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Welcome back to The Rate of Change with York Wealth Management.

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As advisors to some of the wealthiest families in the country, The Rate of Change is a podcast

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designed to help you in the pursuit of building long-term wealth through the insights of some

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of the brightest minds in asset management.

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I'm your host Murdoch Gaddi and in today's broadcast, I'm speaking with Tim Carlton,

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the Chief Investment Officer at Auscap Asset Management.

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Tim, alongside his colleagues Will Mumford and Gavin Rogers, manage two funds underneath

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the Auscap banner, both of which target solid, absolute risk-adjusted returns looking to

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invest in companies that generate strong cash flows and are trading at attractive prices.

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Firstly, the Auscap Long Short Australian Equities Fund, which has returned on average

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14.5% since inception in 2012, 11% on average over five years, 12.4% average over three

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years, 1.5% in the past 12 months with a 5.8% return in the past month.

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Secondly, they have just launched the Auscap X20 Australian Equities Fund as of the beginning

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of December 2023.

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Both funds are fully invested.

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For me, I really enjoyed hearing Tim break down the differences and similarities between

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the two strategies.

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He discusses what exactly is an X20 Aussie Equities Fund and why they timed the launch

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of the fund for October, November 2023.

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So join us as Tim gets into the weeds on a number of companies such as Miner Resources,

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realestate.com, CarSales, ResMed, Nick Scali, and hear his views on where he thinks markets

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are going as we discuss the recent movements of the 10-year bond rate for the past 12 months

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and its impact on current markets.

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Before we get into the ROC cast, I would also like to encourage you to listen to the disclaimer

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at the end of the ROC cast and to keep your feedback coming.

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You can reach me at mgatty at ywm.com.au.

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So with that being said, I hope you enjoy this conversation as much as I did.

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So sit back, relax, and enjoy.

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Tim Carlton, welcome to the Rate of Change with York Wealth Management.

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Good morning, Murdoch.

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Thanks for having me.

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It was really good seeing you at Balmoral Nippus.

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The kids loved it when the Coast Guard Santa Claus jumped off the boat.

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They all screamed with glee.

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It was good fun, wasn't it?

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Yeah, it's terrific.

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We've been proudly a sponsor of Balmoral Nippus for about the last five years.

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It's just a great community initiative.

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It's the largest Nippus program in Australia.

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There's 850 kids that enroll in it, so it's a huge endeavor.

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It's one of those community initiatives that the team get really excited that we support.

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We support a number of charitable community initiatives across the board, and the team

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all get a thrill out of our participation in being able to give back to the community

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and to some specific causes.

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The Nippus program is probably the most visible one of those, and the kids get such a kick

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out of that whole program.

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So much self-confidence.

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I have the six-year-old girls at the moment, and it was extraordinary to see how far they

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swim out.

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A lot of these girls are still only five, and they swim out to these boys that you look

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at far offshore.

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A couple of years ago, they couldn't swim, so it's pretty incredible.

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Our kids certainly love it, that's for sure.

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That's the Nippus side of things.

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They love getting involved in the community.

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So why don't we learn a little bit about Tim.

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Who is Tim?

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How did you get into finance, and tell us a little bit about your formative years?

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Yeah, sure.

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So I did commerce law out of school at Sydney University, and I did a number of internships

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with various investment banks through that program, and ended up at Macquarie Group,

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as a lot of graduates do in their investment banking team.

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Pretty quickly, I ended up spending a lot of my time on projects that involved Macquarie

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buying either the whole or a decent stake in both public and private businesses.

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So Macquarie investing its own capital.

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I'd done that for a couple of years when Goldman's gave me an opportunity to come across onto

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the public market side.

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I sat within a team that was called Proprietary Strategies, and what we did was we invested

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Goldman's Australian balance sheet into the listed equities market.

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That was a reasonably small but very profitable team, and I was there from 2007 through 2012.

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And then in 2012, left to set up Auscap, and have been doing that ever since.

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So what is Auscap?

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Who is Auscap, and what do you exactly do, and what's your investment philosophy?

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Yeah, so Auscap is an Australian equities manager.

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So we have clients that give us their capital, and we invest that capital into a selection

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of Australian companies through a unit trust, so everyone's capital is pooled.

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We run two different strategies, one that is a high conviction strategy that's been

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going since 2012.

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And then just at the start of December 2023, we have launched another fund, an X20 Australian

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Equities Fund, and its mandate is a little different.

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It's a very vanilla, long-only fund, whereas the fund that's been going since 2012 has

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a pretty wide ambit of what it can do, and it only invests in companies outside the 20

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largest companies in the Australian market.

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The Australian market's a reasonably unusual market in that you have 20 very large companies

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that really dominate the market capitalisation of the whole index.

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So the top 20 companies make up over a little over 57% of the market capitalisation of the

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entire index, which is reasonably extraordinary concentration.

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This fund is designed to invest outside of those 20 companies, so primarily in mid-capitalisation

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companies, but some small companies as well.

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And that's the part of the market where we see the greatest opportunity for returns on

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a go-forward basis.

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Can you give a bit of colour around that?

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Because I remember when we caught up and there was a particular page in the presentation

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which showed the average returns for the past number of years for the top 20, the 300 minus

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the top 20, and then for small caps.

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And I thought that was quite interesting, those numbers.

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So do you want to give a bit of colour around that?

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Yeah, so it's been interesting since 2000, the mid-capitalisation companies in Australia

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have comfortably delivered the best total return.

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There's a mid-cap 50 index, which is probably a reasonable proxy for those mid-capitalisation

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companies.

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And since 2000, it's delivered a return of over 800%.

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And that compares to the all-ordinary index, so the broader index, and the ASX20s, the

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20 biggest companies, they've both delivered a little over 500%.

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And then the small-ords, the smaller companies in the market, they've actually delivered

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a relatively poor return of a little over 200% in that 23-year time period.

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And so we think that there's a very logical basis for this, and the logical basis is that

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they have delivered considerably stronger earnings growth over that time horizon than

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either the really large companies or the really small companies.

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And if you forget about all of the noise, the market gets caught up on lots of different

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things in the short term, and the short term can be six months, it can be 12 months, it

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can be a couple of years.

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But if you forget about all of the changes in sentiment, which stocks come into favour

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and out of favour, over the really long run, the only two things that matter are the dividend

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yield that you're receiving from the companies you're investing in, and the earnings growth.

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Because if the multiple that the market's willing to pay for a company doesn't change

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over time, then your total return is simply dividend yield plus earnings growth.

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And so the mid-cap index has delivered considerably better returns than many of the other indices

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for the simple reason that those companies have delivered better earnings growth and

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considerably better earnings growth.

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And we think there's a pretty logical reason for why that's the case, and we're also pretty

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confident that it will continue.

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And the reason is that at the very large end of the market, a lot of these companies have

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run out of ways to grow organically.

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So if you think about the big four Australian banks, they are about as dominant in the domestic

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market as any four banks in any developed market globally.

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They're so dominant that it's very hard for them to organically grow their market share.

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They tend to just take market share off one another over time, but they are constrained

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in how they can grow their top line to basically how quickly the broader market grows.

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On the other side of that, they've got expenses and their expenses are growing and they're

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growing quite strongly.

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So if you think about the banking sector, you've got increased compliance costs, increased

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spend on IT and cybersecurity, increased capital requirements, and now we've got an acceleration

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in staff costs.

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So you're limited as to how quickly you can grow revenues, but your expenses often are

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outpacing that.

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So the banks are a good example of one of the four of the very large companies in the

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ASX 20 that are really working quite hard just to maintain earnings.

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And so if you don't get any earnings growth, your total return from those stocks is a dividend

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yield.

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And that's what those four companies have exhibited over the last decade.

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You contrast that with the mid caps.

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The mid caps, they're generally pretty big businesses.

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So you're talking about businesses that are most often generating hundreds of millions

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of dollars of profit.

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They're typically the largest in their sector or sub-sector.

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And so they have the economies of scale.

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They have efficiencies compared to a lot of their peers.

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And yet they've still got plenty of market share room to grow.

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And so they're able to grow their top line faster than the competition because of those

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economies of scale.

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They get the benefits of the operating leverage, so you tend to find the earnings grow a little

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bit faster than their revenue growth.

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And as a result, we see a very, very attractive total return proposition in that mid cap space.

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You then contrast it again to the really small end of the market.

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And a lot of those smaller companies, they are at a natural disadvantage to a lot of

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the companies in the mid cap space.

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Not always, but frequently because they're smaller businesses.

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They don't have quite the same economies of scale.

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And a very obvious example of that is you compare REA to Domain.

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So REA is a much bigger business, substantially higher revenues.

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And yet if Domain wants to keep up, they've got to spend the same sort of money on maintaining

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their technological progress on improving the experience from a user base.

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So it's more difficult for them because they've got a smaller revenue base from which they

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can reinvest capital to improve the experience.

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And you tend to see that in the differential between the growth rate and earnings over

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time.

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So we're quite attracted to the mid cap space.

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There are also some small cap companies that I'm sure we'll talk about later.

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But again, they tend to be small cap companies that are reasonably dominant from a market

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share perspective in their particular category, or they have some sort of efficiency differential

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to their peers that allows them to earn superior economics.

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So that's the investment thesis of why you've gone that particular space.

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So before we get into the fun part, which is unpacking where you see opportunity, what

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you bought recently, all the goodies, why don't we quickly dig into the mechanics of

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the fund, right?

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So how much money is currently in the fund in the first fund?

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So the current fund, the fund that's been around since 2012 has about 300 million invested

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in it.

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How big is the team?

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So the investment team is three, and it's the same investment team across both funds.

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So alongside me is the Deputy Portfolio Manager, William Mumford.

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He is a terrific young investor.

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He's been with us for between five and six years.

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Came out of Macquarie Group, not dissimilar to myself.

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And Gavin Rogers is an investment manager in the team.

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Gavin and I have worked alongside one another for most of the last 20 years.

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We worked very closely together at Goldman's, and he's rejoined me in an official work capacity

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five or six years ago at Auscap.

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So it's an experienced team.

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We find we bring different perspectives to the analysis.

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All good stock management is a collective proposition, and we like to think that we

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balance each other nicely.

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So there's been a lot of volatility in the market the past number of years.

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So how's the performance been?

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Does the, do you find, you know, when during COVID, when a huge amount of cash went into

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the market, you get a very, very large capital growth.

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And then does that come off as, you know, free money gets pulled out?

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Or do you find, so the portfolio has kind of got to go anywhere strategy, right?

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You can do resources, you can kind of move anywhere within that 300.

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So how's the performance been?

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Has there been many drawdowns or has it been consistent?

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I suspect we're going to prefer an environment where interest rates are back in a normal

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range compared to history.

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And so, you know, if I think about performance, Mercer came out with their analysis of every

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Australian equities manager that they track.

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I think there are 132 Australian equities strategies in October.

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And we were fortunate to rank in the top five across all time horizons.

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And we were number one over three years, 10 years and since inception, and number four

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over one and five years.

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So that the fund has been performing well, but there were, there have been difficult

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periods.

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When interest rates started their trajectory down to zero, that was a tricky period because

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we are a quality and value manager.

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So we want to own the best businesses out there, but we are reasonably selective as

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to price.

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We want to pay fair value or better.

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And we went into this strange environment where businesses that had reasonable prospects

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for good earnings growth were suddenly trading above valuations that we considered to be

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fair.

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And that move just kept going into and following COVID with obviously interest rates going

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down to close to zero.

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And that was challenging for most value oriented managers.

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We've come out the other side of that.

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And you know, we're very happy that despite what felt to us like a pretty difficult period,

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the fund performed quite strongly through those years.

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And now we're back in an environment where interest rates look like they're going to

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hover in a normal historic range.

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So call that interest rates between three and 6% over time.

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And as a result, you've seen a D rating in some of the sectors where we found it really

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difficult to find investments that we were happy with largely due to the valuation differential

232
00:17:36,520 --> 00:17:39,680
between where they were trading and what we thought was fair value.

233
00:17:39,680 --> 00:17:43,480
So in the last 12 months, we've seen a lot of healthcare companies, they write a lot

234
00:17:43,480 --> 00:17:48,840
of IT companies, they write infrastructure and utilities companies come back from a multiple

235
00:17:48,840 --> 00:17:50,160
perspective.

236
00:17:50,160 --> 00:17:55,560
And so all of a sudden, we're seeing quite a lot of opportunities across the broader

237
00:17:55,560 --> 00:17:59,280
market that we are enticed by.

238
00:17:59,280 --> 00:18:05,440
So as we sit here today, we're pretty fully invested across both funds and quite excited

239
00:18:05,440 --> 00:18:07,920
about the outlook for the businesses that we hold.

240
00:18:07,920 --> 00:18:11,640
What does that translate into historical percentages with the performance?

241
00:18:11,640 --> 00:18:15,200
Just to give people that don't have a chart in front of them just a bit of an idea.

242
00:18:15,200 --> 00:18:16,200
Sure.

243
00:18:16,200 --> 00:18:18,840
So the other question on that is what are you targeting?

244
00:18:18,840 --> 00:18:19,840
Sure.

245
00:18:19,840 --> 00:18:23,800
So the Long Shortest Rain Equities Fund, which is the fund that's been around since 2012,

246
00:18:23,800 --> 00:18:31,120
has delivered about 15% net of fees per annum since we started.

247
00:18:31,120 --> 00:18:36,160
The index that we compare ourselves to, so the All Ordinaries Accumulation Index, has

248
00:18:36,160 --> 00:18:38,480
done a little under 9%.

249
00:18:38,480 --> 00:18:45,280
So the funds delivered about 6% net of outperformance per annum.

250
00:18:45,280 --> 00:18:51,640
And that might not sound like a lot to those that aren't familiar with equity markets,

251
00:18:51,640 --> 00:18:56,800
but the compounding effect of that additional return is quite strong.

252
00:18:56,800 --> 00:19:04,320
So it's probably at the top end of the band for what we hope to deliver.

253
00:19:04,320 --> 00:19:11,280
Over time, we always tell people that are coming into the fund that we look for opportunities

254
00:19:11,280 --> 00:19:16,960
that we think will deliver the fund a 10% to 15% annualised return at the stock level.

255
00:19:16,960 --> 00:19:23,440
So if the fund overall is doing that collectively and towards the top end of that range, then

256
00:19:23,440 --> 00:19:27,520
we're very, very happy with how that fund is performing.

257
00:19:27,520 --> 00:19:30,040
So you mentioned interest rates, right?

258
00:19:30,040 --> 00:19:32,880
Having it back in a band is good for the fund.

259
00:19:32,880 --> 00:19:37,840
And I was just discussing with a client, actually, we're looking at the Australian 10-year bond

260
00:19:37,840 --> 00:19:41,200
rate, and it's been quite volatile this year.

261
00:19:41,200 --> 00:19:47,320
It was round about March, April, 3.25%, came all the way up nearly touch 5% around about

262
00:19:47,320 --> 00:19:48,640
November.

263
00:19:48,640 --> 00:19:54,200
And in line with the rally we've seen in the past few weeks, it's come pulled back to about

264
00:19:54,200 --> 00:19:57,520
4.145% as of today.

265
00:19:57,520 --> 00:19:59,640
Why do you think this has happened?

266
00:19:59,640 --> 00:20:04,040
And do you think this means we're in for a Christmas rally?

267
00:20:04,040 --> 00:20:11,160
Well, I think we've started to see the Christmas rally already, and that has every chance of

268
00:20:11,160 --> 00:20:14,300
continuing if history is any guide.

269
00:20:14,300 --> 00:20:18,520
Interest rates at the long end of the curve, so the 10-year government bond rate, typically

270
00:20:18,520 --> 00:20:25,720
tell you about how investors are thinking in relation to where long-term interest rates

271
00:20:25,720 --> 00:20:26,720
will be.

272
00:20:26,720 --> 00:20:31,600
So if we wind back a few months where the 10-year was significantly higher, it had been

273
00:20:31,600 --> 00:20:36,720
rallying because people's expectations were that interest rates would continue to head

274
00:20:36,720 --> 00:20:44,920
north because the economy looked like it was handling current interest rates quite comfortably.

275
00:20:44,920 --> 00:20:51,360
And to be honest, to us, the Australian economy still looks like it's handling current interest

276
00:20:51,360 --> 00:20:55,800
rates relatively comfortably if the data is anything to go by.

277
00:20:55,800 --> 00:21:02,960
But inevitably, the world pays a lot of attention to what US government bond rates are doing,

278
00:21:02,960 --> 00:21:08,680
and it looks as though rates in the US may have peaked.

279
00:21:08,680 --> 00:21:15,880
And so expectations for the future have changed from a scenario where market participants

280
00:21:15,880 --> 00:21:21,200
thought that interest rates were going up to one where participants now think that interest

281
00:21:21,200 --> 00:21:26,080
rates may have peaked, and the next move, albeit not immediate, will be for interest

282
00:21:26,080 --> 00:21:27,680
rates to go lower.

283
00:21:27,680 --> 00:21:29,360
Why does that matter?

284
00:21:29,360 --> 00:21:37,520
It matters because what our government bond trades is really perceived by a lot of investors

285
00:21:37,520 --> 00:21:40,240
to be equivalent to the risk-free rate.

286
00:21:40,240 --> 00:21:46,200
So most people think that investing in a US Treasury or Australian Treasury note, that

287
00:21:46,200 --> 00:21:51,000
is you are lending to those two respective governments, is about as close as you can

288
00:21:51,000 --> 00:21:52,560
get to a risk-free investment.

289
00:21:52,560 --> 00:21:56,660
In other words, there's a very, very low chance of default.

290
00:21:56,660 --> 00:22:02,400
And so every other asset class is priced off that rate.

291
00:22:02,400 --> 00:22:09,160
So if you can get 4% in Australian government bond, then obviously every other asset which

292
00:22:09,160 --> 00:22:14,880
has higher risk than investing in the Australian government should deliver a better return.

293
00:22:14,880 --> 00:22:21,320
So as that rate moves north, the total return that's being offered by other asset classes

294
00:22:21,320 --> 00:22:22,640
also needs to move north.

295
00:22:22,640 --> 00:22:28,120
And so if the total return that's expected from other asset classes is moving higher,

296
00:22:28,120 --> 00:22:32,480
then that only happens if the prices of those assets is going lower.

297
00:22:32,480 --> 00:22:38,760
And so as rates are rising, you tend to find that a lot of other investments are under

298
00:22:38,760 --> 00:22:46,600
pressure because they need to reprice so that they are attractive in a relative sense compared

299
00:22:46,600 --> 00:22:48,680
to what is a risk-free asset.

300
00:22:48,680 --> 00:22:53,080
The reverse is also true, which is what we've just seen lately, and that is if the rate

301
00:22:53,080 --> 00:22:59,800
that you can get by lending to the Australian or US government is declining, then it's making

302
00:22:59,800 --> 00:23:03,280
a lot of other investments relatively more attractive.

303
00:23:03,280 --> 00:23:07,920
And so you tend to find that in that environment, a lot of asset prices will rally, and that's

304
00:23:07,920 --> 00:23:11,640
what we've seen particularly over the last six or seven weeks.

305
00:23:11,640 --> 00:23:17,320
So normally, this time of year is reasonably strong.

306
00:23:17,320 --> 00:23:23,400
Historically, the market's been very powerful from about mid-October through till the end

307
00:23:23,400 --> 00:23:24,400
of April.

308
00:23:24,400 --> 00:23:29,720
So we're in a seasonal window where, for whatever reason, history has suggested that markets

309
00:23:29,720 --> 00:23:30,880
do quite well.

310
00:23:30,880 --> 00:23:39,040
If you throw into the mix a declining government bond rate in Australia and in the US, then

311
00:23:39,040 --> 00:23:46,440
it would suggest that potentially the Santa rally can continue for the next little while

312
00:23:46,440 --> 00:23:47,440
next year.

313
00:23:47,440 --> 00:23:52,440
Well, when we caught up, I think it was early November or late October, you said it was

314
00:23:52,440 --> 00:23:54,240
a very good time to launch a fund.

315
00:23:54,240 --> 00:23:57,960
And looking back, it probably was a very good time to launch a fund.

316
00:23:57,960 --> 00:24:03,840
In that good, lovely breakfast which we had, you mentioned a couple of companies which

317
00:24:03,840 --> 00:24:06,320
you thought, as you mentioned before, the health care space.

318
00:24:06,320 --> 00:24:14,000
I think you mentioned Miner Resources, Car Sales, Nick Scali, ResMed.

319
00:24:14,000 --> 00:24:17,880
Maybe for you to dig into those, or is there any, what other opportunities are you currently

320
00:24:17,880 --> 00:24:18,880
seeing in the market?

321
00:24:18,880 --> 00:24:23,160
As you said, you're fully invested now, but you said it's been a very good time to get

322
00:24:23,160 --> 00:24:28,040
in, markets had a good rally, look at the bond rate, interested to unpack a couple of

323
00:24:28,040 --> 00:24:29,040
companies with you.

324
00:24:29,040 --> 00:24:30,040
Sure.

325
00:24:30,040 --> 00:24:32,240
Well, there's some good companies to start with.

326
00:24:32,240 --> 00:24:36,520
So why don't we kick off with a number of those companies?

327
00:24:36,520 --> 00:24:41,400
We spent a fair bit of time on the road and we've just been visiting a number of those

328
00:24:41,400 --> 00:24:42,400
businesses.

329
00:24:42,400 --> 00:24:49,600
So one of the members of the same, Gavin, came back from visiting Miner Resources and

330
00:24:49,600 --> 00:24:55,520
some of their sites, in particular, their two major mines in the lithium space, Wodjina

331
00:24:55,520 --> 00:25:02,320
and Mount Marion, and also their latest iron ore development at Onslow.

332
00:25:02,320 --> 00:25:09,120
And we're always very positively surprised by this company.

333
00:25:09,120 --> 00:25:14,280
If I think about our core process, what we're trying to do is find businesses that we think

334
00:25:14,280 --> 00:25:19,800
will reliably and consistently grow earnings over time.

335
00:25:19,800 --> 00:25:24,360
Because ultimately, we're a believer that earnings drive share prices in the long term.

336
00:25:24,360 --> 00:25:31,960
So we want to find businesses that are going to grow their earnings in a measured and consistent

337
00:25:31,960 --> 00:25:32,960
way over time.

338
00:25:32,960 --> 00:25:36,640
And to do that, they need to have superior economics.

339
00:25:36,640 --> 00:25:42,200
So superior economics means that when they invest a million dollars, they typically earn

340
00:25:42,200 --> 00:25:46,640
a better rate on that million dollars invested than a lot of their peers.

341
00:25:46,640 --> 00:25:50,960
And certainly, a lot of the companies that you just mentioned are in that category.

342
00:25:50,960 --> 00:25:55,840
So Miner Resources, it's a cyclical business.

343
00:25:55,840 --> 00:26:02,040
Its core business, going back to its IPO, is a crushing contracting business, the largest

344
00:26:02,040 --> 00:26:07,320
crushing contractor for a lot of the major iron ore and other players in the market.

345
00:26:07,320 --> 00:26:10,400
But they have, over the years, diversified.

346
00:26:10,400 --> 00:26:12,880
And now they also run their own iron ore operations.

347
00:26:12,880 --> 00:26:18,600
They're the fifth largest producer of lithium globally.

348
00:26:18,600 --> 00:26:21,360
And they've got an emerging gas business.

349
00:26:21,360 --> 00:26:26,440
And they, despite being a cyclical company, have generated an extraordinary track record

350
00:26:26,440 --> 00:26:31,960
in terms of growing earnings at an attractive rate over a long period.

351
00:26:31,960 --> 00:26:36,440
So they've compounded earnings at north of 20% per annum since they listed, which is

352
00:26:36,440 --> 00:26:38,000
a pretty extraordinary record.

353
00:26:38,000 --> 00:26:42,400
And we look at that company at the moment, and we have followed this company since close

354
00:26:42,400 --> 00:26:45,560
to IPO at Goldman's and then at Auscap.

355
00:26:45,560 --> 00:26:49,160
We look at that business today, and we think that the growth they have in front of them

356
00:26:49,160 --> 00:26:55,240
in the next couple of years, putting commodity prices to one side, is about as good as we

357
00:26:55,240 --> 00:26:58,520
have seen for this business since they listed.

358
00:26:58,520 --> 00:27:03,520
They are going to see their mining services business more than double in the next couple

359
00:27:03,520 --> 00:27:04,520
of years.

360
00:27:04,520 --> 00:27:06,880
They're going to see their iron ore production quadruple.

361
00:27:06,880 --> 00:27:10,000
They're going to see their lithium production triple.

362
00:27:10,000 --> 00:27:17,160
And they're probably going to emerge with what is a reasonably substantial gas business.

363
00:27:17,160 --> 00:27:23,520
And so, yes, their earnings will be a function of the fluctuations in the commodity prices.

364
00:27:23,520 --> 00:27:25,720
That's something that's outside of their control.

365
00:27:25,720 --> 00:27:30,800
But what is inside their control is how they grow and manage their business over time,

366
00:27:30,800 --> 00:27:32,880
and they've done an exceptional job at that.

367
00:27:32,880 --> 00:27:37,120
The stock has had a very decent pullback over the last 12 months.

368
00:27:37,120 --> 00:27:42,320
So we have been adding to that exposure in the last six to eight weeks.

369
00:27:42,320 --> 00:27:47,880
It's a business we know very well, and we think the market is currently mispricing that

370
00:27:47,880 --> 00:27:48,880
company.

371
00:27:48,880 --> 00:27:50,440
Our valuation is well north of the current share price.

372
00:27:50,440 --> 00:27:54,000
So we have been adding to MIN.

373
00:27:54,000 --> 00:27:59,960
You mentioned ResMed, which is one stock that hasn't been in the portfolio for some time,

374
00:27:59,960 --> 00:28:02,120
but we have recently-

375
00:28:02,120 --> 00:28:05,400
When you dig into ResMed, I find this quite interesting.

376
00:28:05,400 --> 00:28:11,640
A colleague of mine was using the Novonautis product, the diabetes drug.

377
00:28:11,640 --> 00:28:14,520
And I was speaking to a couple of other people regarding this.

378
00:28:14,520 --> 00:28:17,400
And when that came out, there was this panic in the market.

379
00:28:17,400 --> 00:28:18,400
You see it all the time.

380
00:28:18,400 --> 00:28:19,920
Oh, there's a new drug on the market.

381
00:28:19,920 --> 00:28:22,120
This is going to- everyone's going to be healthy now.

382
00:28:22,120 --> 00:28:23,960
We don't need sleep apnea machines.

383
00:28:23,960 --> 00:28:25,680
We don't, because everyone's been healthy.

384
00:28:25,680 --> 00:28:28,440
So you get this gigantic overreactions.

385
00:28:28,440 --> 00:28:32,680
Do you think that's what's happened in the healthcare space, or is it another reason

386
00:28:32,680 --> 00:28:38,520
why they're trading at such low valuations compared to where they were 12 months ago?

387
00:28:38,520 --> 00:28:42,760
If I'm honest, I think part of it is the news flow.

388
00:28:42,760 --> 00:28:47,960
But just as big a part is the fact that a lot of the stocks that have been expensive

389
00:28:47,960 --> 00:28:53,600
for the last four or five years are looking for a reason to derate.

390
00:28:53,600 --> 00:29:02,280
So if we wind back to pre-2018, ResMed didn't trade north of 25 times earnings.

391
00:29:02,280 --> 00:29:06,320
And then we went into this interest rate world where interest rates were close to zero.

392
00:29:06,320 --> 00:29:10,080
And a lot of the healthcare companies, where there was a perception that their earnings

393
00:29:10,080 --> 00:29:16,360
growth was independent of broader economic growth, they started to trend higher and trade

394
00:29:16,360 --> 00:29:20,400
at multiples that they'd never really traded at previously.

395
00:29:20,400 --> 00:29:24,920
So a lot of healthcare companies traded up to 40 to 50 times earnings, even very large

396
00:29:24,920 --> 00:29:26,960
businesses like CSL.

397
00:29:26,960 --> 00:29:33,680
Well, that might be warranted in an interest rate environment where government interest

398
00:29:33,680 --> 00:29:35,600
rates are very, very low.

399
00:29:35,600 --> 00:29:37,040
Government bond rates are very, very low.

400
00:29:37,040 --> 00:29:42,320
But if we're back into a more normal cycle, then you would expect over time that the valuations

401
00:29:42,320 --> 00:29:49,720
would look more similar to how these businesses traded the last time interest rates were between

402
00:29:49,720 --> 00:29:50,720
3 and 6%.

403
00:29:50,720 --> 00:29:56,440
And so if we go back and we look at ResMed between the early 2000s and about 2018, it

404
00:29:56,440 --> 00:30:01,960
traded on a PE of between 16 and 25 times.

405
00:30:01,960 --> 00:30:07,480
So the problem wasn't necessarily the announcement of the GLP-1 drugs.

406
00:30:07,480 --> 00:30:13,160
It was the fact that the starting point for ResMed was a PE of 35.

407
00:30:13,160 --> 00:30:17,400
And so if there's suddenly a question mark about the earnings growth that they might

408
00:30:17,400 --> 00:30:22,840
deliver on a go-forward basis, the question is, well, where does the value manager step

409
00:30:22,840 --> 00:30:23,840
in?

410
00:30:23,840 --> 00:30:27,560
And the value manager doesn't step in at 30 times or 25 times.

411
00:30:27,560 --> 00:30:32,240
The value manager steps in to accumulate a reasonable position at around 20 times.

412
00:30:32,240 --> 00:30:35,160
And that was us as an example.

413
00:30:35,160 --> 00:30:43,480
So we have been accumulating a fair value position in ResMed over September, October,

414
00:30:43,480 --> 00:30:50,000
November, because it was the first time that we'd thought that ResMed was at fair value

415
00:30:50,000 --> 00:30:53,640
or better in at least five years.

416
00:30:53,640 --> 00:30:57,600
And so we weren't going to step in at 25 or 30 times.

417
00:30:57,600 --> 00:31:03,920
So the fall looked very, very considerable, but we would attribute a decent chunk of that

418
00:31:03,920 --> 00:31:06,960
fall to the fact that the starting point was just too high.

419
00:31:06,960 --> 00:31:11,200
And I think to the extent that some stocks are still trading at very elevated multiples

420
00:31:11,200 --> 00:31:19,480
compared to their own history before interest rates had this trajectory down to zero, we

421
00:31:19,480 --> 00:31:23,560
suspect that over the next 12 to 24 months, a lot of those stocks are going to find an

422
00:31:23,560 --> 00:31:29,880
excuse to derate back to the sort of multiples that they traded on before we went into this

423
00:31:29,880 --> 00:31:33,160
sort of free money world of interest rates being at zero.

424
00:31:33,160 --> 00:31:35,120
And I think ResMed is just an example of that.

425
00:31:35,120 --> 00:31:41,920
So do we think that the concern over the impact of these drugs is overblown?

426
00:31:41,920 --> 00:31:45,240
Yes, for a whole variety of reasons.

427
00:31:45,240 --> 00:31:47,560
That's why we've been comfortable to buy into the business.

428
00:31:47,560 --> 00:31:52,680
But it took a reasonable derating of the business before we were happy with the valuation.

429
00:31:52,680 --> 00:31:56,760
So from our perspective, it's not screamingly cheap here.

430
00:31:56,760 --> 00:31:58,320
It's around fair value.

431
00:31:58,320 --> 00:32:00,760
In fact, it's had a little rally in the last couple of weeks.

432
00:32:00,760 --> 00:32:06,400
So it's probably a little above fair value, if we were being completely honest.

433
00:32:06,400 --> 00:32:12,720
But it's certainly such a quality business that we certainly think it warrants a fair

434
00:32:12,720 --> 00:32:13,720
value size position.

435
00:32:13,720 --> 00:32:18,760
I was quite surprised when you mentioned Nick Scali.

436
00:32:18,760 --> 00:32:23,800
I've never had personally much success investing in furniture businesses besides our Temple

437
00:32:23,800 --> 00:32:24,800
and Webster historically.

438
00:32:24,800 --> 00:32:32,760
But can you walk us through Nick Scali because I live close to our time and walk in, you

439
00:32:32,760 --> 00:32:33,760
always see how their operations.

440
00:32:33,760 --> 00:32:38,240
But when you're breaking down the numbers and specifically the owner of the business,

441
00:32:38,240 --> 00:32:44,760
how we negotiated those current contracts, what do you have like five contracts which

442
00:32:44,760 --> 00:32:48,160
you use and you just went in there and go, no, prices aren't good enough, boys.

443
00:32:48,160 --> 00:32:50,040
Can you do me better?

444
00:32:50,040 --> 00:32:51,040
Can you walk us through that?

445
00:32:51,040 --> 00:32:56,520
And what was the other business, is it SoftPillow or something and the margins were huge?

446
00:32:56,520 --> 00:33:02,120
Yeah, I've looked into that business a lot since you mentioned it and I was quite stunned

447
00:33:02,120 --> 00:33:05,120
at how well it works and the profit margins.

448
00:33:05,120 --> 00:33:08,000
Yeah, from our perspective, it's a beautiful business.

449
00:33:08,000 --> 00:33:13,280
So if you think about most retailers, most retailers, they go out and they purchase a

450
00:33:13,280 --> 00:33:14,280
whole lot of stocks.

451
00:33:14,280 --> 00:33:16,480
So all the money goes out the door.

452
00:33:16,480 --> 00:33:22,720
And then they've got these shops which they typically lease and they fill them with product

453
00:33:22,720 --> 00:33:24,680
and then they hope to sell the product.

454
00:33:24,680 --> 00:33:27,960
And for a lot of companies, that's a pretty difficult proposition because quite often

455
00:33:27,960 --> 00:33:34,840
they're trying to get to guess what's on trend, what's fashionable this particular season.

456
00:33:34,840 --> 00:33:39,040
And if they get it wrong, you've got to remember they've already bought the product.

457
00:33:39,040 --> 00:33:41,720
So they're then going to discount it to get rid of the product.

458
00:33:41,720 --> 00:33:45,080
So it's a lot of cash out the door and then you're trying to get the cash back with a

459
00:33:45,080 --> 00:33:46,840
return.

460
00:33:46,840 --> 00:33:48,440
Nick Scali is a different model.

461
00:33:48,440 --> 00:33:56,640
So they're Australia's largest furniture supplier and you typically pay a 50% deposit when you

462
00:33:56,640 --> 00:33:58,360
go and buy a couch with it.

463
00:33:58,360 --> 00:34:03,180
So couches is the main category that they sell and they're custom made.

464
00:34:03,180 --> 00:34:07,240
So you walk in and you saw on a three and a half seater in this particular fabric, this

465
00:34:07,240 --> 00:34:10,120
particular design.

466
00:34:10,120 --> 00:34:13,040
And so it's custom made for you.

467
00:34:13,040 --> 00:34:17,800
The beauty of the business model is that when you sign up for that couch, you give them

468
00:34:17,800 --> 00:34:25,280
a 50% deposit, but their margins are such that that 50% deposit has more than paid for

469
00:34:25,280 --> 00:34:28,000
the construction of that couch.

470
00:34:28,000 --> 00:34:32,080
So you've given them more money than it'll cost them to go and actually make that bit

471
00:34:32,080 --> 00:34:33,080
of furniture.

472
00:34:33,080 --> 00:34:38,860
So they then put the order in, they then buy it off a bunch of manufacturers, primarily

473
00:34:38,860 --> 00:34:41,340
in Vietnam and China.

474
00:34:41,340 --> 00:34:45,720
And then the product is delivered to you and on delivery, they'll charge you the other

475
00:34:45,720 --> 00:34:46,720
50%.

476
00:34:46,720 --> 00:34:50,880
And a large part of that other 50% is their profit margin.

477
00:34:50,880 --> 00:34:54,960
So it's working capital is positive.

478
00:34:54,960 --> 00:34:59,560
They get more cash all the time coming in than they actually have going out.

479
00:34:59,560 --> 00:35:05,520
So they're not trying to guess any seasonal trends or what might or might not be fashionable

480
00:35:05,520 --> 00:35:06,520
this season.

481
00:35:06,520 --> 00:35:12,000
They're a very, very good retailer from a presentation perspective.

482
00:35:12,000 --> 00:35:14,880
So the Nick Scali stores always look fantastic.

483
00:35:14,880 --> 00:35:18,520
And because they're the largest furniture bar in Australia, their economies of scale

484
00:35:18,520 --> 00:35:23,400
in terms of the deals they drive with their suppliers, which is what you were referencing

485
00:35:23,400 --> 00:35:28,240
earlier, is clearly better than any of the other players in the market.

486
00:35:28,240 --> 00:35:30,640
And that leads to superior economics.

487
00:35:30,640 --> 00:35:39,560
A couple of years ago, they used the windfall gain that came from a surge in furniture demand

488
00:35:39,560 --> 00:35:43,400
through COVID to acquire Plush.

489
00:35:43,400 --> 00:35:48,920
And it's a slightly different business in that they cater for a different customer.

490
00:35:48,920 --> 00:35:57,680
It's more traditional, whereas Nick Scali is more designer led Italian style furniture.

491
00:35:57,680 --> 00:36:03,240
But it's given them an opportunity to now expand to brands into the domestic market.

492
00:36:03,240 --> 00:36:06,880
The incredible thing about the Plush acquisition is just what they've done with that business

493
00:36:06,880 --> 00:36:07,880
since they bought it.

494
00:36:07,880 --> 00:36:11,800
So they have completely reconfigured the economics of business.

495
00:36:11,800 --> 00:36:15,880
They have taken a lot of the product away from the existing suppliers and put it through

496
00:36:15,880 --> 00:36:17,280
their own channels.

497
00:36:17,280 --> 00:36:23,120
And the end result of that is today, the average price point in Plush is down on where it was

498
00:36:23,120 --> 00:36:24,640
before they bought the business.

499
00:36:24,640 --> 00:36:26,580
And yet the quality is up.

500
00:36:26,580 --> 00:36:30,800
So that's a pretty incredible customer experience if the price is down and the quality is up.

501
00:36:30,800 --> 00:36:37,640
And yet their margins are considerably better than how the Plush business was operating

502
00:36:37,640 --> 00:36:39,960
before they acquired it.

503
00:36:39,960 --> 00:36:42,240
So that is an incredible trifecta.

504
00:36:42,240 --> 00:36:46,280
They're the only business that's listed on the ASX that we're aware of.

505
00:36:46,280 --> 00:36:49,960
What is the profit margin of Plush?

506
00:36:49,960 --> 00:36:52,680
Well it depends on how you define it.

507
00:36:52,680 --> 00:36:59,680
At the EBIT margin level, they're typically generating about a 15% EBIT margin on their

508
00:36:59,680 --> 00:37:02,000
product.

509
00:37:02,000 --> 00:37:06,880
And they're the only business that we're aware of in the Aussie market that's got a return

510
00:37:06,880 --> 00:37:10,840
on equity that's averaged over 50% since they listed.

511
00:37:10,840 --> 00:37:13,960
So they've been listed for 15 odd years.

512
00:37:13,960 --> 00:37:15,560
And that is an extraordinary record.

513
00:37:15,560 --> 00:37:16,560
What does that mean?

514
00:37:16,560 --> 00:37:19,600
That means that when they go and set up a new shop, if the new shop costs them a million

515
00:37:19,600 --> 00:37:26,160
dollars, they're earning $500,000 worth of net profit after tax on that million dollars

516
00:37:26,160 --> 00:37:29,080
invested every year thereafter.

517
00:37:29,080 --> 00:37:33,120
So that is better than a lot of the really high return on equity businesses that you

518
00:37:33,120 --> 00:37:37,280
might otherwise think of, think REA or Car Sales, two very, very good businesses that

519
00:37:37,280 --> 00:37:39,840
we both own.

520
00:37:39,840 --> 00:37:44,180
So their metrics are very, very attractive and from an investor's perspective, because

521
00:37:44,180 --> 00:37:53,240
everyone is quite fixated on how cyclical the retail market is, you often get opportunities

522
00:37:53,240 --> 00:37:58,800
to buy this business at high single digit, low double digit, multiple of earnings, which

523
00:37:58,800 --> 00:38:04,200
is considerably cheaper than the rest of the market, despite the fact that again, they've

524
00:38:04,200 --> 00:38:07,520
compounded earnings since they listed at over 20% per annum.

525
00:38:07,520 --> 00:38:14,920
So from our perspective, one of the best management teams in retail in Australia and a very, very

526
00:38:14,920 --> 00:38:18,320
good business to own over the long term.

527
00:38:18,320 --> 00:38:20,120
Yeah, it's very interesting.

528
00:38:20,120 --> 00:38:22,520
Car Sales.

529
00:38:22,520 --> 00:38:23,520
Always loved this business.

530
00:38:23,520 --> 00:38:25,640
Just sold a car with Car Sales recently.

531
00:38:25,640 --> 00:38:31,160
You know, got a four-drive, kids, good fun, run around, holidays are coming.

532
00:38:31,160 --> 00:38:34,080
But I was interested to hear about their expansion.

533
00:38:34,080 --> 00:38:35,680
Was it into South America?

534
00:38:35,680 --> 00:38:37,840
Yeah, so they've owned this.

535
00:38:37,840 --> 00:38:38,840
And how that worked.

536
00:38:38,840 --> 00:38:47,920
Yeah, well, I mean, again, Will just came back from visiting Car Sales, or two of the

537
00:38:47,920 --> 00:38:50,440
three major Car Sales overseas operations.

538
00:38:50,440 --> 00:38:56,680
So he went and visited Trader Interactive in the US with the company and then flew down

539
00:38:56,680 --> 00:39:03,720
to Brazil and spent some time with their Brazilian business, Web Motors.

540
00:39:03,720 --> 00:39:09,640
So they've had a 30% stake in Web Motors for quite some time now, over a decade.

541
00:39:09,640 --> 00:39:15,160
And recently, they took that ownership stake from 30% to 70%.

542
00:39:15,160 --> 00:39:22,840
So they switched positions with Santander, the large global bank who had previously owned

543
00:39:22,840 --> 00:39:23,840
70%.

544
00:39:23,840 --> 00:39:24,840
They now own 70%.

545
00:39:24,840 --> 00:39:29,280
They own 100% of Trader Interactive, which is the US business.

546
00:39:29,280 --> 00:39:34,600
And the interesting thing about those two acquisitions, it now means that Car Sales,

547
00:39:34,600 --> 00:39:40,280
or Car Group as they're called today, have more than 50% of their revenues coming from

548
00:39:40,280 --> 00:39:41,920
international sources.

549
00:39:41,920 --> 00:39:48,240
So the Australian business is obviously incredible, very, very dominant in the domestic market.

550
00:39:48,240 --> 00:39:54,400
But they own three international businesses, those two and one in Korea, that are again

551
00:39:54,400 --> 00:40:00,320
the number one players in the market and have a very, very long runway for prospective growth.

552
00:40:00,320 --> 00:40:06,960
And the exciting thing coming out of those two trips to North America and South America

553
00:40:06,960 --> 00:40:14,200
was the fact that after Car Sales took 70% of Web Motors and 100% of Trader Interactive,

554
00:40:14,200 --> 00:40:20,540
they are now really inserting their intellectual property into those two businesses.

555
00:40:20,540 --> 00:40:25,900
And what we expect that you'll see out of that is an acceleration in revenue growth

556
00:40:25,900 --> 00:40:31,440
in those two countries, which is significant because as I mentioned, the international

557
00:40:31,440 --> 00:40:35,320
businesses are now more than 50% of the group's revenue.

558
00:40:35,320 --> 00:40:39,880
And we should therefore see some positive operating leverage because there's quite

559
00:40:39,880 --> 00:40:46,640
a lot of low hanging fruit by adopting some of the practices that have been evident in

560
00:40:46,640 --> 00:40:51,040
the Australian business for over a decade now into both of those businesses.

561
00:40:51,040 --> 00:40:56,000
So things like dynamic pricing, where you price your ads according to the value of the

562
00:40:56,000 --> 00:41:01,240
product you're selling, that gives you an automatic uplift on how much money you're

563
00:41:01,240 --> 00:41:08,760
making from different categories of auto in the Brazilian business as an example.

564
00:41:08,760 --> 00:41:14,680
So at the moment, that international business has EBITDA margins around 50%.

565
00:41:14,680 --> 00:41:18,520
The Australian business, their EBITDA margins around 65.

566
00:41:18,520 --> 00:41:22,440
And we can't see any reason why those two won't converge over time.

567
00:41:22,440 --> 00:41:24,920
And we don't think the Australian margins will pull back.

568
00:41:24,920 --> 00:41:29,800
In fact, we think there's still some scope for them to improve marginally from here.

569
00:41:29,800 --> 00:41:35,960
So we should see pretty strong revenue growth and some operating leverage dropping to the

570
00:41:35,960 --> 00:41:36,960
bottom line.

571
00:41:36,960 --> 00:41:41,640
So it's a very, very high quality business, very high return on capital.

572
00:41:41,640 --> 00:41:45,600
It always trades at a relatively expensive multiple.

573
00:41:45,600 --> 00:41:48,880
So we're pretty picky about when we add to that position.

574
00:41:48,880 --> 00:41:55,780
Broadly, it's when we see big market sell offs or sell offs in its particular segment.

575
00:41:55,780 --> 00:41:59,880
But certainly a business that we're very, very happy to own through the cycle.

576
00:41:59,880 --> 00:42:02,920
Yeah, it's a very strong, interesting business.

577
00:42:02,920 --> 00:42:06,200
It's a good customer experience as well using the platform.

578
00:42:06,200 --> 00:42:12,280
You mentioned REA a number of times, and I assume that like most Australians listening

579
00:42:12,280 --> 00:42:18,240
all own Aussie property or don't and want to get in or been renting, waiting for this

580
00:42:18,240 --> 00:42:23,180
crash that's meant to be happening for the past 18 months that hasn't actually occurred.

581
00:42:23,180 --> 00:42:28,600
So when you're looking at REA as a business, do they give, in your opinion, is there any

582
00:42:28,600 --> 00:42:34,600
insights onto where the property market's heading or the current state of affairs in

583
00:42:34,600 --> 00:42:35,600
Australia?

584
00:42:35,600 --> 00:42:41,560
They tend not to give opinions on property prices.

585
00:42:41,560 --> 00:42:47,760
What's important for REA is property transactions and listings.

586
00:42:47,760 --> 00:42:51,600
So they make money when people list their properties for sale.

587
00:42:51,600 --> 00:42:57,360
So if turnover is low, then you'll tend to find that listings have been low and that

588
00:42:57,360 --> 00:43:01,840
has a depressive effect on their business because the more listings there are, the more

589
00:43:01,840 --> 00:43:04,040
money that they make.

590
00:43:04,040 --> 00:43:09,160
If house prices fell, do we expect it to negatively impact their business?

591
00:43:09,160 --> 00:43:11,120
Not particularly.

592
00:43:11,120 --> 00:43:17,800
The amount that REA take as a percentage of the house price is still very, very small.

593
00:43:17,800 --> 00:43:22,960
In fact, it's very small by comparison to how much the real estate agent takes.

594
00:43:22,960 --> 00:43:29,440
And yet, if you think about the starting point for most people in their property journey,

595
00:43:29,440 --> 00:43:34,200
whether they're looking to buy a house for the first time, whether they're looking to

596
00:43:34,200 --> 00:43:38,480
upgrade their house, whether they're looking to downsize, whether they're looking to rent,

597
00:43:38,480 --> 00:43:44,720
whether they're looking to sell, all of those journeys typically start with REA and quite

598
00:43:44,720 --> 00:43:47,240
frequently domain as well.

599
00:43:47,240 --> 00:43:55,160
And so they are a critical part of that whole property transaction process.

600
00:43:55,160 --> 00:43:59,600
And at the moment, their share of wallet, the amount that they're charging as a percentage

601
00:43:59,600 --> 00:44:04,080
of the total transaction costs is pretty low.

602
00:44:04,080 --> 00:44:10,240
So we don't think that they would need to adjust prices lower if property prices fell.

603
00:44:10,240 --> 00:44:16,080
In fact, they've consistently over the years raised prices and we think that there's still

604
00:44:16,080 --> 00:44:19,800
a very, very long runway for that to continue.

605
00:44:19,800 --> 00:44:23,400
But there are other exciting parts to that business.

606
00:44:23,400 --> 00:44:27,480
It's going to sound like Will has been everywhere lately and that is partly true.

607
00:44:27,480 --> 00:44:32,280
I think he told me that he's been on four continents in the last four months lately,

608
00:44:32,280 --> 00:44:35,480
but he did just come back from India as well.

609
00:44:35,480 --> 00:44:41,840
And REA have 80% of the number one portal in India.

610
00:44:41,840 --> 00:44:44,160
And that is a very, very exciting proposition.

611
00:44:44,160 --> 00:44:49,400
It's actually detracting from earnings at the moment because they are investing very,

612
00:44:49,400 --> 00:44:55,280
very heavily to cement their number one position in what is a very, very large market.

613
00:44:55,280 --> 00:45:02,560
But it's a market that's got used to paying for listings within the real estate space.

614
00:45:02,560 --> 00:45:06,160
So similar in some respects to Australia on that front.

615
00:45:06,160 --> 00:45:10,240
So the revenue growth is very, very strong at the moment.

616
00:45:10,240 --> 00:45:15,800
They're reinvesting more than they make to make sure that they extend their lead as the

617
00:45:15,800 --> 00:45:18,100
number one player in that segment.

618
00:45:18,100 --> 00:45:21,000
At some point in the next couple of years, you're going to start to see the economics

619
00:45:21,000 --> 00:45:26,520
of that business come through because as the revenue growth accelerates, their cost growth

620
00:45:26,520 --> 00:45:30,880
will start to increase at a slower rate, which means that you move to becoming a profitable

621
00:45:30,880 --> 00:45:33,200
business and then a very, very profitable business.

622
00:45:33,200 --> 00:45:40,840
So we think that that Indian business has quite considerable potential and considerable

623
00:45:40,840 --> 00:45:42,000
value at this point in time.

624
00:45:42,000 --> 00:45:46,440
And that's not reflected, for instance, in the multiples that you might look at when

625
00:45:46,440 --> 00:45:51,200
you look at the business as we stand here today.

626
00:45:51,200 --> 00:45:55,840
So you need to separate out the value that we would ascribe to the Australian business

627
00:45:55,840 --> 00:46:01,440
and the value that you might ascribe to the business in India.

628
00:46:01,440 --> 00:46:08,560
And there was nothing within that site visit that left us anything but impressed with the

629
00:46:08,560 --> 00:46:12,880
progress and drive within that business.

630
00:46:12,880 --> 00:46:17,120
And it is obviously an enormous market.

631
00:46:17,120 --> 00:46:22,400
If it's not already soon to be the most populous country in the world, it's democracy, it's

632
00:46:22,400 --> 00:46:23,720
English speaking.

633
00:46:23,720 --> 00:46:30,040
So there are a lot of reasons that we should be quite excited about REA's involvement.

634
00:46:30,040 --> 00:46:32,360
Yeah, that's really interesting.

635
00:46:32,360 --> 00:46:34,840
I didn't know that was expanding into India.

636
00:46:34,840 --> 00:46:36,400
Where else are you currently seeing opportunity?

637
00:46:36,400 --> 00:46:41,520
There's a number of companies that I'm familiar with that you guys own or picked up recently.

638
00:46:41,520 --> 00:46:42,520
Surprise me.

639
00:46:42,520 --> 00:46:45,280
What else have you picked up or where is the opportunity?

640
00:46:45,280 --> 00:46:51,080
Listen, I think there's more opportunity in the market at the moment across sectors than

641
00:46:51,080 --> 00:46:53,240
we have seen for some time.

642
00:46:53,240 --> 00:46:58,120
So the real opportunity, I think, lies in the mid and small cap space.

643
00:46:58,120 --> 00:47:01,280
And it's a function of two things.

644
00:47:01,280 --> 00:47:06,240
One, there's much stronger earnings growth that you're going to see from some of the

645
00:47:06,240 --> 00:47:08,200
companies in the mid and small cap space.

646
00:47:08,200 --> 00:47:12,300
And you're going to see at the very large end of town.

647
00:47:12,300 --> 00:47:17,140
And that's going to continue for the next decade and beyond, in our opinion.

648
00:47:17,140 --> 00:47:20,240
And then on the other side of that, valuations have pulled back.

649
00:47:20,240 --> 00:47:26,000
In fact, valuations have pulled back considerably in the last two years in those same parts

650
00:47:26,000 --> 00:47:27,000
of the market.

651
00:47:27,000 --> 00:47:32,960
So mid and small caps have underperformed the large caps for nearly two years now.

652
00:47:32,960 --> 00:47:38,000
And we don't think that that's a function by and large of the underlying performance

653
00:47:38,000 --> 00:47:39,200
of the businesses.

654
00:47:39,200 --> 00:47:45,480
So if we think about our portfolio, our portfolio holdings are doing very, very well at the

655
00:47:45,480 --> 00:47:46,480
company level.

656
00:47:46,480 --> 00:47:49,520
And we spend a lot of time on the ground with those companies.

657
00:47:49,520 --> 00:47:53,640
I spent four weeks in the US, only a couple of months back.

658
00:47:53,640 --> 00:48:00,640
And that was visiting around 15 Australian listed companies and their operations.

659
00:48:00,640 --> 00:48:07,700
The businesses that we own, we're very relaxed, are performing well and growing their earnings.

660
00:48:07,700 --> 00:48:12,800
And so the fact that prices have gone lower just means that valuations today are more

661
00:48:12,800 --> 00:48:15,320
attractive than they were a couple of years ago.

662
00:48:15,320 --> 00:48:20,400
And so that's an exciting time to be investing because at the end of the day, you make your

663
00:48:20,400 --> 00:48:25,720
money most of the time from buying at attractive levels and then holding for long periods.

664
00:48:25,720 --> 00:48:26,880
And that's exactly what we do.

665
00:48:26,880 --> 00:48:32,760
So the portfolio that we have, portfolios that we run, tend to be invested for many,

666
00:48:32,760 --> 00:48:35,960
many years in the stocks that we hold.

667
00:48:35,960 --> 00:48:41,280
You can see that because we report the top 20 positions in both funds every single month.

668
00:48:41,280 --> 00:48:45,480
And what people might notice is that those positions don't tend to change very much over

669
00:48:45,480 --> 00:48:46,480
time.

670
00:48:46,480 --> 00:48:48,380
So we're a long-term investor in these businesses.

671
00:48:48,380 --> 00:48:50,640
We try to pick our point of entry.

672
00:48:50,640 --> 00:48:53,880
We want evaluation that's fair value or better.

673
00:48:53,880 --> 00:48:57,760
And then we'll be invested for some time.

674
00:48:57,760 --> 00:49:02,200
But there are many opportunities that we've been nibbling away at recently.

675
00:49:02,200 --> 00:49:08,960
And obviously, the X20 fund has only launched at the start of December 23.

676
00:49:08,960 --> 00:49:14,640
And so we have been investing the funds in that vehicle.

677
00:49:14,640 --> 00:49:19,040
And we invested them reasonably quickly into what has been a pretty strong market.

678
00:49:19,040 --> 00:49:22,680
So we're certainly happy with how that fund has started.

679
00:49:22,680 --> 00:49:27,760
So with the new fund, how many stocks are currently in the portfolio and your position

680
00:49:27,760 --> 00:49:28,760
sizing?

681
00:49:28,760 --> 00:49:33,240
Yeah, so there's 48 positions in the X20 fund.

682
00:49:33,240 --> 00:49:38,040
So it's slightly different to the Long Short Australian Equities Fund.

683
00:49:38,040 --> 00:49:40,520
The Long Short Australian Equities Fund is a high conviction fund.

684
00:49:40,520 --> 00:49:47,440
So it's not uncommon to find some positions that are around 10% or maybe a little above

685
00:49:47,440 --> 00:49:51,880
10% if they've gone up and we still have as much conviction in them as we did when we

686
00:49:51,880 --> 00:49:55,400
first purchased the security.

687
00:49:55,400 --> 00:50:01,260
And our holdings are concentrated in companies that we have the highest conviction in.

688
00:50:01,260 --> 00:50:02,840
So we're completely sector unaware.

689
00:50:02,840 --> 00:50:05,200
We might have some considerable sector exposure.

690
00:50:05,200 --> 00:50:10,640
In fact, at the moment, we've got a 34% exposure to the consumer space, which is considerably

691
00:50:10,640 --> 00:50:14,440
above what the index looks like.

692
00:50:14,440 --> 00:50:21,120
And so it's appropriate for people that want to invest in a relatively concentrated fund

693
00:50:21,120 --> 00:50:27,400
that will often behave quite differently to the market, but is invested in what we think

694
00:50:27,400 --> 00:50:32,080
are the best ideas in proportion to how good we think that the opportunity is.

695
00:50:32,080 --> 00:50:34,560
The X20 fund is a little bit different.

696
00:50:34,560 --> 00:50:41,160
And for those investors that care about performance compared to an index, we have tried to make

697
00:50:41,160 --> 00:50:44,320
this fund so that it is sector aware.

698
00:50:44,320 --> 00:50:49,320
So its sector exposures look quite similar to the X20 index.

699
00:50:49,320 --> 00:50:57,680
There's an ASX300 X20 index and its sector exposures will look pretty similar over time

700
00:50:57,680 --> 00:50:59,900
to those of the fund.

701
00:50:59,900 --> 00:51:05,880
So it'll be more of a function of the stock picking within the sectors as opposed to the

702
00:51:05,880 --> 00:51:10,040
sector allocation as to how that fund delivers performance.

703
00:51:10,040 --> 00:51:12,700
And it has a very particular market again.

704
00:51:12,700 --> 00:51:19,360
And the aim of that fund is to have consistency of outperformance over time.

705
00:51:19,360 --> 00:51:22,840
So rather than having years where it outperforms by a lot and then potentially the following

706
00:51:22,840 --> 00:51:30,360
year gives a little bit of that back, the aim of the X20 fund is to consistently deliver

707
00:51:30,360 --> 00:51:37,000
returns that are a bit better than the index in the broader market over time.

708
00:51:37,000 --> 00:51:39,480
So we're very excited about that fund.

709
00:51:39,480 --> 00:51:43,680
I was a considerable co-investor in that fund from the day it launched.

710
00:51:43,680 --> 00:51:52,040
So I have considerable exposure to both funds and importantly both me and Will and a lot

711
00:51:52,040 --> 00:52:00,040
of other people for that matter, their sole equity exposure is in the two funds that we

712
00:52:00,040 --> 00:52:01,040
manage.

713
00:52:01,040 --> 00:52:03,000
So we certainly eat our own cooking.

714
00:52:03,000 --> 00:52:07,960
We invest in accordance with how we think an equities portfolio should be best managed

715
00:52:07,960 --> 00:52:14,560
for the long term and we're considerable equity holders in the two funds.

716
00:52:14,560 --> 00:52:15,560
Thanks for that.

717
00:52:15,560 --> 00:52:20,480
The other reason I quite enjoy having these conversations is active fund managers, it's

718
00:52:20,480 --> 00:52:23,960
all people and how do you think, how do you make decisions?

719
00:52:23,960 --> 00:52:28,600
Like they say when you're sitting at a poker table, you read the player, not the cards.

720
00:52:28,600 --> 00:52:39,920
And I would love to discuss mineral resources again, but more in lines on how you invest

721
00:52:39,920 --> 00:52:44,680
in that position, what percentage you got up to, when did you trim it, why did you trim

722
00:52:44,680 --> 00:52:45,680
it?

723
00:52:45,680 --> 00:52:50,540
You used, I believe, lithium carbonate price as a leading indicator and then why you went

724
00:52:50,540 --> 00:52:57,200
back into it and why this is important is a number of investors using funds have been

725
00:52:57,200 --> 00:53:02,280
informed that some fund managers are actively managing the positions internally, but some

726
00:53:02,280 --> 00:53:04,960
people they hear that and they go, what exactly does that mean?

727
00:53:04,960 --> 00:53:11,080
So using mineral resources, do you mind giving an overview and just saying the percentage,

728
00:53:11,080 --> 00:53:15,000
what it was, where it got to, how you trimmed it and then that'd be great.

729
00:53:15,000 --> 00:53:20,080
So if we think about mineral resources, it's in the resources space.

730
00:53:20,080 --> 00:53:25,920
And so the number one driver in the short term of its earnings are the commodity prices

731
00:53:25,920 --> 00:53:28,640
for the commodities that it is exposed to.

732
00:53:28,640 --> 00:53:37,480
So we are more active around the management of our commodity related exposures than a

733
00:53:37,480 --> 00:53:39,760
lot of other stocks in the portfolio.

734
00:53:39,760 --> 00:53:44,840
So if we think about any boring industrial company, we will typically just let that position

735
00:53:44,840 --> 00:53:46,120
sit in the fund.

736
00:53:46,120 --> 00:53:53,040
And the only reason why we would change our exposure to that position typically are if

737
00:53:53,040 --> 00:53:56,840
the stock price gets well ahead of itself and we can't justify the current valuation,

738
00:53:56,840 --> 00:54:00,440
in which case we will reduce that a little bit.

739
00:54:00,440 --> 00:54:07,160
Or if everyone gets particularly depressed about the particular business, in which case

740
00:54:07,160 --> 00:54:09,400
we will ordinarily look through the cycle.

741
00:54:09,400 --> 00:54:12,840
And if we still like the business and nothing has changed in the investment thesis, then

742
00:54:12,840 --> 00:54:14,640
we will be adding to that exposure.

743
00:54:14,640 --> 00:54:20,480
There is obviously the third scenario as well in which a change in circumstance or a change

744
00:54:20,480 --> 00:54:27,720
in opinion in the investment team results in us exiting that position entirely because

745
00:54:27,720 --> 00:54:32,040
either we have realised that we were wrong in our investment thesis or the facts have

746
00:54:32,040 --> 00:54:34,960
changed such that it invalidates our investment thesis.

747
00:54:34,960 --> 00:54:42,680
But thankfully that last point doesn't happen too often and most of the change in the portfolio

748
00:54:42,680 --> 00:54:46,080
are at the edge with those industrial businesses.

749
00:54:46,080 --> 00:54:50,440
It's a little bit more active than that for businesses that are exposed to commodities

750
00:54:50,440 --> 00:54:53,280
and mineral resources is a classic example of that.

751
00:54:53,280 --> 00:55:01,360
So when this stock was down at $15, it was around a 5% or a little bit north of 5% position

752
00:55:01,360 --> 00:55:07,160
for the fund and we thought it was remarkably cheap.

753
00:55:07,160 --> 00:55:13,040
It then went from that sort of level up to $90 and it did it in a relatively short time

754
00:55:13,040 --> 00:55:19,440
price and there were a lot of things going in its favour during that period.

755
00:55:19,440 --> 00:55:25,800
Most obviously an explosion in the lithium price north and it was in the fortunate position

756
00:55:25,800 --> 00:55:32,360
where it could capitalise on that because it had two significant ready to go lithium

757
00:55:32,360 --> 00:55:33,440
operations.

758
00:55:33,440 --> 00:55:36,880
One that had been in care and maintenance and one that had operated throughout that

759
00:55:36,880 --> 00:55:38,320
period.

760
00:55:38,320 --> 00:55:40,760
That were two of the more significant lithium mines globally.

761
00:55:40,760 --> 00:55:43,200
So it benefited very strongly.

762
00:55:43,200 --> 00:55:49,360
And then about a year ago in December 2022 we saw a few things that we were concerned

763
00:55:49,360 --> 00:55:50,720
about.

764
00:55:50,720 --> 00:55:56,800
One was the build up of inventories within the supply chain for electric batteries and

765
00:55:56,800 --> 00:56:05,120
a majority of the new lithium that is being produced today is going into EV batteries.

766
00:56:05,120 --> 00:56:10,000
So as we saw this build up in inventories both at the battery end but also at the carbon

767
00:56:10,000 --> 00:56:14,120
end at various stages along the production processing line.

768
00:56:14,120 --> 00:56:18,280
We became a little bit concerned and at the same time the lithium carbonate price which

769
00:56:18,280 --> 00:56:23,840
is one of the different types of lithium product, it had started to turn down and was dropping

770
00:56:23,840 --> 00:56:30,920
and it has lead, spodumene which is the base product that a lot of the Australian miners

771
00:56:30,920 --> 00:56:37,840
produce and lithium hydroxide which is a lot of the battery grade product that a lot of

772
00:56:37,840 --> 00:56:42,200
the spodumene goes into consistently over the last five or six years.

773
00:56:42,200 --> 00:56:47,120
At the same time there was also negative news around iron ore because housing starts were

774
00:56:47,120 --> 00:56:52,160
dropping precipitously in China and China is the major consumer of steel globally and

775
00:56:52,160 --> 00:56:53,960
therefore the major consumer of iron ore.

776
00:56:53,960 --> 00:57:01,360
So its two commodity exposures were suddenly facing headwinds and yet the stock was hitting

777
00:57:01,360 --> 00:57:03,040
new all time highs.

778
00:57:03,040 --> 00:57:10,080
And so by that stage despite select trimming along the way the position had grown to around

779
00:57:10,080 --> 00:57:18,640
14% in the fund and when we saw a change in circumstances we acted and we cut that position

780
00:57:18,640 --> 00:57:19,640
considerably.

781
00:57:19,640 --> 00:57:22,520
In fact I think we ended up cutting it by over 70%.

782
00:57:22,520 --> 00:57:27,640
So it went all the way back down to between 4 and 5% in the fund.

783
00:57:27,640 --> 00:57:34,200
And over the last year you've seen this excess in lithium inventories in the supply chain

784
00:57:34,200 --> 00:57:37,280
play out by way of lower prices.

785
00:57:37,280 --> 00:57:41,480
So the lithium prices have dropped precipitously.

786
00:57:41,480 --> 00:57:47,480
In fact many of the indices are down 80% in that last 12 months which is extraordinary

787
00:57:47,480 --> 00:57:53,920
and that has retraced most of the upward move that we saw in the year or so prior.

788
00:57:53,920 --> 00:58:00,200
But we're currently seeing some signs that the inventory levels are normalising within

789
00:58:00,200 --> 00:58:01,200
the channel.

790
00:58:01,200 --> 00:58:06,360
We certainly think that the lithium carbonate and lithium hydroxide producers are back to

791
00:58:06,360 --> 00:58:13,800
the sort of normal levels of supply that we expect to see of them in a typical environment

792
00:58:13,800 --> 00:58:16,760
about 30 days worth of supply of the base product.

793
00:58:16,760 --> 00:58:19,880
There is still some excess supply in the battery channel.

794
00:58:19,880 --> 00:58:23,200
We think we'll work through that over the next three to six months.

795
00:58:23,200 --> 00:58:28,560
And obviously the stock prices have now pulled back considerably to reflect more conservative

796
00:58:28,560 --> 00:58:33,320
assumptions around the price of lithium on a go-forward basis.

797
00:58:33,320 --> 00:58:39,400
In the meantime, mineral resources have been very, very busy at managing what they can

798
00:58:39,400 --> 00:58:40,440
control.

799
00:58:40,440 --> 00:58:46,440
So in that 12-month period they've gone and bought off a receiver a third lithium operation

800
00:58:46,440 --> 00:58:50,040
at Bald Hill for what we think is an incredibly attractive price.

801
00:58:50,040 --> 00:58:56,080
And they have continued to progress this move to become a very, very low-cost producer in

802
00:58:56,080 --> 00:58:57,080
the iron ore space.

803
00:58:57,080 --> 00:59:03,560
They're going to go from a small-scale iron ore producer that is high-cost to a much larger

804
00:59:03,560 --> 00:59:05,840
scale low-cost producer.

805
00:59:05,840 --> 00:59:10,080
And that's the onslaught development that I referenced earlier in the chat.

806
00:59:10,080 --> 00:59:15,880
And that iron ore operation is due to come online by June of 2024.

807
00:59:15,880 --> 00:59:20,800
So that's now about six months away from starting production.

808
00:59:20,800 --> 00:59:25,080
And as we get closer to that date, we think the market's going to focus more and more

809
00:59:25,080 --> 00:59:27,440
on that side of the business.

810
00:59:27,440 --> 00:59:32,200
Because if iron ore prices hold at current levels, that business should produce between

811
00:59:32,200 --> 00:59:36,640
$1.5 and $2 billion worth of iron ore at spot prices.

812
00:59:36,640 --> 00:59:41,920
So it's going to be a very considerable earner for the broader men business.

813
00:59:41,920 --> 00:59:47,400
But as we've seen, the pressure on lithium eased somewhat just in the last four or five

814
00:59:47,400 --> 00:59:48,400
weeks.

815
00:59:48,400 --> 00:59:54,000
And as we get comfortable following our site visit that their iron ore expansion is going

816
00:59:54,000 --> 00:59:58,880
according to plan, we've become more constructive on the position again.

817
00:59:58,880 --> 01:00:04,600
And so we've been buying back some of the stock that we sold.

818
01:00:04,600 --> 01:00:05,600
Not all.

819
01:00:05,600 --> 01:00:09,640
It's unlikely that we will go north of 10% through purchases.

820
01:00:09,640 --> 01:00:13,560
But certainly we've been adding at what we think are very attractive levels.

821
01:00:13,560 --> 01:00:17,240
And we're very constructive on the outlook for that business over the next couple of

822
01:00:17,240 --> 01:00:18,240
years.

823
01:00:18,240 --> 01:00:21,480
We think it's going to be a very exciting time for Chris Ellison and the team.

824
01:00:21,480 --> 01:00:24,760
Yeah, it's quite interesting watching the prices play out.

825
01:00:24,760 --> 01:00:30,600
But listening and hearing the decision about what do you do when these particular circumstances

826
01:00:30,600 --> 01:00:36,160
and supply chains and the specific price plays out and how do you actually react and the

827
01:00:36,160 --> 01:00:37,160
decision making.

828
01:00:37,160 --> 01:00:40,400
I suppose that's the reason why people look for active managers.

829
01:00:40,400 --> 01:00:44,680
But just to paint the picture for people that don't have a chart in front of them, lithium

830
01:00:44,680 --> 01:00:49,760
carbonate price in what mid 2021 was about 100,000.

831
01:00:49,760 --> 01:00:53,880
When you reference November, December 2022, it's 600,000.

832
01:00:53,880 --> 01:00:57,960
And now it's all the way back down as of today, 97,500.

833
01:00:57,960 --> 01:01:05,520
And then with the iron ore price, looking at a five year chart, wow, it's done something

834
01:01:05,520 --> 01:01:06,520
similar.

835
01:01:06,520 --> 01:01:16,800
So the iron ore chart 2020 was practically 100, cycled all the way up to 230 July 2021,

836
01:01:16,800 --> 01:01:23,480
came all the way back down into the 80s and now we're at 137 US dollar a ton.

837
01:01:23,480 --> 01:01:25,560
So yeah, I see what you mean.

838
01:01:25,560 --> 01:01:31,240
So if the US iron ore holds the trajectory around about here and all that supply comes

839
01:01:31,240 --> 01:01:39,200
on next year, there's still a hundred dollars a ton nearly from the recent peak two years

840
01:01:39,200 --> 01:01:40,200
ago, a year and a half ago.

841
01:01:40,200 --> 01:01:44,120
Yeah, we don't need to see iron ore prices move higher.

842
01:01:44,120 --> 01:01:51,720
So mineral resources, new production at onslaught should have an operating cost of around $40

843
01:01:51,720 --> 01:01:52,720
a ton.

844
01:01:52,720 --> 01:01:53,720
So yeah, right.

845
01:01:53,720 --> 01:01:56,320
$40 a ton is the operating cost.

846
01:01:56,320 --> 01:02:04,960
Yeah, so at 137, there's a lot of margin in that for what should initially be a 35 million

847
01:02:04,960 --> 01:02:08,200
tonne per annum operation.

848
01:02:08,200 --> 01:02:12,760
But we think looking at the infrastructure set up that they've established has the potential

849
01:02:12,760 --> 01:02:18,120
to be considerably larger than that over time.

850
01:02:18,120 --> 01:02:20,880
Yeah, very interesting and good old disclosure.

851
01:02:20,880 --> 01:02:24,920
I do own mineral resources personally, you know, have to always say that in case people

852
01:02:24,920 --> 01:02:26,920
are listening.

853
01:02:26,920 --> 01:02:31,600
So what keeps you up at night and what gets you out of bed in the morning?

854
01:02:31,600 --> 01:02:34,960
To be honest, it's both the same thing.

855
01:02:34,960 --> 01:02:39,360
It's financial markets and it's not keeping me up at night because I'm worried.

856
01:02:39,360 --> 01:02:47,560
But I think if you're investing in the market, you know, broadly a managed fund is a good

857
01:02:47,560 --> 01:02:49,160
way to go.

858
01:02:49,160 --> 01:02:54,360
For the simple reason that the best investors in the market are typically those that are

859
01:02:54,360 --> 01:02:55,360
very passionate about it.

860
01:02:55,360 --> 01:02:59,680
I don't have to think about coming to work with any sense of dread.

861
01:02:59,680 --> 01:03:00,680
I love it.

862
01:03:00,680 --> 01:03:06,440
I love reading about all of the businesses that we own and many that we don't own.

863
01:03:06,440 --> 01:03:09,880
We love doing, you know, I speak for the whole team.

864
01:03:09,880 --> 01:03:13,720
Gavin Willa just as passionate about it as I.

865
01:03:13,720 --> 01:03:18,280
No one needs to tell us to do the work because we love doing the work.

866
01:03:18,280 --> 01:03:21,000
So it doesn't feel like work to us.

867
01:03:21,000 --> 01:03:22,820
We love going on site visits.

868
01:03:22,820 --> 01:03:25,640
We love drilling into companies.

869
01:03:25,640 --> 01:03:32,240
And so half the time I'm still reading about things as I'm going to bed that relate to

870
01:03:32,240 --> 01:03:35,440
companies that we're invested in or that we're thinking about.

871
01:03:35,440 --> 01:03:41,040
And when I wake up, I can't wait to get to work because it's passion of mine.

872
01:03:41,040 --> 01:03:42,880
It's passion of Will's, it's passion of Gav's.

873
01:03:42,880 --> 01:03:44,720
It's a real team effort.

874
01:03:44,720 --> 01:03:49,840
You need to be surrounded by people that keep you humble.

875
01:03:49,840 --> 01:03:59,320
And we'd like to think that we keep each other in check and make sure that we always consider

876
01:03:59,320 --> 01:04:02,120
every investment proposition carefully.

877
01:04:02,120 --> 01:04:09,520
And in that sense, the team has very good balance in how we approach opportunities in

878
01:04:09,520 --> 01:04:17,080
terms of having an appropriate level of bullishness where appropriate, but also being considerably

879
01:04:17,080 --> 01:04:23,640
skeptical about many of the things that we see and read and hear.

880
01:04:23,640 --> 01:04:31,520
So our view is the passionate team is always going to deliver better returns because you

881
01:04:31,520 --> 01:04:37,600
end up just spending a lot more time on investing activities than you would if it was just a

882
01:04:37,600 --> 01:04:38,600
job.

883
01:04:38,600 --> 01:04:43,280
So from our perspective, it's not a job, it's a passion.

884
01:04:43,280 --> 01:04:44,280
Love it.

885
01:04:44,280 --> 01:04:49,040
If you want to learn more about Auscap or yourself, how is it best for them to get in

886
01:04:49,040 --> 01:04:50,040
touch?

887
01:04:50,040 --> 01:04:51,040
What's the learning?

888
01:04:51,040 --> 01:04:57,640
Well, you can go to our website, which is Auscap, A-U-S-C-A-P-A-M for assetmanagement.com.

889
01:04:57,640 --> 01:05:03,040
Or you can reach out to Lauren Murphy, who's Auscap's head of distribution, and she will

890
01:05:03,040 --> 01:05:05,760
give you any information that you like.

891
01:05:05,760 --> 01:05:12,200
But you can read about the team's investment philosophy with, we continue to have every

892
01:05:12,200 --> 01:05:15,960
newsletter that we have ever published present on our website.

893
01:05:15,960 --> 01:05:20,920
You can see what we were saying last month, last year or 10 years ago, and hopefully you

894
01:05:20,920 --> 01:05:25,440
find a consistency in our approach and message.

895
01:05:25,440 --> 01:05:29,920
A lot of those newsletters have been crafted by different members of the team.

896
01:05:29,920 --> 01:05:34,920
So certainly Gav and Will have both written a considerable number of those newsletters.

897
01:05:34,920 --> 01:05:38,880
I've drafted many of them as well, particularly in the early years.

898
01:05:38,880 --> 01:05:43,960
But hopefully you won't be able to tell who has written which one, which gives you an

899
01:05:43,960 --> 01:05:50,240
indication that we all think about investing in the same way and we're looking for the

900
01:05:50,240 --> 01:05:51,240
same high quality businesses.

901
01:05:51,240 --> 01:05:54,320
We'll try to be a little bit picky about price.

902
01:05:54,320 --> 01:05:55,320
That is our attitude.

903
01:05:55,320 --> 01:05:59,480
And if that resonates, then feel free to inquire further.

904
01:05:59,480 --> 01:06:00,480
Fantastic.

905
01:06:00,480 --> 01:06:02,960
Well, Tim, it's been really good having you on.

906
01:06:02,960 --> 01:06:04,920
I really enjoyed this conversation.

907
01:06:04,920 --> 01:06:06,920
And you got much planned over the Christmas break?

908
01:06:06,920 --> 01:06:07,920
You're sticking around?

909
01:06:07,920 --> 01:06:09,600
You're heading away?

910
01:06:09,600 --> 01:06:12,280
We are sticking around over Christmas.

911
01:06:12,280 --> 01:06:16,220
My children are very, very excited about Santa.

912
01:06:16,220 --> 01:06:21,040
And then we'll head down to the South Coast for a couple of weeks in early January.

913
01:06:21,040 --> 01:06:24,800
It's an important time to recharge and refresh.

914
01:06:24,800 --> 01:06:25,800
Let's get ready for 2024.

915
01:06:25,800 --> 01:06:27,800
I hope it's a good one.

916
01:06:27,800 --> 01:06:28,800
Absolutely.

917
01:06:28,800 --> 01:06:30,920
All right, Tim, great having you on and have a great day.

918
01:06:30,920 --> 01:06:31,920
Thanks Murdoch.

919
01:06:31,920 --> 01:06:32,920
You too.

920
01:06:32,920 --> 01:06:44,800
Thanks for having me.

921
01:06:44,800 --> 01:06:48,760
Any views expressed in this recording do not represent the view of any other third party

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and other sole personal opinions of the speaker.

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Any reference to financial product does not constitute advice or recommendation.

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And before any action, you should seek proper advice from your financial professional.

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Australian listeners should head to www.moneysmart.gov.au to find more information on obtaining financial

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advice.

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To get in touch with York, head to our website www.yorkwealth.com.au.