:07:00.680 --> 0:07:03.520 putting those first two things together, the secular growth and 0:07:03.520 --> 0:07:08.120 competitive advantage, that's what enables high levels of earnings and 0:07:08.160 --> 0:07:11.840 free cash flow compounding over intermediate timeframes. 0:07:13.320 --> 0:07:14.880 Third, you know, we. 0:07:14.840 --> 0:07:17.040 Have this idea in our team that we refer to 0:07:17.080 --> 0:07:22.560 as timeframe arbitrage. And this idea speaks to market inefficiency, 0:07:23.400 --> 0:07:25.360 and I also think it speaks to our team having 0:07:25.360 --> 0:07:28.880 a longer time horizon than most market participants. So with 0:07:28.960 --> 0:07:32.080 timeframe arbitrage, we're looking for some sort of short term 0:07:32.120 --> 0:07:35.560 noise for security or in the market, and that could 0:07:35.600 --> 0:07:38.480 be a soft quarter, it could be an industry being 0:07:38.480 --> 0:07:41.600 out of favor. Maybe there's some sort of cyclical soft patch, 0:07:42.400 --> 0:07:44.800 and we want to go in and buy these really 0:07:44.840 --> 0:07:47.680 exceptional companies when you have that dislocation. 0:07:48.880 --> 0:07:50.760 A couple of examples off the top of my head. 0:07:50.800 --> 0:07:53.080 So in the spring of two thousand, at the start 0:07:53.080 --> 0:07:56.240 of COVID, everybody was moving into safe havens, and we 0:07:56.360 --> 0:07:59.680 owned American Tower, right, and American Tower was going up 0:07:59.680 --> 0:08:00.280 every day. 0:08:00.400 --> 0:08:02.120 Is more and more money crowded in there. 0:08:02.560 --> 0:08:05.240 But the other end of the spectrum, you had AMX, 0:08:05.360 --> 0:08:08.560 and nobody want to own AMX right. It's travel oriented, 0:08:08.680 --> 0:08:11.400 it's credit. Who knows what's going to happen to the consumer, 0:08:12.120 --> 0:08:14.560 and so we were trimming America Tower at that point 0:08:14.600 --> 0:08:19.160 in time and buying as Another example would be the 0:08:19.200 --> 0:08:21.720 fourth quarter twenty twenty two. It's hard to believe, but 0:08:21.880 --> 0:08:24.920 nobody wanted to touch semiconductors in the fourth quarter of 0:08:24.960 --> 0:08:29.080 twenty twenty two, numbers had come down, the stocks had underperformed, 0:08:30.320 --> 0:08:31.800 and so we were looking at that space, We're like, 0:08:31.840 --> 0:08:33.720 all right, this is a good time to go overweight Semis. 0:08:33.800 --> 0:08:36.920 We went overweight in Vidia, then we went overweight ASML 0:08:37.440 --> 0:08:39.839 at that point in time. And then the final thing 0:08:39.880 --> 0:08:42.559 I'll mention before turning over Drew is we really believe 0:08:42.559 --> 0:08:46.480 in portfolio balance. So I think a lot of the 0:08:46.559 --> 0:08:50.160 growth portfolios are structured in a way that they have 0:08:50.480 --> 0:08:54.720 very pronounced bets in certain areas and really a lack 0:08:54.760 --> 0:08:56.679 of risk controls and diversifications. 0:08:56.800 --> 0:08:58.040 So, for example, you. 0:08:58.000 --> 0:09:02.199 Could have a thirty or the security portfolio where it's 0:09:02.200 --> 0:09:05.800 almost all high beta internet and high beta software, and 0:09:05.840 --> 0:09:07.760 that can be great in twenty twenty, and that can 0:09:07.800 --> 0:09:09.880 be great in nineteen ninety nine, but then when things 0:09:09.920 --> 0:09:10.920 turn the other way. 0:09:11.040 --> 0:09:14.080 You can have really severe underperformance. And so we pay 0:09:14.160 --> 0:09:14.640 a lot. 0:09:14.480 --> 0:09:19.240 Of attention to risk controls and diversification and balance, and 0:09:19.280 --> 0:09:21.600 we don't want to have that extreme up and down 0:09:21.720 --> 0:09:23.680 ride that you can find with a lot of other 0:09:24.280 --> 0:09:27.160 growth portfolios, Drew, what else would you like to. 0:09:27.520 --> 0:09:32.880 Yeah, just adding to Clark's last point, one of the 0:09:32.920 --> 0:09:36.640 evergreen realities in the investment world is that it is 0:09:36.679 --> 0:09:40.640 still very much human nature is still very much at 0:09:40.679 --> 0:09:44.560 play in terms of how the market moves, certainly in 0:09:44.559 --> 0:09:48.440 the medium shortened medium term, and we do have these 0:09:48.440 --> 0:09:54.160 cycles that go cycle from greed to despair and back 0:09:54.200 --> 0:09:56.640 to greed again, and that happens on individual stocks, and 0:09:56.640 --> 0:09:59.760 it happens on the market itself, especially when you have 0:10:00.040 --> 0:10:04.400 oft economics coming up and you have strong economies ahead 0:10:04.400 --> 0:10:09.360 of you. And so we really think about how that 0:10:09.400 --> 0:10:16.640 impacts investors. And you get the same with individual performance 0:10:16.640 --> 0:10:20.560 of individual mutual funds. And when an investor sees a 0:10:20.600 --> 0:10:23.120 mutual fund that knocks the ball out out of the park, 0:10:23.160 --> 0:10:26.760 they're very happy. But if that's a highly volatile approach 0:10:27.000 --> 0:10:29.480 and it's just as likely to have a mirror image 0:10:29.840 --> 0:10:33.520 period of underperformance. Human nature is such that they could 0:10:33.559 --> 0:10:35.280 do the wrong thing at the wrong time, which is 0:10:35.320 --> 0:10:38.040 to sell your mutual fund and move on to someone 0:10:38.080 --> 0:10:41.480 else's when in fact that might be the exact time 0:10:41.520 --> 0:10:44.640 when you should be buying it. And this human nature 0:10:44.679 --> 0:10:48.360 destroys value over time, and it means that most investors 0:10:48.520 --> 0:10:53.960 don't actually enjoy the long term return stream of the 0:10:54.000 --> 0:10:57.880 equity markets. And so we think very carefully about that 0:10:57.920 --> 0:11:00.960 when we think about balance in what we are delivering 0:11:00.960 --> 0:11:05.000 to our clients and particularly to Vanguard. We don't want 0:11:05.040 --> 0:11:09.920 to get too far away from from from you know, 0:11:09.960 --> 0:11:13.719 that pure growth investing, thinking about what the characteristics of 0:11:13.760 --> 0:11:16.400 the benchmark are, and then we're going to find, you know, 0:11:16.520 --> 0:11:21.719 great companies that that we hope, over time outperform that benchmark. 0:11:21.800 --> 0:11:25.679 But we don't want our clients to experience extreme volatility. 0:11:27.320 --> 0:11:29.120 Great, thank you. Can we dig in a little bit 0:11:29.160 --> 0:11:31.800 more on a couple of a couple of those points 0:11:31.800 --> 0:11:35.440 in terms of your process, I'm just curious how you 0:11:36.440 --> 0:11:41.199 define and identify secular growth. So what are you doing 0:11:41.320 --> 0:11:44.760 specifically to identify those companies that do have those long 0:11:44.880 --> 0:11:49.080 term secular growth prospects? And then also following on the 0:11:49.120 --> 0:11:52.520 other point that you make about seeking companies with competitive advantage? 0:11:53.200 --> 0:11:58.440 What are some metrics or identifiers of companies with competitive advantage? 0:11:58.760 --> 0:12:02.000 How are you finding those companies? How do you identify 0:12:02.120 --> 0:12:03.880 competitive advantage specifically? 0:12:04.880 --> 0:12:05.319 Yeah, so. 0:12:06.840 --> 0:12:08.920 I'll take a crack at that, and then Drew can 0:12:08.920 --> 0:12:13.880 obviously jump in, and so we do. We're bottoms up, okay, 0:12:13.920 --> 0:12:17.160 and so we're looking for great businesses feeding off of 0:12:17.240 --> 0:12:20.000 secular growth, and we find them in lots of different places. 0:12:20.040 --> 0:12:23.040 And we recently did an exercise where we looked at 0:12:23.040 --> 0:12:26.880 the entire portfolio and we said, how many different primary 0:12:27.600 --> 0:12:30.599 secular growth drivers do we have across the portfolio And 0:12:30.600 --> 0:12:33.360 the number was actually like twenty seven, So there's a 0:12:33.400 --> 0:12:36.040 lot in there. So for example, we own a company 0:12:36.080 --> 0:12:41.040 called Copart. It's an auto auction business. It's an amazing business, 0:12:41.120 --> 0:12:44.040 very high market share, they're very dominant. They feed off 0:12:44.080 --> 0:12:47.520 of more technology being added into cars. Right, every year 0:12:47.559 --> 0:12:49.800 a car is more and more like a computer with 0:12:49.960 --> 0:12:52.360 more and more semiconductor content, and so that's what they 0:12:52.400 --> 0:12:55.320 feed off of. That said, when we look at the 0:12:55.360 --> 0:12:57.960 portfolio from a high level and we say, like, what 0:12:58.000 --> 0:13:01.800 are big recurring themes? Right, so that you know semi 0:13:01.840 --> 0:13:04.439 content and autos isn't a big recurring theme, what are 0:13:04.480 --> 0:13:06.640 some big recurring themes? You know, you would have things 0:13:06.679 --> 0:13:12.319 like obviously e commerce, you would have online advertising, increased 0:13:12.400 --> 0:13:19.000 usage of data, adoption of software, shifting software workloads to 0:13:19.040 --> 0:13:25.480 the cloud, innovation and semiconductors, healthcare innovation and you know 0:13:25.559 --> 0:13:28.360 those last two we could talk about gen ai and 0:13:28.520 --> 0:13:33.440 GLP ones in terms for the second point for competitive advantage, 0:13:33.640 --> 0:13:36.560 there's actually eight different things we're looking for. So if 0:13:36.600 --> 0:13:39.760 you're to study, for example, at Harvard Business School with Porter, 0:13:40.200 --> 0:13:42.120 you would say, well, there's these two things that you 0:13:42.160 --> 0:13:43.559 want to look for. You want to look for some 0:13:43.640 --> 0:13:45.520 sort of differentiation or you want to be a low 0:13:45.520 --> 0:13:48.120 cost provider. And we actually have kind of a more 0:13:48.920 --> 0:13:52.200 detailed list of things that we're looking for based on 0:13:52.240 --> 0:13:57.000 our experience. And so one is really unique intellectual property 0:13:57.480 --> 0:13:59.800 that other people do not own. That would be one. 0:14:00.200 --> 0:14:03.320 Another big one that shows up as network effects, right, 0:14:03.640 --> 0:14:08.400 or it can be high switching costs, barriers to scale. 0:14:08.880 --> 0:14:12.960 We probably don't like brand quite as much, especially in 0:14:13.000 --> 0:14:16.079 this area era when people can create brands more easily 0:14:16.160 --> 0:14:19.240 with the Internet and social media, and low cost advantage 0:14:19.280 --> 0:14:21.280 may actually be our least favorite because in a lot 0:14:21.280 --> 0:14:23.040 of ways, I think that's saying that if there's a 0:14:23.600 --> 0:14:27.800 nuclear winter in your industry, you survive, which is really 0:14:28.040 --> 0:14:32.160 doesn't really matter how we want to invest, and you will. 0:14:32.200 --> 0:14:33.040 I think you will. 0:14:32.840 --> 0:14:36.440 Find over time that companies that have, you know, that 0:14:36.600 --> 0:14:39.440 sort of competitive advantage to your question about metrics, A 0:14:39.480 --> 0:14:42.480 lot of times those are very profitable businesses with high 0:14:42.560 --> 0:14:46.080 returns on capital that sustain themselves over time. And so 0:14:46.680 --> 0:14:49.440 if you can identify those financial characteristics. 0:14:49.440 --> 0:14:51.520 You then can kind of do like a deeper. 0:14:51.160 --> 0:14:56.240 Business model, almost qualitative assessment on the competitive advantage pieces. 0:14:57.360 --> 0:15:02.480 True, all this work is really informed by our very 0:15:03.000 --> 0:15:05.720 broad and deep research engine at Wellington. So we have 0:15:05.800 --> 0:15:10.960 almost sixty dedicated global industry analysts in our central research 0:15:11.040 --> 0:15:16.840 pool and they are responsible for covering sectors in tremendous depth. 0:15:16.920 --> 0:15:23.400 These are career positions. These are folks that do this 0:15:24.560 --> 0:15:26.920 in depth research on a narrow group of companies their 0:15:26.960 --> 0:15:31.640 whole careers, and so having that fundamental engine behind is 0:15:31.720 --> 0:15:35.600 what helps us identify not only identify the areas of 0:15:35.640 --> 0:15:39.600 secular growth, but also helping us as we go through 0:15:39.640 --> 0:15:44.920 our wide mote analysis. We have over four hundred investors 0:15:44.920 --> 0:15:48.000 at Wellington, so not just our gias, our central research, 0:15:48.520 --> 0:15:53.000 but our growth team and our dedicated growth analysts and 0:15:53.040 --> 0:15:57.360 all the other portfolio teams around Wellington, so we develop 0:15:57.440 --> 0:16:03.440 a very wide mosaic of information where we have a 0:16:04.480 --> 0:16:08.200 very collaborative culture. It's a it's a very important part 0:16:08.400 --> 0:16:13.400 of our approach to things and and the reason we 0:16:13.480 --> 0:16:15.800 value that so highly is that when you have all 0:16:15.800 --> 0:16:19.600 these people out turning over rocks literally around the world, 0:16:20.040 --> 0:16:22.760 you need a way for that information to be shared 0:16:22.760 --> 0:16:27.320 and integrated, and by having a highly collaborative culture, that 0:16:27.440 --> 0:16:30.680 is the best way to do that. And so we 0:16:30.720 --> 0:16:33.200 bring all of this work together to help us with 0:16:33.280 --> 0:16:34.720 these insights. 0:16:34.240 --> 0:16:36.680 And determinations that your bottom up. You have a lot 0:16:36.720 --> 0:16:41.000 of analysts sort of powering some of the ideas, collaborating 0:16:41.040 --> 0:16:43.480 with the analyst community. How do you collaborate with the 0:16:43.520 --> 0:16:47.320 macro researchers. How do you integrate any kind of macro 0:16:47.400 --> 0:16:51.600 consideration in a predominantly bottom up process. 0:16:53.200 --> 0:16:58.160 Yeah, so I would say, you know, there's there's a 0:16:58.280 --> 0:17:02.480 huge amount of resources Wellington. So there's market strategists, there's 0:17:02.520 --> 0:17:06.480 macro people, there's risk people, there's different teams. Some teams 0:17:06.480 --> 0:17:09.760 are investing just in emerging markets, fixed income alternatives. And 0:17:09.800 --> 0:17:12.520 so I think that kind of speaks to a broader 0:17:12.600 --> 0:17:15.679 question of how do you interact with everybody? Right, because 0:17:16.320 --> 0:17:17.840 you know there are a lot of people here and 0:17:17.840 --> 0:17:20.760 you don't want people siloed. And I think we have 0:17:20.920 --> 0:17:25.159 a lot of channels to encourage communication. And then we 0:17:25.240 --> 0:17:30.119 have a culture that places an extreme value on collaboration. 0:17:31.280 --> 0:17:35.720 So we have had since the firm's founding, a morning meeting, 0:17:35.760 --> 0:17:38.840 a morning investment meeting every single day on a global 0:17:38.880 --> 0:17:41.560 basis where people come in and share ideas, and that's 0:17:41.600 --> 0:17:45.040 all investors, and that starts conversations and may not give 0:17:45.080 --> 0:17:47.679 you an answer, but it starts conversations. And yesterday a 0:17:48.119 --> 0:17:52.440 material piece of that conversation was on US employment trends 0:17:52.800 --> 0:17:55.560 and the macro economy. So we have all sorts of 0:17:55.560 --> 0:18:00.439 people participating in those meetings. We also have obviously broad 0:18:00.600 --> 0:18:03.919 email distribution lists for investment emails. Some of those are 0:18:03.960 --> 0:18:07.840 specific to a sector, healthcare or tech, others are more general. 0:18:08.600 --> 0:18:10.840 And then we have other meetings that can be specific 0:18:10.880 --> 0:18:12.960 to some sort of theme or idea. It could be, hey, 0:18:12.960 --> 0:18:15.360 come to a lunch because we have a macro meeting today, 0:18:16.440 --> 0:18:19.359 or it could be the financial services team is sharing 0:18:19.400 --> 0:18:21.240 best ideas, and so we have to have all these 0:18:21.240 --> 0:18:25.840 different channels. So I feel like we have access to 0:18:25.880 --> 0:18:29.480 that information and Drew can obviously out of this. But 0:18:29.480 --> 0:18:32.879 I also say in terms of macro, I would describe 0:18:32.960 --> 0:18:35.040 us as macro aware, like we need to know what's 0:18:35.080 --> 0:18:37.760 going on. If we're becoming more negative on the consumer, 0:18:37.840 --> 0:18:41.520 it might make sense to take down travel names for example. Right, 0:18:41.960 --> 0:18:44.800 But going back to this idea of balance. We don't 0:18:44.800 --> 0:18:48.160 want an extreme bet in the portfolio. It's extremely unlikely 0:18:48.280 --> 0:18:50.800 that we would ever say there's going to be a recession. 0:18:51.119 --> 0:18:53.879 Let's take our beta way down, let's park all the 0:18:53.920 --> 0:18:57.160 capital and staples and reads and utilities. 0:18:56.760 --> 0:19:00.159 Because if we get that wrong, we're going to get creamed. Right. 0:19:00.440 --> 0:19:02.640 And so we're macro aware and we'll shift a little 0:19:02.680 --> 0:19:05.600 bit based on that information. But again, really from a 0:19:05.640 --> 0:19:08.600 portfolio construction standpoint, the thing we really value is this 0:19:08.680 --> 0:19:09.480 idea of balance. 0:19:11.080 --> 0:19:19.280 Yeah, I think macro informs the background under which the 0:19:19.320 --> 0:19:24.640 individual companies we're looking at operate. So to Clark's point, 0:19:24.880 --> 0:19:30.200 if the consumer is healthy and the macro factors appeared 0:19:30.240 --> 0:19:32.679 that the consumer will continue to be healthy, then that 0:19:32.800 --> 0:19:36.800 informs how we're investing in the consumer sector. But what 0:19:36.840 --> 0:19:41.880 we don't do is make big, a lot of big 0:19:41.920 --> 0:19:45.480 decisions in the portfolio and the position and the portfolio 0:19:45.600 --> 0:19:50.280 based on big macro factors. So people have tried their 0:19:50.320 --> 0:19:55.399 whole careers forecasting big macro factors like interest rates and 0:19:55.800 --> 0:19:58.720 the direction of the price of oil and natural gas, 0:19:58.800 --> 0:20:03.600 and and it's very very difficult to do with any consistency, 0:20:03.760 --> 0:20:07.679 and so that is not uh, that is not a 0:20:07.720 --> 0:20:11.320 big part of what we do. And and the reality 0:20:11.400 --> 0:20:15.800 is if you look at most years, most years that 0:20:16.840 --> 0:20:19.880 any one of the companies, the publicly traded company we're 0:20:19.880 --> 0:20:23.800 going to invest in most years is a moderately positive 0:20:23.840 --> 0:20:28.399 growth economy, right, you have, you have, you have recessions, 0:20:29.440 --> 0:20:33.119 you know, every so often, but it's a minority of 0:20:33.200 --> 0:20:36.360 the environment you're operating in. So that's kind of your 0:20:36.440 --> 0:20:40.320 starting point is moderate economic growth and can we find 0:20:40.400 --> 0:20:43.959 companies that can really thrive in moderate economic growth? And 0:20:44.000 --> 0:20:49.200 then obviously, when there are ways to lean in to 0:20:51.080 --> 0:20:53.760 areas of the macro forecast that we can feel comfortable with, 0:20:53.880 --> 0:20:55.960 we can lean but we're not going to try to 0:20:56.600 --> 0:20:59.960 make the portfolio act in a certain way based on 0:21:00.800 --> 0:21:03.040 a large macro forecast. 0:21:04.440 --> 0:21:06.560 Very fair, And if we were to sort of tie 0:21:06.600 --> 0:21:09.680 this back into the conversation that we started with, where 0:21:10.400 --> 0:21:12.520 it feels to me like we're at this pretty big 0:21:12.680 --> 0:21:15.760 change moment with respect to monetary policy where we're going 0:21:15.760 --> 0:21:18.480 to have suddenly interest rates are falling. Would you ever 0:21:18.640 --> 0:21:22.840 have a macro consideration like that where interest rates are 0:21:23.119 --> 0:21:27.640 potentially now going to reverse direction? Does that ever spark 0:21:28.040 --> 0:21:31.000 idea generation for new ideas to potentially add to the 0:21:31.040 --> 0:21:35.240 portfolio new industries that might benefit from a macro shift 0:21:35.359 --> 0:21:38.840 like that. Do you ever think that way or is 0:21:38.840 --> 0:21:41.439 it a much more methodical process than I'm kind of 0:21:41.480 --> 0:21:42.680 assuming or alluding to. 0:21:44.119 --> 0:21:47.359 Well, I would say, we go ahead. Well, I was 0:21:47.400 --> 0:21:51.040 going to say, we'll certainly think that way. So, for example, 0:21:51.400 --> 0:21:55.160 we have this pool of exceptional companies that we've identified 0:21:55.840 --> 0:21:58.840 that makes sense for our portfolio, and different people on 0:21:58.880 --> 0:22:02.480 the team are responsible for their different pieces of the pool, 0:22:02.680 --> 0:22:07.240 if you will. And so if it's obvious that interest 0:22:07.280 --> 0:22:09.480 rates are going to go down, you know, one thing 0:22:09.520 --> 0:22:11.679 we could do is we could say, you know, we 0:22:11.760 --> 0:22:15.320 own a couple super high quality reads, should we buy 0:22:15.320 --> 0:22:15.880 another one? 0:22:16.280 --> 0:22:16.480 Right? 0:22:16.600 --> 0:22:19.719 So, for for sure, we're willing to do things like 0:22:19.760 --> 0:22:22.720 that and to tilt. And so I think you know, 0:22:22.800 --> 0:22:24.719 the way we kind of just describe it is will 0:22:24.800 --> 0:22:27.000 kind of shift in this direction a little bit, or 0:22:27.040 --> 0:22:29.520 shift in that direction a little bit, which is separate 0:22:29.640 --> 0:22:33.320 obviously than making some very big bet across the portfolio 0:22:33.400 --> 0:22:34.719 where if you get it wrong you're in a lot 0:22:34.760 --> 0:22:35.199 of trouble. 0:22:36.800 --> 0:22:40.760 Yeah, I mean, you know the the right now the 0:22:40.800 --> 0:22:44.040 course of interest rates, you know, really is depends on 0:22:44.560 --> 0:22:47.800 mostly inflation and the growth of the economy, and the 0:22:47.840 --> 0:22:51.600 two were very closely like. So again, trying to forecast 0:22:51.640 --> 0:22:57.520 inflation tough to do with any with any accuracy and consistency. 0:22:57.640 --> 0:23:00.520 But you do have a very long track record of 0:23:00.520 --> 0:23:04.119 the Fed, you know, generally winning out in terms of 0:23:04.200 --> 0:23:06.640 doing what they're trying to do, and they have made 0:23:06.640 --> 0:23:10.880 it very clear they're trying to squash inflation, and and 0:23:11.040 --> 0:23:15.040