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194. Bull, Bear & Beyond – Vantage: Inside the multi-cap income opportunity – dividends, diversification and the case for UK
0 Plays2 seconds ago
In this new Vantage interview, Edison's Neil Shah (managing director, market strategist) discusses with Siddarth Chand Lall, fund manager of Canaccord Wealth, the philosophy behind his multi‑cap income approach. Sid explains how disciplined balance‑sheet analysis, sustainable dividend coverage and broad sector diversification have guided the fund through every market cycle since 2011. He also shares timely views on UK valuations, sector consolidation, gold miners and where rate cuts could unlock upside across banks, property and infrastructure. For investors seeking high‑quality income with genuine breadth, this is essential viewing.
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About ‘Bull, Bear & Beyond’
Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets and 60-second pieces are a compressed summary of content designed to convey our message in a single, easily shareable hit.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Disclaimer and Introduction of Sid
00:00:06
Speaker
Any stocks mentioned in this video or held in the fund may be traded at any point and not be treated as advice or investment recommendations. Views from the fund manager are not to be treated as advice or guidance of any form.
00:00:20
Speaker
Welcome back to Vantage. We're focusing on income today and we are revisiting an old manager who's been on the show previously. Sid, welcome back to Vantage. Thank you very much, Neil.
00:00:32
Speaker
Sid, let's start with you designed and launched the Mulder Multi-Cap Income Fund way, way back in 2011,
Fund Strategy and Dividend Consistency
00:00:40
Speaker
I think it was. um So coming up to 15 years.
00:00:43
Speaker
um For anyone who hasn't come across the fund, maybe just walk us through what you're trying to achieve and how this approach perhaps differs from other UK equity income funds? Absolutely. So this is, ah from the word go, a very different fund to what you will find in the equity income sector. that So it is a diversified pool of stocks that we very carefully handpick based on quantitative filters.
00:01:10
Speaker
Look at the balance sheet, look at the free cash flow, look at the cover and dividends. And actually it's very different to the large cap bias that most of my peer group will have. It is why we launched the fund. It was meant to be a small mid cap UK equity income fund that aims to beat the FTSE All Share Index yield over time.
00:01:30
Speaker
And as you're probably aware, we have done that every single year since launch, and including through COVID. yeah and And that was actually one of the moments where that The real proof of the pudding was was sort of, can you do it even when so many companies are cutting their dividends?
00:01:49
Speaker
Beyond that, there was also the idea that the Investment Association, which is what dictates the UK equity income sector qualification, um said, well, actually, we will exempt those funds that wish to drop out from the yield test in this particular period.
00:02:04
Speaker
And so we had a very deep sort of philosophical thought about this, that, you know, should we drop the dividend um test and just buy a whole bunch of growth stocks or capital growing stocks?
00:02:14
Speaker
um and And we still debate that as in in in in retrospect, it was it the right move? Yeah. Looking back on it, I think that consistency of yield payment did set us apart from our peer group. So whereas some funds, and and this is not a criticism in any way, may choose to buy those stocks that pay any dividend, we will have a filter of a minimum of 2% and growing.
00:02:37
Speaker
And similarly, there is a ah larger number of stocks to choose from. So not only do we have a greater pool in terms of the non-4100, but the the number of stocks held in the fund is also larger. So we will have typically 100 companies yeah or or sometimes 120, sometimes 90, subject to market opportunity. But that gives us a very different hunting pool, if you like, yeah um that allows you to sit alongside a large cap income fund. So if it comes across as me being anti that, it's not. I'm i'm in favor of all of these companies that pay great dividends. And we have some wonderful British companies. But what this is really designed to do is sit in that smaller market cap size across different sectors yeah and and offer an uncorrelated
Market Concentration and Stock Selection
00:03:23
Speaker
dividend.
00:03:23
Speaker
I'm going to come back to that because the yield is an important or part of it. But you also talk about this comparison between large cap and what you're doing. It has been challenging. there you know we In the US, you talked about sort of narrow leadership. Are you seeing similar kind of effects here in the UK where I think you quoted this stat that ah there's been a concentration, the large cap concentration in the FTSE 100,
00:03:48
Speaker
has been even more pronounced. And I think that the number of companies making up 80% of the mark is roughly roughly half since 2008. It's now 66 companies. I quote that actually from the Deutsche Numis index review, which they do annually.
00:04:02
Speaker
So that's that's very obvious that it has become more concentrated. And from an asset allocator's perspective, if you look at that, you could buy four income funds and think, great, I've diversified for my clients. yeah But chances are that they are likely to be holding a huge degree of stock commonality within their top 10. They will typically be the HSBC, Glaxo's,
00:04:25
Speaker
shells of this world. Nothing wrong with those companies, but if you've held them four or five times for your client thinking you bought different funds, and this is no insult to any of the asset allocators. I think there very competent fund selectors out there, but what is happening is just by way of what is the choice available to you,
00:04:42
Speaker
Well, you could, well, just buy an ETF for the same thing or let the individual buy the same five stocks or 15 stocks that actually make up such a large chunk of the UK, FTSE 100 for that matter, for 10 pounds on whichever broken platform that you use, you know. And so that there is no real differentiator there unless, of course, you think that those will be the stocks that outperform for the next five years. Yeah. So it's already sort of happened um in this last...
00:05:11
Speaker
period as you described, there has been a very large cap-led rally. And in the those circumstances, the fund design does not allow the mandate to outperform. It's it's very difficult to do that yeah because it isn't commodity heavy. It isn't tobacco-led.
00:05:25
Speaker
In fact, that's something we've avoided as a sector from the from the first day. yeah and And quite rightly, actually, because there is so much more to choose from. And I think, look, i mean, that you know, you look at these things over an extended period of time, it is interesting that you're seeing this call for diversification. It's been, you a lot of sort of shocks to the system, a lot of news flow that impacts market volatility. So it feels like, you know, that diversification has started to come in and that concentration risk is is now becoming into focus.
00:05:56
Speaker
So um you might be well-placed for that. The income is is something that is standout. So someone who's looking for reliable income, in a you know which is different from a sort of concentrated basket of large cap stocks.
00:06:10
Speaker
I think this is really interesting. you You walked us through you know all the reasons. So you've got a bigger pool of companies. um You're focused in small and mid cap as well as the sort of large caps.
00:06:22
Speaker
um You were able to sort of continue paying the dividend through the pandemic, which I think is a great sort of testament. um What I'd like to understand is how do you go about ensuring that, you know, the dividends are sustainable and well covered? What what is the fundamental work that you do?
00:06:39
Speaker
when you're bringing companies into the portfolio? So there are two basic tests that we look at in terms of the financials. The balance sheet to ensure that there's either net cash or there's low gearing yeah with regards to the net debt to net asset ratio. and And everyone has different definitions of gearing, but we like to see that below 50%.
00:06:58
Speaker
Sometimes we'll make allowance for it if there's an acquisition strategy and it's temporarily high, but it's going to come down fine. Or if the business model so dictates that it must have gearing for a period of time,
00:07:08
Speaker
but actually it's very cash generative and on another metric maybe net debt to EBITDA it's not high and it's up two times, that's okay. But generally, and and we monitor this pretty much daily, weekly, whenever there's a results update or a new note,
00:07:24
Speaker
we would look at the the quants and say, okay, well, where are we on the portfolio? So for the average, on a weighted basis, we're at 6% net cash, actually. So that's that's quite powerful across nearly 100 companies. And similarly, the the free cash flow is very important because having another pillar of strength to essentially back up that dividend in a sustainable way The free cash must cover the dividend at least one times, but preferably two. And and that's where we are for the entire portfolio is two times at the moment on a weighted basis. So that is on the higher side. And you you may laugh at this, but typically it's at a 1.8 and just that 0.2 difference is quite hard to achieve, actually. and So it takes a lot of work and you have to sift through the companies.
00:08:07
Speaker
But the third part of this really is the management meetings and and having a a track record of of under-promising, over-delivering, but also actually really having that feeling that you're not pressuring the management team, that they can afford to pay you the dividend, they want to pay the dividend, and it's not in any way compromising their own growth story. here Typically, I'll be in a meeting where if there are other fund managers, there will be the growth side who will be saying, do share buybacks. We want that as a form of preferred form of capital return, boost the EPS, forget the dividend. So as an income manager, I'm constantly defending why actually having a steady dividend record is also attractive. yeah and
00:08:49
Speaker
I don't want to be in a battleground with a management team to sort of say, well, I think you should pay a dividend, not a share buyback, because if you can't afford it or you have a preference, well, that's a board decision and that's fine. But if you want our capital to support you over a very long period of time and stay on the register and support you with placings, which actually ultimately also fund growth, then there should just be an honorable commitment that you can cover it, you can clearly afford it, which is why we're meeting.
00:09:17
Speaker
and that you're not going to compromise that through some empire-building strategy that potentially puts entire company at risk. So that's the sort of the filter of it. But I think in reality, it also comes with a bit of judgment and experience. You you can't just go on the quant filters and say, oh well, that ticks all the boxes. yeah Great, that's a purchase, because management teams change, and sometimes that in itself can be a trigger. So either you can see that somebody's come in with a previous record of managing the company very well or otherwise. And and that then for us is a reassessment of the whole thing again.
00:09:54
Speaker
um and And so so really it's it's a constant exercise of of meeting these companies yes to appreciate whether we can hold fast on what we think we're buying into. Yeah, and one of the things, so clearly, you do take views on companies, you are sort of in and out of companies. You're very open in your recent commentary about what worked well and what didn't. I think that's a great trait. You sold Dunelm before the profits warning, which is well-timed. I think you also mentioned Man Group though, where you had sort of come out of it, but then it continued to rally.
00:10:34
Speaker
when you When you reflect on you know what has happened and the decisions that have been made, how's your process help you weigh up what when to hold and hold your nerve effectively and when to move on?
Stock Decisions and Gold Miners
00:10:48
Speaker
Let me just, um I would begin by saying actually there's no glee in um exiting a business that we've supported which then suffers. yeah it's it's Of course it's helpful to protect the capital, um but it was really triggered by two things. The first was there was a change in CEO. So the last call that I had with the then outgoing CEO For me, it was not necessarily the best one, even though everybody else that I could detect on the audience in that call seemed super happy with it. yeah
00:11:20
Speaker
And I felt I was the odd one out. um And actually studying the balance sheet. So few if you look at the the net debt to net assets ratio, which is what I'd mentioned earlier, yeah and you go back to 20...
00:11:34
Speaker
thirteen It used to be a net cash business, closer to sort of 45 million, maybe even 50 million before that. And very steadily it moved into the net cash deteriorated and the net debt started to increase. And it got to a point where we kept sort of thinking ourselves, okay, fine, but that's temporary and that's temporary. And there's a reason for it. the increase in the SKUs and they're investing in the business and there's technology coming and that's fine.
00:11:59
Speaker
And it was a good moment for me to just reassess it all and say, well, well look, we've got Christmas trading coming up. There's quite a lot going on in UK consumer with different perceptions. There's going to be winners and losers.
00:12:10
Speaker
This is a point now where the gearing has gone past my comfort ratio. yeah And I think it's right to step off that train yeah and maybe reassess it down the road. Equally, so yes, this turned out to be the correct move because subsequently it was not such a strong trading update and the shares fell. But maybe at a future stage, if the balance sheet is in a better position in the trading world, we will come back to it. So I wish that business well. There is no um bad feeling and and in any way there.
00:12:39
Speaker
With Man Group, that was absolutely an error. But just to go back to what attracted me, and I liked the managing team, I liked the brand, liked the fund managers and the strategies.
00:12:52
Speaker
The AHL strategy had clearly become more dominant and it was underperforming for a period. And if you look at the share price in 2025 between January and September, it was something like minus 27%.
00:13:04
Speaker
And so we'd given it quite a period of time where it was doing nothing. yeah And yet the general rhetoric was, we're going to be okay. we're going to be okay. We're making some changes. We'll rework the factors. It will be okay.
00:13:16
Speaker
And the realization for me then was that if it's not okay, it's pretty binary. yeah and And this will continue to suffer and derate. So at that point, we did sell out and it was a mistake because from September to, I think it was January, rallied something like 60%. And again, I'm not,
00:13:34
Speaker
hurting about that in the way that you might think I am i am regretting that I sold it, but i I'm happy for the business that they did. yeah and yeah And just at the same time, if if I could follow it up, what did I learn?
00:13:47
Speaker
um I learned that actually it might be right to hold on to these businesses where you you liked these qualities and and believe in the team for a bit longer. But it is harder in a period where UK fund managers have seen greater pressure.
00:14:02
Speaker
So that luxury of being able to be a patient investor has gone. it It's a very fast moving market. If momentum's against you, it can carry on for much longer. But equally, I tried to take that experience and say, okay, well, in September, what else was working? what did i What meetings did I have that in the same sector yeah may have given me a slightly better experience? And actually, Schroeder's was one of them. So I had a good meeting. We had built that up gradually. um Jupiter was another one. yeah Again, in September, had that meeting and gradually built it up.
00:14:38
Speaker
But between September and January, I think while those went up maybe 30, 40 percent, of course, this went up more. yeah Subsequently, of course, Schroeder's been bid for, as you were aware. yeah So that's been a result, and and it doesn't look too bad now. But it was not a straightforward switch, take that position and put it into these two, because it takes time to work those.
00:15:00
Speaker
Yeah. as i was saying, in the process to try and actually go through the investment, understand it, get comfortable with it. And the way we do this thing is is really to to see the evidence and then reward it by adding a bit more, get another report and continue to add in that way. So as as more information comes to reconfirm what we think it is, we then adjust the weightings upwards accordingly. and And it should earn its place. And that's pretty much how it's done.
00:15:27
Speaker
yeah ah In a diverse portfolio, but you've got a couple of very interesting clusters which I want to explore. ah The first being an allocation to the gold miners. um So you built up, I think, meaningful positions in gold miners like Endeavour, Lundin, Anglo-American, sorry, Anglo Gold. housing That's right. ah Gold isn't necessarily a sector that people associate with equity income.
00:15:52
Speaker
So, you know, firstly, how did it come onto your radar? Was there a macro overlay or a thematic overlay that sort of came onto it? And then um how does it sort of fit your criteria and and why why are these companies in your fund? Sure. So you're absolutely right. Gold isn't typically thought of as an income basket to go and find a whole bunch of stocks like the financials would be, for instance, or insurance would be. Yeah. um But there have been a couple here and there. So Centrum in Egypt used to be listed and actually that was acquired by Anglabel Ashanti. So that was a little um sort of look into this much larger global business here with other African assets as well.
00:16:35
Speaker
um It met all the criteria. So it has net cash forecast at a billion. It's on a P of 10. It yields almost 5%. The free cash covers the divide dividend on the forecast. so It seemed, of course, with a gold price bull run that's been going on, it seemed right to look at it, carry out the meetings, of course, by a conference call and assess. And so that was the beginning of Angler Gold as a position because we had held sentiment in the past. So yeah and so so that was you know one of those.
00:17:09
Speaker
Prior to that, there used to be others like Petropavlovsk pre the Ukraine crisis, that but it was a low yielding gold asset and and it was sort of only 2% dividend yield, so only just in the radar. But the others, you're absolutely right, tend to be sort of very low yield or no yield and and not really for us. And typically with high gearing, so they'll turn up with sort of increasing requests for new equity or cash to do exploration. And what we like to see as an existing asset And this is similar in oil and gas in the few occasions that we would go into that sector, that you must have a producing asset where you can have cash flow that's self or at least part self sort of um fund your own exploration so that you've got something to back it up.
00:17:53
Speaker
And I think that is the the preferred combination. It's something that I learned from my previous colleagues and in in George Finlay. and And actually we've carried on that philosophy here when Giles and George used to do it that way.
00:18:06
Speaker
um The current team, I think they've adopted that stance on ah on a whole range of other stocks. So there is a team effort in this space. I think speaking of that, um with the more special situations fund, which I used to work on, but I'm of course on the income fund now, they have continued down that road and developed another analyst there. in harry And Harry speaks with my analyst, Will. So they were exchanging ideas and increasingly these dividend-seeking ideas come along.
00:18:33
Speaker
Will mentions to me, ah you know, you should have a look at Lundin. Maybe there's something there. And so we did a bit of work on that. And Lundin was this great asset actually. in And it's Canadian listed, um but it's got an Ecuador asset. And and again, there...
00:18:47
Speaker
um There are a number of different catalysts that are still coming out, but and ah quantitatively, it meets all the filters. So again, you've got a billion of net cash yeah forecast, you've got free cash covering the dividends.
00:19:02
Speaker
It's it's a high T&P, but it has Also very high grades per ton in terms of the the gold that it's finding. um And then there was another idea actually ah in Pan-African, which I i yeah have held, but I yeah i booked the profits on that. And one of the reasons for that one actually was we've we've had that regardless of the the gold price in the past.
00:19:23
Speaker
Now that the gold price had such a run, actually some of the less economic projects of its old portfolio looked more interesting and and and actually viable. So we could come back to it. The free cash gave that buffer.
00:19:37
Speaker
for it to pay dividends, it became a bigger company and move from AIM to the FTSE 250. And we made 75% on it pretty quickly. So I felt that it was the right place to be as a sector, but to keep our process on the quantitative filters intact. yeah With the larger businesses that I've held on to, in this particular case, there is a degree of comfort because it's a wider portfolio and
Sector Opportunities and Investment Strategies
00:20:01
Speaker
it's more liquid. And I think when the gold price does correct, because it will at some stage, it gives me the option to move out of it faster. Whereas if you're stuck in a really small company too in this sector, it'll be very difficult. um Now, actually, Pan-African not a small company. And i again, i have a long association with them and I wish them well and and I hope it carries on doing well.
00:20:21
Speaker
But it's a FTSE 250 versus something like Endeavor, which is FTSE 100. So um again, that's that's another company that's potentially promised um a billion in in shareholder returns over the next sort of three years. And it could go to 2 billion if you were adopting spot pricing. now All the three companies that you've mentioned that we still hold are factoring in lower gold prices. So something like $3,000 typically, which I prefer. i i would much rather have that as an assumption in the model than
00:20:57
Speaker
maybe, let's say, an oil and gas stock, which is assuming $65 and has a $60 break even. and And I think that, you know, when your current spot price is only $68, $69, it's a bit less of a cushion.
00:21:10
Speaker
um So that is why I think gold was preferred as a sector. Of course, you've got the run and it stays stable in and relatively uncertain geopolitical environment um led by America in part. But you're already there and I think the reported results will likely show that the numbers have not been affected by the recent gold correction, which actually is still very high because you had a 20% run in January alone.
00:21:40
Speaker
Yeah, no, it's sort of it you have that sort of fall and it's made its way back. um The other cluster, which I think is really interesting, I mean, the data that there is a linkage because ultimately gold has held up. I think there's interest in it. And also there is expectation that if it continues running, you will see further consolidation in the space, which brings us neatly into the sort next segment, which I thought was interesting, which is the insurance sector, classic hunting ground. Absolutely. that In fact, I must mention one more thing, which is there was a There was a further um sort of reconfirmation for us yeah and this is a compliment to your to your colleague, Lord Ashbourne actually. yeah He came and gave us a ah bit of us an an educational piece on gold. yeah
00:22:23
Speaker
Relatively early, I think it was maybe um spring, summer time last year and and he made some predictions about the gold price, which at the time would have sounded fanciful, but I i bet you he's laughing now. Yeah, absolutely. So, you know, so again, um compliments to Edison on that one, because um it does give a bit more sort of backing and substance when you hear it from an expert who specializes in the sector.
00:22:46
Speaker
Yeah. So the the the other theme which we're talking about is the insurance sector, classic hunting ground for income investors. But there is this ah additional dimension now, to which is consolidation. So you you own Zurich. Zurich ended up in bidding for Beasley. yes um you've You've got other exposure in the sector, I think, Cesnara. Correct. so So what's your sense of, the firstly, you'd be clearly, you know, it's an area which is got all the attributes effectively of good quality income players.
00:23:22
Speaker
But what's your sense in terms of value realisation in the sector? Is this a phase where you're to see broader consolidation across sectors? UK listed financials and how you're thinking in terms of your positioning around that? You're correct about the consolidation which has kicked off not just in the UK but also Europe. So if you look at what happened with Balwa, Helbetia, that was a start. I think Zurich Coming for Beasley is in a way not a surprise. It's a very good time for them to to do it because the rate cycle has not yet hardened.
00:23:56
Speaker
yeah um So why would you do it later on if you like the asset? You would do it now where you don't have to pay high multiple of profits or cash flow. um You mentioned Chisnara. Well,
00:24:08
Speaker
Yes, Chisnara is doing something very different. um They are the acquirer here. So Chisnara is buying books, closed live books. So they've done the HSBC UK deal. In fact, just yesterday they've, they've completed or not completed, but announced that they have gone for the, um, uh, the Luxembourg, uh, uh, book as well. And, and so that, that I think is, uh, is an exciting space for them. It's, it's,
00:24:33
Speaker
a new entry so so they will get the economies of scale uh from it and it's under a new team again it's a business that's been considered very boring in the past which sometimes actually boring can be good but they are presenting very well so as i say it's a new ceo new cfo um and they seem to be doing all the right things actually because it gives them i think that credibility and it isn't just a uk business it's a global business um Of course, Zurich is a much larger global business, but Chesnara in a different space. yeah um
00:25:07
Speaker
So I think that they're in a sort of a niche in the sense that they're going for the size of book that is not that interesting to anybody else. And yet you can spend a hundred million and have an earnings enhancing deal within a year or two years. And so the cash flow benefits from that then cover the dividend for several years, which is where the attraction comes for me. So you get the capital upside as well as the dividend.
00:25:30
Speaker
In another sense, I think there are other businesses as well that one could consider. So there's NN Group in Europe, but bringing it back to the UK, we like Hiscox. That's a good business too. And it's had a read across from the Beasley bid. So there has been a kind of a relook, if you like, where the shares, I think, were up 10% on the day on that news. so So again, I think there is a cycle for these things. And It is more true in insurance, relatively speaking, that you can you can potentially buy things in the down cycle when rates are low and sell them when they're higher and then come back to it because it it is almost inevitable there will be a cycle.
00:26:08
Speaker
Yeah. The final thing which ah in terms of the theme which I wanted to explore was you've had a a slightly weak jobs report in the UK.
Interest Rates, Inflation, and Market Opportunities
00:26:19
Speaker
You're looking at yields. There's a general expectation that rates will start to be cut from the sort of 3.75 heading towards, depending on who you talk to, 3.253. You've you've got some interesting exposures that um benefit effectively from cuts. So real estate, house builders, banks. Walk us through how you're thinking about where UK rates are going.
00:26:47
Speaker
and you know how you're positioning yourselves. But also, you know inflation is one of those things. It can always come and shock you, right? So how you're also mitigating against the downside. Okay, so we did introduce more banks yeah previously when actually we thought rates would be um cut faster, but that didn't happen. yeah Inflation was not transient. It was actually there for a lot longer.
00:27:12
Speaker
um The other factor is actually this aspect of structural hedges, which maybe had not been appreciated. um So whether it's NatWest or Lloyd's, you'll hear them referring to it increasingly, and that gives them this confidence that actually even in a lower rate and environment, they will still make their spreads and they will be fine.
00:27:28
Speaker
But generally speaking, you can have lower rates, but at that point it should also then trigger greater loan growth at some point. And and and and I think that takes time to unfold.
00:27:39
Speaker
So while it's all right to have some of the higher quality, well-positioned banks, we also have the likes of Barabin, which benefit from buy to let. And I think that will be a sector that will come into its own under a lower rate environment. So that would be a demand-led phenomenon really.
00:27:56
Speaker
But it is more of a challenger bank. And then stepping aside from that, I think in a lower rate environment, the obvious beneficiaries are, of course, property. We don't have as much in-house builders today, but we do have the likes of the self-storage companies, for instance. We had the likes of London Metric, which we've seen graduate from being a smaller company into the FTSE 100 and continue to hold it. And um actually even within that space, um there are some new um entities, if I can put it in that format. They're not that new, but the likes of serious real estate have done very well for us.
00:28:28
Speaker
um I think actually a low rate environment can be quite good for the infrastructure construction businesses on top of that. And then that spreads into utilities, but not across the board.
00:28:41
Speaker
So if you can find those businesses with the right balance sheets, like the Morgan Sendles of this sw world or the Galliford Tri's, they continue to win business and good order books with, again, great management teams, that that to us is is really the sweet spot because they are already doing well.
00:28:57
Speaker
yeah And so if you get the rate cut on top of it, there's likely to be a further boost. And it may not just be in one or two segments. I mean, today water is doing very well, fine. But actually going forward, if fit out for Morgan Sindel slows down, there might be something else that does very well.
00:29:13
Speaker
And so I think that's really sort of the next chapter for those companies. Yeah, it's interesting. So I think the the way I read that is you aren't, you know, there is an anticipation rate cut, but the way you protect yourself is by great quality businesses, yes which, yeah you know, that they're going to continue outperforming regardless. There is another part to this, which is really down to the, I think, the companies that have suffered in high rate environments. So where There's been either high capital intensity, and not necessarily because of their own balance sheet, but it could also just be perception. It could be the demand side from the consumer has has slowed down. yeah So again, you need ah kind of a revamp in the in the offering for it to work in a depressed environment, but then have a nimble enough team to say, we can see what's coming next. and we need to change the offering and change the mix now.
00:30:02
Speaker
I think what's happened at Wix, for example, is great. that There's a perfect example of a business that could have done very badly in this last two, three-year period, but it's actually done very well. I would imagine that they will continue to do well if the consumer does spend in a low-rate environment. yeah and Similarly, I think the likes of a Churchill China where the hospitality environment has been very weak, very soft indeed. um They mentioned in the last statement that things seem to be stable. The pub sector started to purchase again.
00:30:29
Speaker
That could be a hint of things to come. So I think all of those could potentially do better. But that is really, I think, the the later cycle stuff that picks up once you've had the rate cuts with six months to a year of being able to enjoy that.
00:30:42
Speaker
yeah um Where does it settle? Who knows? I think it's it's difficult to predict these things because data keeps changing. We've had data today suggesting there's actually you know lower inflation than some had expected. If you look at more closely, it's not that low. It's 0.1 off. here But 3% is a good mark and it's it's better than 3.4. It's not quite 2%, which is where the goal is, but the direction seems to be heading increasingly towards two rate cuts. It allows, I think, the MPC to have that debate. yeah And to a certain extent, it will also depend on what the rest the world is doing. So if the US does indeed lean towards another cut, it makes it easier for the UK to do it.
00:31:19
Speaker
let's Let's wrap up effectively where we, to a certain extent, where we started, which is that you are different. You're in terms of, you're offering this sort of broad basket of stocks to people.
00:31:31
Speaker
And I think taking a step back and looking at what's happened in terms of the shift to the market, You're seeing, you know, narrow leadership move into diversification. You're seeing a push effectively into value and income.
00:31:44
Speaker
And ah ultimately, I think, you know, you're seeing, particularly with all the noise around AI, a shift into real assets. You know, people are looking for sort of real assets.
00:31:55
Speaker
um You also, all you know all the way through 2025, my poor colleagues at the London Stock Exchange kept being beaten up about you know the state of the UK market, et cetera.
00:32:08
Speaker
I've always felt that capital ultimately starts to sort of take care of these things. I'm just curious, you know You're a UK-based manager. How do you view the UK? What are the attractions of the UK? What would your pitch be in terms of you know why why people should take a look at the UK market? Well, I'll tell you, Neil. I think the first and most simple way to look at it would be to just take that label off, whether it's the yeah UK, North America, yeah China. It doesn't matter. For a moment, you have to look at the market itself in terms the underlying numbers and say,
00:32:41
Speaker
would I buy a market which is trading on a multiple of 12 times, and i'm I'm not referring to the large cap market in the FTSE 100, I'm talking about the smaller end of the market yeah where the balance sheets are on average net cash or low gearing and and where they have tremendous free cash flow covering dividends yielding closer to sort of 4.5% rather than 3%, which they are now in the FTSE 100. And that wasn't seen, at that hasn't been seen that level I think it was the last time it was GFC or thereabouts. So that tells you about valuations, fine. So this is not about is it the UK or is it somewhere else? It's just starting with the numbers in absolute terms. Is that attractive?
00:33:21
Speaker
And then you delve deeper and you look at the companies. And again, let's take the names off for a moment. Are these types of companies interesting in their market spaces where they can take share, they're run by good leadership,
00:33:33
Speaker
They have good quants underneath it and actually the order books are good and they're giving you good trading statements and they're trading ahead of expectations. Well, normally the market reacts to that. And when it doesn't, I think at some point you get the M&A traders and we've seen increasing amounts of that.
00:33:49
Speaker
I would say unfortunately to a certain extent because a number of these are getting taken out at relatively low multiples. So I mentioned one company earlier and I will say 1.1% of AUM is not a good multiple.
00:34:01
Speaker
yeah it It should be 2.5%, 3.5%. But in this particular case, there's very little a small fund manager can do. you know You have to accept what's given because there's a majority family shareholding. So, okay, that aside, you've got M&A going on. That's a green light. You've got the quantitative factors. That's a green light.
00:34:18
Speaker
but there are also risks. So I think when you get a few more stars aligned, the rate cuts, perhaps a government that actually is a bit more open about the reality of what's being told to them, that it's not been a good place to invest. It's been a terrible place. In fact, you could argue in the smaller end for the last five to seven years, yeah maybe even going right back to Brexit.
00:34:40
Speaker
But what has been done about it? I think the policies have been well intended, but a complete failure in my view. So what is, is rather than talk about problems, what is the solution? I would say you could just begin by giving a level playing field. So instead of us as consumers buying US companies with no stamp duty, I think you can apply stamp duty to foreign stocks yeah to start with.
00:35:02
Speaker
And then there's, and this is not this is not only as a revenue source for the for the treasury, this is also just saying, well, maybe it's a small element to make you think again that, you know, you've got your home sort of domestic facing stocks, why not buy British? And it's a question. It's it's also, I think, a mentality shift that's required. You know, I hear so many people, including finance professionals in our own industry, talking about how they bought this or that US company um in their own personal accounts.
00:35:34
Speaker
And I think that has to start with us, really. you know where if If you aren't buying British companies, I don't think anybody else will. and And it's only when you start talking about those stories that, oh, look, I had Schroeder's or I had for that matter, another JTC, which which we do hold in the fund, which is not a FTSE 100 company and it got taken over at a premium. Well, that's when people start suffering from FOMO or fear of missing out and maybe start to look at some of these other businesses.
00:36:01
Speaker
I can think of another smaller company today that has been totally derated by 16, 17 percent, in fact, um Keystone Law, and it's come out with a great trading update. It's actually ahead of expectations.
00:36:13
Speaker
It was never in doubt in my view, but there's a perception that, oh, they might suffer, and actually it hasn't suffered. yeah So I think those opportunities, I think raising awareness and having a more positive attitude um will help. But the really important thing, I think, is when You hear of these mansion house compact policies essentially suggesting let's buy private assets. um Again, fine as a general step, but the private assets, one can now argue, is that more risk? um
00:36:43
Speaker
Why not have smaller company assets, which are also in the listed space, and are profitable and open to scrutiny and very clearly valued where anybody can look at it. I think that's what really we should be buying um as pension funds or even sort of greater um sovereign wealth funds eventually sort of start looking at these these smaller companies.
00:37:07
Speaker
It may never happen, but I do think it's worth... that There is merit in just assessing it again, because the the policies seem to me completely misguided. I mean I don't want my state pension buying private assets, I can tell you that. yeah um So I worry when this advice is given um whether we even have the talent to actually manage it properly. But coming back to the UK, smaller company, en listed space, there is a lot of talent, good talent in the management. um And I think, again, the franchises, they are regarded very well.
00:37:38
Speaker
So...
00:37:40
Speaker
At some point, I think value allowed, um but it's not without risk. Yeah, no, I love that. I think it's a great, something you know, in like all of these things, there's a good side and but a bad side or positives and negatives, and we have to work our way through that.
00:37:54
Speaker
Sid, absolute pleasure having you on on the show. I always love, you know, having you here because I learned so much more about the market. um ah We wish you luck for 2026 and would love to have you back in in due course to hear an update on the portfolio. I'd be very grateful. Thank you.