Speaker 0:
I think one of the key challenges for the UK market is it's been a market which has been out of fashion for two or three decades. Uh, it's a market where there has been selling more uncertainty, and as a result of that, we've actually seen, uh, generally quite wide ranging UK oi selling local selling of the UK stock market, which has actually been, uh, over overshadowing share prices. Interestingly in

Speaker 0:
enough, In spite of that, the mainstream market, the Footsie 100 has actually not just held up, but it's actually outperformed many of the international markets over the last 2.5 years. How can that be? I think it's been related to. Actually, international buying of UK equities has risen in the last couple of years as investors are looking to diversify from capital growth strategies towards cash companion strategies. And

Speaker 0:
I think that the scale of that buying is actually offsetting UK domestic selling. So coming back to the problems, the selling has been the problem. It hasn't held back share prices in the mainstream market to date, and in our view, if we do see the selling reducing going forward, we think the UK stock market, the mainstream part of the UK stock market will rise at a faster rate than perhaps people might expect.

Speaker 0:
My own view is that in terms of inflation, the UK is is probably risen at a higher level than the many of the other international markets. It's it's peaking, probably at the moment the Bank of England are advising that by the end of the year it will be between two and 3%. My own assumptions are very similar. Uh, interest rates are probably close to a peak, perhaps have peaked already. Uh, I think we will see inflationary pressures are falling at a faster rate. Perhaps some people think I think interest rates make

Speaker 0:
down a bit faster than people might think. But most particularly, unfortunately, we've still got the lagging effect of all the interest rate rises we've had. So I think economic activity will be suppressed. I think companies will find it harder to raise capital, not just because interest rates have been raised, but also the banking sector has been under a shortage of deposits. Uh, so the net effect is I think, uh, it's it's a tough time for Corporates Uh uh. I don't think it'll be easy.

Speaker 0:
Our view is that the UK is heading for recession in the short to medium term. Um, we think that actually, it's an effect of the rise in interest rates, which have been quite substantial. Um, we think it's the effect of slowdown in bank lending, which has been related to, uh, the absence of deposits.

Speaker 0:
And most particularly, we also think that actually, quite a lot of investors are becoming more cautious. Quite a lot of, uh, consumers are holding back, So I think we are looking at a period when I think economic uh, there will be an economic slowdown. I think there will be, uh, a period of perhaps profit reduction. Uh, I think some companies may become imperilled and there may be some more corporate failures.

Speaker 0:
I think the current market volatility, there'll be some winners and losers. Uh, specifically, the winners will be those companies which tend to have very strong balance sheets.

Speaker 0:
Uh, companies which are generated surplus cash. Uh, they can withstand, uh, difficult trading conditions. They can continue to invest at a time, perhaps when other businesses are vacating markets because they've failed or withdrawn. Uh, so I think they'll be the winners. Unfortunately, I think there will be losers as well Disproportionate losers. I think if you're unlucky enough to have a stretched balance sheet, if you run out of cash, if you happen to be imprudently financed Unfortunately, I think there will be some companies which, uh, don't just, uh, suffer badly. But I think some may actually fail.

Speaker 0:
UK stock market is special. In a way, um, the key issue is that actually in, in contrast to the economy, which is very, uh, similar to many international economies, actually, the stock market is very much driven by relatively capital intensive businesses, which generate a lot of their return through compounding of income good and growing income.

Speaker 0:
Uh, that's very different from most other stock markets in the world. We think that, actually, as we move beyond globalisation as we move beyond this period of low inflation to a more, uh, sort of period where inflation may fluctuate, there may be, uh, increased, uh, inflation in future, off and on. Then we think that actually, this ability to generate good and growing income will become a more populist strategy. And we think actually, that future is going to drive a lot more interest in the UK stock market as opposed to other global stock markets.

Speaker 0:
Yes, it's interesting, isn't it? I think in terms of dividend growth, we've we The UK stock market has been a little bit patchy. We had the setback during the global pandemic in 2020 quite a lot of companies cut their dividends. Uh, we've seen a recovery of dividends more recently, albeit that perhaps they haven't fully recovered from where they got to, uh, prior to the global pandemic

Speaker 0:
specifically going forward, I think profitability may come under pressure as profit margins reduce. We think, actually that economic growth will be more patchy, not just in the UK, but on a global basis. I think the rate of dividend growth will be much more modest. I think there will be some companies which continue to succeed at generating good and growth

Speaker 0:
dividends, but I think there'll be a lot more which don't just hold the dividends, but some which cut them going forward. So I think we're gonna have a very patchy outlook for for good and growing income going forward, there will be some winners but unfortunately, we need to be very, uh, careful about picking out those winners from the losers.

Speaker 0:
One of the advantages of the multi CAPP strategy is that it invests across all of the quota companies includes the mainstream quota companies, which are typically quite mature, have large international operations. They're not exclusively. Some are domestic orientated.

Speaker 0:
It includes many companies, which are on the aim listed market. Uh, there are companies which have, uh, smaller companies, uh, in many cases, but they often have dominant market positions. They're still large in their own right. They're just small relative to the very large companies dominated by the F 100. But most particularly, it's a wide range of companies. Some are younger, some are slightly more mature. Some are more international. Some are more domestically orientated, so it's particularly a wide range of companies. The second feature is if we are in a period where perhaps inflation

Speaker 0:
pressures the rise of interest rates. Uh, less economic growth means that some companies are not able to succeed, then the great advantage of a multi CAPP approach is that we can continue to find the individual companies which are able to succeed irrespective of size. Uh, at a time when there are fewer companies succeeding in generating good and growing income, the multi CAPP approach, in our view will actually be able to continue to hopefully pick out many of those, uh, from the full market range of capitalizations rather than just a a AAA part of them.

Speaker 0:
The greatest challenges for the multi gap income fund are to keep absolutely laser focused on those companies which are not just going to survive but actually thrive.

Speaker 0:
There will be plenty of companies out there which which, which do hang on. Uh, you do reasonably OK, but there are big beginning the others, which actually don't just survive but actually are able to take full advantage of the weakness of others. Uh, grow their businesses at a fast rate, invest at a faster rate, generate not just cash growth, but significant cash growth over time and grow their dividends as a result. So we've got to be very, very focused on that. Alongside that, we need to be very attentive, really to, uh, avoiding companies where

Speaker 0:
they're they're vulnerable, not just to to slipping back, but actually, if they get caught out, they may cut their dividends, but most particularly they may need additional capital, uh, emergency capital, a bit like the banks did in 2008, which can be very dilutive to long term returners to to long term investors. So from that kind of point of view, we think it's gonna be a moment when actually active fund management, uh, could be well placed. Um, albeit that, um there will be periods like, currently where? Actually, the positioning in the smaller end of the market has been detracting from returns in in the recent couple of years.

Speaker 0:
The opportunity for the UK, uh, is is very exciting. But the government generally worries about the fact we haven't been investing in the UK economy at a at a sufficiently fast rate. And one of the reasons, in my view, is actually the cost of capital cost of actually access to investment funds in the UK is disproportionately high compared with many other international markets. Valuation of the UK stock market appears to be lower than many of the international stock markets. Uh, I think this is a moment when actually the UK government really should be thinking about how they can step in to

Speaker 0:
prove the cost of capital, to make it easier for companies to raise capital for making it easier for them to find projects which do produce a serious cash payback. And so, from that point of view, it's quite a few newspapers have been discussing the possibility of of the ISA market, the the ISA investors being obliged for the next three years to invest 80% of their capital in UK quota companies.

Speaker 0:
My own view is that will make a very significant difference to the valuation of UK great companies. I think it will greatly improve the cost of capital, uh, and make uh, investment. Uh, I think it will be a A really very significant uh uh, policy development. And for the government, bizarrely, it costs nothing at all. I think the outlook for the UK market is really interesting in terms of the longer term prospects. Specifically, it's been out of fashion

Speaker 0:
for 20 or 30 years. So there's most investors have actually allocated their capital into more interesting areas. Perhaps some of the international markets, some of those perhaps with faster growth prospects. Some of those, perhaps uh, involved in investing at a faster rate, albeit their own running cash flow negative models. That's been very successful in the past. But if we do have inflation, if inflation becomes more of a perennial problem, then you're gonna need to invest in companies which generate surplus cash. As it happens,

Speaker 0:
the UK stock market is really very well positioned in terms of having a very large number of companies, which are generally service cash, many of which are paying dividends. And as a result, it's more resilient if we get uncertainty if we get, uh, global recessions. But most more important, importantly, it's also in a position where those companies can continue to invest even as other companies, uh, withdraw even as other companies fail. And it's that opportunity set which we think is going to drive a long term asset

Speaker 0:
allocation. Change away from, uh, having such a heavy reliance on capital growth strategies towards cash compounding strategies where I think the UK leads. Uh, compared with many of the other global stock markets, I think the UK stock market is on the verge of a multi decade period of out performance. Uh, it sounds completely ludicrous. It's not about the quality of the UK economy. It's not about our politics, it's about the nature of difference. The UK market is special, and I think that specialness will come to the fore.