Speaker 0:
Hello and welcome to this fund. Select a master class on Asset TV. I'm Rory Palmer. Today we're discussing equities and in particular equity incomes. I'm delighted to welcome a panel of fund selectors and fund managers. So representing the fund buyers, we have Ben Gutteridge, director of Model Portfolios

Speaker 0:
Services at Invest from the fun side of Olivia Markham, managing director and portfolio manager at BlackRock and Coat investment director at M and G. Now, Ben, if I could start with you if you could just give us a bit of a sense into your role and investor and what you look for when you build client portfolios.

Speaker 0:
Um, well, nice to be here. Rory. Um, I'm director of Model Portfolio Services at Invest Lofty Title with great responsibility. Uh, it means I sort of contribute to the asset allocation debate and sign off. Uh, indeed, on on those decisions,

Speaker 0:
Uh, but also, uh, give uncomfortable, uh, interrogations of fund managers, which we're about to see shortly about how they manage their, uh, suite of products or individual mandate to deem whether they're sort of appropriate for inclusion in portfolios and, you know, income portfolios that we, uh, manage have a

Speaker 0:
A. There's a slightly different approach there. It's not so obvious that you can achieve the the level of balance across sectors as you can in sort of a total return mandate. But I'm sure we can discuss that, uh, today because no doubt there are lots of quality businesses that are paying dividends that are growing. But of course, there are big parts of the market that are emitted,

Speaker 0:
Uh, because they're not dividend payers. But as I said, hopefully we get into that debate through through this session. Certainly. And Olivia, welcome to you. Uh, could you just give us a sense into your role at BlackRock And what strategies you? Yeah,

Speaker 1:
absolutely. And And thank you very much for having me here. Um, you might pick up the twang, but I am Australian by background. Uh, and I've been involved in the mining sector, uh, for sort of over 20 years now, uh, I run, uh, the team at BlackRock, uh, mining portfolios that includes in the UK.

Speaker 1:
Uh, the Black World Mining Trust. And I also, uh, am a portfolio manager on our circa economy fund, which is a new, um, you know, fund that we launched, um, a little over three years ago. Now,

Speaker 1:
Uh, so, yeah. Big focus on mining and and kind of really interested in kind of the role that mining will eventually play in the energy transition, as it's basically the building blocks of that of that transition.

Speaker 0:
And last but not least, welcome to you again. Could you just give us a sense into your role at M and G and the strategies that you work on there. Thank you for the opportunity, Rory. Great. Good, Great.

Speaker 0:
Be here. So I'm an investment specialist for the global equity team at M G, which manages a variety of strategies, including that value the thematic funds, but also income funds, including three funds in particular, the Global Dividend Fund, the North American Dividend Fund and also global listed Infrastructure Fund.

Speaker 0:
But what those three funds have in common is that they all have a very specific income objective to grow the income stream every year. And that's the common philosophy, uh, that that that binds through the three funds with a particular focus on dividend growth, uh, in the belief that if you're a rising income stream and you buy into that rising in income stream at a reasonable that valuation.

Speaker 0:
Hopefully, the share price will follow so that the combination of a rising income stream and a rising share price, uh, will give you a good total return. Overall, I think that kicks us off quite nicely. And Olivia, if I could start with you. So Equity income now back in focus in a high rate environment? Or is it not as simple as that? What's going on beneath the surface?

Speaker 1:
Yeah, it It's a really good question, and actually something that we debate quite a lot on our team. I mean, clearly, over the last 12 months, 18 months, as rates have moved up, it it, you know, it has really,

Speaker 1:
uh, cause havoc in in parts of the equity market, particularly those more growth focused, um, parts of the of the equity market.

Speaker 1:
I think now, as you know, we there is pressure on returns from companies in in inflation with higher rates. I think one must really think about you know, the quality of of equity, uh, of dividend paying companies. And really, when we think about those companies that are strong, dividend payers have that kind of income bias. Uh, it it really needs to be defendable. And so I think when we look back at some of the natural resources companies that I specifically work on,

Speaker 1:
you know, these are companies that are paying dividends completely funded by free cash flow. Uh, they are very strong, uh, balance sheets. And they're also not trading at a lofty premium, uh, which has been often the the challenge for any other pockets of the market. So I think ultimately, yes, you know, typically, those companies that have a an income focus tend to be more defensive. They're probably the sort of companies that are gonna do well in this sort of environment.

Speaker 1:
But I think you need to be really careful in the stocks that you are picking to make sure that that income is defendable and repeatable over the years to come.

Speaker 0:
What do you think in this in this sort of environment and higher rates, what are you looking for? Well, clearly, inflation has been a been a game, a game, a game changer,

Speaker 0:
and given the rise in bond rising interest rates, that has forced in investors to, I suppose, to reassess the the the what the market is going to be like in in in in the years ahead, because it's going to be very different to what we've seen in the glory years of of interest rates.

Speaker 0:
And I suppose in that context there's been a greater sort of focus on equity income in general through the recognition that in a in a lower return environment, the income component is going to be more, more, more, more, more important. Now there's a question about whether the yield that you're getting today will be sustained

Speaker 0:
going forward, given the the more difficult economic environment that will inevitably see. But to Olivia's point about quality and certainly certainly for us, balance sheet strength is absolutely critical in our fundamental analysis to make sure that dividends can be sustained in the current economic climate.

Speaker 0:
Yeah, Ben, we've had a few points there. What do you think? What would you ask? Well, I mean, you want to pounce on the you hear Olivia straight away, get too, uh, too contentious, but, uh, I certainly take your point about quality income being the focus in a period of uncertainty and potential sort of economic downturn

Speaker 0:
and I don't And I thought it's fascinating all the points you raised. But maybe some would argue that sort of mining businesses, uh, wouldn't necessarily gravitate to that quality bucket. Maybe their their fortunes aren't in their own hands. Maybe they're a bit of a sort of slave to the commodity price. And and maybe that commodity price is a bit vulnerable in the face of a sort of a a China that isn't sort of firing on all cylinders and

Speaker 0:
perhaps isn't about to. It's not. There isn't, uh, the level of stimulus coming through so a lot in that, but in danger of asking you to say the same things. You know, how can you, uh, reemphasize why the mining type companies should sit in that quality bucket.

Speaker 1:
So there's a couple of points I would make. I think the first thing and and we should take a step back is that you know, historically,

Speaker 1:
uh, mining companies have paid these progressive dividends i e. A dividend that goes up every single year by a a modest amount. Uh, irrespective of what their earnings did. We had a huge change in capital application frameworks back in 2016 with, um, you know, dividends now linked

Speaker 1:
to revenues. Commodity prices based on a dividend payout ratio. So I think today when we look at the dividends that are being paid by these companies, is completely aligned by the earnings that are generated by these companies. And these were wax and wane, uh, with commodity prices,

Speaker 1:
The one thing that gives me confidence, uh, that the dividends are defendable and robust in terms of from a yield perspective is that actually today for a lot of the companies, there's very few other claims on on capital within the business. Balance sheets are as strong as they've ever been.

Speaker 1:
Uh, Capex spending is completely fund, um, and not really materially accelerating from where we've been, uh, historically so that ultimately leaves sort of the majority of excess cash flow to come back as as dividends. And so, yes, you know we'll have that volatility in commodity prices. But given the kind of under investment in the sector over probably now almost a decade,

Speaker 1:
uh, we just have generally very tight markets. Very similar dynamic is playing out in the oil markets right now, so that volatility you might have historically experienced in commodity prices is really compressed in and in turn just makes the the the cash flows, you know, less volatile as well.

Speaker 0:
Sorry, I I don't know who's hosting who's gonna go to shortly, but, uh, just to,

Speaker 0:
uh, go back to to remain on mining. Is it the case that you do see that sort of Capex discipline? You sort of said it's not materially picking up, but are we sort of seeing signs that may be Capex programmes? I mean, there has to be some investment agenda, and they they're not

Speaker 0:
pretty pretty punchy in terms of outlays, you know, Are you still feeling confident about Capex discipline for management? Or is there is there creeping ill discipline?

Speaker 1:
So this is something that I literally watch, like an eagle database. And I actually just came back from a big major mining conference, Uh, yesterday, uh, and we are seeing Capex increasing. Um, it needs to move up. We've also seen inflation, so the cost of building new units is also going up.

Speaker 1:
But the capital spending amount in the context of their cash flows is still completely fund, um, and manageable by the companies and I think there's a recognition

Speaker 1:
that, you know, versus the past or the super cycle, as as people often use to to to call it is that, you know, the companies overs spent, they couldn't manage these projects in of in that scale. Uh, and and and as a result, you know, we saw, you know, bad decisions being made and bad returns being made. So, you know, we've been through the last two years now with record cash generation from this sector,

Speaker 1:
Um, you know, we we could have seen lots of M and a activity. We could have seen a, you know, growth accelerate. But we haven't. We've seen the discipline on returning capital of the shareholders, and I I think that's a really, really strong signal that that there has been a change, uh, in the way that boards and executives are managing these businesses now.

Speaker 0:
And, um, I guess at the margin, I wouldn't necessarily say Do you agree? But at the margin are you,

Speaker 0:
uh, thinking about a slowdown as an as a means to continue to move to sort of higher quality businesses. And also, I guess you have to sort of give some context as to where where you're coming from, you know, in that decision making process, I I suppose over the last 12, 12, 18 months there's been there's been a greater emphasis on on on on quality businesses. So I suppose I suppose sectors associated with with defensiveness where that's healthcare or consumer stables.

Speaker 0:
There's also no denying that, given how the market has responded to fears about a recession, uh, companies which are more more in in nature, uh, have been, uh, sort of treat treat treated, uh, indiscriminately from a negative perspective. And that, we believe is is correct creating opportunities for businesses which, yes, that they do operate in in a much more economically sensitive areas. Uh,

Speaker 0:
but they do have a, I suppose a, by the by virtue of their business models have much more stable revenues than the market is giving them credit for. So we we certainly been picking up and seeing opportunities, opportunities in more cyclical businesses.

Speaker 0:
And then I guess, like how how the miners and energy companies fit into how you

Speaker 0:
bucket companies. I know there'll be sort of idiosyncratic, uh, factors that make it a bit grey, but, uh, yeah, how How are you navigating the energy and mining complex, Given this sort of so much yield around there. So from a from a mining perspective, we do. We do have expo exposure in in the in the global global dividend fund.

Speaker 0:
Um, so and and I I suppose certainly compared to previous cycles the we certainly believe we believe that the discipline is is there investors keep telling them to to to be more to be disciplined about about their their capital allocation and hand in hand. With that

Speaker 0:
comes, uh, cash returns to shareholders. Uh, so, uh, for the for the company, we we're investing in it. It had a very clear dividend policy in in terms of increasing the the ordinary dividend over over time, but also to pay special dividends when there's when there's excess cash available.

Speaker 0:
Uh, on the energy side, uh, we're very much focus on energy infrastructure. So pipelines, storage, storage terminals, processing facilities, So very different dynamics to to an to an all all major and the cash flows from from from those M M street companies are actually quite quite quite quite

Speaker 0:
reliable in the sense that the vast majority of the revenues are determined by take or pay contracts with limited sensitivity to the underlying oil oil price. Now that's evidence that that doesn't stop the share price from being soens to oil price movements. But

Speaker 0:
we can have a you know have a high degree of confidence about those those cash flows cut coming through and ultimately leading to pretty reliable di di dividend growth mid mid single digits on yields of 6% plus. And those who follow the global dividend fund quite closely will know that that area of investment, that sort of energy infrastructure play has been

Speaker 0:
like an area that's sometimes not work so well but working better. But I guess they want to know whether it is sort of still a dominant part of the performance, Uh, profile. I mean, you sort of want it to do well for the fund, obviously. But perhaps in the past, it's delivered more risk than you intended, you know, has that sort of settled down? Are investors treating those companies more rationally? We, we, we, we we'd say so and there's certainly been contributors to the fund performance

Speaker 0:
the last couple of years, but they've not been the dominant, uh, con contributor. Uh, as you may have seen in, uh, in in previous, uh, previous site cycle. Uh, it's It's the the energy, and the cyclical component is is is still, uh, pretty pretty substantial. It means that 30% 30% plus, uh, but you, uh, but I mean, it is a much more diversified exposure than you've seen in the past.

Speaker 0:
I I just want to stay with listed infrastructure just for a second there. And dividends across the board have been quite resilient. Any sort of particular areas that have done really well and and held up well over the last few years. So, I mean, obviously, we dividends have have continued to sort of gather momentum from the dark days of the of the of the of the pandemic.

Speaker 0:
Uh, and certainly in the in the, uh, the most recent result season. Yes. You are seeing, uh, dividends remain resilient, particularly in the u SI. Would I would say I mean, since since covid, uh, you know, we've been pleasantly surprised by the by the dividend growth you're seeing from from from from U U companies.

Speaker 0:
Uh, now, if if, let's say for the for the global dividend fund that the the the core element of the portfolio is delivering dividend growth in the region of 5 to 15% and the the component that's that's raising their dividend by more than 15% are dominated by by US companies. And if you look at the North American Dividend Fund,

Speaker 0:
you've seen an unusually long list of 50 15% growers, uh, over the last two years, which is sort of testament to the strength of your US corporate cash flows. Um, now that said, as I mentioned, we are going to to to experience to to to To

Speaker 0:
for time. So perhaps those 15% percent will migrate back to the 555 to 15% you No, no, uh, no, Normally expect. And of course, you you you will get dividend cuts, particularly for the for the for the for those companies, uh, without the the the the the balance sheet strength required to with with with an economic economic downturn. So we are scrutinising scrutinising things, things like a hawk. We're doing precisely that with balance sheets at the moment.

Speaker 0:
Olivia, I want to go back to something you said as well, about mining moving away from progressive dividends. So for those people watching, what was the decision making there? What did that come about?

Speaker 1:
Yeah, So the the progressive dividends, um, really started in the in the early two thousands. Um, And it was, you know, a function of, you know, increasing the dividend by, um, you know, sometimes modest, sometimes larger amount each year.

Speaker 1:
And when we sort of went past that, the the the point of the the top of the cycle in 2011. And then we had that deterioration in growth from China at exactly the same time as all the mining companies had geared up their balance sheets for growth. We had to, you know, basically try and equate the two. And that meant that over the next couple of years, we had cuts to balance sheets, cuts to costs and then ultimately cuts to the dividend because the dividend was no longer linked to,

Speaker 1:
you know, the the the cash flow generation of the business. So I think now, you know, when we went through that, that change to that policy across the sector, we had a much clearer um outline of of capital allocation priorities of all the companies, Uh, we've now got, you know, a a dividend policy that I think works really well, and and And I think, um,

Speaker 1:
you know, we do see, you know, the base dividend linked to earnings, But then the excess, uh, free cash flow on top, which is either come back through special dividends or buy backs. Uh, that has got a lot more flex in it. And that's what's really added that at that sort of very high yielding component, uh, for the sector,

Speaker 0:
What sort of

Speaker 0:
combination? I if indeed, you scrutinise allocation this way of sort of underlying metals that you're exposed to. I mean, those who aren't in the market every day, like you might sort of like myself would think,

Speaker 0:
you know, copper is a great trade because of the electrification energy transition. Not so keen on sort of base metals as sort of China. As I said earlier in this sort of in the discussion, it's sort of a bit stop, start and stuttering with its with its economy and of course, sort of gold is a, you know, something of a nice diversify and amongst that. Do you Are you Are you applying trades in that way, or is it depend, or will it also depend on the valuation and opportunity of the business?

Speaker 1:
Yeah, So it's very much a combination of

Speaker 1:
top down i e views on the commodities views on the cycle and bottom up I e views on the companies. So really, what we're trying to do is to identify companies that are high quality, have structural growth, strong management team strong balance sheets and then match those companies, hopefully with a commodity outlook that we that we like as well. So you know, our views on the commodities will will change in the short term, depending on

Speaker 1:
the price level of the commodity and and the the fundamentals of that market. But I think longer term and that's, you know, that's where we really can add the Alpha over time. I just think there is a huge opportunity, uh, in the metals that are linked to and enabling the energy transition. Um, you know, we need substantial growth in these commodities. Uh, and in that sort of environment, you typically see high prices to invent incentivize all that new supply into the market. So that's a really exciting area, in my view.

Speaker 1:
And is it

Speaker 0:
is there? Is there lots of great companies, or is it sort of a handful of really good ones? I mean, how's that? How's that tail looking relative to these behemoths that, uh, are present in a in A in a benchmark of of some

Speaker 1:
sort? Yes. So the sector you know, when? When I started my career in the early two thousands, there's been a huge amount of of consolidation, uh, across the sector. So, yes, today you've got those big, diversified mining companies and then you've got a MidCap Space, and then you've got a, you know, a bit of a tail. Um,

Speaker 1:
I would say that we are increasingly seeing more opportunities in that smaller end of the market and in that midcap area of the market, because there is a recognition again that we need growth in new supply. And that's the kind of the key thing you really need, along with supportive financial market

Speaker 1:
markets, to to kind of unlock value for a lot of these companies. So, yes, I do think there is quality, but you know, you stock specifics and stock picking and looking at these companies for years and years and years. And picking good management teams and looking at their track record is is absolutely key to having success in that area.

Speaker 0:
And you work across infrastructure, North America, you know, where where are the opportunities, where is looking really good at the moment for investors? What? Certainly, if you attend to the global dividend Fund it. It's interesting if you if you look at the the the the the new, the new ideas Over the last 12, 18 months, it's been dominated by Europe, and I suppose that's that's also function of the

Speaker 0:
the the very strong out performance that you've seen in the in in the in the US over uh uh, over many, many years, uh, to the extent of the the the valuation gap. Uh, that is, you know, pretty pretty substantial. Uh uh. Comparing the U and Europe, you know, we see it. See, a similar effect in listed infrastructure is a big component of of, uh, listed in infrastructure portfolios.

Speaker 0:
Um, and and I suppose you saw that valuation gap between the US and Europe wide and particularly last year, So if you look at the performance of US US utilities last year in a down market, you'd expect utilities out up form. They did precisely that in the US in Europe. Completely different story. Now there are reasons behind that, given the proximity of

Speaker 0:
Europe to to to what's what's going on in Ukraine. But the valuation gap was so large that we thought it was a very significant opportunity in In in Europe. Now that's that effect is reversed some somewhat in 2023. So so far you you've seen strong performance from the European utilities

Speaker 0:
in particular. But the gap is still very much there now. US utilities in particular, do deserve a premium to Europe because the regulatory environment in In In the US is much more accommodating than the than the the regulatory environment on this side of the Atlantic. And that's very, very visible in the

Speaker 0:
in the in. The returns generated by by by by US utilities compare compared to Europe and again, that's manifested in dividend growth. If you look at the dividend growth if US utilities much more consistent and much higher than what you see, see in Europe. But that said, there's the price of everything, and your European utilities look considerably cheaper than their US counterparts. I mean, there will obviously be a lot of company specific research going on here, and the the geographical allocation,

Speaker 0:
you know, may simply be an outcome. But you sort of might associate the US as obviously having less dividend payers less rich in dividends in Europe and Asia. But perhaps they might disagree, having a little bit more resilience to a downturn. So I don't know how income global income managers think about that trade off or or or in fact, perhaps you don't see it as a trade off. You don't need to go to the US to defend.

Speaker 0:
You know, there might be enough in Europe and Asia and the and the richer dividend payers to to to manage that that risk for for global Dividend Glo global listed infrastructure. We've always had uh uh, a 50% plus in in in north North America. Uh, and if you look at the dividend growers consisted dividend, uh, consistent dividend growers. I mean, it's dominated by by by US companies, so it's it's a natural area for for for for for us to To To to hunt in.

Speaker 0:
Um, but, uh, at the same same time, yields yields are lower. Not always so, but clearly the the U U market is yielding relative to to to to the rest of the world. But again, it's a dividend yield isn't the only evaluation metric metric we we look at and on other measures. Uh, clearly there there is a gap between the US and the rest the rest of the world.

Speaker 0:
I sort of just sort of be keep getting pinged on mining. But of course you mentioned you get, uh, there there's another mandate that you manage as well. So just be interested to know, um, like, what? What are the key differences? Is it the circular fund that, uh, you, you manage? And, uh, the extent that, uh, it's in areas that we are less sort of familiar with? Perhaps

Speaker 1:
So the the circular economy theme, um, is still, I would say, uh, quite new to to a lot of people. And the way I like to describe it is changing the way that we consume things. You know, today, we we consume things in a linear fashion. We take something out of the ground, we make something with it. We use it sadly for a very short amount of time, and we throw it away.

Speaker 1:
And that's just not a sustainable way of consumption. So we need to think about a new model where we are going to use products for longer,

Speaker 1:
build products that can be recycled, Um, actually consume less, uh, and ultimately and and and ultimately that you know, that results in more efficient use of resources, uh, and is a much more sustainable way of of operating. So this fund is incredibly broad. Uh, you know, we look at everything from

Speaker 1:
things you could think of, like resources and recycling. But we also look at areas of the market on the consumer side, such as fashion plastic, other areas like waste infrastructure, uh, resource efficiency, linked software and technology. So it's it's incredibly broad. But ultimately, all of these companies are either enabling, benefiting from or adopting policies that help us drive the Circo economy. In the future.

Speaker 0:
One might assume they have more of a sort of a growth technology angle to them, and so not natural sort of dividends. Yet Or is

Speaker 1:
that absolutely? So this is, um, a theme. Ultimately,

Speaker 1:
Uh, that is is growth orientated. You know, these If we want to be able to as a society, grow in the future and link and be able to disconnect almost growth with availability of resources, we need to adopt the Circo economy. Uh, principles. So these companies do tend to have quite a growth, um, bias to them. Um, and we're not kind of per se screening for income characteristics when we're looking at a lot of these companies.

Speaker 0:
Sorry, Ben. Does that include metals in this new circular economy, or especially new metals? Because, as it's a new frontier, is there a danger, perhaps that when we find something new, we instantly use it and then almost dispose of it. Whereas something that's been around for a bit longer, we now know that efficient ways to use it and then dispose of it. Yeah, So

Speaker 1:
I think we think about if we take the example of metals, uh, we think about how we could because we always gonna need metals. If, you know, global growth is ultimately linked to, uh, commodity demand.

Speaker 1:
Uh, we got to think of a way that we can use metals more sustainably. And the way that we can use metals more, more sustainably is by recycling them. You know, why don't we recycle the copper cable in a old, dismantled building, as opposed to building a new mine and and producing copper in that way? So it's much more linked to the recycling angle. But also how can we design buildings in a way that actually needs less materials, you know? So it's it's thinking about how can we be more effective in the use of those resources as

Speaker 0:
well? Co designing buildings

Speaker 0:
more sustainable is a big part of your area, too. Well, not not so much from from, uh, in in infrastructure, but perspective, because I suppose we are investing in, uh, owners and operators of of the physical, uh, in in, uh, infrastructure as but clearly I mean, sustainability is, is, uh is is is key for for infrastructure. And we say, particularly for infrastructure, given the large physical assets that that that you that you you you're dealing with,

Speaker 0:
uh, obviously, I suppose energy and utilities are obviously areas under particular scrutiny, certainly with with energy and infrastructure uh, ultimately we've been engaging with with with the the whole holdings we have in the portfolio,

Speaker 0:
uh, to, I suppose, to raise the bar in in in terms of, uh, uh of sustainability within within, within the industry, but also to to to to to develop robust sustainability, sustainability frameworks, but also to set ambitious but also realistic targets, uh, that that are consistent with with net net zero po po policies over the long run.

Speaker 0:
Um, now and it gets a lot of attention, but from a carbon perspective, it's actually utilities, which is a sector which by has by far the the they're the highest carbon emissions. And certainly we have given our sort of, uh, e e integrated sustainability integrated approach.

Speaker 0:
We do have a bias towards, uh either pure renewable companies or companies that that that are themselves, uh, transitioning away from traditional fossil fuels to to to to to towards renewables so that they are very significant players in the energy energy transition theme.

Speaker 0:
And I guess you can't have a sort of an infrastructure discussion without the regulatory, uh, topic. I mean, I mean that as you gravitate or move further towards renewable type businesses. That's something of a regulatory tailwind. But for the other parts of the portfolio, are you Are you nervous about, I guess. Always nervous. But, uh, do you feel pretty confident that the regulatory cloud can can not interfere overtly with the with with performance? It's It's It's always going to be a AAA risk, but by the next

Speaker 0:
of their of their businesses. But we have a, I suppose, a very clear view on where we where we think the the most favourable regulatory environment environments are. That's very clearly in the in the US, much more clearly not in the UK. So we we know one regulated UK in the in the portfolio, which sort of tells you something, uh, and and and And I suppose the concerns about the, uh, about the regulatory environment is also echoed in in, uh, in Europe because,

Speaker 0:
you know, Europe has a history of of regulators into intervening. Uh, we obviously we and we've had the, uh uh uh had windfall taxes I imposed on EU European utilities. They were, and they were pretty quick to do so. Uh, obviously u UK utilities managed to avoid that, but the intervention of the of the of the regulator or the or the willingness of the regulator to to to intervene, uh, is, uh, a very apparent in Europe and unlikely to change

Speaker 0:
just just on the the mining companies. And sorry to put you on the spot. You don't have charts in front of you, but just in that sort of micro, uh, mini banking crisis that we that we had did did the markets treat mining companies sort of quite rationally, or were they sort of kicked around like high beta sort of cyclical,

Speaker 0:
just sort of thinking about how they might, how the market sort of would treat them in in something of a more difficult economic environment?

Speaker 1:
It's a It's a It's a good question. And also you never need to apologise to talk to me about mining. I could sit here all day. Um, so I mean, if you if you have a look at the performance of the mining sector and actually even worse, so for the energy sector,

Speaker 1:
um, you know, they they they really, uh, you know, came under pressure. A around the time of the the US regional banking, um, sort of sell off that we saw. Um, so, yes, they sort of seem to be a sort of a cyclical proxy on on all of these areas. But, uh, it it it does

Speaker 1:
when you look at sort of the underlying fundamentals of the commodity balances on both the the cut of the oil side and also on the on the metal side, particularly with china reopening at that, that exact same point in time. It it seemed quite perplexing to us.

Speaker 0:
Um,

Speaker 0:
so I mean on that, I mean, what what can you What can you share about your views on China's sort of reopening effort? I mean, our understanding is that that's sort of more of a service thing, that they'll go back to restaurants and cinemas and and travel more, not necessarily suck in lots of imports for for infrastructure. But maybe that's maybe there's a balance here that, uh, that that we're sort of missing.

Speaker 0:
Yeah, So I think it's hard to predict.

Speaker 1:
Um, so Chinese demand is always quite challenging to read. I've I've been doing this for a long time, and it's it's hard to sort of look at things at a microcosm for a short period of time. But, you know, we've seen, um, you know, a big move up, particularly in those China centric commodities like iron ore. Copper also benefited from kind of Q four of last year when we first started to hear the

Speaker 1:
the the the or see the signs around, you know, China reversing its zero covid policy So big move up in the equities Big move up in the commodities from q four of last year. Uh, and I think actually, what has happened, uh, is that quite a bit of the demand for later on the year was actually pulled forward into the beginning of the year. And so the the data that we've seen that's come out recently is sort of still pretty robust. We're still growing. We've still got, you know, 10% year on year credit growth, but it's not accelerating.

Speaker 1:
And so the key thing that we're really watching, uh, is on the property market, particularly on the metal side, because it's such a big component of of overall metal demand in the country, and we are seeing a pick up in transaction volumes and prices. The next piece, which is really then the commodity intensive piece is we start to see new apartment buildings and high rises being built. And I think that's probably something that we're gonna look towards from more the back end of this year into 2024.

Speaker 0:
OK? And what are What are you doing for the

Speaker 0:
Asian exposure in the Global Dividend Fund? Is there? You know, as I said, I said earlier, it does seem like an area that's sort of rich dividend and presumably lots of dividend dividend growth, a fertile area for you. So historically, we've been under way to Asia mainly because of I suppose, the attitudes of of of of management Uh uh uh uh uh in Asia towards the dividends. And there's been a,

Speaker 0:
uh, typically or strong adherence to dividend policies or the payout ratio driven policies, which means that when earnings are going up, dividends will go go up, too. Uh, but when the when the such such cycle turns in earnings, go go down. A lot of that management teams haven't thought twice about about about cutting a dividend. Uh, and that view is still out there. But given what we've seen, uh, in the in the markets. We we do see opportunities.

Speaker 0:
Uh, so not just for the for for for for the for the global dividend fund. Uh, but for the, uh, for for the listed infrastructure fund, we are seeing, uh, opportunities in, uh, in in Asia for global dividend Fund. It was it was in the banking industry. Uh, given the the the set off that you've you've seen seen in the banking industry worldwide,

Speaker 0:
that gave us an opportunity to buy into a into a, uh a a very stable banking franchise. Strong balance sheet on a 5% yield. Uh, so we that's a very stock specific, uh, opportunity. Uh, but we see similar opportunities on the list of infrastructure side as well. And what about the global opportunity in the banking space? I mean, there's plenty of yield

Speaker 0:
pretty low payout ratios, I I guess in in, in aggregate. But, uh, certainly some nervousness around the sector. Yes, definitely. And but And again, historically, banks has has has been not a, uh, a fruit for hunting ground for for for us, mainly because of their dividend track records. I mean, they've been they've been pretty patchy in the past and actually also increasingly regulated, Which means there are opportunities. Opportunities set for, uh, for for for banks is pretty limited.

Speaker 0:
So, yes, we we We've bought an Asian bank, most most recently, uh, but in the global fund, that's that. That's one of two. Uh uh. So we're still under, uh, under weight. Uh, and, uh, given that that that patchy divi track record, uh, I'd expect to be the banks is likely to be a, uh, underweight. Uh uh. From a long term perspective. Yeah. And almost to sort of Wes.

Speaker 0:
The sort of good position that perhaps miners are in. As as the banking sector sort of withdraws from the economy, those businesses that are pretty well funded, you know, are gonna be, uh, face less struggles from a from a tightening banking environment. I mean that that that's

Speaker 0:
we don't necessarily call for a a financial crisis for miners to outperform him. But presumably you think you can sort of weather or your sectors. Sorry. Can Can we can weather this, uh, financial mni storm better better than others or better than it has in the past.

Speaker 1:
Yeah, it's really interesting. So, you know, if you look at,

Speaker 1:
You know, mining companies today, energy companies today that their balance sheets are are really, really solid. So, you know, one would assume, uh, that you can, you know, withstand the volatility in in prices and outlook much better. And one would assume that that should probably

Speaker 1:
improve the multiple, uh, that you trade at And what what has been, you know, really quite interesting is despite the fact that these companies have got really solid balance sheets. Uh, and they just don't have that same level of balance sheet gearing any more to to to sort of the cycle.

Speaker 1:
Um, that hasn't been reflected in in in valuation multiples. So that that that that once again, maybe exciting

Speaker 0:
for those who aren't yet.

Speaker 1:
And that's why you see so many companies today buying back their shares. And that has changed. So I think there is a recognition of this, uh, and I think it's probably it's a recognition of time. You know, I think people have questioned,

Speaker 1:
um, you know, executives commitments to these couple of allocation frameworks. You know, we've we're now I think what we're now eight years into or 78 years into it, you know they've been really, really disciplined. And so I just think it's a matter of time until that that's that begins to come through in the multiple day trade on

Speaker 0:
from the sustainability side of things for oil and gas companies. And you, you've touched on it slightly, but has E. S g. And yeah, we'd be remiss to not talk about e S G here has e s g almost inadvertently turned these companies into perfect capital allocators. They're not spending new investments on, uh, you know, new oil and gas, sort of infrastructure and other constraints from the balance sheet balance sheet. Sorry, because of that, what do you think? Is that a fair reflection? So

Speaker 1:
I would think that

Speaker 1:
that the changes in capital allocation and you know, the resulting strengthening and balance sheets etcetera, has more been about returns. OK, so it just it made more sense for them to not grow the top line at the same level that they were returned, that trying to grow the top line in the past, uh, instead that they were better placed to return a greater proportion of cash flow to shareholders.

Speaker 1:
At the same time, we're also seeing, uh, you know, in the oil and gas space companies invest more into renewable energy, uh, and less into traditional energy than than historically and in turn, that has tightened. Uh, you know, the oil market and in turn, has resulted in higher prices. So I think I think ultimately the decision has been a returns decision. You know what is the best use of of the cash flow of the company?

Speaker 1:
Uh, but I think at the sidelines, and this is on the mining side as well. And the, you know, the the E s G challenges, be it permitting particularly and also just, you know, requirements for renewable energy, desalinated water, et cetera. It has slowed down the process to build new supply, and in turn, we just have these really tight physical markets today.

Speaker 0:
Where where are you worried about dividends? I think the market often when you get sort of like 8% yielders, you know, you don't get it all, do you? So I mean, um, are are there areas of the market that you're sort of worried about? Despite the level of of yield on offer, I suppose I mean, addressing high yields generally, I mean you. You're quite right. I mean, a high yield is not our starting point in in in terms of how we look for for, for, for, for new ideas. Because precisely that. I mean,

Speaker 0:
during periods of market stress, you get plenty of stocks yielding 10% 15% to 20%. But after the event, we know we know we know that it's it's not an automatic signal of value. It's a warning sign that those those those those dividends are aren't going to be paid

Speaker 0:
now in in terms of, uh, of where, where we are today. Yes, there are some high high yielding areas, and I say energy infrastructure is is is one of those, uh but I to say that given the i suppose the the the reliable nature of the of the underlying cash flows, we we have a, uh,

Speaker 0:
high degree of confidence that the dividends can continue to to to come through. But in terms of what we're worried about and where the risks are, it's it's that those companies that can't sustain, uh, the the the current levels of dividend in a much more difficult economic environment.

Speaker 0:
So we've seen that seen that already? Uh, particularly amongst, uh, I suppose consumer facing businesses. Um, so So So, uh, uh uh, we've seen, uh, a couple of those in in, in, in, in, in, in the in the portfolio, But in terms of how we deal with those, I mean, we've had di di dividend cut cut cuts in the past. We'll have, uh, have them again. And And I suppose I always like that Stuart Rhodes analogy that

Speaker 0:
if you're not getting a few dividend cuts, you you're not really putting enough risk into the portfolio. So it's not a lot of abnormal for you to get there. So So I mean, we we had them after the financial crisis. We had them in 2020. And no doubt we will have, uh, have a few, uh, this year,

Speaker 0:
but I think it's it's important to have a have a plan in terms of how you deal with those, Uh, because, as I said, it's our policies is not to sell them straight straight away, because typically, that's the worst time to sell it and their academic studies. Back, back, back, back, back that up. Uh, so Uh, what we do is, uh, ultimately, I suppose, look into the, uh into the reasons behind the divi cut and also to get it under

Speaker 0:
understanding of of the pathway back to sort of pre cutting levels. So certainly being being pleased that dividend cutters from 2020 have by and large restored their dividends to pre pre co co co ID levels and ultimately that that that will determine our sort of a long a long term view on any dividend cutter in the portfolio.

Speaker 0:
Ben, I'll defer to you. Is there anything that you'd like to ask the the two of them here today? Anything that you've heard today, that really put you on the spot. But any questions or final remarks you had, um,

Speaker 0:
I think you've done very well dealing with me so far. Thanks. Thanks very much. I mean, I I I'd like to sort of get the audience excited about Like where? Like the the money making opportunities. You know, I guess there is sort of more a sector focus. You've spoken very eloquently about the risks that you think are sort of re somewhat removed from, uh, that that investors may have considered were associated with the sector in the past. But is it like, is it stand out cheap? Is there, like, lots of,

Speaker 0:
uh, I don't know how how Black rock can manage this question, but, uh, it does it. Does it look like there's a lot of value there and then, you know, in the global dividend fund, you know what looks particularly interesting? Yeah,

Speaker 1:
I I think there is significant value, but I think it's, um, in pockets of the market. So, you know, I think if we have a look today,

Speaker 1:
uh, most of the companies that I look at are trading quite a bit below, like the historical average on a 10 15 year basis. Um, And for certain companies, particularly those that are gonna be critical for the energy transition, um, we're asking them to to be able to grow, you know, their their top line, their volumes quite significantly.

Speaker 1:
Um, And these companies, you know, if they aren't able to generate enough cash flow or get the support from markets and funding, they're just not gonna be able to do that. And so I think there is just a increasing recognition

Speaker 1:
that uh, you know, these companies need to start to try to get on a growth multiple. And I think there is also a recognition that we're we're hoping starts to play over the next couple of years is that people have almost branded the mining sector as a I don't know if you want to call it a bad character from an E s g perspective. They're often quite high carbon, um, businesses. But they are also a critical part of the solution to decarbonisation. So I think we've got this lovely kind of,

Speaker 1:
um, scenario where you've got, you know, growth for these companies. But at the same time, these companies are gonna reduce their their emissions, and that, in turn, should also help drive that multiple. So this kind of you wanna call it brown to green transition that we're seeing across the sector, I think, is a really interesting dynamic for the next sort of 5, 10, 15 years.

Speaker 0:
The opportunities that seem to stand out greatest for your team well, certainly is looking increasingly at more, more, more cyclical bit bit businesses. Yes, clearly there there are concerns about about about about recession. But we did do see opportunities where that's in industrials or or semiconductors where we believe that the, uh I suppose the the the the risk of a recession is more more than factored in,

Speaker 0:
and certainly, in some cases where they, uh, undervalue, uh, the resilience of the the the streams, particularly from from from service and maintenance activity. So, uh, you know, it's it's the valuation of some some some some of those stocks in cyclical areas that that we that we find exciting. But at the same time, we also you know, pretty confident about the the income stream for, for, for for for our portfolios

Speaker 0:
and certainly in the inflation environment that that we we live in, We we do do believe that dividend growth is an excellent way to provide inflation, inflation protection. And even with, you know, UK inflation and stubbornly, stubbornly, in double double digits, we've been able to deliver

Speaker 0:
income growth at the portfolio level. Uh, well, in excess of that. So, uh, you know, it won't be it Be harder this year, clearly, but the inflation sort of he hedge, uh, sort of, uh um characteristics of a of a growing income stream. Uh, we believe is attractive, particularly in this environment.

Speaker 0:
Well, Ben, thank you very much for your questions there. And Olivia and and Cott. Thank you very much for your for your responses. Well, that is all we have time for, but everything and all discussion points from today will be available to rewatch again. I'd like to thank everyone here in the studio Cott Olivia and Ben and thank you to you for watching. We'll see you next time.