Market Insights with Quilter Investors

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  • 44 mins 38 secs

In the final quarter of 2018, is now the time to be taking on risk or avoiding it? In this panel discussion 4 experts cover topics including the current state of markets, growing debt in China, how worried we should be about trade wars and political risk, Brexit uncertainty being priced into UK stocks, and cause for concern in Europe. Taking part are:

  • Stuart Clark, Portfolio Manager, Quilter Investors
  • Derek Stuart, Fund Manager, Artemis Fund Managers
  • Charlie Awdry, Investment Manager, Janus Henderson Investors
  • Michael Bell, Global Market Strategist, J.P. Morgan Asset Management



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Hello and welcome to this live market insights with quilter investors. I'm mark target, and this is your opportunity to put questions to the team running the wealth select, manage portfolios service it's, a mixture of economists, fund managers so let's meet them. They are stuart clarke, portfolio manager. At quarter investors. We have a uk equity specialist in derek stewart, farm manager at artemus farm. Manager's, a china expert in charlie audrey, investment manager at janice henderson, investors on from the economist side of things, we have michael bell, his global market strategist at j p, morgan asset management. Stuart clarke, come to you first, get with the file. Quarter of twenty eighteen years gives a little overview of how you see markets the moment it is now time to be taking on risk or avoiding it. Of course, thank you. Yes, we we feel with light cycle the moment on dso whilst we're not necessarily cutting risk within the poor fellows who don't think it's time to be aggressively adding risk, either. So the most recent rebounds we did did did involve top slicing, some lovely outperforming defensive assets and adding back into equity markets, which dunder form through the first half of october as a whole. But we're not looking to aggressively add at this point in the side get some thoughts from the underlying manager that derek, you're running some of the uk equities inside this you a risk on or risk ofthe environment for your i don't tend to think of it in that way, markit's one of these things, we're just for us, it's an opportunity said so there's some stocks is interesting in the recent sell off to the areas that performed relatively well this hello for banks and miners and historically you look at those and go, you don't particularly want doors. In particular, in this point in cycle, but the actual perform well and it's a reflection off where the crowded trades have bean in the past. We well for us, it's, very much like became national stocks. But i completely agree with what students saying that we have a situation as we're ten years into the gold market. We have a change of monetary policy happening and it's right to be just such, like, cautious in that book for equity equity expectations on johnny only from your perspective, how are things looking into china over also hear a lot about things like this big debt parts being growing up does that ? Well ? Yeah, i mean, well, the debt has been there, you know, for a very long time, you know, at least nine years or so, you know, and that's not going away a cyclically i think there are some issues. Certainly investors have picked up on some weak data from the chinese consumer and that's always a bit of a concern for investors because that's, the bedrock of why invest, you know, car sales data in china has been pretty weak over the summer on what you're seeing in terms of a response from the government is fiscal stimulus tax cuts, and they're probably going to start spending a bit more money. So you know that micro economic cycle or small economic cycles that we've been having over the last few years is probably somewhere near a trough in china. Can you believe the numbers coming out of china controlled well, generally speaking, the larger the number or the more macroeconomic ? Unless we believe it ? Wei don't tend to publish on gdp data or comment on that. We look at other surveys like the pier, my survey of manufacturing activity now that's a sequential in the indicator and it you know, it's, just about fifty, which means manufacturing is expanding month to month, but really not very strongly at all. So if you look at that auto data, you can see an economy that's slowing down a bit. Yeah, michael, from your perspective, what would you say the overall state of the global economy is ? Right now, i think the key thing as we already discussed is being pretty lake cycle in the us. But actually, at the moment, most the key indicators that would warn you that something's going to go imminently wrong on flashing red so you've got things like consumer confidence in the us is holding up pretty well. You've got the senior loan officer surveys continue to show an environment where you're not seeing a tightening in credit standards. You seen a little bit of a roll over in some of the business surveys, but they still remain in place positive territory s so broadly, the picture still in the very near term, we think looks okay and is likely to be supported by the fiscal stimulus that's going to continue to support growth in the early part of next year as the child tax credits come through. I think the concern for us is once you start to see that fade in fiscal stimulus come through from the us, perhaps as we head into twenty twenty ondas monetary policy starts to bite, assuming we've got at least another three rate rise come through from the fed next year, i think, as you had beyond the under twenty nineteen, the risks perhaps start to build for the us economy and hence globally as well. And you mentioned light cycles historically, how long can a late part of the cycle count for anything ? It depends exactly how you define it, but in our mind it could go anywhere between sort of zero to four years. Andi, i think you're probably getting two years into that cycle now, so it means that the risks for the economy at some point over the next two, three years arising, but as they say over the next six to twelve months, the risk still relatively more stuart, given the backdrop we've all been discussing where you looking to generate returns for investors at the moment ? Is this about stock selection ass allocation ? We mix the two between asset allocations, a key driver returns ofthe sea, but by investing some of these high quality managers that we've done the researching and got to know over the years, we think we can add value on top of that ass allocation through alfa generation effectively as well. Certainly at the moment, this thing opportunities and risks everywhere. Offices charlie was mentioning it were underweight, significant underweight fixed income at this point on been holding more cash in for failures. As a result, we're looking to put that to work in alternative assets, so diverse fires things which aren't necessarily correlated to your headline equity or fixed income markets, and that's the key area for us at the moment, and then react to the markets. Those opportunities get presented through these periods of volatility so you don't fundamentally see fixed income providing diversification it's fine, unless i think j p morgan put an interesting piece out on this, but when you look at where central bank, the rights are effectively going into other slow down or recessions, central banks have quite a lot of scope for cutting rates. And whilst the feds done a reasonable amount of work of raising their base rate elsewhere uk, europe, japan is not that scope for cutting rates. Teo effectively underpin bond prices going forward. Andi, just another quick question. If i may. Broadly. Where you seeing value today on dh ? What you trying to avoid ? You give us the sort of top down picture. Yeah, october again, that that's. Why washed out some of the more expensive parts of the actually markets in the u s has probably gone from the most expensive tea being fair value. Not not necessarily cheap saying charlie just outside. Interesting to work out, which is more unloved between china on dh europe both certainly certainly seemed to be in the firing line from from global investors. But whether it's, it's, emerging markets, european equity or indeed uk equity around the uncertainty from brexit, there's mohr potential value i think at this point in the equity space and then diversifying at risk with other alternatives rather fixed income. Michael, how worried should we be about trade wars and political risk ? I think the time is one of the big risks out there, the direct impact is likely to be manageable. I think the concern is if it starts to spill across in the business and consumer center, when you look at the new export orders components of some of the business surveys they've bean weakening recently, suggesting that businesses are starting to feel less confident about the outlook probably still trade on then that just makes you start to think about, well, what impacts that gonna have on their willingness to invest, for example, are you going to see a slowdown in the pace, the cop ex growth as a result of that ? You haven't really seen it filtering across into consumer. Sentiment yeah, there's been a small decline in eurozone consumer confidence, but they're saying the u s it's holding up pretty well, i think where you'd start to get more concerned if consumers started to become less confident because of all of these concerns around the trade out, you're not seeing that yet, but it's going to work touchdown gdp there a couple times because you got a sort of headline figure for your expecting from global growth in twenty nineteen ? What is going to slow ? So i think we're gonna see how slow down the pace of us square if i'd expect us growth too slow to somewhere around the two percent level next year, i think in europe you'll probably get saying like one and a half percent growth, hopefully in the uk similar sort of one and a half percent on the emerging markets. I think china would expect to see growth slowed down to around six percent on someone like india, they probably still going around. So, julie, six percent gdp growth is that good ? Bad average for china ? Where ? It's not tonight, i think it's. Okay, i think what china is trying to do to improve its quality of its growth. So to some extent the number it's not that important china's trying to grow, but also the leverage and also reform it's it's quite a complex feet they're trying to do now, but, you know, six percent is enough. What we really need to see is the consumer continue to be strong and in terms of trade wars, actually, you know, i think the thing that you have seen is that the chinese people are a little bit unnerved by the fact that perhaps their leaders don't have a strong plan in fighting this trade war. They're used to the china's leaders having five year plans, having great goals that they take small steps to achieve. Andi, you know, they do feel a little bit nervous in the current environment now, fortunately, people still moving to the city's incomes is still rising, so you've got a medium term trend to support, but i think sort of cyclically from that point of view, in terms of consumer, we need to just keep it out there. But as an investor, you're not it's something to be aware of, but it's not a major risk to the chinese equity market we haven't been investing on the basis of china printing high gdp number for, you know, ten years, maybe, you know, portfolios about consumer demand, it's about secular story's about healthcare into neck so and so on, but we're very, very clear that actually, you know, there are large parts of the chinese equity market you don't want to own environment, such as now with slower growth in order debt on right now, we don't own any chinese bank shares. We don't only chinese property shares there's a huge amount of debt there, so i think in terms of being a fund manager going to stuart's point, you know, there's, a lot of active manager khun do certainly where i am in china, and i think you have to be brave, but you have to have certain conviction in certain areas of your market and derek switching across to the u k do you think all the bad news and some bad news, but the uncertainty breaks it's priced into the uk stocks that you're looking at ? What a management's telling you ? Yeah, i think i think by a large it is i mean, who's entering you. Go through the different gdp figures and you took that six percent growth and you come to the pool uk, which is one and a half percent but strictly the point of looking at it for unloved assets. And i certainly think the uk stock market comes into that and i think there's a lot of negativity and some of the share prices here is the expectation that, you know, if we don't get a deal that things will just forthe ej mcleod physically want because businesses will operate day today, i think it is interesting you're looking at certain piece of time when you've had small snippets of good news, the stock market, the domestic companies have actually performed quite well, and actually so it says to me that just incremental bits of positive useful is enough to put some of these valuation. So i looked at the portfolio today and we're overweight and domestic type stocks because that's where i think the value is, it won't take too much if we get a deal on brexit couple worth gdp figures that are moving in the right direction, we've got real wage growth on, we've got some government spending. Now, coming through that, actually, you know, the gdp might surprising upside it. Well, it won't be six percent, but it might be, you know, one in three quarter percent would be pushing two percent the next couple of years. And as you talk to management of the firm, so there's quite a lot of fun certainty within the uk about what sort of trade deal we get, whether goods will be able to move and service be able to move around. Can they plan for that ? Or they sat there saying it'll probably sort itself well, there's a bit of both. I mean there's there's an expectation that something will get sorted out onda many ways sometimes, it's. If you have a deal with a matter that's good about you long to get a deal that we got some visibility. But, you know, most management teams you speak to our dealing with that day today they are putting in contingency plans. They are looking at the trading partners, looking all the different consequences off the votes. I mean, it's interesting. You know, we had bark. Is banking the dude talking exactly about that ? We have to think about every aspect of this and it takes up a lot of management time, honestly fantastic when they don't have to do that, but they are preparing for it because nobody quite knows what's going. Thank you, stuart. One thing you want to pick up on it is currency when you're investing all the way around the world, how do you manage currency risk in the portfolio on the fixed income side way hedge most of currency risk s o the volatility of currency on the fixed incomes i would tend to dominate your expected returns on expected risk within that tend to give a little bit of flexibility thio more strategic manages in the fixed income side, but elsewhere will hedge at risk when we're looking at u s or european equity or anything overseas. We put that into the investment decision s so we have the ability to hedge its share class level if we want, but typically we would say, if we have a strong view and direction of the us dollar, let that impact the asked allocation to us equity or a ce charlie said, if this continued weakness in the remnant be, then you khun alec, you can take care of that within your allocation to chinese equity a same time it's on investment decision on the local mark and so is coming back very quickly in terms of the underlying manages you've got what you find if some of them want to hedge themselves will do yours. And what do you prefer managers toe ? Just run up your portfolio and not worry about it ? I think that's understanding each of the individual manages so if if we've done a lot of work in derek and and the way you manage us uk equity or the agent roster, artemus and he would hedge out some of his currency risk on non uk equity positions. If we've done the work to understand the drivers of return on the investment philosophy, the price they follow, we want them to continue following that philosophy and process will take again, we'll take count of that during the research process and when we make an allocation to them within or folios, so is understanding what the individual valium manager will be doing. How that impacts your return, michael, we've touched or talked a little bit about gdp growth, but what's your views. On where inflation is going at it because we've been seeing the oil prices just gradually creeping up over quite a long time, months, months, yeah, i think in the u s inflation's going to creep i know materially hi, i don't think we're going in tow in inflation scare, but you've just seen wage growth in the u s come in north of three percent a year on year for the first time in quite a while. Um, that suggests to me that the inflation pressure for the u s economy is certainly starting to build and that's going to provide a backdrop against which the fed is gonna want to keep putting interest rates up probably a pretty much a courtly pace, at least until they get interest rates to three percent, which by which quaint country policy will start to become a restrictive in the u s i think when you look outs where i mean in the uk inflation's going to be determined by what happens with brexit because our base cases that you're getting a relatively soft brexit deal announced in the coming months that should lead to quite a strong rally and sterling which would put downward pressure on imported inflation that you know, on the other hand, i think the domestically generated inflation in the uk is going to start to pick up again. You're seeing wage growth starting to come through in the uk. So then you gotta distinguish between the important domestic inflation when you're looking domestically here in the uk, i mean that's a positive for consumers because if headline inflation comes down because of higher sterling and yet wages of picking up that in real terms, wages in the uk are going to be picking up. I think as a result of that, even though inflation, the headline level could be subdued, i do think the bank of england lightly put rates up a little bit faster than the market's coming expecting in the uk think that you touched on the consumer, charlie you're mentioned earlier how important consumers to how you see china on dh investing there. So how do you play that in the portfolio ? What ? What are some of the ways you play the consumer ? Oh, i guess. Consumer products, you know, consumer brands, people who are lucky enough to go to china, they probably go. To the main cities of shanghai and beijing where in comes high but almost every other city incomes and lower in china on they like local brands, so company like leaning, which is a domestic sportswear brand, you won't see it in shanghai very much income so high, but elsewhere in china, you know, is very popular, so domestic brands but also services education is an interesting growth area health care, of course, where you have an ageing population with changing diets on life insurance programs, a revolving, you know, that's, a really good aspect, you know, actually wealth management products is quite good, we don't have any investments there, but it's certainly a growing area, so quite a broad range, really, if that's growing area white, why don't you have any holdings ? Because there's a huge amount of regulation on that regulation of the moment is basically causing a lot of costs for businesses as they try to reach better regulator the standards there's also a lot of change in the products that they can offer so there's some bottlenecks there. So, yeah, let's call it some regulatory sort of congestion in that industry, and hopefully it will pass. But, yeah, that happens in china don't you mention that you got a domestic focus it if anything, in the port full of within the consumer space, how do you feel the uk consumers feeling at the moment and there any particular investments you've got there ? I think the uk consumers probably things slightly better than the fell again. Going back to the point about real wage growth and inflation comes down etcetera, needle full employment and that's starting to come through, we're not seeing much of it yet, and we've actually seen a lot of pressure on the high street, but leisure spend on restaurants, et cetera and of course, in the high street in the books of martyrs place means lots of men going on online because that's, just the move there. So for us, we have not typical played the consumer spending of such the kind of cos we've got up exact tesco's we have got a restaurant company test get a good example of that is not a play and consumer spending it like it's a play really on business that used to be a great business that fell on hard times. There's no rian reinvigorating itself under under your management so they benefit from spending their benefit from the consumers you know desire for value into the goods with discounters had taken a marching them before, but for us, it's, you know, looking at different areas is certainly the bricks and mortar. Anything someone will win there and it's interesting. We're doing some work on sports direct my cash there who seems to buy everything was wrong in the high street, i think what is his plays ? End of the day ? People will still have that shopping experience. Some of it will be online for some people. It's a leisure activity going into shopping, buying goods so that's something we're looking at, i was going to say, i mean, just on sports to write, you write, we see everywhere. What is it that he does ? That means he does well on the high street when we're seeing so many others not well, i'm not sure yet it's been proven that he's done well in istria, historically, obviously with the sports direct product but in the branding but the new areas he's been buying into host of phrase of exceptional looking evans on the bicycle front. We don't quite know how that will end up. What is it a land grab ? And he will have so much explosion on the high street that he will dominate aston, maybe that's, what will happen ? But you know, at some point, you know, we will get her balance between online on bricks and mortar, and he might be the last man standing that is actually doing quite well. So i think it's, you know, is there to prove it because it's not problem, yet if you go back to where he will have success, was just giving a value or into the product it's like hided prime art do so well, you know, why did the discounters do so well ? Is they value or into the product on dh ? There is, you know, this appetite, therefore that at one end on and then we see the performance of luxury goods other and what people want branding, especially in the asian market. We've touched there on the online, on the internet, how when you're talking to fund managers and thinking about what the world's going to look like two, three, four years time, how do you factor in threat ? An opportunity of online to all these existing business models that are out, yeah, and is an interesting an interesting area because it is very prevalent at the moment, obviously on is part of the ongoing to diligence to understand how these guys are investing and understanding the business models which they invest in, but also i think we've we've seen it over the years with the rise of passive and jeffs within our industry as well other areas where not the internet, but technology is causing us other challenges with it within our industry as well. So not just how, how does that impact the stocks or bonds which people are investing in, but also houses impacting the investing universe, high frequency trading, or or other strategies as well, which we need to consider when we're choosing the managers to go into the portfolios. So, yes, it's parts, same csg it's an important part of the questioning on the understanding ofthe off the philosophy and the process repeatability off off those for us to get confidence to invest with with these teams, but when you're asking these questions, do you have a firm view in your own mind ? Of what ? Online does to the world, and if you're talking to a potential underline manager and he or she doesn't quite have the same vision is you. Do you think i got different view, but they got great returns ? I need a mix, you do need a mix and you need that challenge. He can't populate a portfolio with invest, manages fulfilling manages who only share your view because at the end of the day we're all wrong at some point on dh if you're only invested with people who have the same philosophy and starless yourself or your inherent bias, then you will go through a bad, very bad patch performance. So he's looking to mix different managers, differ revues understand how they get you and use it to challenge your your own opinion as well. The idea off our role, i suppose, is toe overemphasize or de emphasize those managers which you think are goingto benefit in the current macro environment. Typically a fellow manager will do better in a certain environment it's very hard, toe out form in all markets. Um, michael, one thing we've seen in the uk budget recent is this tinkering around with how they potentially play around with tax with things like google, and it seems to be an emphasis on so what is all the day to come from the weak and somehow tax data ? Do you think my economic models are up to speed with what the value of data is in the modern world ? Generally, how do you factor that into your thoughts ? Probably know i don't really think it's making a huge difference to be honest with you. So you see, various people suggest the final of the economists and statisticians is struggling tio keep up with the changes technologically that are going on in the economy, suggesting that perhaps it means there's a lot more slack in the economy than that underlying numbers suggest. But, i mean, i think the numbers are almost certainly not exactly right. I think that the amount of slack is pretty low, so you see that as i said, when we talk about wage numbers, if there was a lot of excess slack in the economy, that wasn't being captured in the numbers, and i don't think you'll be seeing the movement in wages that you're starting to see in the us and now in the uk as well, derek, and when you're talking to companies have a lot of data, do you start to think wave we traditionally valued that data doesn't quite fit, you know, i've got a sort of nineteen nineties way of looking at world, and we're now into the twenty thine i think about that most days, actually is what you want you go to see cos i mean, the first thing you look at it, how is this model maybe historically invested in being disrupted by the by the new trends ? Onda again, i think we need to recognize that, you know, sometimes it's people investing in the data on investing in the cap it's, the new capital, except, of course, is i t and digital rather in the old machinery we need to, we need to value that properly, and i don't think i think we're just getting there, and i think that in the us, they've done that, you know, for years, i think in the u k we've got we're seeing trends and involving that, but again, it's it's, one of things we have to ask ourselves now. I mean, it's, the key thing is you know whether it's retail or media or wherever it is, how can that be disrupted by the new way of doing business ? Because you mentioned testing and i commend back in the nineties everyone ages and ice demons that tesco, they collect more data than anyone they know more about us than than anybody else possibly ever could. What if they done with all that data on when you talk to them ? How do you how do you find out what they could do with it ? How do you how do you value ? I think that's a very good point actually because i don't try and try and buy the aspect because within tesco there's two parts there is this recovery that's going on with inter school and this is a company that was grew and grew and grew and then got hit by the discounters and competition and then was badly handled that whole transition you management team come in and improved the operation of the business, take the cost of generator, generate cash and offered the whole testicle value proposition which was tesco was founded on they haven't really in the middle of this they've got club. Card, which they've not really exploited you, and then you speak the management woman that's phase two getting through simon's business. I've been getting some basic principles behind because it was only two, three years ago. We're talking tesco's, having rescue rights issue and defaulting. And on a whole road of issues that hit this company getting the basic business sorted out first, the next stage for them is to really exploit the data on that. At the moment, i don't think any devalue that because i find enough value in the first part of the program second part something i thinkit's gonna happen and they used to go, but it it will be absolutely too the way tesco manages his business. Johnny, don't bring you in on online and china what's the growth potential there, and is there a danger that essentially you're buying an equity share in the state because the chinese government seems to have quite tight control over what happens and online ? Yeah, i think china is one of the most innovative and dynamic disrupters in global tech. We've got some fantastic internet companies. Ali baba, which is a dominant e commerce company, is the only foreign company really to be an amazon ten cent, which is social media, you know, they've benefited because facebook is not there, but they have over a billion people on their ecosystem of the huge amount. Now, as disruptors, they obviously have a relationship with state that regulates them. There are certain things they can and cannot do on the state does occasionally say, no, you need to do this or no, you need to do that, but they'd be fantastically profitable and good at monetizing their user base. You know, the way we think about it is, you know, it's almost like slicing an onion in half. You do that, you see all these rings off, basically the value proposition where those companies just add value both to their client's answers to shelter by monetizing andi, you know, the big potential going forward is really to drive on advertising because many of the companies haven't really pushed it yet, but i know it's, it's, it's a great place for innovation, china but can you see that innovation, particularly online space being exported outside china ? Or is it always going to be a domestic doesn't matter it's a huge domestic it's being exported primarily southeast asia at the moment, but also a company like alibaba has a lot of investments in india, so, you know, it's coming, but from asia, i think probably consumers in the west a little bit more concerned about their data with chinese companies, so you know, probably they're a bit more reluctant teo engage with them, but the other thing is these companies generally is this huge switching costs if you are on one social media platform or your friends are maybe you link all your bank accounts except you don't switch, you know and that is a great opportunity for those companies do it talk a little bit about diversification is also very important, but what you d'oh, how do you diversify your underlying manages by investment style ? Yes, absolutely imperative again when putting the portfolio together, we don't want to so many managers together you end up with a closet index tracker. You have to have some risk on the table at the end of the day, but we need to understand if we're looking in the uk space that how the performance of uk special situation derricks fund will interact with the other investments we have and what markets those those funds for weal or less likely to him perform well in on dh like said before, try and emphasize or de emphasize those names within the failure at the appropriate time in the cycle. So we do like to have a blend we've worked in the u s equity space worked very nicely for us this year, actually going back in april two thousand seventeen, we introduced large cap growth portfolio managed by j p morgan, and that did incredibly well for us and then in the summer this year, just started switching mohr into value star within the u s so relative out for months of growth had become so extreme that it was time to start taking profits on that article on picking up some some value and that's worked in the last few weeks within both values is having having right building blocks available to us right point in time and trying to merge together without taking out a ll the active risk, the in the overall china, i think, is a great example we have invested with charlie in the henson china opportunities or janice sense and china opportunities fun since day one of portfolios having someone that specific in that market, you can add value through expertise rather than just relying on a regional portfolio manager. Do you have anybody else that runs china money a balanced to charlie or no ? So we'd learn the interaction there with our other asia pacific regional managers and how they're adjusting their weights in hong kong and china and the emerging markets managers as well ? So we'll be making sure we're comfortable with where this overlap or not, that we're over comfortable with the overall positioning off our portfolios. The charley's fund is the only specific china exposure we have value but i think that's a key differentiator for us to some of the appears the same in japan, we only have one japanese equity holding but with the explosion we haven't a failure and that's that's an appropriate position. I think how many of you got in the uk at the moment we have five in the uk. So uk special situations artemus income, the merry in uk alfa richard pakistan's fund uk equity income on dh, then a newton uk option she's fund as well, so each product does something slightly different eyes a slightly different exposure. We think overall mixed mixed together nicely. Now i ask you, i know no derek sat right next year, sir, that is a special situations type approach. A good one to be investing at this particular time in the cycle. Well, i think one of the reasons we like derek and and the fund is the self help recovering nature of that special situations products see couples it's slightly from the economic, so it doesn't guarantee you performance at any point in this cycle. But the focus on stock picking on alfa generation, i think, can blend nicely with the other holdings in the value tends to perform different points t other managers. So whilst i'm not going to say this is absolutely right time to go overweight special situations, but having it there alongside the other funds which are more driven, there are other factors driving in performance of those names. I'm very comfortable with the explosion. We have two special just now i'm gonna jump around two to europe now, if i may. Michael, if i can bring you in on this, we've seen quite a lot going. On with the italian government bouncing backwards and forwards with with the should that be a cause for concern, given what we've had with greece ? Not that long. Is there a danger that italy becomes the next grace ? I mean there's some similarities, but i think the similarity really is that both in greece, during the heart of their crisis, honestly, now the majority of people in both countries want remain part of the year. They've just they've got some gripes with the you project and with the austerity that's being part of that, but they don't want to leave the euro has absolutely key. So i think that the key similarity between greece and italy is that just as i remember clients in two thousand twelve saying that greece was definitely going to have left the eurozone within five years and yet here we are five years beyond greece is still part of the euro, italy still going to be part of the year in five years time. It's not to say that might not be a bumpy ride and i do think that one of the interesting point when the global economy does eventually go into a downtown. At some point in the next few years, i think there's a risk that markets are going to focus back on the sustainability of debt in some of those countries in the eurozone. Ultimately, though, i think the baby will do what's necessary to keep the project intact because i think a lot of investors missed the fact that is ultimately a political project on dh, even if the rules need to be broken in order to keep it together, i've got a lot of confidence that i'll do so if it's the you're saying you think we'll stay in the eurozone, what would do that ? Because the police will have the italians will have to bend to this sort of existing when the eurozone's put together quite germanic, if you like the way when you see how greece got treated or do you think the eurozone itself, we'll have tto just we can to keep the italians in ? I think two things first sailing the italians have got a lot more bargaining power then say greece did on dh certainly than the uk does in the brexit negotiations because the french the germans are already on the line for a significant hit italy to ever leave the euro don't think is gonna happen for that very reason, so they've got bargaining power if they want to slightly tweak the rules of how things were going within the eurozone, i think that they're gonna the rest of europe will give them a little bit more than they would smaller economies. On the other hand, i think that when push find comes to shove, the bee will step in and we'll buy italian debt to keep boring costs under control if needs be, because the eurozone just can't afford to have a crisis in italy and therefore they'll do what's necessary to keep so this is a great example. If you're heavily in debt to your bank, you've got you've got, you know, you've got the power with the bank. If you're only ten pounds overdrawn, they can absolutely thump you that's pretty much it. Okay, we've touched on some of the risks out there start from your point of view is you're looking at the markets. What would you say that some of the other big risks are you're thinking about at the moment ? Come bring charlie and american on that their specific market yeah, i think the the risks which you're out there at the moment, you can't ignore the pressure from the trade war in trump's policies. President trump's policies are very much focused on china at the moment, but there is the risk of that spreading to other parts of the world. No one talks about the pressure he's like to europe officer where when it comes teo trade treaty between the uk and the us, i don't think you can enter into latte with thinking unnecessarily going to get a great deal with the u s look at the way they're treating the rest of the world trade wars and the escalation of that. I don't think we're a peak trade war yet on dso that's something we have to be concerned about and the rise of populism, whether it's in italy or or brazil or other areas that's certainly not not something which you can just ignore either. Now the u s the economic cycle is mike was mentioning earlier it's still relatively robust out there, so they are balancing that sort of gradually increasing thie impact that lynn has on valuation so there's plenty. Of stuff to be concerned around inflation pressures which growing in in the uk and the us as well as mentioned before, says lots of things to be concerned about me keeping an eye on is balancing up where the valuation are giving you an opportunity is already priced in that's again come back to china or or europe. I think there's today were underweight europe within the portfolios not comfortable enough yet to increase allocations there because of some of our concerns ofthe second rounding backs of trade wars, thie uk on derek's point if the upside potential there, if we get any deal is significant, i think from where we are today so i've been saying all year to investors we should get an opportunity to pick up uk assets later in the year was running out of time for that, so maybe we just roll out into two thousand nineteen and when theresa may get defeated in parliament for the first time, trying to get a deal through that might give us the opportunity but risk and reward debt. From your point of view, i said what you're saying is very much a stop pick here, but what if some of the risk perhaps the hidden risks rather headline ones that you you need to factor into your decision ? Yeah, things, i mean sure it's dealt with quite a few them in terms of things, that the fish there's always a risk inflation, we have a exit from from you. We don't let people coming into the country. And there were more ways in fishing than we think. And that that's a spiraling effect on that as well, that one other things that's slightly concerning is this this change in the political system in the uk many ways there's an ideology that goes both in the left and the right, that seems to dominate more than the actual thinking. What's actually good being pragmatic for the for the economy, whether you're right wing, left wing, it's, it's, that's a worrying trend that's a global phenomenon, you know, people are becoming more diverse in terms of the grand political views, and then as we have, we have a history again of manufacturing, not being a strong in the uk way are very good at financial services and some some tech and farming areas and i think if we don't if we sort of step away from the financial services too much, you don't get a good deal for brexit that way i think that would undermine the growth and the uk as well, way we've talked for years but balancing the uk economy it's just a very difficult thing to compete low cost areas with it with the uk, we're sorry. How cost area so there's a variety different things and it's just that there's always something to worry about. I mean, the way ellicott is that management teams have the speed to know all these concerns than all these issues they've been growing businesses since for a number of years, food, different recessions through different political cycles through global financial crisis, and they've had a pretty much a lot of things, so they're all reason well, yeah, well, i thought we'd finish on reasons to be cheerful, but we should get there. We should get the depressing but out of the way of what we do, try again from johnny mean, you mentioned that that the debt you said ? Well, they did it without for nine years. It's no it's. Not new, but again, anything ? Any potential ? Is china so it's full of risk on the risk spectrum ? You know, we're on the far side on dh anyone who invest their has to have a high willingness and ability to tolerate risk. But right now i'd say as part of the emerging markets complex on the strong u s dollar is a problem in emerging markets. Why essentially ? Because at this time of the cycle, there's always a shortage of u s dollars, where is that a real problem ? If the company that was the dollars has a slowdown in its revenue or profit growth and it can't pay its bills. So you know, when you drill down on invest in individual equities, point of view, that's, a cle drive for us and then in china, you know, we're watching to see what president she doesn't have, how much interference he doesn't micro level in the economy, but, you know, we're kind of used to a lot of risks they change with the cycle, but probably the biggest one right now that we see is this doll herbal market and what impact it has on individual companies into some degree sovereigns in emerging markets, which china is not going to be immune from and do you yourself. Take a view. How strong you think the dollar's going to remain. For how long or do you observe it ? Just, you know, i mean, i think about it in terms of the yuan, you know, the one versus the dollar. And i think broadly, the medium turn trajectory probably is a little bit weaker for the yuan. Why ? Well, because you know, it's current account surplus is narrowing on dh. The economics have changed a little bit, andi, what can and can amplify these moves, though ? In china his people sentiment and the problem with investing with china is it is so, so fickle. This sentiment and that's what we get even this year in two thousand eighteen, the difference between january and october is extraordinaire on right now, everyone is, you know, very pessimistic. And i stopped because you have to figure out what that means on a sniper. Now, where do i go ? And you know, put my bullets and you have to go on by in certain parts of the marquis. Oh, now we are almost out of time, so i just want to finish by getting everyone's thoughts on where we are, the market that's a reason to be cheerful. Michael, if i could come to you first, i mean, i think the key reason is the moment the us economy still doing pretty well. So really historically wantto worry when the u s economy looks like it's heading in tow recession at the moment, the indicators suggest that that's no imminent over the next six months or so, charlie, yeah, equity markets tend to respond to monetary policy and in china there easy, andi, i think increasingly since sort of october time they're they're easing more aggressively on, so i think that's going to be supported. I think, in the uk expectations of a law, actually, and i think we've seen recently that any incremental bit of good news is enough to appreciate the valuations out. So expectations a little valuations alot when we have a stock market for the great companies what's your take on where we are moment and whether portfolios are absolutely i think the late cycle is typically good for equity markets and actually that divergence we've seen between some markets is giving his opportunity so we don't have a situation where everything is overvalued at the same time and you have to run for the hills. You have the opportunity to allocate either between the region's our asset classes, off poor fellow managers between stocks and sectors as well. Tio have value open above that index level return and a sze yu look att the poor fellows over all your analysis on them is there ? Do you see much hidden valley win there ? Or is it a defensive assets that won't fall ? If you know, i think i've got it. I've got to say that we have a nice blend of assets with yes, hidden pockets of value. So i really am interested in something with debating as a team. When do we start picking up some of these uk european assets ? And we have the position's already in china in emerging markets. So what's the catalyst, maybe it's a reversal in the u s dollar, actually and at some point, which can lead to some of that value being unlocked, we have to leave it there. Michael belle jolie, audrey, derek stewart is joe clark. Thank you very much. Indeed for joining us. Thank you for watching from all of us here. Goodbye.