Investment Trust Masterclass | October 2018
- 40 mins 03 secs
Investment Trust Masterclass | October 2018
Politics has been moving markets more than ever before, so what does this mean for investment companies? A panel of experts from Invesco Asset Management and Allianz Global Investors discusses whether UK equities are in the reject bin for asset managers and the impact Brexit will have on the UK stock market, despite two-thirds of the companies operating overseas.
- Simon Gergel, UK Equities, Allianz Global Investors
- Neville Pike, UK Equities Product Director, Invesco Asset Management
- Why the UK equity market is so unloved and what the impact of this is on investment trusts
- Whether a weak sterling has helped with dividends
- How best to utilise gearing in the rising rate environment
TagsInvestment Trust, Markets, Masterclass, Brexit, Europe, Stocks, Dividends, Gearing, Rising rates, Trade, Trade war, Risk Management, Diversification, Asset TV, Masterclass, Invesco Perpetual, Allianz Global Investors, Invesco, Neville Pike, Simon Gergel, Jenny Ellice, Equity, Investment, Stock Market, UK stock market, UK Equities, Growth, Income, 30Mins, Summer School, Hotpicks,
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Hello and welcome you watching asset tv's masterclass and meet jenny alice today looking at investment trust. Well, politics has been moving markets more than ever before. So what does this mean for investment ? Companies will have two experts with me today to discuss. They are nevel pike, uk equities, product director, invesco asset management and simon gurgle, chief investment officer. Uk equities, aliens, global investors. Right now i'm going to start with you and let's look at the investment environment we find ourselves in currently so as a backdrop for investment companies. How does it stand today ? I think that the fundamentals in uk economy are still okay clearly is a huge amount of uncertainty. The president time on dh markets are a particularly discount of the prospect of uk facing uk stocks. So uk stock side a significant discount where they have bean on that is i think an opportunity on simon last time you won you were cautiously optimistic about the economic backdrop. Is this still the case about six months on ? Generally the economy's doing reasonably well, we still got a sensible level of growth is not strong in the uk, there are risks out there, particularly chinese. Us, trevor relationships clearly this issue of brexit, i'm sure will come too, but generally most companies we speak to our trading recent recently profitably quite well and so you were fairly optimistic about the outlook, particularly the market down at this level. It's much more interesting now in terms of valuations. So why then do you think the uk equity market which it's been long been called the sort of you know what the asset managers, what they don't really want to go for ? Why is it so unloved at the moment ? Then would you say ? Well, i think the main reason for the uk specifically is brexit if you speak to investors from other countries, that'll be you don't want to really get involved in the uk ahead of you the outcome when we find out what what brexit really is going to mean and what will the potential implications for the for the economy and the interesting thing there, of course is about two thirds of the uk stock market is made up of overseas earnings, so actually the lot of the companies we invest in are much more immune to the impact of brexit than you might think from the outside world. What's your thoughts on this nebula what i was trying to get at is it's been long been called the reject bin of asset managers ? I mean, is this really i don't think it's fair but i think it's understandable, i think i'm completely green what my colleague is saying i think it's also the additional complication we have on domestic politics as well in that not only did in way having in june two thousand sixteen, we have the referendum, but since then we've also had a general election, the outcome of which was a relatively weak government. So i would agree sort of falls in the uk falls into almost the two difficult club, particularly for international investors who have so many other opportunities and alternatives that they could invest in you. And yet you mentioned politics way also have this threat of a corbyn governor government who wants tow, you re nationalize a lot of things. Do you think this is a potential threat or is putting investors off ? I think there are a lot of threats out there and i think i think that politics is is probably more influential in stock markets the moment and it has been in the previous thirty five years of my career. So i think that the prospect of according government is just one of the very many uncertainties out there and it's in totality, those uncertainties which perhaps making investors reluctant to commit to investing in uk the present time. So simon what's your views on things. Like the sterling, then i mean, has this we've seen a week ? Sterling is this helped matters ? Perhaps we're in terms of dividends. Well, it does help the u k value of dividends, particularly companies, pay dividends in dollars, which many big companies do it also help the earnings of foreign foreign earnings for british companies, but i think from here, our view is that studies more likely to go up because so many people are expecting starting to be weak. A lot of people taken that view and embedded in their portfolios, and when you get some certainty on brexit, actually, i think that might lead to starting potentially recovering. But exactly when there's going to be nobody really knows and never your thoughts on this is that weak sterling post opportunities for you, i mean, there has bean if you have a look att purchasing power parity measures, then right now, if we hadn't been in the situation that we find ourselves in, if it had been a different narrative sincerely, part of two thousand sixteen, then i our view is that that currency would probably still in dollar be in the range of one fifty to one. Sixty that's where we think purchasing power person power parity is so to the extent that we get great uncertainty, whatever the outcome is, once we have great certainty, i think that will be helpful for stealing and clearly that will benefit maur the uk orientated stocks well let's look at brexit in more detail now we can't avoid it so statistic ten billion pounds has been withdrawn from uk active funds since the brexit vote. So how do you see investorssentiment going at the moment ? Is it's very much a wait and see attitude ? Simon i think there's an element that definitely i think the other big factor is the u s interest rates cycle and i think actually that has more impact on the market overall than in terms of the long term impact. But you're right in the short term for the uk specifically this is a wake and see what happens in the negotiations and just sticking with brexit level. Which sectors do you think could perhaps benefit from brexit ? I don't think looking so much at sector is really where we were looking at, but it's actually where companies derive their earnings from where they whether doing the revenues from in particular, if you actually have a look at the evaluation of you hey source revenues as distinct from the valuation of uk domicile countries than in the period since brexit in june two thousand sixteen that those you came revenues, that uk book of business has actually hard in terms of evaluation relative to the united states of the present time. So right now people do not want investors, you're scared, i think, ofthe locking into a uk book of business they don't regard that has bean offering a sustainable level of earnings and somewhat your thoughts on that and the reason i mentioned sectors where it was based on ft article that said trust with experience of tuk domestics, technical stock such as consumer goods and consumer services companies could benefit from the so called brexit bounce in greater certainty emerges about the withdrawal process mean what ? You're full that's definitely right. The domestics sectors have been hit very hard, whether that's house builders or pub complexion traveler measure real estate and those those are trading up very substantial discounts to the rest of the market and to their history. So there's an element there's definitely a pin to pent up or potential recovery in those sectors, but of course, that's the nature of binary risks. If if there's a very hard brexit, if it seemed to be damaging to the economy, then people might be nervous about getting back into the sectors. And i think the thing we're really focused on is what will the impact on the overall economy if we if we have a slowdown in economic growth, potentially recession, then you could understand why some of those domestic companies, some of the banks and so on are trading really little evaluations that might become more understandable in a recessionary environment. But how did you how did you manage this uncertainty surrounding brexit ? I mean, what you pricing in ? I mean, what sort of scenarios you looking at and how does it impact your investment decisions ? Way we tried to deal with it is to have a diversification approach. So we have a new element of domestic companies, and we probably had a bit to some of those domestic companies where they are very cheap. Andi have good long term problem prospects, but equally we have a large number of international earners on actually there are many companies in the uk that our international companies but look like domestic companies or are really the smaller end. There are many global businesses that happen to be quoted in the uk on there you can have the best of both worlds you can have a low valuation because it's a uk stock but i see you've thought exposure to markets around the world, there's a quite interesting situations and a similar approach for the investigating never yet very much i think i think that the the macro level first off, i think that the market is pricing in by our calculations a recession round about four to five percent think there will be a recession at some point in the future that's us but we don't think it's going to be four to five percent on it isn't going to be now. So we are as you are, simon, i think of being adding teo domestically exposed docks throughout the past year, but also what we like to do is to seek exposure to what we call uncorrelated sources of income so so companies whose prospects don't really rely on the economy. So things like catastrophe insurance companies like that pervert's and beasley's and hiscox perfect, of course, is litigation finance company. So those types of companies, so to try and diversify the sources of income going forward ? Absolutely well, let's, turn to a viewer question now, simon, i'll put it to you. So what concerns what's your concerns for worldwide growth for the rest of this year on dh twenty nineteen ? How would you answer that ? Well, i think that's a that's a really interesting question on dh, the main area we're looking at, i suppose all the time is the china us access and the negotiations there. I think the trend of globalization has been going on for decades, and clearly there is some risk to that now from the rising tension. So we would like to see some resolution there and i think that's probably the biggest single trade issue, but there are there are others as well on. So yeah, i think that the international environment is important. So far, the global economy is doing pretty well. Actually, we are seeing some signs of companies having being impacted by rising raw material costs because some of the tariffs hitting us still, for example, but generally the economies of doing well but it's something to keep close eye on you. What sort of impact is when you mentioned the trade was really what sort of impact you've seen this having on stocks with international exposure ? Well, it's very specific of a moment s for british companies, there aren't that many where we're seeing, for example, the us tariffs on on steel, they're having their impact. Maurin american companies, but it's something to keep an eye on. I think we are with thing in the engineering section c the first signs of some problems in certain parts of the engineering data using any impact. Nevil, i would again now would agree what simon suggesting that i had those what i think it has brought into into into focus is the importance of intellectual property on dh. So much is the the tariffs that are are being sought by the u s mint administration of the present time. There is a lot of political noise and the power and posturing about those, but also important. I think a lot of it is also about the the the value of intellectual property. Making sure that is preserved when we're talking with management, i mean, it really is bringing to light what management ofthe leading companies in uk we're already doing avery already very aware of the importance of inter intellectual property and seeking to seeking to protect that in any way that they can well, in terms of the politics we've discussed, and how much does that actually influence what you do day today ? How much does it really influence your investment decisions on the day today ? What we do little on the basis that were long term investors ? So we're looking for the long term we look as owners of businesses rather than short term day traders, but it is important too, to understand what's going on on also, i think the main barometer off political attention discord is really in exchange rates on we've seen a lot of volatility clearly in that on that obviously, therefore has an impact on the on the companies themselves, but we are looking for the long term rather making short term date rape piece a week is a long time in politics. Well, we're looking for the much longer term than that i'm for. Simon, is this similar to you ? I want to use an example now one of your top ten holdings be a systems because we've recently will heard about what happened to the journalist to malcolm's sergey on now, because of this, maybe they'll put sanctions on iran. So for bae systems, which i think it's nineteen percent of sixteen percent, that defense contractors annual revenue, i mean, you know, how how do you manage a situation like this ? Or if you're a long term investor, is it just a blip ? Well, it is i think the number one risk in the company is the uk relationship with saudi arabia, i think it's highly complex, it's a very deep, longstanding relationship, and you probably saw every night with donald trump, president trump talking about taking some sanctions but equally respected the fact that there's a very significant long term strategic relationship between between between the west and saudi arabia on dso we do have to taking account of some it to some extent, but our view of the moment would be that it's unlikely that you're going to see cancellations of defense contracts or or a major change the relationship in the long term, i think in the short time you're probably not going to see many contracts awarded, but when you look at a company like like the ai systems, that is part of the equation that you make when you when you assess it. But they have been winning other contracts recently. They want quality maritime frigate contracts and there's also there are potential you're a fighter, contracts up upto win in europe. So it's part of the investment case. I think many companies as no well say many companies have specific risks. Andi in the case of the system's, clearly, the relationship of saudi arabia is a specific risk. Good thing is it's a diversified in terms of rest of portfolio, there are very few other companies in the portfolio where that particular risk is a factor. And so if the ai systems is training olympic discount because of that risk, it might be that one that you are prepared to take on board as an investor because in the first five fund, you can accept that level of uncertainty on three uniforms. Do you look at specific risk for each dot ? Like, let me think of an example, i mean, you have one of the top ten holdings in the december investment trust. Is british american tobacco now moving away from political risks ? A little risk for this could be, you know, the disruption, the industry, you know, people, perhaps cutting down smoking, but they're taking to vaping. So, you know, how do you manage that sort of thing ? Okay, so there are a number of aspects of how we think of risk is also opportunity, a cz well, so risk is not always isn't not always negative. So, yes, we look at it a risk of individual companies, but we also look at the risk in the context of the portfolio asshole, and so the need for diversification and getting contrasting sources of of alphas important in how we manage your overall risk. Come back to the specifics, though. Off tobacco. Yes mean, the one of the concerns that investors have clearly expressed in through the pricing of the stock in particular of the last year is the risk of disintermediation and disruption. That's being a common theme in many industries, obviously in the car industry, but also in retailing net very well known, i think. Though, that the risk of disruption in tobacco is is very different in the regulator is also a significant interest. I think it's probably fair to say that one of the main disrupters, that's a flag carrier for that american company called jules well, who has a vaping product, which is based on nixon source. It sort of really still the march with the with the fda, but the fda is now much more attuned to what ? What is going on ? And he's now actively looking at the whole area off vaping. Really ? I think that want to look a tte next in consumption rather than than purely tobacco. And actually the the core one. The core skills off the tobacco companies is actually negotiating, working with regulators in a a cooperative way, in order to sell the products, but in a regulated fashion. So there isn't the access which is being alleged now for jule access teo underage people where that is clearly not desirable. So that much more regulated environment, i think, reduces the specific risk that many people think. The reality is that the cash flows from that is generated by this a traditional tobacco nifty delivery, those very, really, very sustainable and will be for for many years to come. Right now, you're being paid a very handsome reward. Imperial tobacco, for example, also in the portfolio trading on a cent dividend yield which is growing the company of committed to continue to grow that dividend. It's well covered. So if you've got an eight percent dividend compounding with growth ten percent, iran um than in seven years time, you'll have received all your money back. So to us it is it's an opportunity. Yes, it's a risk. But we think that is also a particular opportunity of the present time. Yeah, well, you both have talked or mention diversification. So let's, look at some of the un correlated source of income. Nevel is you mentioned ? I mean, what seems to you ? Exploring here how do you discover these ? Ah, wide range of things way taught people in the market and and source our research from from many different sources, but say what we're looking for is his companies, which won't necessarily be dependent on a particular economic environment. So, you know, we're not we haven't, but we've had early questions on brexit, we're not particular position for a particular type of brexit. We're looking to diversify and get sustainable income growth on also not just from the big dividend pairs of today. We're looking for david empires of tomorrow as well growth into the into the future. That's going to sustain that overall income on compound, as i suggested with the eighty that's clearly a key thing. So that khun compound for many years to come on, simon for you well, it is similar, i think if there's a broad range of sectors in the pool failure, so we might have natural sources stops which are very un correlated with others. But even if you take a sector lot, financials is enormous range off stocks, and there there are many that the banks would benefit from rising interest rates. Typically we have a number of companies in the financial sector that benefit from increasing volatility and activity and markets, which can actually do quite well in in in volatile and difficult and mark environments. We have others that i have more market exposure, more market, peter, so that if some markets go down, they will potentially suffer, but even there they might be on correlated. We may have confidence exposed to emerging markets, particularly on others that are more exposed to fixed income and others more supposed to equities. So we try within the portfolio to build a number of different i'd risk on, devil said risk can be opportunity very often. You know where there's an obvious risk you're being paid or you're you're getting were able to buy companies that are significant discount to where the company would trade if that risk is resolved, therefore, it's a really interesting part of our job to try and assess how much risk is price into any share. And what when is the balance of probabilities in your favor as an investor ? Well, another viewer question commencing, let me put that, you know, so when do you think the pound will start ? To recover versus the dollar and we don't have a crystal ball, but do you have any thoughts on that ? I don't know, i mean, i think i think in the short term, the key is what happens in the raisin negotiations. I think once that's out of the way, you then get into a more normal environment, but but it but it's, i think i think we're going to move to the tune of those negotiations. Really ? Yeah, another big concern of investors is looking at the u s stock market on wondering when this bull run will end on when it does end, it will have mean it will be felt worldwide. I mean simon, what you pricing and when it comes that or is that not a concern for you ? It is a concern because if i just looked at the uk stock market evaluations are really quite interesting and some of the domestic source, as we've been saying earlier, are really cheap and therefore on its own you could seem really good value in the uk. But the issue is you said, as you say is when the us stock market sneezes the catches a cold andi it's very hard to see that dusty couple ng from that trend in sentiment. What i would so there's parts of the u s market that have driven the rally in particular technology area and there's very little exposure in the uk to those type of tech stocks, those type of companies on really high evaluations. So it is possible for the uk market to pull that quite a long way if you see a rotation out of those highly priced technology and growth areas on dh, that might not have such a big effect on the uk stock market as you might, you might imagine, but it's, definitely something to watch trying to calm markets is always difficult wait, try and focus on the long term valuations of the shares on make long term investment decisions and when i do that very comfortable that now is quite a good time to invest in from a long term view, particularly the markets have called that by the best part of ten percent in the u k well, picking up on something simon said nevel he mentioned the big tech stocks in the u s the likes of the fans they've really been driving things over there do you think what's been holding back uk equities, the uk market's here is the fact that we don't have these massive tech stocks clearly if if amazon on facebook were uk companies, then the the foot c one hundred would be in a different level and it is now that goes without saying what i think though that we've done in the uk, and particularly i think more broadly in europe is because we don't have these things. I agree with what some was saying, what i think the surrogate for that has bean in the uk market in europe as well has bean longevity has bean and so people of sort longevity of growth on maybe they found that in some of particularly consumer staples, the light's so nessel a and unilever etcetera which have grown over the last ten, fifteen years sustainably on the basis ofthe growth in emerging markets. Now, to the extent that interest rates alos is they have bean then that future value from the growth has has boyd those and so the evaluation based on current levels of earnings yang's multiples are are particularly high to the extent that that maybe the trees don't grow to the sky on, they're not able to sustain that in emerging markets. Own brands do take a greater share, then that might be more difficult for those companies to go. But also, i think, in environment of rising interest rates that then maybe there's a move away from think the growth of terminal growth mohr to recognizing the importance of cash today. Yeah, well, considering we're in a rising rate environmental bit slowly here in the u k how you utilizing gearing again go back to really one of my earlier answers that way we are long term investors, so short term the funds have gearing based on long term decisions over over other levels of gearing. Yes, there's an element of variable, but really, what we're looking at is do do we expect tio generated total return on equity, which is above the cost off, that the cost of the gearing cost of the data is still well, the dividend yields themselves are significantly higher than bond yields at the present time. That's very unusual the premium that we've got in the u there's a market for dividend yields over bond yields, you have to get back to world war two world war in order to get that that premium. So we're thinking about gearing longer term, rather nana trading basis. So should i take gearing today, off or not ? Same few sounded absolutely echo that the merchants trust, which i manage, has always had long term structural gearing on dh. We have taken the view in there, lord have taken the view to borrow money, take of your long term perspective on the stomach, and try and get a better return on a higher income from that on just toe add to that we were able earlier this year, end of last year, to borrow thirty five year money in under three percent to invest in the stock market, yielding over four percent or in terms of our portfolio at least we think that's a good carry initially, but i think a long term basis, we're confident we can get a better return when the cost of that debt, which is really attractive, i think, for shelves, and so we absolutely take a long term you wanna so you're really saying gearing, correlate teo over performance, which is obviously, what is there to do ? Well, it enhances the income but it magnifies performance. So in a down market environment, clearly the giving will have a negative effect on the investors should be aware of that, but in a in an upward market environment positive over the long term it's very rare for the stock market, not to out form bonds or cash, particularly when you start from bonnie knows where you are today, which we haven't seen for a long time. So level, how would you characterize the environment of the moment ? You say it is a good environment for contrarian stock pickers without would that characterized the uk at the moment, i think there's a lot of negative priced in in in stock. So in that respect yes, i think on the challenge we talked about correlation number of times that that that was has come up. What i think the challenge for stopping the stock selection there recently has bean correlations across the market have bean particularly tight. So the bean key themes and momentum which is being the driving force behind performance on dh sectors on dh stocks have tended to move in the same. Direct acting so although people talk about volatility, a cz being, the opportunity to stop picking and anything that release for the stock picker, that might mean for when somebody wants to allocate mohr on a short term basis. But really for long term investor, what we're looking for is for the market to discriminate better on in the current environment, which is one where sentiment is is quite low than the market really isn't discriminating. So a simon was suggesting that, you know, we're managing to find we believe some very well class companies based in the uk, but focusing towards the u, k and also in internationally as well as the young correlated earners, which i've talked about previously on dh those on the moment the market isn't discriminating, but we think that it will do so longwinded answer, but i think it's a great time to be investing in the present time when market sentiment to so negative okay, let's, just touch on discounts now, because i know both the edinburgh investment trust much interest there, both trading at the discount inn again an article recent market turbulence caused the valuation some of the most widely owned investment trust to move to rare discounts to net asset value simon is this cause for concern ? Well, if you look at the merchants trust this guy it's around about four or five percent level it's actually being there for many years on average, i mean, we have we have sometimes time gone wider than that, sometimes gone gone too small premium, i think if it were to sustain a very high discount and trust generally, that might be a cause for concern. But clearly, when markets take with money taken out of the market trust do tend to go to a bigger discount when people get more relaxed and more confident. Maybe when we get some resolution of brexit, you might see those discounts narrowing and i don't think yet there's any sign of a massive problem with investment trust model on dh so i don't i don't think it's a big issue at the moment, but it's something to keep again something given all your thoughts ? Never, yes, clearly the investment trust our training it at a discount of the moment, but if you consider that the market, particularly uk facing stocks are trading also the discount, if you're buying a discounted market of the discount tow net asset value, and yes, there are, aren't there a risk that we have gearing in investment trust, which an important part for invested to understand, but but actually it really only amplifies the opportunity that we think that there isn't any investing at this time on looking at discounts and premiums. It's the high risk and the defensives that trading on a premium i mean, what does this show about investorssentiment at the moment all what does this share to you ? Well, what i think is difficult for investment trust. In fact, any any fund is to be stuck in that that middle ground on dh on being a benchmark mirroring business. What ? Where ? I think the opportunity's forwards for a differentiated fund which is not correlated with with markets that can and that additional value. And then use the benefit ofthe hearing in order to amplify that that's where i think the opportunity's she's, why you probably seeing the barbells att either end ? Yeah. Okay. So let's, move on to stop picking now in simon. What ? What makes a stock attractive to you ? What you look for ? Well, we looked for three things we look for sound fundamentals, all the all the classic stuff you'd expect about the attractiveness of the industry, competitive position of the company that's transfer management team and the governance around that we look at the valuation we're looking for. Companies are lonely, valued compared to their history or lonely values compared to other companies. We combine the market, and the third thing was quite different about out processes. We try and work out what's going to change what where the long term trends often structural trends such as the development of the online marketplace or demographic changes or sometimes cyclical trends what's changing in the defense industry or the construction industry. And we try and find companies that have sound fundamentals on a fact evaluation on a supportive, somatic environment never similar. Yes, when it comes down to you, boil it all that down. I think it comes down to identifying companies which have got a competitive advantage on that khun sustain that competitive advantage management that are disciplined to invest behind that for the long term to prosecute that competitive advantage in generator return above the cost of capital. The important factor i think also in this equation is so the discipline of management also to look long term rather than thin short him so to us, the payment of dividends and the prospect off increasing those dividends sustainably over time to us that is helpful is a discipline to management in their overall overall cattle allocation decisions. Will you both hold a lot of the dividend friendly blue chips ? So, simon, we're looking for growth. Well, i think there's a almost an implication in the question that the high income stocks don't give you growth, i think what's interesting. If you look back over a very, very long periods of time, if you'd simply bought the high heel how's she holding companies in the market on average, you would about performed over over most long term periods and therefore you can get. In some cases, you can get your cake unique that you can have higher income on better total return. So we don't necessary focus on the growth of dividends per se with an investment process. I mean, he's, great of a company has very strong devyn growth. We look at the overall value off that company on very often high. Owning companies, they may not be growing the dividends that much. I mean, take the big oil companies that two years ago, wielding eight percent have been fantastic performers in the last two years because those dividends have proved to be sustainable. And the shares have given you a fantastic total return even though they're not giving your dividend growth. So we're not necessarily looking for dividend growth. But i think we are is part of the equation of the reason for buying companies, the starting yield on the potential growth and therefore you have to weigh all that together. Well, nevil investors certainly have been looking for growth and income. Do you think this is achievable in this environment ? Yes, i do. But we don't buy companies just because they have high dividend yield. You know, a valuation of the point of purchases. It is also important. But i think sometimes been a confusion that the the opposite of value is not growth. The opposite of value is expensive. On dso value companies can still grow and that's an important part of our equation as well. Wait, we are looking overall in the trust to deliver different and growth. And we have done that consistently for thirty six years, so it's not. But when we look at an individual company, it doesn't necessarily have to be honest with you. So let's, look a on the flip side of stop picking now and simon, you're holding a stark and it's having a wobble wendy side toe curtain run. Well, the key point is to have a discipline investment process. So if we're not necessarily worried if the share price goes down, in fact that's often an opportunity to buy more shares its has something changed in the investment thesis. Has something fundamentally changed about either the way that the operations of the company, the business model, the environment well, happily reassessed ? I mean, often we will. We will get our initial assessment wronged change that so we were very disciplined that looking again, companies which have disappointment on saying has something fundamentally changed with the investment case. Therefore, do we need to sell it ? Or actually do we still believe in our investment case and often that's a reason to buy more shares. So there's no hard roll ? Unfortunately, yeah. On for your novel is it was same, very disciplined. Approach to this ? Yes, i mean, there's always the danger of bias confirmation bias, andre the extreme end of sort of cognitive dissonance. If you want to get technical of persuading yourself, you've got so much to invest in the stock that you absolutely have to be right. But we have, you know, there are eight fund managing the team there's a robust debate and a cultural challenge which i think is actually very important. So they're looking forward in terms of investment decision. Simon what trends you goingto what trans you looking at ? What do you think will be shaping your portfolio and the years to come ? Well, it's, a really good question there's so many different opportunities of the moment. We're trying to assess how much to put into the domestic type companies where the valuations are really attractive on equally had a balance that with it's the risk that's inevitably there. So i mean, the portfolio set up today for the environment we see at the moment, it's quite hard to know how we will react in the future. I think generally were fairly optimistic about the long term prospects. Certainly for the companies that were were invested in butter, i don't see any major change from where we are, where we position our supposedly if you look up. One big view we've got is we have very little in the consumer staples area that never talking about area earlier because way we see very little value in that. But should those shares come backto a more sensible valuation, we would be interested in them again, and it seems that, yes, there's a massive first word in the asset management industry, but it doesn't seem to really have filtered through into investment trust. You see this, perhaps changing well, we put a huge amount of effort in behind the scenes on engagement cos on looking at the environmental, social, on the government's on factors, and we are integrating that muchmore into our investment process on individual stocks, but we're not screening out sectors is very important, so that were looking to try and make sure that companies have the best the way they were aware of the risks that companies are taking on on these areas, because often these big risk raptor, but also the companies are dealing with them on that they've got a strategy to improve their prospects in all in each area, actually on level. Same questions. You really the trend ? Question also ? Yes, dear. I know we talked about tobacco earlier. So you know your approach there ? Yeah. Well, i think to differentiate between sg issues on what might be moral judgments of what is acceptable or not, but having a look att dsg, then governments he's very, very important. That always has bean. We are long term committed shareholders and we take our responsibilities in that regard very, very seriously. Andan act as a long term shareholder or to do in the interests of good government as regards the and the s side of of the of that equation, then clearly environmental and social issues, they impact the long term sustainability, which is what we're looking at. So we we integrate those on always have done into the into the approach. I think sg has brought that area mohr into light. And when we certainly att, invest, go way invested significant resource behind all of that. But it's a it's a journey on dh will continue to be so unlikely, sir. And trends you're focusing on the next two years that will shape your portfolio again, i think it's really more of the same for for choice of being adding more to the relatively undervalued uk companies at the present time, but in uncertain environment it is about getting these contrast ng al for opportunities which i think is so important over the long period, the investment trust, the we managed to significant investment trust anymore investment trust and also perpetual income on growth, investment, trust, those trust have both being able to deliver their return with a lower volatility than the market over time on the same time out performing so, having this contrast ng out for opportunities short term, then the maybe dislocations relative teo too particular indices, but longer term, we're looking to do exactly the same thing as we have done for many, many years. Well, sadly, we are almost out of time, so i'm gonna ask for now your final thoughts what you'd like the viewer to take away from this master class. They're never why don't you go first ? I guess if there's one element that one feeling that i like people t leave with is that really the market is glass half full on the there is too much pessimism, i'm not making any political statement, but the reality of the economy on the prospects there are some great companies out there uk companies which the market has just discounted because it is too difficult, there's plenty of opportunities out there, the uk market therefore we think is undervalued and if investment trust trading at a discount to net asset value, then you get a further opportunity in that. So yes, there are all sorts of considerations you gotta take into account when when making vest some decisions, but actually right now the investment trust is an asset class looked really exciting to me silent, we'll record everything, nevil said. Actually, i think warren buffett was famously quoted as saying that you should be fearful when everyone's greedy um and greedy when everyone's fearful of the moment we read a huge amount of pessimism and concern in the markets concerned about us interest rates, concern about trade issues and brexit on that's, leading to a lot of opportunities, long term opportunities in the uk stock market i don't know when the uk stock market is going to reprise it is very hard to call short. Term, i think, from a long term basis is really good value now in many british companies, well, that's all from us, herto asset tv. But do you stay with us as we've got information coming upon, how you could put this master class towards your structures, cpd. So all that remains is to thank my two experts today. Let me give you their names again. We had nevil pike, uk equities, product director, invesco asset management on simon gurgle, chief investment officer, uk equities, alan's, global investors. So both of you, thanks so much for being with us today on facts watching and see you next time. By the end of this video, you'll be ableto understand and describe why the uk equity market is so unloved on what the impact off this is on investment trusts. Whether a week, sterling is helpful. Dividends. How best to utilize gearing in the rising rate environment, please complete the reflective statements. Validate your c p d.