1 00:00:00,000 --> 00:00:05,440 Hi, I'm Murdoch Gaddy and thanks for listening to the rate of change with York Wealth Management. 2 00:00:05,440 --> 00:00:09,800 The rate of change is a podcast which explores the ever shifting momentum of financial markets 3 00:00:09,800 --> 00:00:14,680 through the eyes of the leading managers in wealth management. 4 00:00:14,680 --> 00:00:20,040 In today's Rockcast, Romano Salatena, one of the portfolio managers from Katana Asset 5 00:00:20,040 --> 00:00:22,760 Management joins us to discuss their Australian Equity Fund. 6 00:00:22,760 --> 00:00:26,440 If you haven't heard of Katana, they're an Australian based fund manager who've been 7 00:00:26,440 --> 00:00:29,500 managing money since 2005. 8 00:00:29,500 --> 00:00:34,040 We sat down with Romano late last year to record this Rockcast, so I thought I'd give 9 00:00:34,040 --> 00:00:40,280 an updated insight on how the fund has been travelling using their January 23 fund fact 10 00:00:40,280 --> 00:00:41,280 sheet. 11 00:00:41,280 --> 00:00:50,320 The fund since inception has returned on average 10.13%, over 5 years it's 12.36%, 3 years 12 00:00:50,320 --> 00:00:58,400 14.78%, 1 year 15.41% and it's up 5.58% in the last month. 13 00:00:58,400 --> 00:01:02,320 What I find quite remarkable about what the team has achieved over these years was put 14 00:01:02,320 --> 00:01:06,480 into a good article written by Tom Richardson from the Australian Financial Review. 15 00:01:06,480 --> 00:01:12,640 The AFR highlighted in the top 10 Aussie Equity Funds in 2022, Katana ranked 7th. 16 00:01:12,640 --> 00:01:19,840 Interestingly, it was the only top 10 manager in 2022 to be also ranked in the top 10 over 17 00:01:19,840 --> 00:01:25,160 5 years at 2nd, whilst being ranked 4th over 3 years, which is quite an achievement. 18 00:01:25,160 --> 00:01:30,000 Romano also dives into the inner workings of the fund, where he thinks markets are going 19 00:01:30,000 --> 00:01:36,120 and how the fund is positioned to both protect and grow the portfolio with the upcoming volatility 20 00:01:36,120 --> 00:01:37,880 we're seeing. 21 00:01:37,880 --> 00:01:42,440 I really enjoyed hearing how Romano and the teams process very substantially to some other 22 00:01:42,440 --> 00:01:43,440 managers. 23 00:01:43,440 --> 00:01:48,040 As an example, if they don't like an asset class, I don't know, say the banks, they 24 00:01:48,040 --> 00:01:54,360 will just not allocate, whilst other managers just hold the assets and reduce the overall 25 00:01:54,360 --> 00:01:55,360 rating. 26 00:01:55,360 --> 00:02:00,440 I found this approach quite interesting as a tactical method to deal with the volatility 27 00:02:00,440 --> 00:02:05,320 we have been seeing in markets, especially in the past 5 years. 28 00:02:05,320 --> 00:02:10,240 So with that being said, I hope you enjoy the conversation and if you have any questions, 29 00:02:10,240 --> 00:02:18,320 keep the feedback coming and you can reach me at mgatty at ywm.com.au or reach out to 30 00:02:18,320 --> 00:02:20,140 your cloth management. 31 00:02:20,140 --> 00:02:27,600 So I hope you enjoy the conversation as much as I did and let's get into it. 32 00:02:27,600 --> 00:02:31,520 Romano Salatena, welcome to the Rate of Change with your cloth management. 33 00:02:31,520 --> 00:02:33,120 Thank you, thanks for having us. 34 00:02:33,120 --> 00:02:34,120 Fantastic. 35 00:02:34,120 --> 00:02:38,120 So why don't we start things off by telling us a little bit about how you got into financial 36 00:02:38,120 --> 00:02:40,480 markets and a little bit about your background. 37 00:02:40,480 --> 00:02:47,740 Sure, so yeah, did a commerce degree, major information systems, worked 7 years as a computer 38 00:02:47,740 --> 00:02:48,740 programmer analyst. 39 00:02:48,740 --> 00:02:54,320 Really enjoyed that, did a post-grad in finance and then made my way into stockbroking for 40 00:02:54,320 --> 00:02:59,840 many years and then 2003 we started the process to set up Katana Asset Management and that 41 00:02:59,840 --> 00:03:06,800 was a 2 year process and put out our first fund in December 2005, January 2006. 42 00:03:06,800 --> 00:03:11,120 Right, so how does the IT component play into markets? 43 00:03:11,120 --> 00:03:17,360 Yeah, there's a lot of really nice aspects to that, you know, in terms of the math side, 44 00:03:17,360 --> 00:03:22,120 the programming side, the sequential analytical side, I think that plays into a really good 45 00:03:22,120 --> 00:03:25,440 part of funds management. 46 00:03:25,440 --> 00:03:30,240 Of course, funds management is part art, part science, so I think part of that, you know, 47 00:03:30,240 --> 00:03:35,520 I think the left and right brain are constantly in conflict with each other in funds management 48 00:03:35,520 --> 00:03:37,120 and you know, that's the case. 49 00:03:37,120 --> 00:03:43,200 I'm sort of more leaning towards that analytical sort of problem solving phase but in funds 50 00:03:43,200 --> 00:03:46,000 management you don't have the luxury to get all the information or you don't have the 51 00:03:46,000 --> 00:03:50,240 luxury to have all the time so you constantly got to be making decisions based on imperfect 52 00:03:50,240 --> 00:03:52,880 data and imperfect timeframes. 53 00:03:52,880 --> 00:03:54,320 Yeah, right. 54 00:03:54,320 --> 00:03:59,760 So moving into the fund Katana, can you tell us a little bit about the structure of the 55 00:03:59,760 --> 00:04:04,800 fund, you know, how it's currently been performing and essentially what you're trying to achieve? 56 00:04:04,800 --> 00:04:07,520 So firstly, we're very pleased with the performance. 57 00:04:07,520 --> 00:04:12,760 We're outperforming the benchmark over every time frame for 17 years and what that gives 58 00:04:12,760 --> 00:04:17,640 us confidence in is that there's something sustainable in what we're doing that enables 59 00:04:17,640 --> 00:04:22,520 us to achieve over not just, you know, a front-ended result or a back-end result or in the middle 60 00:04:22,520 --> 00:04:26,200 but over every time frame we look at one, three, five, seven years or whatever. 61 00:04:26,200 --> 00:04:31,420 So that gives us some confidence that what we're doing is sustainable and replicable 62 00:04:31,420 --> 00:04:34,660 and that's the important thing from our end. 63 00:04:34,660 --> 00:04:39,680 What we've tried to do is deconstruct the funds management process. 64 00:04:39,680 --> 00:04:44,540 So I'll put something to you which sounds rather ludicrous but if you didn't like a 65 00:04:44,540 --> 00:04:50,120 company but you didn't dislike it, if you're a typical fund manager, you generally have 66 00:04:50,120 --> 00:04:51,120 neutral weighting. 67 00:04:51,120 --> 00:04:55,600 So let's say you don't like the big banks but you don't dislike them, so your starting 68 00:04:55,600 --> 00:04:59,500 position is to have about 25% exposure to the banking sector. 69 00:04:59,500 --> 00:05:02,880 Now for us that seems a bit ludicrous and if you looked at it from the lens of any other 70 00:05:02,880 --> 00:05:05,480 industry you'd think that is ludicrous. 71 00:05:05,480 --> 00:05:10,480 If we don't like something, we don't dislike it, our starting position is zero and then 72 00:05:10,480 --> 00:05:15,020 we'll add anything that we believe adds genuine alpha to the process. 73 00:05:15,020 --> 00:05:17,700 So let's go into that a little bit more. 74 00:05:17,700 --> 00:05:21,960 Can you give our listeners an understanding of what's in the portfolio? 75 00:05:21,960 --> 00:05:26,280 When you say you're looking at the Australian market, what does that exactly mean? 76 00:05:26,280 --> 00:05:27,600 So we're exceptionally risk-averse. 77 00:05:27,600 --> 00:05:31,360 There's a lot of things that we won't do in our portfolio which we feel confident we could 78 00:05:31,360 --> 00:05:35,200 make money out of but capital preservation first and foremost is at the core of what 79 00:05:35,200 --> 00:05:36,200 we do. 80 00:05:36,200 --> 00:05:43,480 Secondly, we're very diverse so typically we hold 55 to 65 stocks in the portfolio at 81 00:05:43,480 --> 00:05:44,480 any given time. 82 00:05:44,480 --> 00:05:48,880 Right at the moment we're at 42 companies which is the lowest we've been in probably 83 00:05:48,880 --> 00:05:53,560 a decade and there's some specific reasons why that is so low at the moment. 84 00:05:53,560 --> 00:05:59,720 We then start to look at things on an alpha basis so we're not after beta performers. 85 00:05:59,720 --> 00:06:02,720 Every stock in our portfolio we're high conviction on. 86 00:06:02,720 --> 00:06:08,160 Clearly we get some wrong, we get a lot wrong but we're high conviction so we're only putting 87 00:06:08,160 --> 00:06:13,540 stocks in the portfolio that we believe can outperform the index. 88 00:06:13,540 --> 00:06:17,560 Now we understand that we have to be benched according to the all-orbs accumulation index 89 00:06:17,560 --> 00:06:23,200 so people have something to assess our performance on but we don't let that constrain the way 90 00:06:23,200 --> 00:06:24,520 we think as managers. 91 00:06:24,520 --> 00:06:28,860 We don't think right if we're neutral the banks we hold 25% exposure. 92 00:06:28,860 --> 00:06:32,600 We think if we're neutral the banks we hold zero exposure and then if we actually think 93 00:06:32,600 --> 00:06:35,960 the banks can outperform this stage of the cycle we'll weight it upwards. 94 00:06:35,960 --> 00:06:41,640 If you look at the last 16 years at graphs of our sector exposures you see that our exposure 95 00:06:41,640 --> 00:06:47,040 to the banking index has gone from minus 20% to the index to sort of plus 10% so it can 96 00:06:47,040 --> 00:06:49,360 rotate around quite aggressively. 97 00:06:49,360 --> 00:06:55,520 So how much cash, if you're only holding 40-year-old companies right now what is that as a percentage? 98 00:06:55,520 --> 00:07:02,480 So we're holding at the moment cash is just under 35% and that's in our mandate we can 99 00:07:02,480 --> 00:07:08,600 go to 80% but 35% realistically is sort of the upper threshold where we like to see things. 100 00:07:08,600 --> 00:07:10,720 Okay so let's go back to the banks. 101 00:07:10,720 --> 00:07:14,200 You said if you're not going to, if you're going to be neutral to something you just 102 00:07:14,200 --> 00:07:18,280 don't hold it all so what percentage of the portfolio is in the banks right now? 103 00:07:18,280 --> 00:07:21,640 Approximately we'd be looking at around about 10% and that's weighted towards Macquarie 104 00:07:21,640 --> 00:07:27,560 Bank and one of the regionals which thinks often particularly good value at the moment, 105 00:07:27,560 --> 00:07:32,640 QQ given the work they've done on ME Bank and some other things that are going to add 106 00:07:32,640 --> 00:07:37,760 as good tailwinds we suspect for them and then we've got some, including that basket 107 00:07:37,760 --> 00:07:41,920 of courses, other financials so we've got some miscellaneous exposure to a pendle under 108 00:07:41,920 --> 00:07:44,040 takeover and some bits and pieces. 109 00:07:44,040 --> 00:07:48,520 So regarding market cap, you know on the ISX, do you, can you go anywhere? 110 00:07:48,520 --> 00:07:53,280 Like can you go small caps or is it predominantly the top end of town or what do you generally 111 00:07:53,280 --> 00:07:54,280 look at? 112 00:07:54,280 --> 00:07:58,560 Well the vast majority of what we do is in the big end of the market. 113 00:07:58,560 --> 00:08:05,120 We're not against taking the odd smaller position if we think it's got the potential to grow 114 00:08:05,120 --> 00:08:09,880 into a larger company but what we do do is we absolutely respect what it means to take 115 00:08:09,880 --> 00:08:12,240 a position in a smaller cap company. 116 00:08:12,240 --> 00:08:17,600 You know smaller caps by definition have little or no research coverage, have less corporate 117 00:08:17,600 --> 00:08:22,480 governance, have less diversification, have less track record and of course most importantly 118 00:08:22,480 --> 00:08:24,120 have less liquidity. 119 00:08:24,120 --> 00:08:28,280 So you know first and foremost we want to make sure we're preserving our capital. 120 00:08:28,280 --> 00:08:33,000 They really are like lobster pots, very easy to get into, very easy to get out of, the 121 00:08:33,000 --> 00:08:34,840 old cliché there. 122 00:08:34,840 --> 00:08:39,760 So you know where is we'll trade, if we've got line of sight on Westpac Bank for trade, 123 00:08:39,760 --> 00:08:44,680 if we've got imminent triggers and we can understand line of sight for why we think 124 00:08:44,680 --> 00:08:49,640 we can make a trade, we'll trade Westpac Bank up and down for 10% day in day out. 125 00:08:49,640 --> 00:08:54,640 But if we're looking at a smaller cap company or a mid cap we really have to be seeing 50 126 00:08:54,640 --> 00:08:59,560 to 70% with a lot of clarity before we'd be prepared to take on that risk. 127 00:08:59,560 --> 00:09:03,960 I really wanted to go down a different path and keep digging into these companies but 128 00:09:03,960 --> 00:09:08,440 you said something before that you happily trade in and out on the day. 129 00:09:08,440 --> 00:09:15,480 Is this a high touch portfolio or do you have a core as in you hold like a 60% and then 130 00:09:15,480 --> 00:09:16,720 you trade around the edges? 131 00:09:16,720 --> 00:09:19,760 Like what's exactly your style of investing? 132 00:09:19,760 --> 00:09:24,120 On a day might have been a bit of a misunderstanding there. 133 00:09:24,120 --> 00:09:29,400 So if we see Westpac an opportunity there, we'll trade that up and down. 134 00:09:29,400 --> 00:09:33,520 It's unlikely to be within a day but certainly over weeks and months there. 135 00:09:33,520 --> 00:09:39,160 So you know we've got companies that we've been trading now for close on 20 years and 136 00:09:39,160 --> 00:09:42,480 our weighting in those companies go from 0 to 3%. 137 00:09:42,480 --> 00:09:47,000 3% for us is exceptionally exceptionally high conviction. 138 00:09:47,000 --> 00:09:53,200 We're in our 17th year operation now and we've had on three occasions we've been over 5% 139 00:09:53,200 --> 00:09:55,560 individual stock weighting. 140 00:09:55,560 --> 00:09:59,720 Normally if we like something it's 2%, for exceptionally high conviction it's 3% and 141 00:09:59,720 --> 00:10:03,400 I said there's only been three occasions we've gone above 5%. 142 00:10:03,400 --> 00:10:05,080 So that's with the specific companies. 143 00:10:05,080 --> 00:10:09,340 Now as we discuss a lot in the rate of change with macroeconomics you know the top level 144 00:10:09,340 --> 00:10:11,000 what's the actual underlying right? 145 00:10:11,000 --> 00:10:14,520 And one of the things we discuss always with portfolio management is how much money you 146 00:10:14,520 --> 00:10:18,160 should have in a particular asset class or a subcategory. 147 00:10:18,160 --> 00:10:24,700 So you say 3% for specific holding in a bank but do you have parameters on say the banking 148 00:10:24,700 --> 00:10:25,700 sector? 149 00:10:25,700 --> 00:10:27,880 Do you even touch on resources? 150 00:10:27,880 --> 00:10:32,920 And how much would you allocate as a maximum to a particular sector of the ASX? 151 00:10:32,920 --> 00:10:36,280 We tend to find that nature takes care of most of those questions. 152 00:10:36,280 --> 00:10:42,360 We don't let artificial constraints drive what we do but we are respectful and we do 153 00:10:42,360 --> 00:10:44,040 analyse and understand it. 154 00:10:44,040 --> 00:10:48,560 So our analyst Hendrik he works constantly to look at portfolio correlation. 155 00:10:48,560 --> 00:10:53,400 So he's taking a separate view as to what we're the three portfolio managers are doing 156 00:10:53,400 --> 00:10:57,720 in terms of how we're constructing the portfolio and he's running an overlay to make sure that 157 00:10:57,720 --> 00:11:01,920 we understand exactly what risk we're taking on them and then we make a decision collectively 158 00:11:01,920 --> 00:11:04,960 whether or not we take that risk on or not. 159 00:11:04,960 --> 00:11:09,880 Just to get back to the heart of your question, I mean a holding in our portfolio can come 160 00:11:09,880 --> 00:11:11,440 in one of two ways. 161 00:11:11,440 --> 00:11:15,960 It can come in from a top down response or a bottom up response. 162 00:11:15,960 --> 00:11:22,120 So top down is identifying a macro, identifying a format that we believe has got substantial 163 00:11:22,120 --> 00:11:26,800 momentum in it and then trying to find the best way to apply that. 164 00:11:26,800 --> 00:11:32,040 Or in a bottom up maybe where we're seeing an exceptional management team, we've seen 165 00:11:32,040 --> 00:11:37,640 a particular growth number, a particular valuation that just looks too compelling and we'll start 166 00:11:37,640 --> 00:11:39,480 our work from the bottom up. 167 00:11:39,480 --> 00:11:45,000 And so quite often we find that a lot of the best ideas meet in the middle somewhere and 168 00:11:45,000 --> 00:11:50,000 quite often we do find that we will be overweight like for right at the moment where we're overweight 169 00:11:50,000 --> 00:11:51,000 materials. 170 00:11:51,000 --> 00:11:55,400 That's a conscious decision we've made right here right now but it's not driven from a 171 00:11:55,400 --> 00:11:56,880 macro, it's driven from a bottom up thematic. 172 00:11:56,880 --> 00:12:00,240 Well let's look at some of the companies when you say in materials. 173 00:12:00,240 --> 00:12:02,280 So can you give a couple of examples? 174 00:12:02,280 --> 00:12:05,600 So right now our largest holding is Mineral Resources. 175 00:12:05,600 --> 00:12:08,920 That's one of the three companies I mentioned that has been above 5%. 176 00:12:08,920 --> 00:12:14,360 We first started trading Mineral Resources in 2006 when it listed and we've been trading 177 00:12:14,360 --> 00:12:18,120 that stock for the last 16, 17 years continuously. 178 00:12:18,120 --> 00:12:21,560 If you look at the beginning of the year our weighting would have been close on if not 179 00:12:21,560 --> 00:12:29,440 0% and now our weighting is close to 7% due to some very strong stock performance. 180 00:12:29,440 --> 00:12:31,640 And that's the absolute upper limit. 181 00:12:31,640 --> 00:12:37,440 We don't sleep well at night even having it there but because we've got probably the 182 00:12:37,440 --> 00:12:40,920 most detailed model of Mineral Resources in Australia and there's not too many stocks 183 00:12:40,920 --> 00:12:43,120 we claim that for. 184 00:12:43,120 --> 00:12:48,080 Because we've got such a high understanding of that company having traded in depth for 185 00:12:48,080 --> 00:12:51,400 so many years we understand what that means. 186 00:12:51,400 --> 00:12:54,280 So why are we in Mineral Resources right at the moment? 187 00:12:54,280 --> 00:12:59,560 The main reason being the Lithium thematic, it's very hard to play the electrification, 188 00:12:59,560 --> 00:13:02,360 decarbonisation theme in Australia. 189 00:13:02,360 --> 00:13:05,240 The best way to apply it we think at the moment is still Lithium and Copper. 190 00:13:05,240 --> 00:13:10,480 When we look at Lithium the two best stocks are Mineral Resources and Orkem and both of 191 00:13:10,480 --> 00:13:12,320 those are prominent holdings at the moment. 192 00:13:12,320 --> 00:13:17,600 Do you own any other exposure to Lithium or superconductor material or anything the equivalent 193 00:13:17,600 --> 00:13:19,600 for Natium? 194 00:13:19,600 --> 00:13:24,400 Yeah so we haven't gone down into the more niche metals. 195 00:13:24,400 --> 00:13:29,000 The reason we haven't done that is because we do find it hard when there's not a deep 196 00:13:29,000 --> 00:13:36,800 liquid market it is very hard to understand the true supply-demand dynamics there. 197 00:13:36,800 --> 00:13:42,320 Graphite is an example, we did a lot of work on Cerate 40 cents and opted against it and 198 00:13:42,320 --> 00:13:44,600 obviously it's increased multiple since then. 199 00:13:44,600 --> 00:13:47,080 I know there's another phone manager that really likes Cerate and it is a good company 200 00:13:47,080 --> 00:13:51,880 but the reason we've done that is because when we look at the existence of graphite, 201 00:13:51,880 --> 00:13:57,720 graphite is in abundance globally in every jurisdiction. 202 00:13:57,720 --> 00:14:03,120 So it will be lumpy yes as you get the supply-demand, the demand will have to increase until they 203 00:14:03,120 --> 00:14:06,480 bring another mine and there will be too much supply on the price, you'll get depressed 204 00:14:06,480 --> 00:14:13,880 and you'll have that supply-demand dynamic but we struggle to understand longer term 205 00:14:13,880 --> 00:14:17,040 how there's going to be any shortage there. 206 00:14:17,040 --> 00:14:22,040 The flip side is you look at something like copper, we think that Dr. Copper the best 207 00:14:22,040 --> 00:14:27,280 indicator of the economic cycle, we really see that as being something that's being 208 00:14:27,280 --> 00:14:32,680 neglected and that's one where we can do an enormous amount of analysis because there 209 00:14:32,680 --> 00:14:36,400 are so many data points and we can really understand what that looks like. 210 00:14:36,400 --> 00:14:40,640 So we've been rebuilding our position in a couple of copper companies, again very hard 211 00:14:40,640 --> 00:14:47,080 one to play because up until recently there was four or five ASX listed companies that 212 00:14:47,080 --> 00:14:51,240 were dedicated copper producers and of those a couple were sub-substandard. 213 00:14:51,240 --> 00:14:55,720 So it is a hard space to play but in Australia if you want to play that thematic you don't 214 00:14:55,720 --> 00:14:56,720 have a lot of options. 215 00:14:56,720 --> 00:15:01,800 So I'm not sure if you said it, what percentage of the portfolio is in materials roughly? 216 00:15:01,800 --> 00:15:06,200 I'd have to look at that, I'm guessing it's probably somewhere around about 15 to 20% 217 00:15:06,200 --> 00:15:09,440 mark at the moment, maybe closer to 15. 218 00:15:09,440 --> 00:15:14,480 So you're just so everyone can understand what they're saying, they're talking about 219 00:15:14,480 --> 00:15:19,200 the maximum holding they'll have in a particular company is 3% but you're very comfortable 220 00:15:19,200 --> 00:15:25,080 if you see a macroeconomic thematic occurring to go very heavy in a particular area of the 221 00:15:25,080 --> 00:15:26,080 portfolio. 222 00:15:26,080 --> 00:15:32,000 That's exactly our secret source is being able to have that confidence to understand 223 00:15:32,000 --> 00:15:38,720 why you up weight a sector versus down weighting a sector and then taking that to a level that 224 00:15:38,720 --> 00:15:42,040 some managers may not be prepared to do, some managers may not be prepared to step away 225 00:15:42,040 --> 00:15:43,040 from the herd. 226 00:15:43,040 --> 00:15:50,680 Still very, very risk averse, still very low risk but as an example having maybe 5% in 227 00:15:50,680 --> 00:15:57,960 the big banks versus 20-25% market weighting, that's a big step away from the herd there. 228 00:15:57,960 --> 00:16:01,360 But right at the moment we think that's the right move to make as we have done the past 229 00:16:01,360 --> 00:16:02,360 decade a couple of times. 230 00:16:02,360 --> 00:16:08,700 Well let's dust off the crystal ball and have a conversation on the thematic side with macroeconomics. 231 00:16:08,700 --> 00:16:12,920 What hurdles do you see coming towards I suppose the end of the year, early next year and say 232 00:16:12,920 --> 00:16:17,040 sectors you just want to completely avoid and where do you see opportunity? 233 00:16:17,040 --> 00:16:20,280 I think it's probably the most, on that first question, it's probably the most challenging 234 00:16:20,280 --> 00:16:26,480 market we've seen in a very long time and that's why we're close to our maximum desired 235 00:16:26,480 --> 00:16:28,600 cash weighting of 35%. 236 00:16:28,600 --> 00:16:37,360 I think at every juncture, at every turn we see threats, we see dangers, whether it's 237 00:16:37,360 --> 00:16:47,000 QT now ramping up to 95 billion US a month from 1 September, whether it's the Fed's 238 00:16:47,000 --> 00:16:53,200 rhetoric now has notably changed, whether it's what we're seeing in China with the 239 00:16:53,200 --> 00:17:02,080 property crisis there and the focus on COVID lockdowns, whether it's we've seen some of 240 00:17:02,080 --> 00:17:08,040 the supply bottlenecks, whether we see what I think if you look over the last couple of 241 00:17:08,040 --> 00:17:13,580 decades, people probably haven't realised just how much the offshoring to China and 242 00:17:13,580 --> 00:17:17,360 technology has held inflation in check. 243 00:17:17,360 --> 00:17:22,720 Effectively every major company has moved their manufacturing offshore to China and 244 00:17:22,720 --> 00:17:28,720 in doing so they've reduced the cost of doing business and added in the big uplift from 245 00:17:28,720 --> 00:17:35,360 technology productivity, we've seen a massive probably once in a century deflationary event. 246 00:17:35,360 --> 00:17:40,400 Now there's still some more incremental gains to flow through in terms of the technology 247 00:17:40,400 --> 00:17:45,560 side but on the other side I think we're going to see now deglobalisation, we're going to 248 00:17:45,560 --> 00:17:51,560 see nationalism come back to the fore and with it that's going to see a long term, 249 00:17:51,560 --> 00:17:55,040 it's going to affect us today and tomorrow but over the next couple of decades or so 250 00:17:55,040 --> 00:18:02,120 we're going to see the capacity to deflate costs by offshoring production, we're going 251 00:18:02,120 --> 00:18:09,120 to see that start to sort of work as a headwind as opposed to a tailwind. 252 00:18:09,120 --> 00:18:13,280 So we see a lot of potential threats. 253 00:18:13,280 --> 00:18:21,600 The problem we have is that it's almost consensus positioning, is that every person to a tee 254 00:18:21,600 --> 00:18:28,240 is saying that this market has to roll over, that we have to see a sizeable correction 255 00:18:28,240 --> 00:18:32,480 and of course if everyone's positioned for that then they've done the selling, they've 256 00:18:32,480 --> 00:18:37,160 got the cash in the sidelines, they're mentally prepared for that and so the path of least 257 00:18:37,160 --> 00:18:39,320 resistance is probably more likely up than down. 258 00:18:39,320 --> 00:18:43,640 So this is a conundrum we face at the moment in Katana is that we can see, if in six months 259 00:18:43,640 --> 00:18:47,840 time you look back and say right we've just had a huge correction, everyone will say well 260 00:18:47,840 --> 00:18:52,480 Blind Freddy could see that because you know all the things were lining up there but the 261 00:18:52,480 --> 00:18:59,480 flip side is as I said before markets are part science, part art and the art in us is 262 00:18:59,480 --> 00:19:06,440 saying it's very interesting that consensus positioning is to the downside. 263 00:19:06,440 --> 00:19:13,920 So in Katana we are so risk averse, we will still play that even though we don't like 264 00:19:13,920 --> 00:19:18,640 playing with the herd, we'll still run with the herd for the time being but we have got 265 00:19:18,640 --> 00:19:21,560 one on the fact that we could all on mass be wrong at the moment. 266 00:19:21,560 --> 00:19:26,480 Well okay so do you run a long short book or is it long only? 267 00:19:26,480 --> 00:19:27,480 Long only. 268 00:19:27,480 --> 00:19:32,400 Long only okay so in order to protect yourself you have the capacity to go to 80% cash, you're 269 00:19:32,400 --> 00:19:37,800 currently in a high cash position right now so what sectors of the market are you looking 270 00:19:37,800 --> 00:19:43,400 to deploy that cash and if you don't deploy that cash holding that amount of cash does 271 00:19:43,400 --> 00:19:45,320 that have a major impact on returns? 272 00:19:45,320 --> 00:19:49,600 Yeah look I mean our returns we're sort of number three in Australia over three years, 273 00:19:49,600 --> 00:19:53,640 number three over five years in the Morningstar tables at the moment so you know and that's 274 00:19:53,640 --> 00:19:58,160 including our cash drag, we generally run 15 to 35% cash through the cycle so even with 275 00:19:58,160 --> 00:20:01,400 that cash drag we've been able to get those numbers and we don't think we'll change that 276 00:20:01,400 --> 00:20:02,400 philosophy. 277 00:20:02,400 --> 00:20:07,920 You can't hold 35% cash too long if the market starts to rip and continue to perform so we're 278 00:20:07,920 --> 00:20:15,920 very cognizant of that but you know right at the moment we think that we're you know 279 00:20:15,920 --> 00:20:19,320 we're going to buy ourselves a couple of months, we're going to reassess this at the end of 280 00:20:19,320 --> 00:20:23,840 October and try and get an understanding of whether or not we're seeing some of these 281 00:20:23,840 --> 00:20:28,160 drivers play out and if we're not then we'll continue to hold our nerve but I think this 282 00:20:28,160 --> 00:20:33,600 time once we do see some of the factors play out even if we haven't seen the correction 283 00:20:33,600 --> 00:20:39,720 you know the markets anticipating we will look to reverse that position potentially. 284 00:20:39,720 --> 00:20:43,760 In terms of sectors what we'd like at the moment look the reason we've got 42, 43 stocks 285 00:20:43,760 --> 00:20:47,560 at the lowest on record just about a full lease a decade is because we are finding it 286 00:20:47,560 --> 00:20:52,120 very hard to find sectors we like, we can pretty much make a very compelling case as 287 00:20:52,120 --> 00:20:55,400 to why you do not want to be in most sectors at the moment. 288 00:20:55,400 --> 00:21:00,640 So the handful of sectors we have confidence in still we've got a specific theme around 289 00:21:00,640 --> 00:21:05,080 you know EV decarbonisation which you know two sides of the same coin so we're still 290 00:21:05,080 --> 00:21:09,360 looking to add exposure there, very hard to do in Australia obviously we've got the lithium 291 00:21:09,360 --> 00:21:14,080 and the copper and so forth, very hard above and beyond that we've actually added a modest 292 00:21:14,080 --> 00:21:21,160 position in a global ETF the hgen.axw which gives us exposure you know 20 of the best 293 00:21:21,160 --> 00:21:29,480 hydrogen companies globally which is in our mandate being an ASX listed ETF. 294 00:21:29,480 --> 00:21:33,680 Beyond that we still like the LNG thematic we think people have completely missed what's 295 00:21:33,680 --> 00:21:38,680 happening there at the moment it's structural but look also at pricing you know through 296 00:21:38,680 --> 00:21:43,640 the cycle LNG runs at sort of 7 to 8 bucks in MMB to you and you know it's been as high 297 00:21:43,640 --> 00:21:48,200 as 80 recently but it's sort of plateauing around 40 to 50 dollars MMB to you now that's 298 00:21:48,200 --> 00:21:52,320 only for spot sales that's probably about 10 to 15 percent of most producers you know 299 00:21:52,320 --> 00:21:58,600 production but it's still a there's still windfall cargoes there so I also think what's 300 00:21:58,600 --> 00:22:04,880 happening there is going to set up Sandhoss and Woodside in a good position for further 301 00:22:04,880 --> 00:22:09,600 project FIDs and that's going to set them up globally so I think we're seeing a structural 302 00:22:09,600 --> 00:22:14,240 change there and I also think you know it's very niche but I do think that Metcoil has 303 00:22:14,240 --> 00:22:20,640 to play some catch up I've been in markets for 30 years and I've never seen thermal coal 304 00:22:20,640 --> 00:22:25,720 trade at a premium to Metcoil at the moment your thermal coal markets out of Newcastle 305 00:22:25,720 --> 00:22:31,160 sort of running at sort of 430 to 450 US a tonne and your spot Metcoil is running at 306 00:22:31,160 --> 00:22:36,800 sort of you know 250 to 270 a tonne so what we're going to see is despite a lot of the 307 00:22:36,800 --> 00:22:40,920 rhetoric you can there can be substitution taking place we will see some of the semi 308 00:22:40,920 --> 00:22:46,660 soft getting spat into some of the thermal power producers even if it's only 10 percent 309 00:22:46,660 --> 00:22:50,880 of the current Metcoil market that's going to create a huge deficit and when you've got 310 00:22:50,880 --> 00:22:54,720 that huge price differential it makes it makes it worthwhile doing that so we expect to see 311 00:22:54,720 --> 00:23:00,360 thermal coal come back a bit Metcoil rally a bit and so I think the Metcoil producers 312 00:23:00,360 --> 00:23:04,200 out there in a very good position Coronado is a company for example we've started rebuilding 313 00:23:04,200 --> 00:23:06,000 that'll be back in our top 10 soon. 314 00:23:06,000 --> 00:23:11,320 So currently as it stands let's discuss LNG and gas so we're talking gas shortages it's 315 00:23:11,320 --> 00:23:16,320 all over the papers Eastern shore you know there's stuff in the Northern Territories 316 00:23:16,320 --> 00:23:21,160 well what's your current position and do you see that with all this push for supply that 317 00:23:21,160 --> 00:23:26,280 there's still we will be a gas shortage or do you think that there is enough demand out 318 00:23:26,280 --> 00:23:27,280 there? 319 00:23:27,280 --> 00:23:31,840 If you look firstly domestically in Australia there's no doubt we've got you know more than 320 00:23:31,840 --> 00:23:36,560 enough gas to feed our nation for the next hundred years the problem is you need to have 321 00:23:36,560 --> 00:23:42,320 some state governments who should remain nameless realise that they actually need to you know 322 00:23:42,320 --> 00:23:46,400 allow these projects to proceed otherwise there's no good important you know huge amounts 323 00:23:46,400 --> 00:23:52,600 of gas from Queensland and you know and keeping your gas moratoriums on in onshore and offshore 324 00:23:52,600 --> 00:23:54,480 and in your state. 325 00:23:54,480 --> 00:24:01,280 We need to see a more balanced ESG discussion around some of these some of these projects. 326 00:24:01,280 --> 00:24:07,680 I think what people fail to realise is that gas is absolutely 100% part of the transition 327 00:24:07,680 --> 00:24:14,920 to renewables you don't have renewables without gas if even with you know battery technology 328 00:24:14,920 --> 00:24:18,120 still some way off but even when that arrives you still need to be able to turn on and off 329 00:24:18,120 --> 00:24:23,160 peaking power and to be able to do it on scale and you can't do it with coal plants I think 330 00:24:23,160 --> 00:24:26,160 a lot of the problems we're having with coal fired power plants at the moment having so 331 00:24:26,160 --> 00:24:30,960 many problems is because people are trying to use them as peaking plants at some level 332 00:24:30,960 --> 00:24:34,680 you've really got to get to the stage where you have enough gas you can turn on and off 333 00:24:34,680 --> 00:24:38,120 as you need to and that's a big part of the solution. 334 00:24:38,120 --> 00:24:43,120 Over short to medium term what we're seeing obviously in Russia is a watershed moment 335 00:24:43,120 --> 00:24:48,280 that is a structural change you are even if the war ends tomorrow you're not going to 336 00:24:48,280 --> 00:24:54,040 have Europe go back independent 40% of the gas from a nation such as Russia. 337 00:24:54,040 --> 00:24:58,160 That boat has sailed we are now going to see a paradigm shift in terms of how they see 338 00:24:58,160 --> 00:25:03,840 the energy security future and so that has big implications for the Middle East you know 339 00:25:03,840 --> 00:25:07,440 Qatar and so forth and also for Australia for Canada and the USA. 340 00:25:07,440 --> 00:25:11,380 So with the portfolio on the energy how are you playing that thematic? 341 00:25:11,380 --> 00:25:15,000 We don't have a lot of choices in Australia I mean you know all search has been taken 342 00:25:15,000 --> 00:25:19,520 over by Santos and Woodside has taken over BHP Petroleum's assets so it's really just 343 00:25:19,520 --> 00:25:26,000 those two big boys if you want to get serious exposure and we're in both those companies 344 00:25:26,000 --> 00:25:29,280 still at the moment and we've done well out of them but we still see a lot more upside 345 00:25:29,280 --> 00:25:33,520 from here and then of course you look at you know as much as I hate to say it's a dirty 346 00:25:33,520 --> 00:25:38,440 word but some of the thermal coal and met coal players I think that's a reasonable way 347 00:25:38,440 --> 00:25:42,000 to look we're doing a lot of work on some of the tier 2 players we have been in Corun 348 00:25:42,000 --> 00:25:46,520 in a good size way we're out at the moment but reassessing that we need to rebuild that 349 00:25:46,520 --> 00:25:51,200 position you know doing work on Beach Beach has been a big position in the past not right 350 00:25:51,200 --> 00:25:53,960 at the moment but again doing the work on that. 351 00:25:53,960 --> 00:25:58,960 So just sort of sticking to that top end of town where you know there's enough value enough 352 00:25:58,960 --> 00:26:05,200 growth to be able to play the theme that which is the main part of the picture here. 353 00:26:05,200 --> 00:26:10,420 So with the size of the fund a lot of fund managers always discuss you know constraints 354 00:26:10,420 --> 00:26:15,840 with how much money they want to manage because the strategy which works at a particular level 355 00:26:15,840 --> 00:26:21,120 might not work at another level right so how much money is currently in the fund and you 356 00:26:21,120 --> 00:26:24,760 know what would your cap be if there is a cap? 357 00:26:24,760 --> 00:26:29,760 We're running just under 100 million and our cap we think our first milestone we would 358 00:26:29,760 --> 00:26:33,560 actually look to see how our performance is being affected is 800 million. 359 00:26:33,560 --> 00:26:40,400 We've you know that bench is on 5% of our smallest holding effectively you know given 360 00:26:40,400 --> 00:26:46,620 that mineral resources most of what we do is ASX 50, ASX 20 so really your capacity 361 00:26:46,620 --> 00:26:52,360 to upsize your positions is not limited but we would think at 800 million we've agreed 362 00:26:52,360 --> 00:26:57,000 to take a if we're fortunate enough to get there take a deep breath and do some work 363 00:26:57,000 --> 00:26:59,320 on whether or not that's impacting our performance. 364 00:26:59,320 --> 00:27:04,680 Right at the moment I think 27-28% of the money that we manage is our own money so you 365 00:27:04,680 --> 00:27:09,400 know we're very heavily aligned and the same unit class as every other investor and what 366 00:27:09,400 --> 00:27:14,040 we don't want to do is impact anyone's performance they learn our own so you know we are conscious 367 00:27:14,040 --> 00:27:19,200 of that but we think what we're doing is replicable up to quite a scale. 368 00:27:19,200 --> 00:27:22,480 So you mentioned that a lot of money is in the fund another question we always like to 369 00:27:22,480 --> 00:27:27,240 ask to see exactly how your interests are aligned with running the portfolios how are 370 00:27:27,240 --> 00:27:30,600 you guys remunerated how's the structure of that move? 371 00:27:30,600 --> 00:27:35,720 Yeah our primary remuneration comes from compounding our own money you know we started this journey 372 00:27:35,720 --> 00:27:41,360 in 2006 with 13 million and we're compounding it alongside everyone else so you know how 373 00:27:41,360 --> 00:27:47,840 we end up our journey in this life will be determined by how we continue to compound 374 00:27:47,840 --> 00:27:52,160 the Katana portfolio and that's how we think first and foremost. 375 00:27:52,160 --> 00:27:57,680 Love and beyond that we do run a 10% performance fee that's for any performance above the 376 00:27:57,680 --> 00:28:03,200 all-lords accumulation index with a high water mark so it's sort of the gold standard performance 377 00:28:03,200 --> 00:28:08,840 fees and then each of the portfolio managers performance fees based purely on the amount 378 00:28:08,840 --> 00:28:12,560 of alpha they've contributed to the portfolio. 379 00:28:12,560 --> 00:28:17,080 So for example if I've had a great year and you know but I haven't contributed to the 380 00:28:17,080 --> 00:28:21,720 team the other two portfolio managers haven't delivered then I might have a great outperformance 381 00:28:21,720 --> 00:28:25,200 but as a team we may not outperform so I might get a hundred percent of zero which doesn't 382 00:28:25,200 --> 00:28:27,240 quite cut it for me. 383 00:28:27,240 --> 00:28:30,960 Flip side is you know in a lot of teams you either get the autocrats or you get passengers 384 00:28:30,960 --> 00:28:35,600 if you've got passengers in the team the team might have a great year and outperform but 385 00:28:35,600 --> 00:28:40,400 if I haven't contributed to that alpha then I'll get zero percent of a big performance 386 00:28:40,400 --> 00:28:42,600 fee so again that doesn't inspire me. 387 00:28:42,600 --> 00:28:47,480 So we've got that approach right where we're inspired as a team to work together to get 388 00:28:47,480 --> 00:28:52,200 the biggest combined pool we can but then also above and beyond that I want to contribute 389 00:28:52,200 --> 00:28:56,520 to the team and apart from that we've all got big egos and you know we all like to try 390 00:28:56,520 --> 00:28:58,400 and outperform each other. 391 00:28:58,400 --> 00:28:59,400 How many in the team now? 392 00:28:59,400 --> 00:29:04,280 So there's three portfolio managers and Hendrick they're our analyst and that's the crux of 393 00:29:04,280 --> 00:29:05,720 the investing team. 394 00:29:05,720 --> 00:29:08,040 Is this the only portfolio current strategy running? 395 00:29:08,040 --> 00:29:10,400 Are you looking at doing another strategy or? 396 00:29:10,400 --> 00:29:14,560 Not at the moment I mean we don't you know we would love to set up international fund 397 00:29:14,560 --> 00:29:20,200 but the reality is we've got no competitive advantage you know we've got 26 to 30 years 398 00:29:20,200 --> 00:29:25,240 muscle memory on the ASX you can pick out any stock in the ASX 500 and one of us will 399 00:29:25,240 --> 00:29:26,880 know something about it. 400 00:29:26,880 --> 00:29:31,680 So you know that's our competitive advantage on the Australian landscape and international 401 00:29:31,680 --> 00:29:37,600 fund would be lovely to do but we wouldn't be able to give out performance to our investors. 402 00:29:37,600 --> 00:29:41,920 In terms of other strategies you know we don't think in terms of long short our brains aren't 403 00:29:41,920 --> 00:29:47,560 wide that way we think long only we look for great companies great management teams great 404 00:29:47,560 --> 00:29:49,880 business models it's how we think. 405 00:29:49,880 --> 00:29:53,360 You know I think if I had a shorter to come be less company would have been enough to 406 00:29:53,360 --> 00:29:58,920 pay $15 and it went to 150 so you know it just shows that you know we're not wide in 407 00:29:58,920 --> 00:30:00,000 that way. 408 00:30:00,000 --> 00:30:03,400 We know what we're doing we've just you know we've got a long term track record we just 409 00:30:03,400 --> 00:30:06,640 need to keep doing more of what we're doing. 410 00:30:06,640 --> 00:30:10,920 Incrementally improve you know evolutionary rather than revolutionary we don't need to 411 00:30:10,920 --> 00:30:15,480 change what we're doing we just need to keep doing it and doing more of it getting slightly 412 00:30:15,480 --> 00:30:16,480 better each year. 413 00:30:16,480 --> 00:30:21,320 So the reason why we call this the rate of change is as everyone now knows when you're 414 00:30:21,320 --> 00:30:26,620 looking at portfolios markets are always continuously changing right and some asset classes do well 415 00:30:26,620 --> 00:30:33,720 or poorly given the conditions between growth inflation stagflation and deflation right. 416 00:30:33,720 --> 00:30:40,040 So where how do you see your fund helping clients and investors you know in the current 417 00:30:40,040 --> 00:30:41,040 mathematics in the market. 418 00:30:41,040 --> 00:30:48,840 Well it's a tough question but I mean I guess we see it we see first and foremost we want 419 00:30:48,840 --> 00:30:51,960 to just maximize our risk adjusted returns. 420 00:30:51,960 --> 00:31:00,880 So you know whatever the underlying economic drivers are we're trying to maximize our 421 00:31:00,880 --> 00:31:04,680 returns those drivers sometimes that means we go more cash sometimes we go less cash 422 00:31:04,680 --> 00:31:09,200 sometimes you go growth assets sometimes you go value assets sometimes you go inflation 423 00:31:09,200 --> 00:31:13,480 winners like you know energy and materials other times you go recession winners like 424 00:31:13,480 --> 00:31:15,100 your defensives. 425 00:31:15,100 --> 00:31:21,280 So we think that through the equity markets you can play any thematic or any potential 426 00:31:21,280 --> 00:31:26,960 economic outcome but you have to be able to change rapidly and pivot identify where you've 427 00:31:26,960 --> 00:31:31,880 got it wrong and always have a plan like you know our plans are invariably wrong but it's 428 00:31:31,880 --> 00:31:36,720 in the fact that they're wrong that we know we were at and so right now we've got a plan 429 00:31:36,720 --> 00:31:41,880 for how we think the future looks and as that unfolds and will be different to our plan 430 00:31:41,880 --> 00:31:47,520 we know it will be but at least give us the signposts as to where we are and how we need 431 00:31:47,520 --> 00:31:48,520 to pivot. 432 00:31:48,520 --> 00:31:52,840 Question I've been asking everyone recently is how high do you think these interest rates 433 00:31:52,840 --> 00:31:57,280 are going to go do you think that the central banks are running a break everything campaign 434 00:31:57,280 --> 00:32:00,840 or do you think this is a tactical move and then they'll turn the tap back on what do 435 00:32:00,840 --> 00:32:01,840 you think? 436 00:32:01,840 --> 00:32:05,760 I think the first thing people have to realize is that this cycle is different right in the 437 00:32:05,760 --> 00:32:11,920 last 10 years or so we have had a genuine power put we have had a Fed put because there's 438 00:32:11,920 --> 00:32:16,560 been no damage to Main Street like if Main Street versus Wall Street Main Street is going 439 00:32:16,560 --> 00:32:19,320 to win every time the politicians are going to protect Main Street every time. 440 00:32:19,320 --> 00:32:25,320 If we go back to say 2018 to the taper tantrum what we saw there was Wall Street had a hissy 441 00:32:25,320 --> 00:32:31,160 fit market dropped I think it was 18% in a very short time frame and so the Fed blinked 442 00:32:31,160 --> 00:32:34,200 and reversed its course on interest rates when it should have actually maintained its 443 00:32:34,200 --> 00:32:35,200 course. 444 00:32:35,200 --> 00:32:39,880 And it did that because there was no cost to Main Street there was no you know inflation 445 00:32:39,880 --> 00:32:45,840 wasn't out of control inflation wasn't eating into the savings and the lifestyles and the 446 00:32:45,840 --> 00:32:47,920 living standards of the average person. 447 00:32:47,920 --> 00:32:51,780 So it could get away with doing that at that stage is when it really should have held its 448 00:32:51,780 --> 00:32:53,920 nerve and held course. 449 00:32:53,920 --> 00:32:59,080 Fast forward now and we see that Main Street is getting seriously damaged inflation is 450 00:32:59,080 --> 00:33:06,560 the number one so inflation has that the hardest hit on the lower to middle class earners okay 451 00:33:06,560 --> 00:33:08,640 the cost of living. 452 00:33:08,640 --> 00:33:16,360 So the central banks globally will now work more than ever to ensure that inflation does 453 00:33:16,360 --> 00:33:17,360 not get out of control. 454 00:33:17,360 --> 00:33:22,440 If you go back to pre the Volcker era you'll see that there's a 15 year period of inflation 455 00:33:22,440 --> 00:33:25,560 sort of sitting at four to five percent level because they didn't get out the big hammer 456 00:33:25,560 --> 00:33:27,160 and whack it on the head. 457 00:33:27,160 --> 00:33:33,040 They need to stop this deadness tracks they will now do whatever it takes and if Wall 458 00:33:33,040 --> 00:33:37,480 Street has a meltdown that's just collateral damages as how they see it now. 459 00:33:37,480 --> 00:33:42,840 So we have fundamentally moved into new era and you know don't fight the Fed is that the 460 00:33:42,840 --> 00:33:47,840 oldest cliche going around and people continue to ignore it at their own peril. 461 00:33:47,840 --> 00:33:52,800 How high interest rates go look I think they'll go too far before they because they are a 462 00:33:52,800 --> 00:33:56,300 it is a blunt instrument it does take a number of months for it to flow through. 463 00:33:56,300 --> 00:34:01,840 So I do think we go too far I do say that we have more leverage in the system now than 464 00:34:01,840 --> 00:34:03,160 at any time in history. 465 00:34:03,160 --> 00:34:07,840 So in theory the interest rate should not need to go as high as I have in past cycles 466 00:34:07,840 --> 00:34:10,960 because the amount of leverage and the amount of impact the transmission mechanisms through 467 00:34:10,960 --> 00:34:11,960 the system. 468 00:34:11,960 --> 00:34:19,640 So answer they've got more to go higher than we higher than they should but not as high 469 00:34:19,640 --> 00:34:21,720 as in past cycles. 470 00:34:21,720 --> 00:34:28,680 So if an event does occur and there is a big drawdown in the market what would be a couple 471 00:34:28,680 --> 00:34:33,640 of companies or maybe a particular part of the market in the Australian space that you'd 472 00:34:33,640 --> 00:34:37,200 be very happy to see come back down to favourable levels. 473 00:34:37,200 --> 00:34:41,560 Look there's just we've got any given time a couple hundred companies that we're close 474 00:34:41,560 --> 00:34:44,160 to between the four of us. 475 00:34:44,160 --> 00:34:47,200 There's over 40 stocks in the portfolio. 476 00:34:47,200 --> 00:34:52,760 I think if you were to see the meltdown that everyone's forecasting and if it was to occur 477 00:34:52,760 --> 00:34:58,040 I think you know we would start to do a couple of things would start to reduce our exposure 478 00:34:58,040 --> 00:35:04,080 to defensives because they would have played their part and they're going to headwinds 479 00:35:04,080 --> 00:35:09,720 moving forward and then we'd start to look at we've got a checklist of how we see the 480 00:35:09,720 --> 00:35:14,960 recovery stocks playing out you know consumer discretion etc etc etc but we need to just 481 00:35:14,960 --> 00:35:20,280 see the different signposts and the different milestones before we start to put in place 482 00:35:20,280 --> 00:35:24,640 those exposures but you know if once we do see a serious correction we think that it's 483 00:35:24,640 --> 00:35:27,560 run its course then we want to look at recovery stocks. 484 00:35:27,560 --> 00:35:31,880 What last thoughts do you want to leave our listeners and investors with? 485 00:35:31,880 --> 00:35:36,000 Gee I don't know investing Katana. 486 00:35:36,000 --> 00:35:42,040 Look it's I think right at the moment we are seeing the most uncertain period we've seen 487 00:35:42,040 --> 00:35:45,000 in more than five years possibly a decade. 488 00:35:45,000 --> 00:35:50,880 I think that you know if you're a more aggressive investor and manager you take advantage of 489 00:35:50,880 --> 00:35:51,880 that uncertainty. 490 00:35:51,880 --> 00:35:57,160 You know we always say that you can't get a great company at a great price with certainty. 491 00:35:57,160 --> 00:35:58,440 You've got to give up one of those three things. 492 00:35:58,440 --> 00:36:01,880 You either give up a great price, give up a great company, give up certainty. 493 00:36:01,880 --> 00:36:03,520 You can't get all three. 494 00:36:03,520 --> 00:36:08,960 So you know if you're a more risk aggressive individual or fund then you could certainly 495 00:36:08,960 --> 00:36:12,040 use that uncertainty to get a great company at a great price. 496 00:36:12,040 --> 00:36:15,840 The way we're wide is you know capital preservation is first and foremost in everything we do 497 00:36:15,840 --> 00:36:16,920 and think. 498 00:36:16,920 --> 00:36:17,920 So we're going to sit back and wait. 499 00:36:17,920 --> 00:36:21,840 We're going to buy ourselves some time, get through these next couple of months and see 500 00:36:21,840 --> 00:36:25,880 how things unfold and then make a decision about how the future looks. 501 00:36:25,880 --> 00:36:30,400 If investors want to get in touch with you and learn more about the Katana strategy where 502 00:36:30,400 --> 00:36:33,400 should they go? 503 00:36:33,400 --> 00:36:34,400 www.katanarasset.com. 504 00:36:34,400 --> 00:36:35,400 Fantastic. 505 00:36:35,400 --> 00:36:38,640 Well thank you very much for joining us on The Rate of Change and I hope you have a great 506 00:36:38,640 --> 00:36:39,640 day. 507 00:37:08,640 --> 00:37:17,160 Thank you.