1 00:00:00,680 --> 00:00:03,240 Ladies and gentlemen, welcome to the Business Brew. 2 00:00:03,240 --> 00:00:07,200 I'm your host, Bill Brewster. As always, wanted to give you 3 00:00:07,200 --> 00:00:12,640 all a big shout out. I got the Spotify or I guess 4 00:00:12,640 --> 00:00:19,160 creators wrapped recently and wanted to thank you all for 5 00:00:19,160 --> 00:00:22,560 listening. It was meaningful to me to see 6 00:00:22,560 --> 00:00:28,520 that collectively we have accounted for 763,000 minutes of 7 00:00:28,520 --> 00:00:34,080 listening time this year. That's crazy to me #1 show for 8 00:00:34,080 --> 00:00:39,840 1600 fans, thank you so much. Top 10 for 9300 fans, thank you 9 00:00:39,840 --> 00:00:45,040 so much. You know, this has been fun and 10 00:00:45,200 --> 00:00:48,680 I, I try to do this in order to give back and it's nice to know 11 00:00:48,680 --> 00:00:53,640 that it's appreciated and, you know, just meaningful to me to 12 00:00:53,640 --> 00:00:57,440 have the community that that has joined along with this journey. 13 00:00:57,440 --> 00:01:03,000 So with that in mind, this episode features Jim Hayes of 14 00:01:03,000 --> 00:01:05,200 Lucerna Global Capital Management. 15 00:01:06,160 --> 00:01:10,920 Jim and I discuss primarily emerging markets opportunities. 16 00:01:11,240 --> 00:01:14,760 I realize that's on the back of another emerging slash foreign 17 00:01:14,760 --> 00:01:18,480 episode, not by design, just kind of how it happened, but 18 00:01:18,480 --> 00:01:24,000 actually sat down, met with Jim two nights ago and found him to 19 00:01:24,000 --> 00:01:27,520 be a really cool guy to sit down and chat with. 20 00:01:27,520 --> 00:01:32,560 So should you enjoy what you hear in this episode, please 21 00:01:32,560 --> 00:01:36,360 give him a call. I know he is looking forward to 22 00:01:36,360 --> 00:01:39,200 hearing from from people that like like the episode. 23 00:01:39,200 --> 00:01:42,120 So very real career, very real guy. 24 00:01:42,600 --> 00:01:47,880 The views expressed by Jim are not necessarily those of Lucerna 25 00:01:47,880 --> 00:01:51,360 Global Capital. They are his own and do not 26 00:01:51,360 --> 00:01:54,120 constitute financial, investment or tax advice. 27 00:01:54,400 --> 00:01:57,320 The content is intended for educational and entertainment 28 00:01:57,320 --> 00:02:01,920 purposes only and Lucerna may hold positions in the securities 29 00:02:01,920 --> 00:02:03,960 mentioned. Nothing in this podcast should 30 00:02:03,960 --> 00:02:08,240 be construed as an offer to sell or the solicitation of an offer 31 00:02:08,240 --> 00:02:10,919 to purchase any investment product or security. 32 00:02:11,320 --> 00:02:13,640 Listeners are strongly advised to perform their own due 33 00:02:13,640 --> 00:02:17,320 diligence and consult with a qualified financial professional 34 00:02:17,320 --> 00:02:19,000 before making investment decisions. 35 00:02:19,520 --> 00:02:21,440 Love the disclaimers. I know you do too. 36 00:02:21,440 --> 00:02:23,920 Do your own work. It's educational and 37 00:02:23,920 --> 00:02:28,400 informational purposes only. You know the drill, so I hope 38 00:02:28,400 --> 00:02:31,960 you enjoy the episode. Right after the sponsor read, we 39 00:02:31,960 --> 00:02:34,840 got a new sponsor. Shout out to Trata. 40 00:02:35,720 --> 00:02:39,760 It is my version of reality is they are a transcript library 41 00:02:39,760 --> 00:02:42,520 that you can see analyst to analyst conversations. 42 00:02:43,040 --> 00:02:48,200 So I, I liked it. I was prepping, I was reading a 43 00:02:48,200 --> 00:02:52,240 Remitly transcript and it's labeled bull verse bull. 44 00:02:52,560 --> 00:02:56,040 The difference I think, between what I saw in the transcripts 45 00:02:56,040 --> 00:02:59,520 thus far that I've reviewed on Trotter versus transcripts that 46 00:02:59,520 --> 00:03:02,640 I've seen in other libraries is they're a little bit more math 47 00:03:02,640 --> 00:03:06,240 focused from what I can tell. And you've got analysts that 48 00:03:06,240 --> 00:03:10,080 have already put in a decent amount of time. 49 00:03:10,360 --> 00:03:14,320 So the conversation is, is more informed is what I would say, as 50 00:03:14,320 --> 00:03:16,720 opposed to some of the background transcripts that you 51 00:03:16,720 --> 00:03:22,280 can get elsewhere. So additive to the process, the 52 00:03:22,280 --> 00:03:25,120 official read is if you're listening to the podcast, I know 53 00:03:25,120 --> 00:03:28,240 you'll like Trata. Trata is buy side to buy side 54 00:03:28,240 --> 00:03:30,320 conversations on individual stocks. 55 00:03:30,640 --> 00:03:34,000 Trata makes finding a bull or bear on any stock as easy as 56 00:03:34,000 --> 00:03:37,320 clicking 2 buttons. Over 125 funds globally 57 00:03:37,320 --> 00:03:40,840 contribute that that collectively cover 2000 plus 58 00:03:40,840 --> 00:03:44,800 tickers and going up. Trata has raised over $3,000,000 59 00:03:44,800 --> 00:03:50,480 coming out of Y Combinator and. I started prepping for pitching 60 00:03:50,480 --> 00:03:55,200 you by reading a number of transcripts between two funds, 61 00:03:55,200 --> 00:03:59,520 and like I said, I liked how it was data-driven and before you 62 00:03:59,520 --> 00:04:02,120 used to be able to track 13 FS. Now you can understand what the 63 00:04:02,120 --> 00:04:05,080 funds are actually thinking. You can join as a lurker, or you 64 00:04:05,080 --> 00:04:08,200 can join as a contributor, and Trotta will pay you hundreds of 65 00:04:08,200 --> 00:04:10,480 dollars per call for a free trial. 66 00:04:10,960 --> 00:04:17,360 Go to tritrotta.com/brew. That's Tri trotta.com/brew 67 00:04:17,760 --> 00:04:27,280 TRYTRA ta.com/brewalso shout out to the OG sponsors Stratosphere. 68 00:04:27,400 --> 00:04:32,840 No, not stratosphere, Fiscal dot AI, fiscal dot AI. 69 00:04:32,880 --> 00:04:35,080 You know I hype them all the time. 70 00:04:35,080 --> 00:04:37,560 I'm using it everyday. It's part of my workflow. 71 00:04:37,960 --> 00:04:40,680 Braden and the team are great. You can listen to the podcast 72 00:04:40,680 --> 00:04:42,720 that I did with him for the official pitch. 73 00:04:43,360 --> 00:04:50,160 If you listen to my podcast with just myself, the self pod, I 74 00:04:50,160 --> 00:04:54,240 shared screenshots and recently somebody reached out to me. 75 00:04:54,240 --> 00:04:58,720 They said, man, this data is very, very solid and you feel 76 00:04:58,720 --> 00:05:02,240 free to sign up using fiscal dot AI forward slash brew. 77 00:05:02,640 --> 00:05:06,720 You get 15% off any paid plans. I highly encourage you to check 78 00:05:06,720 --> 00:05:10,680 it out for yourself. The UI and UX are fantastic. 79 00:05:11,160 --> 00:05:16,520 So check that out and also thank you for the positive feedback on 80 00:05:16,520 --> 00:05:19,760 the on the solo episode. I appreciate that. 81 00:05:19,760 --> 00:05:22,280 I kind of I will try to do some more. 82 00:05:22,400 --> 00:05:27,480 That particular episode had some rants that I could do that were 83 00:05:27,880 --> 00:05:31,440 what am I looking for like timely and I just felt like I 84 00:05:31,440 --> 00:05:34,360 could let it RIP. But I understand that some 85 00:05:34,360 --> 00:05:37,000 people want more of that. I will do my best to deliver it. 86 00:05:37,840 --> 00:05:40,440 Appreciate y'all hope you had a great Thanksgiving. 87 00:05:40,760 --> 00:06:06,200 Enjoy the episode. All right, ladies and gentlemen, 88 00:06:06,200 --> 00:06:08,200 thrilled to be joined by Jim Hayes today. 89 00:06:08,200 --> 00:06:10,920 Jim, how you doing? I'm well, thanks for having me 90 00:06:10,920 --> 00:06:11,800 on. Yeah. 91 00:06:11,800 --> 00:06:14,880 Thanks for coming on. Your firm is Lucerna Capital, 92 00:06:14,880 --> 00:06:16,160 right? Did I say that correctly? 93 00:06:16,400 --> 00:06:19,040 Lucerna Global Capital. Right, all right, there you have 94 00:06:19,040 --> 00:06:21,520 it. You want to give people a little 95 00:06:21,520 --> 00:06:24,480 bit of your background and then we'll get into what you do. 96 00:06:24,560 --> 00:06:27,480 But I feel like giving people a sense of who they're listening 97 00:06:27,480 --> 00:06:30,080 to is a decent idea. Yeah, sure. 98 00:06:30,440 --> 00:06:34,400 So I've been involved with the emerging markets asset class for 99 00:06:34,400 --> 00:06:37,480 about 30 years and started out of college as as a banker with 100 00:06:37,480 --> 00:06:40,760 Morgan Stanley in New York on their Latin American team. 101 00:06:41,280 --> 00:06:44,880 I was one of two professionals to move down to Mexico City in 102 00:06:44,880 --> 00:06:48,280 1994 to open their office down there after Morgan Stanley spent 103 00:06:48,280 --> 00:06:52,280 time with Bain and a handful of their international offices, 104 00:06:52,280 --> 00:06:54,760 including Istanbul and Johannesburg. 105 00:06:55,400 --> 00:06:58,520 Then was at a hedge fund in Brazil before going back to 106 00:06:58,520 --> 00:07:02,120 Business School after that in both the long short worlds and 107 00:07:02,480 --> 00:07:05,640 for 14 years of Fidelity investing in emerging markets. 108 00:07:05,640 --> 00:07:07,840 And then started my own firm list on the global capital about 109 00:07:07,840 --> 00:07:10,520 four years back. What was it like moving around 110 00:07:10,520 --> 00:07:13,200 that much when you were young? It was great. 111 00:07:13,680 --> 00:07:15,800 It was a great time to do it. It would be more difficult now 112 00:07:15,800 --> 00:07:17,760 with, you know, family and other conflicts. 113 00:07:17,760 --> 00:07:19,440 But it was a, it was a great period of life. 114 00:07:19,880 --> 00:07:21,400 Yeah, no doubt. That'd be cool. 115 00:07:21,400 --> 00:07:22,800 What was your favorite place to live? 116 00:07:24,880 --> 00:07:28,360 Oh, I suppose different places for different reasons, but Rio 117 00:07:28,360 --> 00:07:31,000 de Janeiro always had a soft spot in my soft. 118 00:07:31,880 --> 00:07:33,120 Yeah, that makes sense. All right. 119 00:07:33,120 --> 00:07:35,320 Now I'm starting to understand some of the lat Am. 120 00:07:35,440 --> 00:07:38,040 Like, you know, you seem to like lat Am. 121 00:07:38,040 --> 00:07:41,120 I'm sure it's bottoms up but I I understand the comfort level 122 00:07:41,120 --> 00:07:42,800 right? Sometimes. 123 00:07:42,800 --> 00:07:47,520 It's good to contextualize why, why people are seeing things so. 124 00:07:48,320 --> 00:07:50,040 All right. So you worked at Fidelity for a 125 00:07:50,040 --> 00:07:52,000 long time, Yes. Correct. 126 00:07:52,640 --> 00:07:54,920 OK. And what was the product that 127 00:07:54,920 --> 00:07:59,960 you worked on there? So I was on a a handful of 128 00:07:59,960 --> 00:08:04,440 different products, but the largest was the Fidelity Series 129 00:08:04,440 --> 00:08:08,120 emerging markets Fund, which peaked at about $35 billion in 130 00:08:08,120 --> 00:08:09,360 assets. So it was one of the one of the 131 00:08:09,360 --> 00:08:13,040 bigger funds in the industry and it was a Co managed fund by 132 00:08:13,040 --> 00:08:14,680 sectors. So I managed to a handful of 133 00:08:14,680 --> 00:08:18,040 different sectors there. And which sectors were those? 134 00:08:19,080 --> 00:08:23,200 So I did financial services, real estate, utilities, com 135 00:08:23,200 --> 00:08:25,640 services. It expanded a bit over time, but 136 00:08:25,640 --> 00:08:27,080 a handful of different sectors, as I say. 137 00:08:27,600 --> 00:08:32,120 OK, no, that makes sense. I'm just trying to so, so after 138 00:08:32,120 --> 00:08:35,640 Fidelity and I apologize, I know that we had a catch up call 139 00:08:35,640 --> 00:08:39,799 before this, but I'm just trying to figure out exactly your your 140 00:08:39,799 --> 00:08:42,480 trajectory to where you're at. So what did you do after 141 00:08:42,480 --> 00:08:47,920 Fidelity? So after Fidelity, I formed 142 00:08:47,920 --> 00:08:51,760 Lucerna Global, brought on board Brent Badamini, who was also a 143 00:08:51,760 --> 00:08:54,480 14 year veteran at Fidelity and he used to run the Latin Fund 144 00:08:54,480 --> 00:08:58,280 there and and we've been up and running for about four years. 145 00:08:58,800 --> 00:09:00,520 All right, good deal. Now, now I dig. 146 00:09:00,960 --> 00:09:04,680 And what was, I mean, so what's what was the catalyst to sort of 147 00:09:04,680 --> 00:09:07,560 going out on your own? What was the opportunity that 148 00:09:07,560 --> 00:09:11,160 you saw or the reason for starting your own thing? 149 00:09:12,520 --> 00:09:13,800 Yeah. Look, Fidelity was a great 150 00:09:13,800 --> 00:09:16,120 platform. I think I felt like we got a 151 00:09:16,120 --> 00:09:18,920 great experience based there in terms of dealing with different 152 00:09:19,400 --> 00:09:22,040 styles of investment in terms of in terms of building a great 153 00:09:22,040 --> 00:09:25,760 network amongst the global emerging market community in the 154 00:09:25,760 --> 00:09:28,760 in the C-Suite, getting to know that they know the street, other 155 00:09:28,760 --> 00:09:30,720 investors, etcetera. But I think there were two 156 00:09:30,720 --> 00:09:33,960 reasons that finally spurred me to spin off and do this. 157 00:09:34,480 --> 00:09:36,400 One was I thought it was a frankly this was a bit 158 00:09:36,400 --> 00:09:38,960 premature, but I thought it was entering a really interesting 159 00:09:38,960 --> 00:09:42,040 secular window for the asset class and emerging markets have 160 00:09:42,040 --> 00:09:44,400 under underperformed for most of 15 years. 161 00:09:44,400 --> 00:09:46,600 And you know, usually these things work in cycles. 162 00:09:46,600 --> 00:09:48,720 So I thought that was we were, we were approaching an 163 00:09:48,720 --> 00:09:50,240 interesting moment from that regard. 164 00:09:50,760 --> 00:09:53,040 And then secondly, as I say, you know, the fun product that I was 165 00:09:53,040 --> 00:09:55,200 on had gotten quite large at 35 billion. 166 00:09:55,200 --> 00:09:57,320 And I felt like there were there was probably a a better 167 00:09:57,320 --> 00:10:01,800 mousetrap to to look at the industry through than than my 168 00:10:01,800 --> 00:10:05,720 old seed. Yeah, yeah, 35 billion if if 169 00:10:05,720 --> 00:10:08,320 size is the enemy of returns, you start to hit it, I would 170 00:10:08,320 --> 00:10:11,960 think at at that point or at least flexibility, right, if 171 00:10:11,960 --> 00:10:14,320 you're in a a big place and a big fund. 172 00:10:14,320 --> 00:10:18,840 So, you know, it's funny, I sort of started paying a lot of 173 00:10:18,840 --> 00:10:21,720 attention to the markets when the bricks were like a very real 174 00:10:21,720 --> 00:10:24,720 thing and that was the trade everybody had to put on. 175 00:10:25,160 --> 00:10:28,440 And then we went through the GFC and it felt like quality was the 176 00:10:28,440 --> 00:10:32,080 only thing that people should touch US, quality specifically. 177 00:10:32,440 --> 00:10:36,240 So I'm sure that some of what I just said is completely wrong, 178 00:10:36,240 --> 00:10:40,240 but I'm curious to hear your take on what the cycles have 179 00:10:40,240 --> 00:10:44,680 been and sort of the drivers behind what, what made the 180 00:10:44,680 --> 00:10:47,840 cycles what they were and what leads us to where we are today, 181 00:10:50,280 --> 00:10:52,160 let's call it over the last 20 years or so. 182 00:10:53,240 --> 00:10:55,960 Yeah. Look, I would say the last real 183 00:10:55,960 --> 00:11:00,680 bull phase in emerging markets was post the the last downturn 184 00:11:00,680 --> 00:11:04,040 in in US or global tech. So coming out sort of O2 to O 185 00:11:04,040 --> 00:11:07,480 seven O 8 was the last real upswing and period of our 186 00:11:07,480 --> 00:11:08,760 performance for emerging markets. 187 00:11:08,760 --> 00:11:12,680 And at the time it was driven by the fact that there was the 188 00:11:12,680 --> 00:11:16,240 perception of superior growth from a demographic and GDP 189 00:11:16,240 --> 00:11:19,080 perspective, GDP growth economic perspective, as well as from a, 190 00:11:19,200 --> 00:11:22,720 from an earnings perspective, a low penetration in many 191 00:11:22,720 --> 00:11:26,760 countries and many products and therefore a nice tailwind in 192 00:11:26,760 --> 00:11:29,600 terms of in terms of bottom up companies being able to grow 193 00:11:29,600 --> 00:11:31,920 over time. So that was the the perspective 194 00:11:31,920 --> 00:11:34,000 back then. This time, at least thus far, 195 00:11:34,680 --> 00:11:37,920 big part of the rally has been driven by by AI semiconductors 196 00:11:37,920 --> 00:11:40,760 in places like Korea and Taiwan. But, you know, we think that 197 00:11:40,960 --> 00:11:43,280 it's a, it's a broader, more secular theme that's likely to 198 00:11:43,280 --> 00:11:48,840 broaden out beyond that as well. I mean, I guess what drove sort 199 00:11:48,840 --> 00:11:51,760 of the underperformance of the last decade or so, because the 200 00:11:51,760 --> 00:11:54,960 reason that I'm asking that question is it seems to me like 201 00:11:55,320 --> 00:11:57,880 when you're looking at emerging versus developed markets, you're 202 00:11:57,880 --> 00:12:00,840 almost always going to have lower product penetration and 203 00:12:00,840 --> 00:12:06,760 consumer sort of type names and probably better demographics. 204 00:12:06,760 --> 00:12:08,840 Or is that sort of an assumption that's wrong? 205 00:12:10,520 --> 00:12:12,400 No, I think that's, I think that's right. 206 00:12:13,800 --> 00:12:16,720 You know, in an AI world, the perception of whether or not 207 00:12:16,840 --> 00:12:20,520 demographics and large young populations as a positive or not 208 00:12:20,520 --> 00:12:22,200 is shifting. So that's a, you know, that's an 209 00:12:22,200 --> 00:12:24,120 open question. But no, I think your, I think 210 00:12:24,120 --> 00:12:26,680 your, your broader point is largely right. 211 00:12:27,000 --> 00:12:29,840 Look, if you, you know, if you look back over 60 or 70 years, 212 00:12:29,840 --> 00:12:34,120 the emerging markets versus developed markets periods of 213 00:12:34,120 --> 00:12:35,880 outperformance have tended to work in cycles. 214 00:12:35,880 --> 00:12:38,040 They've tended to be around 7 to 10 year cycles. 215 00:12:38,040 --> 00:12:41,240 This one's been a little, little bit longer at 1314 years. 216 00:12:41,240 --> 00:12:43,920 And typically what happens is, you know, at the start of that 217 00:12:43,920 --> 00:12:48,640 period at the dollar is weak, US growth accelerates because of 218 00:12:48,640 --> 00:12:51,760 that export driven and otherwise companies grow faster, you get 219 00:12:51,760 --> 00:12:54,160 multiple expansion and the inverse happens any. 220 00:12:54,440 --> 00:12:57,000 And then you know, eventually the dollar gets expensive and 221 00:12:57,000 --> 00:12:59,440 currencies get cheap and companies are better positioned 222 00:12:59,440 --> 00:13:02,320 from a competitive perspective and start to grow off a low base 223 00:13:02,720 --> 00:13:06,360 leading to faster growth, leading to multiple expansion of 224 00:13:06,400 --> 00:13:09,160 a, a, a virtual cycle coming out of a vicious cycle. 225 00:13:09,160 --> 00:13:12,640 And that's basically what we we think we're seeing now after. 226 00:13:12,680 --> 00:13:16,480 Under. 15 years, a very, very limited U.S. dollar earnings 227 00:13:16,480 --> 00:13:19,840 growth for emerging markets with, with FX having been a big 228 00:13:19,840 --> 00:13:22,240 part of the tail headwind. Rather we're we're now moving 229 00:13:22,240 --> 00:13:25,760 into a window where FX becomes a tailwind and and earnings growth 230 00:13:25,760 --> 00:13:27,000 is going to be quite a bit better. 231 00:13:28,560 --> 00:13:32,160 So how much are you monitoring trade deadlines and whether or 232 00:13:32,160 --> 00:13:36,120 not we're decoupling from China? And when you know what, what 233 00:13:36,120 --> 00:13:38,560 does that mean? I mean, how is that a lot of the 234 00:13:38,560 --> 00:13:41,760 job right now? Or am I sort of overstating its 235 00:13:41,760 --> 00:13:44,560 importance? It's a great question and 236 00:13:44,560 --> 00:13:46,760 obviously that it's a noisy period from a lot of 237 00:13:46,760 --> 00:13:49,040 perspectives. I think bigger picture and week, 238 00:13:49,040 --> 00:13:50,560 I'm sure we'll talk more about China. 239 00:13:50,560 --> 00:13:54,880 I think bigger picture, most would agree that and the US and 240 00:13:54,880 --> 00:13:58,440 China are, are separating and drifting apart from an economic 241 00:13:58,440 --> 00:14:00,400 orbit perspective. And I don't think that's done. 242 00:14:00,400 --> 00:14:03,160 And you know, the various headlines and twists and turns 243 00:14:03,600 --> 00:14:05,920 don't, don't really threaten to change that narrative in my in 244 00:14:05,920 --> 00:14:09,400 my view, but that creates opportunities for, for other 245 00:14:09,400 --> 00:14:11,840 parts of the spectrum. And that's, that's a big part of 246 00:14:11,840 --> 00:14:14,080 what we're trying to find. We're very bottoms up, but we're 247 00:14:14,080 --> 00:14:18,080 we're sector we look, we focus on a domestic consumption 248 00:14:18,280 --> 00:14:21,000 related sectors across the footprint and we're trying to 249 00:14:21,000 --> 00:14:24,240 find specific opportunities, good companies where they're 250 00:14:24,240 --> 00:14:26,760 trading at a displaced valuation and where things have either 251 00:14:26,840 --> 00:14:29,080 already begun to improve or they're poised to improve. 252 00:14:29,080 --> 00:14:31,200 So we think that that's a powerful combination which we 253 00:14:31,200 --> 00:14:33,960 can find good companies right at right at the beginning of a 254 00:14:33,960 --> 00:14:36,640 period of our performance or or improvement, improvement and 255 00:14:36,640 --> 00:14:39,840 perception. We think that that's a formula. 256 00:14:42,520 --> 00:14:44,080 Yeah. I mean, that makes sense. 257 00:14:45,320 --> 00:14:45,840 Yeah. Yeah. 258 00:14:45,840 --> 00:14:48,840 Well, so one of the reasons that I was, I was going through your 259 00:14:48,840 --> 00:14:53,120 old writing and well, not old about a month or two ago, but 260 00:14:53,120 --> 00:14:56,680 one of the things that I think that you said is like Brazil has 261 00:14:56,760 --> 00:15:00,560 the potential to, I don't want to say solve that might be 262 00:15:00,560 --> 00:15:03,520 overstating it, but mitigate some of the rare earth earth 263 00:15:03,520 --> 00:15:07,720 risk that the US sort of has encountered from China. 264 00:15:08,440 --> 00:15:09,760 I, I believe that's what you said. 265 00:15:09,760 --> 00:15:11,880 If I, if I didn't pray, if you didn't, please correct me. 266 00:15:12,160 --> 00:15:17,080 But it just, it gets me thinking about how much geopolitics 267 00:15:19,040 --> 00:15:24,040 creates the top down that the bottom up sort of benefits from, 268 00:15:24,040 --> 00:15:27,640 if that makes any sense. Yeah, no, that's absolutely 269 00:15:27,640 --> 00:15:30,160 right. So, so we like the Brazilian 270 00:15:30,160 --> 00:15:32,680 market and the, and the Latin American region from a, from a 271 00:15:32,680 --> 00:15:35,640 number of perspectives. It's, you know, that for for the 272 00:15:36,000 --> 00:15:40,480 much of the last 15 years, the, the regions had a fairly non 273 00:15:40,480 --> 00:15:43,320 business friendly political backdrop and regulatory backdrop 274 00:15:43,720 --> 00:15:46,960 from a, you know, tax policy perspective, etcetera. 275 00:15:47,000 --> 00:15:48,600 And that's, that seems to be shifting. 276 00:15:48,600 --> 00:15:50,680 It started with Argentina a couple years back. 277 00:15:51,240 --> 00:15:53,800 Chile has an election this fall, which it looks like will will 278 00:15:53,800 --> 00:15:57,040 involve a shift to the center right, followed by Columbia in 279 00:15:57,040 --> 00:15:58,800 the spring. And then the big one is, is 280 00:15:58,800 --> 00:16:01,200 Brazil next fall. And you know, we think it's a we 281 00:16:01,200 --> 00:16:03,480 think it's a real trend. It echoes trends we're seeing 282 00:16:03,480 --> 00:16:06,000 across other parts of the world in terms of, in terms of anti 283 00:16:06,000 --> 00:16:07,960 incumbent and the rest of it. But we think it's going to be a 284 00:16:07,960 --> 00:16:11,280 really a very powerful driver in Latin America given the starting 285 00:16:11,280 --> 00:16:13,480 point and valuations. And then given the starting 286 00:16:13,480 --> 00:16:15,200 point in terms of investment cycles. 287 00:16:15,720 --> 00:16:18,480 You know, Brazil right now, the entire market trades at 8 times 288 00:16:18,480 --> 00:16:21,280 forward earnings. And and the last time it was as 289 00:16:21,280 --> 00:16:24,600 cheap was in 2002, the first time that Lula was in power, 290 00:16:24,600 --> 00:16:28,160 came to power and the market proceeded to go up 700% in 291 00:16:28,160 --> 00:16:31,560 dollar terms in five years. Now there are differences this 292 00:16:31,560 --> 00:16:33,360 time. At the time it was being pulled 293 00:16:33,360 --> 00:16:36,960 along by China and commodities and their, and their, their 294 00:16:36,960 --> 00:16:39,200 property bubble or the early stages of their property bubble. 295 00:16:39,200 --> 00:16:41,240 So that's different this time around. 296 00:16:41,240 --> 00:16:43,760 And we don't think the market's going to go up 700% in five 297 00:16:43,760 --> 00:16:45,800 years, but we do think that the market's going to do very well 298 00:16:45,800 --> 00:16:49,000 over the next several years if we're right on the electoral 299 00:16:49,000 --> 00:16:50,680 outcome. And then a different angle, 300 00:16:50,680 --> 00:16:54,160 which is the one you were asking about is the geopolitical angle. 301 00:16:54,160 --> 00:16:58,720 And, and Brazil is the largest unaligned producer of rarest. 302 00:16:58,720 --> 00:17:01,320 And so we, you know, we think that there's a reason that the 303 00:17:01,320 --> 00:17:04,359 current administration in the US is focused on Argentina and 304 00:17:04,359 --> 00:17:07,520 Latin America and Brazil in terms of improving the 305 00:17:07,560 --> 00:17:10,319 relationships and improving the sourcing of, of, of those 306 00:17:10,319 --> 00:17:13,640 materials. Yeah, I mean it makes it makes 307 00:17:13,640 --> 00:17:16,079 some sense from a NS perspective, right. 308 00:17:16,200 --> 00:17:20,319 I mean it's forming your own sort of hemisphere or not 309 00:17:20,319 --> 00:17:24,400 hemisphere, but side, you know, whatever NS trade bloc. 310 00:17:24,960 --> 00:17:34,320 What so like when you, I guess when you are identifying ideas, 311 00:17:34,680 --> 00:17:36,720 what is your process look like a little bit? 312 00:17:36,720 --> 00:17:41,800 Are you focusing on a country and then saying, OK, I think 313 00:17:41,800 --> 00:17:43,960 this country is going to get better and therefore I'm going 314 00:17:43,960 --> 00:17:47,120 to start digging around for bottom UPS ideas there? 315 00:17:47,440 --> 00:17:49,920 Or are you, you know, do you use a lot of screens? 316 00:17:49,920 --> 00:17:51,920 Like how does that work? Yeah. 317 00:17:52,520 --> 00:17:55,560 So I refer to pieces of this, but I'll but I'll back up. 318 00:17:55,600 --> 00:17:58,880 And we're very much bottoms up stock pickers having spent 14 319 00:17:58,880 --> 00:18:00,800 years each at Fidelity and before that I was in the the 320 00:18:00,800 --> 00:18:02,640 Tiger cub world on the hedge fund side. 321 00:18:02,960 --> 00:18:05,720 And so we're very much company specific finding individual 322 00:18:05,720 --> 00:18:07,240 opportunities from that perspective. 323 00:18:07,240 --> 00:18:10,120 We do have a a sector filter that we use. 324 00:18:10,120 --> 00:18:12,000 I talked about domestic consumption. 325 00:18:12,000 --> 00:18:16,520 So that tends to be financials, real estate, consumer, Internet 326 00:18:16,720 --> 00:18:20,520 π T And that's because we think that that's where the best 327 00:18:20,520 --> 00:18:22,560 compounders are found. Those are the sectors where over 328 00:18:22,560 --> 00:18:23,840 time the best compounders have emerged. 329 00:18:23,840 --> 00:18:26,440 And also because those are the sectors that are dependent upon 330 00:18:26,760 --> 00:18:29,760 domestic demand and drivers and where we think we've built our 331 00:18:29,920 --> 00:18:32,760 our sustainable edge and knowledge base over time. 332 00:18:32,760 --> 00:18:35,760 Now that all of that said, you know emerging markets are 333 00:18:35,760 --> 00:18:39,360 dispersed and emerging markets, you can't divorce the process 334 00:18:39,360 --> 00:18:41,400 from the macro. You need to understand the macro 335 00:18:41,400 --> 00:18:44,640 in order to both gauge upside potential or help gauge upside 336 00:18:44,640 --> 00:18:48,040 potential as well as to be able to help gauge downside risk, 337 00:18:48,520 --> 00:18:50,560 right. So what we do part of our 338 00:18:50,560 --> 00:18:54,400 investment process is before any idea gets into the portfolios, 339 00:18:54,720 --> 00:18:58,240 we have a very detailed spreadsheet that we work through 340 00:18:58,880 --> 00:19:01,320 starting with various risk dynamics. 341 00:19:01,320 --> 00:19:04,680 So starting with the macro, the politics, the fiscal, the 342 00:19:04,680 --> 00:19:08,120 reserve ratio, etcetera, leading to if it's a regulated industry, 343 00:19:08,120 --> 00:19:11,400 leading to the regulatory backdrop, competitive backdrop. 344 00:19:11,400 --> 00:19:13,960 And then company specific, whether it's the balance sheet 345 00:19:13,960 --> 00:19:15,720 and whether it's earnings outlook, whether it's 346 00:19:15,720 --> 00:19:18,320 governance, which is I think a very important topic in in all 347 00:19:18,320 --> 00:19:22,360 markets, but a particularly important topic in emerging 348 00:19:22,360 --> 00:19:25,000 markets where there's a little bit less visibility than what 349 00:19:25,000 --> 00:19:27,200 you have in in the US and in developed markets. 350 00:19:28,200 --> 00:19:30,200 Oh, interesting. Do you mind like double clicking 351 00:19:30,200 --> 00:19:32,720 on how you think about those a little bit like how, you know, 352 00:19:33,200 --> 00:19:36,360 building out the spreadsheet? I mean, I assume the politics 353 00:19:36,360 --> 00:19:39,400 goes from like where the country is to where it's going. 354 00:19:39,400 --> 00:19:43,360 How do you do you think through the implications of like if a 355 00:19:43,360 --> 00:19:46,040 country is drifting more, I guess more socialist would 356 00:19:46,040 --> 00:19:49,720 obviously not be positive, more sort of center right would be 357 00:19:49,720 --> 00:19:52,600 more positive. But just kind of curious how you 358 00:19:52,600 --> 00:19:56,240 think about each of those metrics and then and then if you 359 00:19:56,240 --> 00:19:58,600 stack rank things, you know, just kind of talking about your 360 00:19:58,600 --> 00:20:00,560 process a little bit. Yeah, sure. 361 00:20:00,920 --> 00:20:04,320 So, so to be clear that the spreadsheet and and the 362 00:20:04,320 --> 00:20:08,240 investment checklist process is company specific as opposed to 363 00:20:08,240 --> 00:20:09,760 country specific. So we're, you know, we're 364 00:20:09,760 --> 00:20:12,640 digging in, but an important part of that first part of the 365 00:20:12,640 --> 00:20:16,920 risk analysis is understanding where the company is based and 366 00:20:16,920 --> 00:20:20,680 what that means from a effects perspective, right, from a macro 367 00:20:20,680 --> 00:20:24,240 perspective, which can feed into FX weakness or strength. 368 00:20:24,680 --> 00:20:28,120 From a political perspective, which can feed into investment 369 00:20:28,120 --> 00:20:30,120 or can feed into regulatory backdrops. 370 00:20:30,120 --> 00:20:32,720 So it's, you know, these are things that that we try to kick 371 00:20:32,720 --> 00:20:35,160 through and there is some interplay between the country 372 00:20:35,160 --> 00:20:38,600 dynamics and the and the company dynamics or the sector dynamics. 373 00:20:39,840 --> 00:20:43,200 You know, it's funny when when I was a young and I would have 374 00:20:43,200 --> 00:20:47,200 told you, you know, Oh well, Republicans are better for oil, 375 00:20:47,200 --> 00:20:48,920 right? This just kind of a, you know, 376 00:20:49,440 --> 00:20:52,360 the US centric, but then you look at the returns and it's 377 00:20:52,360 --> 00:20:55,560 actually that usually when left-leaning administrations are 378 00:20:55,560 --> 00:20:59,240 in, they sort of enact a little bit more supply discipline and 379 00:20:59,240 --> 00:21:02,640 the returns of the stocks are actually better under what you 380 00:21:02,640 --> 00:21:05,240 might think would be a hostile administration, which is kind of 381 00:21:05,240 --> 00:21:06,880 an interesting way the world works. 382 00:21:08,240 --> 00:21:09,000 Yeah. I don't know if you can 383 00:21:09,000 --> 00:21:12,240 generalize in the same way in emerging markets, but it is an 384 00:21:12,240 --> 00:21:14,240 interesting it, isn't it? Yeah. 385 00:21:15,880 --> 00:21:18,160 So what are, I mean, what are some of the themes that you're 386 00:21:18,160 --> 00:21:21,880 most most excited about or, or what makes you, you know, 387 00:21:21,880 --> 00:21:25,160 excited about the portfolio today versus, you know, other 388 00:21:25,160 --> 00:21:27,880 times in history or or just generally today? 389 00:21:29,840 --> 00:21:33,120 Well, as I say, we, you know, we, we start with a bottom up 390 00:21:33,400 --> 00:21:36,840 company specific focus. And I, I think the most exciting 391 00:21:37,200 --> 00:21:39,840 thing for us about the current backdrop is just the 392 00:21:39,840 --> 00:21:42,320 opportunities that we see from up from a bottom up company 393 00:21:42,320 --> 00:21:45,600 specific perspective, right after 15 years of 394 00:21:45,600 --> 00:21:48,080 underperformance, there's some really good companies that 395 00:21:48,080 --> 00:21:51,480 traded really cheap valuations where we think there is the, you 396 00:21:52,520 --> 00:21:56,040 know, ability to sustainably compound for many years to come. 397 00:21:56,280 --> 00:21:59,800 And I think that that's a harder argument to make in some of the 398 00:21:59,800 --> 00:22:02,520 developed markets. So, so the example I I sometimes 399 00:22:02,520 --> 00:22:06,720 give is across big chunks of Brazil or Indonesia or other 400 00:22:06,720 --> 00:22:10,800 markets, you can find 15% growers that are expanding their 401 00:22:10,800 --> 00:22:14,440 margins, have good balance sheets and and large Tams over 402 00:22:14,440 --> 00:22:17,840 time that traded 891011 times earnings. 403 00:22:18,280 --> 00:22:22,120 Whereas in the US you often find 4% growers at peak margins that 404 00:22:22,120 --> 00:22:25,400 trade at 35 times earnings. And eventually we think the math 405 00:22:25,400 --> 00:22:26,960 gets pretty powerful in favor of. 406 00:22:27,120 --> 00:22:30,480 Emerging markets now, OK. So when you're talking about 407 00:22:30,480 --> 00:22:34,280 that, are are you referring to, I just want to make sure that 408 00:22:34,280 --> 00:22:37,480 the comp is apples to apples because I, I noticed like a lot 409 00:22:37,480 --> 00:22:41,520 of a lot of your portfolio seems skewed financials. 410 00:22:41,520 --> 00:22:44,880 But within financials there's a ton of different, you know, 411 00:22:44,880 --> 00:22:47,840 companies that could exist. But when when we're talking 412 00:22:47,840 --> 00:22:51,280 about like a mid teens grower or or even a high single digit 413 00:22:51,280 --> 00:22:56,440 grower, is that a bank or is this a consumer, you know, 414 00:22:56,440 --> 00:23:01,040 staple type company that that you're talking about? 415 00:23:01,960 --> 00:23:03,960 Yeah. So it's a it's a very good 416 00:23:03,960 --> 00:23:07,360 question and good point in the context that different sectors, 417 00:23:08,200 --> 00:23:10,400 you know, trade differently and and have have different 418 00:23:10,600 --> 00:23:13,240 valuation multiples and ranges and should. 419 00:23:13,640 --> 00:23:15,720 And so yeah, we're not comparing when I say that I'm not 420 00:23:15,720 --> 00:23:20,520 comparing an emerging market bank to A to AUS based staples 421 00:23:20,520 --> 00:23:21,960 company. But if you know you can find 422 00:23:22,400 --> 00:23:25,800 emerging market based consumer slash staple companies that have 423 00:23:25,800 --> 00:23:27,800 that profile that I described where they're growing in the 424 00:23:27,800 --> 00:23:29,800 teens and traded that kind of multiple and we think that 425 00:23:29,800 --> 00:23:31,720 that's really compelling. Yeah. 426 00:23:32,360 --> 00:23:36,840 What is, I mean, what's is it just a general apathy that's 427 00:23:36,840 --> 00:23:42,600 creating that opportunity or is it, is it capital is flown to 428 00:23:42,600 --> 00:23:47,000 the US and it's 1 so often like what do you attribute the 429 00:23:47,000 --> 00:23:49,720 difference in opportunity sets to? 430 00:23:51,240 --> 00:23:53,440 Yeah, I think it's, it's a number of things. 431 00:23:53,480 --> 00:23:56,280 You know one to be fair when you look backwards as emerging 432 00:23:56,280 --> 00:24:00,800 markets as I had referred to earlier have not grown dollar 433 00:24:00,800 --> 00:24:05,000 based earnings over most of the last decade and 1/2 right. 434 00:24:05,000 --> 00:24:09,080 And so the US driven by technology, but other things, 435 00:24:10,000 --> 00:24:13,000 you know, share buybacks, financial engineering, etcetera, 436 00:24:13,720 --> 00:24:16,800 have grown earnings and so therefore have attracted capital 437 00:24:16,800 --> 00:24:19,920 and seen multiple expansion. And, and the, you know, it 438 00:24:20,200 --> 00:24:22,520 hasn't and there have been numbers, there have been a 439 00:24:22,520 --> 00:24:25,760 number of false starts for emerging markets over the last 440 00:24:25,760 --> 00:24:28,440 15 years, right, where people have gotten briefly sucked in 441 00:24:28,440 --> 00:24:30,360 and then and then had their hearts broken again and again 442 00:24:30,360 --> 00:24:32,360 and again, right, as always works with these cycles. 443 00:24:32,360 --> 00:24:35,320 And so there are people that have stopped believing and I get 444 00:24:35,320 --> 00:24:38,520 that, that makes sense. But eventually, you know, the US 445 00:24:38,520 --> 00:24:41,200 companies that have grown for this period of time have played 446 00:24:41,200 --> 00:24:43,720 through some of the drivers of that growth and they find it 447 00:24:43,720 --> 00:24:45,440 more difficult to grow going forward. 448 00:24:45,440 --> 00:24:47,360 I think that that's going to be true in this current window, 449 00:24:47,360 --> 00:24:48,880 right? We're having such large 450 00:24:48,880 --> 00:24:50,640 investment. I mean, it's unclear how we're 451 00:24:50,640 --> 00:24:53,640 going to monetize those. I think that the forward profile 452 00:24:53,640 --> 00:24:57,040 for earnings growth in the in the US and and in big parts of 453 00:24:57,040 --> 00:24:59,520 developed markets is a little bit more murky than what it 454 00:24:59,520 --> 00:25:01,480 usually is. Whereas whereas big chunks of 455 00:25:01,480 --> 00:25:05,240 emerging markets are growing off of a lower base, they have 456 00:25:05,240 --> 00:25:07,920 falling interest rates, they don't have the same fiscal 457 00:25:07,920 --> 00:25:10,960 mismatches that are developed across across developed markets. 458 00:25:10,960 --> 00:25:14,600 And so we think that as the cycle turns and as earnings 459 00:25:14,600 --> 00:25:18,120 growth in emerging markets accelerates, catching up with 460 00:25:18,120 --> 00:25:20,800 developed market earnings growth, which is less likely to 461 00:25:20,800 --> 00:25:23,400 accelerate and may in fact decelerate, we think that's 462 00:25:23,400 --> 00:25:25,720 going to that's going to help drive the RE rating that we 463 00:25:25,720 --> 00:25:27,840 anticipate. Yeah. 464 00:25:27,840 --> 00:25:34,680 It seems to me that from your writing the some of the thesis 465 00:25:34,680 --> 00:25:36,920 is a little bit of the development. 466 00:25:37,000 --> 00:25:41,840 The developing markets have been better managed fiscally and have 467 00:25:41,840 --> 00:25:45,840 a little bit more dry powder to stimulate relative to what we 468 00:25:45,840 --> 00:25:49,680 may experience here. Is that fair or is that not 469 00:25:49,680 --> 00:25:52,640 correct? Well, I think that is correct. 470 00:25:52,720 --> 00:25:57,040 If you look at the US fiscal situation and policies, we're 471 00:25:57,040 --> 00:25:58,920 blessed to have the global reserve currency. 472 00:25:58,920 --> 00:26:02,920 But if we didn't and if the world looked at the US like an 473 00:26:02,920 --> 00:26:05,160 emerging market, it would be a vulnerable emerging market. 474 00:26:05,240 --> 00:26:08,000 In that context, we haven't, we haven't been managing our house 475 00:26:08,000 --> 00:26:10,160 from a fiscal perspective in a very responsible manner. 476 00:26:11,640 --> 00:26:17,080 So how far do you think that we can push and use our position to 477 00:26:17,080 --> 00:26:21,720 continue to extract good results or are we at the end or close to 478 00:26:21,720 --> 00:26:27,360 the ends of sort of a, a large cycle for for US assets? 479 00:26:27,360 --> 00:26:29,880 I know this is an impossible question to answer, but I do 480 00:26:29,880 --> 00:26:32,560 think it matters. Yeah. 481 00:26:32,560 --> 00:26:34,280 Look, it's an important question, maybe the most 482 00:26:34,280 --> 00:26:37,680 important question. And, and, and views will vary. 483 00:26:38,040 --> 00:26:41,760 So I have a biased view in that, in that I'm focused on emerging 484 00:26:41,760 --> 00:26:44,960 markets and there I'm sure there will be people amongst your 485 00:26:44,960 --> 00:26:46,120 audience that will disagree with me. 486 00:26:46,120 --> 00:26:48,120 But I would say the following. I think it's difficult to time 487 00:26:48,120 --> 00:26:51,360 these things exactly, but excesses have developed in both 488 00:26:51,360 --> 00:26:55,080 directions, right. the US is have grown nicely and is trading 489 00:26:55,080 --> 00:26:57,280 or developed markets have grown nicely and are trading towards 490 00:26:57,280 --> 00:27:00,400 the top end of their historical valuation range. the US and US 491 00:27:00,400 --> 00:27:03,640 growth sectors in particular and emerging markets remain, 492 00:27:03,680 --> 00:27:05,600 although they've had a better year this year, near the bottom 493 00:27:05,600 --> 00:27:07,560 end of their historic valuation ranges. 494 00:27:07,560 --> 00:27:10,960 And so without saying it's now or within three months or 495 00:27:10,960 --> 00:27:13,520 whatever, because again these things are very difficult to 496 00:27:13,520 --> 00:27:17,000 time, I think that the risk reward over the medium term has 497 00:27:17,000 --> 00:27:20,480 shifted very firmly in favor of emerging markets from my 498 00:27:20,480 --> 00:27:23,000 perspective. Yeah, it's always, it's a tough 499 00:27:23,000 --> 00:27:27,760 conversation to have when like sometimes I, I talk to friends 500 00:27:27,760 --> 00:27:31,720 about what's the market doing and I say, you know, if you're 501 00:27:31,720 --> 00:27:34,440 talking about the headline stocks, they're doing great. 502 00:27:35,040 --> 00:27:39,560 But under the surface the breath is, is not great right now. 503 00:27:39,560 --> 00:27:43,440 And really like anything, well, I shouldn't speak in such 504 00:27:43,440 --> 00:27:47,720 generalities, but interest rate, consumer interest rate sensitive 505 00:27:47,960 --> 00:27:52,680 consumer names, things that are tangential to building, you 506 00:27:52,680 --> 00:27:57,680 know, I mean boat manufacturers, just consumer discretionary 507 00:27:57,680 --> 00:28:01,120 restaurants, those are not trading at rosy valuation. 508 00:28:01,120 --> 00:28:04,040 So it's, it's an interesting bifurcation that we have here. 509 00:28:04,480 --> 00:28:08,280 And sometimes I I don't have a good sense of how good the comp 510 00:28:08,280 --> 00:28:12,960 is when I read emerging markets trade at X versus the US trades 511 00:28:12,960 --> 00:28:17,000 at Yi just don't have a good sense of the composition and 512 00:28:17,000 --> 00:28:19,000 whether or not it's apples to apples. 513 00:28:21,200 --> 00:28:22,440 Yeah. And again, there are there are 514 00:28:22,440 --> 00:28:25,680 some distortions based on the fact that you know, the US has a 515 00:28:25,680 --> 00:28:29,240 higher percentage of its mix towards growth and technology. 516 00:28:29,240 --> 00:28:31,680 And therefore structurally there is an argument for a higher 517 00:28:31,680 --> 00:28:33,960 multiple for the market than there would be for a market 518 00:28:33,960 --> 00:28:36,000 that's mostly financials are mostly mining, right. 519 00:28:36,000 --> 00:28:39,600 So that that's all true. But again, even within sectors, 520 00:28:39,600 --> 00:28:42,280 I think that there's there's a pretty wide gap in terms of the 521 00:28:42,280 --> 00:28:45,480 valuation ranges that are being applied to U.S. companies versus 522 00:28:45,480 --> 00:28:46,840 those and most of the rest of the world. 523 00:28:47,400 --> 00:28:49,880 Yeah, Yeah. Well, the other thing that's 524 00:28:49,880 --> 00:28:52,840 always interesting to think about is what is the market 525 00:28:52,840 --> 00:28:55,560 capitalization to current earnings and then how much 526 00:28:55,560 --> 00:28:57,960 reinvestment is, is possible, right? 527 00:28:57,960 --> 00:29:01,040 Because a high market cap implies you got to be able to 528 00:29:01,040 --> 00:29:04,520 reinvest profitably for a long time in order to create some 529 00:29:04,520 --> 00:29:07,040 sort of reasonable return on your investment, right? 530 00:29:07,400 --> 00:29:11,880 And it seems like in certain spots we may have gotten a 531 00:29:11,880 --> 00:29:14,720 little bit outside of the realm of what can be reasonable. 532 00:29:15,760 --> 00:29:17,880 Yeah, I think that's right. That's that's a version of the 533 00:29:18,160 --> 00:29:20,920 of a famous old Buffett indicator, which recently has 534 00:29:20,920 --> 00:29:23,760 has triggered more more cautionary levels. 535 00:29:24,760 --> 00:29:27,320 Yeah. Do you are, is there anything 536 00:29:27,320 --> 00:29:31,560 like do you look at that relative to sort of do you apply 537 00:29:31,560 --> 00:29:34,600 the same lens to different emerging market countries like 538 00:29:34,600 --> 00:29:38,000 on a country to country basis or is that not really something 539 00:29:38,000 --> 00:29:40,120 that you worry about, it's more just bottoms up? 540 00:29:41,320 --> 00:29:44,680 It's more bottoms up and in most of the markets it really isn't a 541 00:29:44,720 --> 00:29:47,680 consideration, but there are some where it can be a driver, 542 00:29:47,680 --> 00:29:49,960 you know, where the, where the deepening or the development of 543 00:29:49,960 --> 00:29:51,400 the capital markets can be a driver. 544 00:29:51,400 --> 00:29:54,280 So India is an example where you know, really they've, they've 545 00:29:54,320 --> 00:29:58,520 developed a domestic investment culture over the last decade or 546 00:29:58,520 --> 00:30:03,360 so, which is, which has led to sustainable inflows and savings 547 00:30:03,360 --> 00:30:06,120 rates being boosted over time. And, and, and it's a, it's a 548 00:30:06,120 --> 00:30:08,280 very healthy dynamic that hopefully will spread across 549 00:30:08,280 --> 00:30:09,800 other parts of the emerging markets footprint. 550 00:30:10,520 --> 00:30:12,080 I hope you're enjoying the conversation. 551 00:30:12,080 --> 00:30:16,560 I am interrupting the program to remind you that this show is 552 00:30:16,560 --> 00:30:20,880 brought to you by fiscal dot AI as well as Trata. 553 00:30:21,760 --> 00:30:26,160 You can go to fiscal dot AI forward slash brew for a 15% off 554 00:30:26,280 --> 00:30:31,880 all paid plans offering physical dot AI, super clean data, super 555 00:30:31,880 --> 00:30:34,920 good UI and UX. If you want to be the best 556 00:30:34,920 --> 00:30:37,320 analyst you can be, you need fiscal AI. 557 00:30:37,640 --> 00:30:39,720 If you don't like yourself and you don't care about your 558 00:30:39,720 --> 00:30:41,720 profession, don't sign up. That's fine. 559 00:30:41,920 --> 00:30:44,880 But if you care about yourself and you love yourself, sign up 560 00:30:44,880 --> 00:30:47,280 for fiscal dot AAI forward slash brew. 561 00:30:47,640 --> 00:30:51,880 Get yourself a trial and see what everyone is raving about. 562 00:30:52,160 --> 00:30:58,720 And by everyone, I mean me. Secondly, Trata TRATA, try 563 00:30:58,720 --> 00:31:01,760 trata.com/brew. Check it out. 564 00:31:02,080 --> 00:31:05,400 Analyst to analyst transcripts. These people have done the work. 565 00:31:05,760 --> 00:31:08,400 You're not going to read through a bunch of fluff and a bunch of 566 00:31:08,400 --> 00:31:10,720 narrative and a bunch of background information. 567 00:31:10,720 --> 00:31:14,000 You're going to get the analyst to analyst conversations labeled 568 00:31:14,000 --> 00:31:17,920 bull, bull, bull, bull bear, bear, bear, bull skeptic, yadda 569 00:31:17,920 --> 00:31:21,360 yadda. End of the day, this is high 570 00:31:21,520 --> 00:31:24,320 value for time. That's what they're going for. 571 00:31:24,320 --> 00:31:28,680 They're trying to build the most useful transcript library that 572 00:31:28,680 --> 00:31:33,560 you can find. So try trotta.com/brew. 573 00:31:34,200 --> 00:31:35,840 Check it out. There are other examples, but 574 00:31:35,840 --> 00:31:37,440 that's a. That's a more recent example of 575 00:31:37,520 --> 00:31:41,320 of development. Your strategy is X China, am I 576 00:31:41,320 --> 00:31:43,720 correct? So we have a few different 577 00:31:43,720 --> 00:31:47,240 strategies. Are we launched with a sort of a 578 00:31:47,240 --> 00:31:50,920 mid net pan emerging market or flex net pan emerging markets 579 00:31:50,920 --> 00:31:52,880 long short fund, which does include China. 580 00:31:52,880 --> 00:31:58,320 We have an SMA only low net X China long short products. 581 00:31:58,320 --> 00:32:01,320 So those are both hedge funds and then at the end of the year 582 00:32:01,320 --> 00:32:05,520 we we intend to launch a long only ex China concentrated 583 00:32:05,520 --> 00:32:09,960 product as well. OK, so the OK, so let's go the 584 00:32:09,960 --> 00:32:12,520 first one. If I was a 5 year old and didn't 585 00:32:12,520 --> 00:32:15,200 understand what you were saying, explain that product to me once 586 00:32:15,200 --> 00:32:16,720 more. Yeah, sure. 587 00:32:16,960 --> 00:32:19,080 The terms do get a little a little confusing. 588 00:32:19,400 --> 00:32:23,600 So Pentium means everywhere including China and that's a 589 00:32:23,600 --> 00:32:25,280 difference with the other two products. 590 00:32:25,920 --> 00:32:28,360 And then mid net or flex net means that it's a little bit 591 00:32:28,360 --> 00:32:33,560 more of a opportunistic type risk profile where, you know, 592 00:32:33,560 --> 00:32:36,480 for example, in 22 when, when, when the world was complicated 593 00:32:36,480 --> 00:32:39,080 and most companies were, were were missing numbers, etcetera. 594 00:32:39,400 --> 00:32:43,480 We could have a, you know, risk profile or we could have a, an 595 00:32:43,480 --> 00:32:46,040 exposure profile which is quite low and that exposure profile 596 00:32:46,040 --> 00:32:48,560 which is quite low and, and a better time. 597 00:32:48,560 --> 00:32:51,120 So we can have a net exposure which is higher. 598 00:32:51,520 --> 00:32:56,000 Low net in our context means ±20% net exposure. 599 00:32:56,200 --> 00:32:59,040 And so that's the, the ex China hedge fund product that I, that 600 00:32:59,040 --> 00:33:00,720 I described. It's an SMA forum. 601 00:33:00,960 --> 00:33:02,960 SMA is a separately managed account. 602 00:33:03,000 --> 00:33:05,600 We can go into that, but I'll, I'll, I'll leave that hanging 603 00:33:05,600 --> 00:33:08,560 for now and then and then long only the final product that I 604 00:33:08,560 --> 00:33:10,760 described is Ex China concentrated. 605 00:33:10,880 --> 00:33:13,760 Concentrated means 15 to 25 names. 606 00:33:13,760 --> 00:33:17,240 And the idea there is, is finding compounders and letting 607 00:33:17,240 --> 00:33:20,040 them compound at a tax efficient basis over time. 608 00:33:21,280 --> 00:33:24,840 With the with the low net product, what would your gross 609 00:33:24,840 --> 00:33:28,880 exposure be? So the range is ±20%. 610 00:33:29,040 --> 00:33:32,560 We've averaged over time in the in the mid teens positive. 611 00:33:35,360 --> 00:33:38,200 And that is so big, but if it's you get into low net, what are 612 00:33:38,200 --> 00:33:42,640 you, you're like 120 long and 70 short or 80 short? 613 00:33:42,640 --> 00:33:44,000 Oh, I'm sorry, did I mishear your question? 614 00:33:44,000 --> 00:33:45,160 What was the gross exposure you asked? 615 00:33:45,160 --> 00:33:47,720 OK. So, yeah, so yeah, so the gross 616 00:33:47,720 --> 00:33:56,400 typically there has has been more like 150 a 160% and that 617 00:33:56,400 --> 00:34:04,800 typically would be, you know, maybe 80 by 80 by 70 or 90 by 90 618 00:34:05,000 --> 00:34:08,560 by 70 as examples. Yeah, interesting. 619 00:34:12,880 --> 00:34:15,280 So what are some of your, what are, what are the markets that 620 00:34:15,280 --> 00:34:18,520 that you're jazzed about like as a listener if they say, OK, 621 00:34:18,520 --> 00:34:21,840 well, you know what, what should, why should I call Jim? 622 00:34:22,320 --> 00:34:25,880 What's what's some things that have you excited that you're 623 00:34:25,880 --> 00:34:30,120 looking at? Look, I, I'd say I'll break that 624 00:34:30,120 --> 00:34:35,600 into a, a, a couple pieces. I talked about from a, from a 625 00:34:35,600 --> 00:34:40,960 specific to regions perspective. I talked about Latin America, 626 00:34:40,960 --> 00:34:43,280 which is a region that we like structurally, not necessarily 627 00:34:43,280 --> 00:34:47,480 always, but we think this is a particular window where you know 628 00:34:47,480 --> 00:34:49,600 it's the cheapest emerging market region and you do have 629 00:34:49,600 --> 00:34:51,800 this catalyst for change which we think is going to play out. 630 00:34:52,639 --> 00:34:56,719 Southeast Asia has been a laggard and you know the storm 631 00:34:56,719 --> 00:35:00,400 talking about Indonesia and the Philippines in particular are 632 00:35:00,400 --> 00:35:03,400 two markets that we like a lot. They're trading towards the low 633 00:35:03,400 --> 00:35:06,120 end of their historic ranges. They are in rate cutting cycles 634 00:35:06,120 --> 00:35:08,040 and should benefit from that. Typically they would have 635 00:35:08,040 --> 00:35:10,480 performed better. I think they've been left behind 636 00:35:10,920 --> 00:35:13,880 partly because of the AI thematic, but they're both very 637 00:35:13,880 --> 00:35:16,920 large markets in terms of in terms of populations. 638 00:35:16,920 --> 00:35:19,880 They're both very small markets in terms of, in terms of capital 639 00:35:19,880 --> 00:35:22,840 market penetration, market cap. And we think that, you know, 640 00:35:22,840 --> 00:35:25,320 they're, I was going to say sort of earlier stage India type 641 00:35:25,320 --> 00:35:26,880 stories that haven't yet been discovered. 642 00:35:26,880 --> 00:35:29,040 I think that that's oversimplified because they're 643 00:35:29,040 --> 00:35:31,440 they're big differences, but I think that they are markets that 644 00:35:31,440 --> 00:35:34,800 have been that have been ignored and that as they get discovered, 645 00:35:34,880 --> 00:35:37,400 you're going to see a nice combination of deepening 646 00:35:37,400 --> 00:35:40,480 financial penetration, more activity, more interest and, 647 00:35:40,480 --> 00:35:43,200 and, and expanding valuations. So those are two markets that we 648 00:35:43,200 --> 00:35:45,600 like a lot as well. And then across some, yeah, it's 649 00:35:45,600 --> 00:35:49,800 harder from a top down perspective to to pick examples 650 00:35:49,800 --> 00:35:53,400 of backdrops which we where we're putting the table, but we 651 00:35:53,400 --> 00:35:56,240 do find a lot of bottom up company specific opportunities. 652 00:35:56,240 --> 00:36:00,400 So me as you know, Central, Central and Eastern Europe, 653 00:36:00,400 --> 00:36:03,560 Africa, Middle East, etcetera. Yeah. 654 00:36:03,920 --> 00:36:06,600 So I mean, what kind of businesses are you looking for 655 00:36:06,600 --> 00:36:08,200 when you're thinking about compounders? 656 00:36:08,200 --> 00:36:11,320 I mean, in, in some of these countries that are, you know, I 657 00:36:11,320 --> 00:36:13,160 mean, are we looking at companies that are making 658 00:36:13,160 --> 00:36:16,480 washing machines locally? You know, the, the economy is 659 00:36:16,480 --> 00:36:19,520 starting to, to turn over and people are starting to get 660 00:36:19,560 --> 00:36:21,560 things like basic electricity and what not. 661 00:36:21,560 --> 00:36:23,440 Like what it what is the portfolio? 662 00:36:23,440 --> 00:36:26,880 And I know it's hard to generalize, but but just kind of 663 00:36:26,880 --> 00:36:30,200 like what's I know banking Bank of Columbia or I guess the 664 00:36:30,200 --> 00:36:33,520 parent company now was, was something that that you've held, 665 00:36:34,160 --> 00:36:36,440 but like what kind of businesses are you looking at? 666 00:36:37,360 --> 00:36:39,240 Yeah. So one big picture point I'd 667 00:36:39,240 --> 00:36:43,760 make that I think surprises many folks is that emerging markets 668 00:36:43,760 --> 00:36:47,960 is obviously a dispersed asset class and there are nearly twice 669 00:36:47,960 --> 00:36:50,040 as many stocks listed in emerging markets and there are 670 00:36:50,080 --> 00:36:52,920 in the US Now the US has been shrinking due to private equity 671 00:36:52,920 --> 00:36:56,600 taking private etcetera, M&A. And so it's a, it's an asset 672 00:36:56,600 --> 00:36:59,280 class that's got a, you know, well, big. 673 00:36:59,400 --> 00:37:01,280 It's a big playground is the starting point. 674 00:37:04,240 --> 00:37:07,360 One of the, as you say, it's difficult to generalize, but one 675 00:37:07,360 --> 00:37:10,640 theme that's worked out nicely for us is digital banking. 676 00:37:11,000 --> 00:37:13,680 And we've had a digital bank in Brazil that I won't, I won't go 677 00:37:13,680 --> 00:37:17,600 into specific names, but we do think that that's a market where 678 00:37:17,600 --> 00:37:19,640 you've got reasonably high financial penetration, but 679 00:37:19,640 --> 00:37:23,200 digital penetration is lower. There's a name that's known and 680 00:37:23,200 --> 00:37:26,360 followed called New Bank. And this was the one that we 681 00:37:26,480 --> 00:37:29,120 have focused on is a much smaller and much cheaper version 682 00:37:29,120 --> 00:37:30,400 of that. But it's got similar growth 683 00:37:30,400 --> 00:37:32,120 rates. It's growing the top line at 25 684 00:37:32,120 --> 00:37:35,080 to 30%. At the time we bought it, it was 685 00:37:35,080 --> 00:37:39,160 trading on 1.4 times forward book versus new bank on 6 times 686 00:37:39,160 --> 00:37:42,560 forward book with a lot faster Roe expansion off of a lower 687 00:37:42,560 --> 00:37:45,880 base given operating leverage. So that's been a great name for 688 00:37:45,880 --> 00:37:48,320 us. Another name that that I think 689 00:37:48,320 --> 00:37:51,000 is differentiated that you won't find in a lot of emerging market 690 00:37:51,000 --> 00:37:54,560 portfolios is a is the largest Pan African tower company. 691 00:37:54,560 --> 00:37:58,960 It reminds me a lot of American Tower, which I first started 692 00:37:59,160 --> 00:38:03,640 following in the Tiger Cup world back in in 2000 to 2 1/2 billion 693 00:38:03,640 --> 00:38:05,920 market cap at the time delevering quickly and it went 694 00:38:05,920 --> 00:38:09,000 on to become a hundred bagger. American Tower did and there's 695 00:38:09,000 --> 00:38:11,800 some very similar dynamics here. It's a reasonably recent IPO 696 00:38:12,160 --> 00:38:14,200 that came out of the point when interest rates were starting the 697 00:38:14,200 --> 00:38:17,880 spike that hit the results, it hit their perception. 698 00:38:17,880 --> 00:38:20,800 They got quite cheap, but they are now delevering very quickly. 699 00:38:20,800 --> 00:38:23,040 And at the same time they're expanding they're they're 700 00:38:23,040 --> 00:38:25,520 they're accelerating their top line growth and it's trading at 701 00:38:25,520 --> 00:38:28,400 a very compelling forward valuation still. 702 00:38:28,400 --> 00:38:30,960 So it's you know it's trading at six times forward EVD EBITDA 703 00:38:30,960 --> 00:38:34,480 growing the top line in the teen in the mid teens and we think 704 00:38:34,480 --> 00:38:36,640 it's got lots of room to to grow. 705 00:38:37,480 --> 00:38:42,600 Interesting. So, yeah, I mean, I listened to 706 00:38:42,600 --> 00:38:45,400 somebody talk about the American Tower pitch back when it was a 707 00:38:45,400 --> 00:38:48,240 $2 billion company. If only I could go back in time, 708 00:38:48,920 --> 00:38:50,600 but I wouldn't have been smart enough to see it. 709 00:38:50,600 --> 00:38:52,400 So it doesn't matter if I could go back in time. 710 00:38:52,400 --> 00:38:55,640 But boy, what a win that was. So if you can recreate it, 711 00:38:55,640 --> 00:38:57,160 that's a good thing to just hold on to. 712 00:38:57,680 --> 00:39:01,320 Well, and that can be the beauty in emerging markets is that, you 713 00:39:01,320 --> 00:39:04,480 know, there aren't, there aren't too many wireless tower 714 00:39:04,480 --> 00:39:08,200 companies and some of the domestic investor bases, you 715 00:39:08,200 --> 00:39:10,040 know, haven't, aren't as familiar with the story of what 716 00:39:10,040 --> 00:39:12,760 happened with American tower. And so, so at least initially, 717 00:39:12,760 --> 00:39:15,080 that gives you the opportunity to sometimes buy these things at 718 00:39:15,080 --> 00:39:18,480 a displaced valuation. And then as the, it's, it is a 719 00:39:18,480 --> 00:39:20,800 very powerful business model. And so as the results start to 720 00:39:20,800 --> 00:39:22,800 come through and they and they should and they're it's a 721 00:39:22,800 --> 00:39:25,680 predictable business model, you get both the growth in that 722 00:39:25,680 --> 00:39:27,360 multiple expansion that I described. 723 00:39:28,320 --> 00:39:31,720 So something that's going on here is any time an active 724 00:39:31,720 --> 00:39:34,800 manager is pitched, people say, well, why not just have an ETF? 725 00:39:34,800 --> 00:39:36,720 Because you can't beat the index anyway. 726 00:39:37,520 --> 00:39:40,840 What is that? Is that similar in emerging 727 00:39:40,840 --> 00:39:45,240 markets? Are there ETFs that can sort of, 728 00:39:45,240 --> 00:39:48,040 I don't want to say do what you do because I don't think anybody 729 00:39:48,040 --> 00:39:50,680 can be displaced necessarily by an ETF. 730 00:39:50,680 --> 00:39:54,280 But on average, do you it? Does active management stand a 731 00:39:54,280 --> 00:39:57,120 chance against the ETFs in the OR are they going to eat 732 00:39:57,120 --> 00:39:58,600 everybody's lunch over there too? 733 00:40:00,160 --> 00:40:02,880 Yeah, great question. You know, a couple of things. 734 00:40:02,880 --> 00:40:06,920 One, emerging market ETFs are still quite a bit more expensive 735 00:40:07,200 --> 00:40:11,920 than developed market ETF. So the largest is EEM as the 736 00:40:11,920 --> 00:40:15,960 largest ETF in the emerging market industry or asset class 737 00:40:16,480 --> 00:40:21,120 and its cost ratio is 72 basis points, right. 738 00:40:21,120 --> 00:40:23,920 So it, it gives you a bigger gap than what you typically see on 739 00:40:23,920 --> 00:40:28,280 the US side. And and at least for us, we're 740 00:40:28,280 --> 00:40:31,520 trying tend to set starting AUM levels or starting AUM rates 741 00:40:31,520 --> 00:40:32,760 which aren't too far off from that. 742 00:40:32,760 --> 00:40:35,360 So that's the starting point. But then the second thing I 743 00:40:35,360 --> 00:40:37,680 would say echoes what I was saying before, it's it's an 744 00:40:37,680 --> 00:40:41,080 asset class that's very dispersed or many more names and 745 00:40:41,080 --> 00:40:43,200 there are across even developed markets as a whole. 746 00:40:43,920 --> 00:40:47,360 And it's less well covered by a margin as well because it's an 747 00:40:47,360 --> 00:40:50,840 asset class that's been in the wilderness or in a bear market 748 00:40:50,840 --> 00:40:52,680 for 15 years. So there are a lot fewer 749 00:40:52,680 --> 00:40:56,200 analysts covering on the sell side or on the buy side covering 750 00:40:56,400 --> 00:40:59,400 even the largest names, but in particular the the midcap names. 751 00:40:59,400 --> 00:41:01,760 And so, you know, we think that's a real opportunity over 752 00:41:01,760 --> 00:41:04,400 time and justifies active management over time. 753 00:41:05,280 --> 00:41:11,640 How big's your team now? There are four of us and the 754 00:41:11,640 --> 00:41:16,360 idea is over time to to continue to expand and to add sector 755 00:41:16,360 --> 00:41:18,640 specific analysts as we continue to grow. 756 00:41:19,520 --> 00:41:24,200 And are you on the road a lot or is it primarily done reading and 757 00:41:24,200 --> 00:41:29,600 via Zoom? You know, it's a question I get 758 00:41:29,600 --> 00:41:35,320 a lot about access and travel and and I would say that's one 759 00:41:35,320 --> 00:41:40,120 of the, you know, angles. It's been surprising and nice in 760 00:41:40,120 --> 00:41:43,160 terms of, in terms of launching in a, in a post COVID era. 761 00:41:43,240 --> 00:41:48,920 I think that emerging market management teams would have 762 00:41:48,920 --> 00:41:52,640 gotten over the hump eventually in terms of terms of Zoom and 763 00:41:52,640 --> 00:41:55,160 and and virtual interaction, but it happened a lot more quickly. 764 00:41:55,160 --> 00:41:59,160 But that's been a nice, that's been a nice spur for us in terms 765 00:41:59,160 --> 00:42:01,560 of, in terms of our ability to get in front of our stay in 766 00:42:01,560 --> 00:42:03,480 front of management teams. And we're on the call, we're on 767 00:42:03,480 --> 00:42:06,000 calls several nights a week with Asia. 768 00:42:06,000 --> 00:42:09,600 It's frankly more efficient way than the old days when we used 769 00:42:09,600 --> 00:42:13,240 to go to Jakarta and C4 companies and spend the rest of 770 00:42:13,240 --> 00:42:15,680 the day in traffic, an hour and a half between each company. 771 00:42:16,560 --> 00:42:19,360 But we also do still travel quite a bit as well and and have 772 00:42:19,520 --> 00:42:21,960 boots on the ground. Yeah, I would think one of the 773 00:42:21,960 --> 00:42:24,840 tough things is just making sure that you you get a sleep 774 00:42:24,840 --> 00:42:28,600 schedule that can work. But I mean it would you'd be jet 775 00:42:28,600 --> 00:42:30,120 lag if you were flying over there. 776 00:42:30,120 --> 00:42:31,680 So not, not really that different. 777 00:42:31,680 --> 00:42:34,960 But the time time changes must be an interesting thing to 778 00:42:34,960 --> 00:42:37,320 navigate at times. It can be. 779 00:42:38,000 --> 00:42:39,360 Yeah. Huh. 780 00:42:41,520 --> 00:42:42,080 What? What? 781 00:42:42,080 --> 00:42:44,520 What else should I ask you? I don't know what else to ask. 782 00:42:45,080 --> 00:42:47,000 Yeah. Well, you know what one topic we 783 00:42:47,000 --> 00:42:49,920 get a lot is China. And you know, as you've heard me 784 00:42:49,920 --> 00:42:52,720 say, we we do have a product that that that looks at China, 785 00:42:52,720 --> 00:42:56,720 but we also have a couple of products that that don't. 786 00:42:56,720 --> 00:43:00,840 And so I I get the question for for why and, and what our views 787 00:43:00,840 --> 00:43:04,320 are in China. And I would say to be honest, we 788 00:43:04,320 --> 00:43:06,720 remain that that is one part of the footprint where we remain 789 00:43:06,720 --> 00:43:09,320 more cautious, right. So there's a, there's a stat 790 00:43:09,320 --> 00:43:12,200 that I like to share with people, but you know, over the 791 00:43:12,200 --> 00:43:17,280 last 10 years, the MSCI China index has has returned 3.4% 792 00:43:17,280 --> 00:43:20,600 with, with 24 plus percent annual volatility. 793 00:43:20,600 --> 00:43:24,040 Whereas the emerging market X China index has at a higher 794 00:43:24,040 --> 00:43:28,040 return of 4.8% with lower volatility of 17 1/2% during 795 00:43:28,040 --> 00:43:30,600 that same period. And we think parts of that are 796 00:43:30,600 --> 00:43:34,400 structural. So China had an epic historic 797 00:43:34,400 --> 00:43:37,000 property bubble, I think the biggest in the history of the 798 00:43:37,000 --> 00:43:40,720 recorded financial world and that's Lakeland persist for 799 00:43:40,720 --> 00:43:42,280 longer. In terms of the deflationary 800 00:43:42,280 --> 00:43:46,360 impact of that is 1 concern that we have demographic headwinds. 801 00:43:46,360 --> 00:43:49,520 The population is now shrinking, but also we also putting a 802 00:43:49,520 --> 00:43:53,280 higher burden on the working portion of the population that 803 00:43:53,280 --> 00:43:55,520 has to support the elderly portion of the population. 804 00:43:55,600 --> 00:43:58,120 And then geopolitical pressures, which we think are more 805 00:43:58,120 --> 00:44:01,480 structural than temporary. So, you know, there are often 806 00:44:01,480 --> 00:44:04,360 the pushback we get is there, there's lots of innovation there 807 00:44:04,360 --> 00:44:08,760 and there's a more compelling AI story out of China than there is 808 00:44:08,760 --> 00:44:10,520 across most of the rest of emerging markets. 809 00:44:10,520 --> 00:44:13,680 And I get that. But my question is, you know, in 810 00:44:13,680 --> 00:44:17,280 a economic structure which emphasizes utility and social 811 00:44:17,280 --> 00:44:21,800 good over a monopoly profits or excess profits, I don't know how 812 00:44:21,800 --> 00:44:24,520 much of that the shareholder base is going to see over time. 813 00:44:24,520 --> 00:44:26,680 And so that's a market where we tend to be structurally more 814 00:44:26,680 --> 00:44:29,560 cautious in favor of some of the rest of the emerging market 815 00:44:29,560 --> 00:44:30,880 footprint that I described before. 816 00:44:31,960 --> 00:44:35,360 Well, I don't know that you can answer how much the I think a 817 00:44:35,360 --> 00:44:37,440 couple things can be true. I think it can be true that 818 00:44:37,440 --> 00:44:40,200 there can be a return on AI spend. 819 00:44:40,200 --> 00:44:42,600 I think it can also be true that it's hard to handicap who's 820 00:44:42,600 --> 00:44:44,960 going to win and that you have to have your eyes wide open to 821 00:44:44,960 --> 00:44:48,840 the game that you're playing. And it is an interesting world 822 00:44:48,920 --> 00:44:53,720 that we're living in with such high spends of capital for what 823 00:44:53,720 --> 00:44:58,240 it what is definitively a very widely quickly, widely used, 824 00:44:58,240 --> 00:45:02,920 quickly adapted product. But it seems to me that that 825 00:45:02,920 --> 00:45:05,680 anyone that's highly confident in the end state economics is 826 00:45:05,680 --> 00:45:09,600 kind of kidding themselves. And not to say that that the 827 00:45:09,680 --> 00:45:12,520 tools cannot drive a lot of efficiency through other 828 00:45:12,520 --> 00:45:16,360 organizations that could benefit without necessarily owning the 829 00:45:16,360 --> 00:45:20,680 software or the model itself, though maybe that's a dumb 830 00:45:20,680 --> 00:45:21,640 thought. I don't know. 831 00:45:23,200 --> 00:45:25,720 So you know, you'll, you'll speak to people in this in this 832 00:45:25,720 --> 00:45:28,160 forum and and elsewhere that spend more time on AI 833 00:45:28,160 --> 00:45:32,000 specifically than I do. But, but, but I would just 834 00:45:32,000 --> 00:45:34,680 highlight the differences between the model and, and what 835 00:45:34,680 --> 00:45:37,400 the US is trying to do and, and what China is trying to do. 836 00:45:37,400 --> 00:45:42,160 So the US is, you know, try often and this the, you see this 837 00:45:42,160 --> 00:45:45,680 replicated in other industries and industry structures, but you 838 00:45:46,000 --> 00:45:48,240 know, the big, the big wins and the big gets bigger. 839 00:45:48,880 --> 00:45:50,960 And so that's why everyone's racing to make sure that they 840 00:45:50,960 --> 00:45:54,000 have the best chips and the best and the best product in order to 841 00:45:54,360 --> 00:45:57,800 be able to amortize those profits as they gain dominant 842 00:45:57,800 --> 00:46:00,480 market share over time. Whereas in China, what they're 843 00:46:00,480 --> 00:46:02,440 really trying to create is they're, they're trying to make 844 00:46:02,640 --> 00:46:05,240 AIA commodity and they're throwing lots of state resources 845 00:46:05,240 --> 00:46:07,640 at it in order to, in order to spread out the development. 846 00:46:07,640 --> 00:46:11,080 But they're trying to do a low investment version of it, which 847 00:46:11,080 --> 00:46:14,280 can then be replicated and sent out across the rest of the world 848 00:46:14,280 --> 00:46:17,840 at a cheaper at a in order to help perpetrate their footprint 849 00:46:17,840 --> 00:46:20,120 or their technological road map over ours. 850 00:46:20,120 --> 00:46:22,160 And which again, I think it's going to have implications in 851 00:46:22,160 --> 00:46:25,040 terms of what the ultimate profitability of their AI 852 00:46:25,080 --> 00:46:26,960 economic ecosystem is going to have. 853 00:46:29,760 --> 00:46:31,440 What's I mean, what's the end state of all that? 854 00:46:31,440 --> 00:46:33,800 Who knows, But you kind of wonder if if they get if they 855 00:46:33,800 --> 00:46:35,720 get the AI. Yeah, I don't know. 856 00:46:36,560 --> 00:46:40,840 Be interesting to see. Hopefully we wins for no other 857 00:46:40,840 --> 00:46:45,520 reason than I I'm on our side as a matter of birth, but it's it's 858 00:46:45,760 --> 00:46:50,320 this is kind of a scary time. I feel like to have the the US 859 00:46:50,320 --> 00:46:54,920 and China hit a road sort of a block. 860 00:46:55,320 --> 00:46:59,680 I mean, I, I sort of, I can't help but think at times as an, 861 00:46:59,680 --> 00:47:04,480 as AUS citizen, do I have risk if I own Chinese, you know, 862 00:47:04,960 --> 00:47:08,720 companies in the same way that we had Russia risk And I, I 863 00:47:08,720 --> 00:47:10,760 think that's real, but maybe it's not. 864 00:47:12,880 --> 00:47:14,880 I echo a lot of what you've just said. 865 00:47:14,880 --> 00:47:17,960 I, I too, certainly hope that we, we prevail in terms of our 866 00:47:17,960 --> 00:47:19,800 pace of innovation and technological road map. 867 00:47:19,800 --> 00:47:22,160 And then we, we win in the AI contest. 868 00:47:22,240 --> 00:47:26,600 I do think, look, I, I hope we don't get to a point where, you 869 00:47:26,600 --> 00:47:29,440 know, Chinese stocks are frozen and, and mark to zero in the way 870 00:47:29,440 --> 00:47:33,760 that Russian stocks were. But I do think it's a risk more 871 00:47:33,760 --> 00:47:36,320 so than it is with, with any other idiosyncratic emerging 872 00:47:36,320 --> 00:47:39,120 market. And, and, and even without that 873 00:47:39,120 --> 00:47:44,120 playing out in a, you know, in the worst scenarios, I do think 874 00:47:44,120 --> 00:47:47,200 that we've already seen and, and we're likely to see more 875 00:47:47,800 --> 00:47:51,800 regulatory pressure, which encourages first state pension 876 00:47:51,800 --> 00:47:55,000 funds and the like, but but eventually more broadly, which 877 00:47:55,000 --> 00:47:58,680 discourages US based capital from from being invested in 878 00:47:58,680 --> 00:48:00,960 China. Yeah, yeah. 879 00:48:00,960 --> 00:48:05,280 The other thing that I, that is interesting when I, I read your 880 00:48:06,000 --> 00:48:10,280 comments on the China returns versus the standard deviation of 881 00:48:10,280 --> 00:48:12,800 returns, which it's not a great ratio. 882 00:48:13,240 --> 00:48:16,280 But the other thing that I find interesting is people that have 883 00:48:16,280 --> 00:48:19,720 been to China, I have not tell me how competitive and how 884 00:48:19,720 --> 00:48:23,320 quickly changing it is. And that can lead to like not 885 00:48:23,320 --> 00:48:26,200 great returns, right? I mean, capitalism is brutal. 886 00:48:26,200 --> 00:48:28,600 And if it's, if it's brutal there, maybe it's not the best 887 00:48:28,600 --> 00:48:31,200 place for your money. Maybe, maybe ex China is a good 888 00:48:31,200 --> 00:48:34,880 place just simply because it's less competitive. 889 00:48:34,880 --> 00:48:39,040 I don't know. I would, I would encourage 890 00:48:39,040 --> 00:48:41,920 people to go because it's a fascinating place in a lot of 891 00:48:41,920 --> 00:48:44,280 ways. But but I agree with you. 892 00:48:44,360 --> 00:48:48,360 I think that their economic structure is, is such that 893 00:48:48,440 --> 00:48:52,160 you've got a distorted cost of capital and therefore inherently 894 00:48:52,160 --> 00:48:55,600 very competitive business structures or, or, or industry 895 00:48:55,600 --> 00:48:58,960 structures, and that makes it difficult to generate 896 00:48:58,960 --> 00:49:01,880 predictable growing earnings and returns. 897 00:49:01,960 --> 00:49:03,680 You know, that's a, that's a backward looking comment. 898 00:49:03,680 --> 00:49:07,520 But we think that despite some noises towards anti evolution 899 00:49:07,520 --> 00:49:10,640 and, and, and getting rid of excess capacity, they have 900 00:49:10,640 --> 00:49:12,760 other, other pressures, including high unemployment 901 00:49:12,760 --> 00:49:14,560 rates and high youth unemployment that's going to, 902 00:49:14,560 --> 00:49:17,160 that's going to restrict them from being too stringent in that 903 00:49:17,160 --> 00:49:19,560 direction. And so I think that a lot of the 904 00:49:19,560 --> 00:49:22,560 backward looking pressures we've seen on earnings growth in China 905 00:49:22,560 --> 00:49:24,560 remain forward-looking pressures as well. 906 00:49:25,400 --> 00:49:28,920 When you said, I believe you said a distorted cost of 907 00:49:28,920 --> 00:49:31,000 capital, right? I did. 908 00:49:31,800 --> 00:49:35,160 So I think people would argue that we have a distorted cost of 909 00:49:35,160 --> 00:49:38,240 capital in America just based on the reserve currency and what we 910 00:49:38,240 --> 00:49:43,680 can do with interest rates. How how is it different there 911 00:49:43,680 --> 00:49:46,480 versus here? I guess to the extent that 912 00:49:46,720 --> 00:49:50,160 emerging markets, other emerging markets don't have that 913 00:49:50,160 --> 00:49:55,280 distortion, does it make their fundamental economy a little bit 914 00:49:55,280 --> 00:50:00,800 more unstable footing? So the way you know, the way it 915 00:50:00,800 --> 00:50:04,720 typically works in in China is you have, you know, let's take 916 00:50:04,720 --> 00:50:08,280 EVs, electric vehicles, right? It's a private sector for the 917 00:50:08,280 --> 00:50:12,280 most part, but you have heavy state investment at both the 918 00:50:12,280 --> 00:50:16,040 state and the federal level and subsidies which which enabled it 919 00:50:16,040 --> 00:50:19,720 to get off the ground. And that's fine on one level. 920 00:50:19,720 --> 00:50:22,640 And that it did in fact enable it to get off the ground and it 921 00:50:22,640 --> 00:50:26,160 made great strides there and are likely to have, you know, a 922 00:50:26,520 --> 00:50:29,120 better market share across the world in the in the electric 923 00:50:29,120 --> 00:50:32,960 vehicle the world than they have in the, in the pre electric 924 00:50:32,960 --> 00:50:35,280 vehicle world. But it also means you get a lot 925 00:50:35,280 --> 00:50:37,840 of capacity because everyone in every state wants to have their 926 00:50:37,840 --> 00:50:40,440 own wants to be in the race, wants to have their their their 927 00:50:40,560 --> 00:50:43,160 foot in the game. And So what that leads to is 928 00:50:43,960 --> 00:50:47,160 state backed sources of capital that lead to over investment, 929 00:50:47,160 --> 00:50:51,200 that lead to wasted capital, wasted investment. 930 00:50:51,200 --> 00:50:55,240 And the need to export things to other countries that below other 931 00:50:55,240 --> 00:50:56,720 countries cost of capital, right? 932 00:50:56,720 --> 00:50:58,640 Exactly right. Yeah. 933 00:51:00,280 --> 00:51:04,560 And then and then, OK, so here we have the reserve currency and 934 00:51:04,560 --> 00:51:06,520 the blunt tool of interest rates. 935 00:51:06,840 --> 00:51:10,240 So like an economy, I'm part of my ignorance on this, but does 936 00:51:10,240 --> 00:51:15,280 Brazil have anything that they can do or are they at more at 937 00:51:15,280 --> 00:51:19,240 the mercy of what, what the world around it is doing? 938 00:51:19,240 --> 00:51:24,280 And are they on more solid footing in a weird way, because 939 00:51:24,280 --> 00:51:27,840 they're they might have to react more and, and that may make 940 00:51:27,840 --> 00:51:29,760 their system a little bit more robust. 941 00:51:29,760 --> 00:51:32,480 Does that make any sense? Yeah, I know. 942 00:51:32,480 --> 00:51:35,920 I understand what you're asking. You know, I would say not just 943 00:51:35,920 --> 00:51:42,320 Brazil, but, but many emerging markets, you know, they are 944 00:51:42,320 --> 00:51:46,480 constrained by financial markets and, and, and, and that does 945 00:51:46,480 --> 00:51:49,080 constrain the politics in terms of how much they can spend. 946 00:51:49,080 --> 00:51:51,920 And otherwise, if they, if they let their fiscal balance blow 947 00:51:51,920 --> 00:51:54,880 out, the markets will punish them and their currencies will 948 00:51:54,880 --> 00:51:57,960 weaken. And you know, it will have knock 949 00:51:57,960 --> 00:52:00,320 on effects because, because it becomes a vicious cycle. 950 00:52:00,320 --> 00:52:02,320 As the currency weakens, it drives up inflation, which 951 00:52:02,320 --> 00:52:05,880 drives up interest rates. And so, you know, governments 952 00:52:05,880 --> 00:52:08,920 for the most part try to try to avoid that type of that type of 953 00:52:08,920 --> 00:52:12,000 vicious cycle. You know, Brazil is an 954 00:52:12,000 --> 00:52:15,680 interesting case because right now it's got the highest real 955 00:52:15,680 --> 00:52:18,000 rates in the world in terms of in terms of larger economies, 956 00:52:18,000 --> 00:52:21,960 they've got 15% interest rates and inflation is low single 957 00:52:21,960 --> 00:52:26,040 digits. And so normally that's unusual. 958 00:52:26,040 --> 00:52:28,520 Normally those rates would have would have already been falling. 959 00:52:29,320 --> 00:52:32,640 But you've got a political backdrop and a lack of fiscal 960 00:52:32,640 --> 00:52:35,440 trust, which has prevented that from happening thus far. 961 00:52:35,440 --> 00:52:37,600 And so it's going to be an interesting situation because, 962 00:52:38,120 --> 00:52:40,240 you know, I described an election that's happening next 963 00:52:40,240 --> 00:52:42,200 October. And it's going to be a bit 964 00:52:42,200 --> 00:52:45,680 binary where if the current party, the PT under Lula wins, 965 00:52:46,160 --> 00:52:48,360 it's going to have one set of outcomes where rates stay higher 966 00:52:48,360 --> 00:52:50,760 for longer. And if, if the opposition wins, 967 00:52:51,040 --> 00:52:53,640 which we think is more likely, it's going to have a different 968 00:52:53,760 --> 00:52:54,960 outcome. It's going to mean that rates 969 00:52:54,960 --> 00:52:59,160 can fall faster, leading to the type of virtuous cycle that I've 970 00:52:59,240 --> 00:53:01,000 described in a couple different ways in the call. 971 00:53:01,760 --> 00:53:04,880 Interesting. Why does Lula want or why does 972 00:53:04,880 --> 00:53:08,120 the party want higher rates? Everybody seems want lower 973 00:53:08,120 --> 00:53:09,480 rates. No, they don't know. 974 00:53:09,480 --> 00:53:11,280 It's just, it's just imposed on them. 975 00:53:12,600 --> 00:53:15,880 I'll be a little careful about how I describe it because, you 976 00:53:15,880 --> 00:53:18,120 know, it's politics and people, some of you are differently. 977 00:53:18,200 --> 00:53:23,160 His party is believes in handouts and, and trying to 978 00:53:23,160 --> 00:53:25,720 subsidize at the lower levels of society. 979 00:53:25,720 --> 00:53:28,600 And in order to do that, they tend to, they didn't have a ton 980 00:53:28,600 --> 00:53:31,840 of fiscal room to begin with because Brazil's spent beyond 981 00:53:31,840 --> 00:53:34,600 its means for a while. And so they push the envelope a 982 00:53:34,600 --> 00:53:35,640 bit. And because they push the 983 00:53:35,640 --> 00:53:39,200 envelope a bit, there's distrust amongst the financial community. 984 00:53:39,200 --> 00:53:41,120 And then it's been a tug of war back and forth. 985 00:53:43,160 --> 00:53:48,640 Interesting. Yeah. 986 00:53:49,000 --> 00:53:52,160 Where the museum, the opposition, the theory is, and I 987 00:53:52,160 --> 00:53:54,720 think it's, it's, it's largely accurate that if the opposition 988 00:53:54,720 --> 00:53:56,880 were to come to power, there's there's a lot of pent up 989 00:53:56,880 --> 00:53:59,200 investment that's been waiting for falling rates and waiting 990 00:53:59,200 --> 00:54:02,000 for a more business friendly regulatory and investment 991 00:54:02,000 --> 00:54:03,560 backdrop. And they would put that money to 992 00:54:03,560 --> 00:54:05,280 work at the same time as rates would fall. 993 00:54:05,280 --> 00:54:07,720 And it could create that sort of sort of virtuous cycle I keep 994 00:54:07,720 --> 00:54:12,360 referring to. Yeah, well, maybe foreign bonds 995 00:54:12,360 --> 00:54:16,920 aren't a terrible idea. Who knows what are what are some 996 00:54:16,920 --> 00:54:21,200 other sort of questions that you get that I've I've omitted or, 997 00:54:22,040 --> 00:54:28,280 you know, failed to ask. I don't mean to put you on the 998 00:54:28,280 --> 00:54:29,920 spot. I just want to make sure that I. 999 00:54:30,040 --> 00:54:31,840 Think that's fine. I think we've I think we've 1000 00:54:31,840 --> 00:54:35,600 covered a lot of it. Maybe one other thing I would 1001 00:54:35,640 --> 00:54:38,520 say is that there are a lot of emerging market products out 1002 00:54:38,520 --> 00:54:46,960 there that you know own very similar 25 to 30 names, but they 1003 00:54:46,960 --> 00:54:51,320 tend to be the the mega cap growth darlings, whether that's 1004 00:54:51,320 --> 00:54:56,800 the TSM, CS of the world, the Samsung's, the $0.10 etcetera. 1005 00:54:56,800 --> 00:54:59,840 And, and there are many, there are fewer what we consider pure 1006 00:54:59,840 --> 00:55:01,680 stock picking bottom up products out there. 1007 00:55:01,680 --> 00:55:04,280 And so we think that's a real opportunity because, because 1008 00:55:04,280 --> 00:55:08,840 it's such a dispersed wide asset class with with such a wide, 1009 00:55:08,840 --> 00:55:11,320 wide sandbox and so much it's not well picked over. 1010 00:55:11,320 --> 00:55:13,840 So you know, as people, I would encourage people to take a look 1011 00:55:13,840 --> 00:55:15,440 at the asset class if they hadn't for a while. 1012 00:55:16,120 --> 00:55:20,240 And as people take a look, you know, try to scrap that, scratch 1013 00:55:20,240 --> 00:55:23,120 that second, second layer below the surface and, and, and see 1014 00:55:23,120 --> 00:55:25,120 where the opportunity lies. Because while, while there are 1015 00:55:25,120 --> 00:55:27,440 some great companies that I, that I referred to upfront, 1016 00:55:27,440 --> 00:55:29,240 they're pretty well understood. They're pretty well covered. 1017 00:55:29,240 --> 00:55:30,880 They're pretty well priced. And we think there's a really 1018 00:55:30,880 --> 00:55:34,160 interesting layer beneath that. So that might be 11 nudge that I 1019 00:55:34,160 --> 00:55:37,800 give to folks. Well, it would make sense that 1020 00:55:37,800 --> 00:55:42,440 after 15 years or whatever of the, I mean, even though the 1021 00:55:42,440 --> 00:55:46,200 breath in the S&P stinks, the S&P keeps going up, right? 1022 00:55:46,200 --> 00:55:49,320 And I mean, I know, I know that as that happens, it becomes more 1023 00:55:49,320 --> 00:55:51,960 and more of a concentrated bet on a few names. 1024 00:55:51,960 --> 00:55:57,160 But it is hard to tell the average person, here's a 1025 00:55:57,160 --> 00:56:00,440 financial product that goes up with drawdowns that are kind of 1026 00:56:00,880 --> 00:56:03,920 pretty small. You should be looking around for 1027 00:56:03,920 --> 00:56:06,040 other things that haven't worked as much. 1028 00:56:06,120 --> 00:56:08,960 Financial markets tend not to have one product that wins 1029 00:56:08,960 --> 00:56:11,160 forever. But maybe, maybe they have 1030 00:56:11,160 --> 00:56:12,480 invented one. Who knows. 1031 00:56:12,480 --> 00:56:18,360 But it seems to me like there's probably a a spot where the more 1032 00:56:18,360 --> 00:56:23,160 enterprising investor has a decent forward outcome. 1033 00:56:23,400 --> 00:56:25,360 But that could be a bias that I have. 1034 00:56:25,360 --> 00:56:27,720 My listeners probably have that bias too, to be fair. 1035 00:56:30,160 --> 00:56:32,520 Look, I, you know, again, I won't try to, I won't try to 1036 00:56:32,520 --> 00:56:35,040 time an asset class shift specifically. 1037 00:56:35,360 --> 00:56:38,440 It's possible that the US market just treads water for a long 1038 00:56:38,440 --> 00:56:40,640 period of time as opposed to going down dramatically, right? 1039 00:56:40,640 --> 00:56:42,640 And at the, and at the same time international markets or 1040 00:56:42,640 --> 00:56:44,120 emerging markets start to outperform. 1041 00:56:44,120 --> 00:56:46,120 So it could happen in a lot of different ways, but I, I would 1042 00:56:46,120 --> 00:56:50,360 just reiterate my my thought from earlier that regardless of 1043 00:56:50,360 --> 00:56:53,400 timing, but from both the top down perspective, at least given 1044 00:56:53,400 --> 00:56:55,440 our view on on the dollar and where we are on that cycle. 1045 00:56:55,440 --> 00:56:57,320 And from a bottom up perspective, given the 1046 00:56:57,320 --> 00:57:01,080 opportunity set that we see it really compelling valuations on 1047 00:57:01,080 --> 00:57:03,920 the emerging market side of the spectrum versus versus a lack 1048 00:57:03,920 --> 00:57:06,280 thereof that we see on the developed market side of the 1049 00:57:06,280 --> 00:57:08,160 spectrum. I just think it's a really good 1050 00:57:08,440 --> 00:57:11,400 a good time to be kicking the tires and taking a closer look. 1051 00:57:12,480 --> 00:57:15,240 All right. Well, I, I, I guess maybe the 1052 00:57:15,240 --> 00:57:17,720 way that I would say it is, I suspect there's a lot of 1053 00:57:17,720 --> 00:57:20,680 portfolios that are overweight US and it might make sense to 1054 00:57:20,680 --> 00:57:23,200 look at total portfolio allocations. 1055 00:57:23,200 --> 00:57:28,800 So if somebody does that and likes what you had to say, how, 1056 00:57:28,800 --> 00:57:33,400 how should they contact you? So I'm easy to find on on 1057 00:57:33,400 --> 00:57:41,240 bloombergorlinkedinortheybestemailformeisjayhayes@lucernaglobal.com. YES and yeah, please do, Please 1058 00:57:41,240 --> 00:57:42,920 do reach out. Happy to happy. 1059 00:57:43,920 --> 00:57:45,200 All right. Well, thank you very much. 1060 00:57:45,200 --> 00:57:48,160 I appreciate you stopping by and I hope you have a great day. 1061 00:57:49,080 --> 00:57:49,840 Thank you, enjoyed it.