Transcript

Paul O'Connor (POC): Welcome to the Netwealth portfolio construction podcast series. My name is Paul O'Conner and I'm the head of investment management and research.The investment management and research team looks after both the investments we make available to you through our Super and non-Superannuation investment platforms, but also the managed funds and managed accounts that we issues, so we naturally spend a lot of time interacting with fund managers. I feel fortunate to have this ongoing interaction, as it provides really detailed insight into both markets and the securities held in the various managed funds and also allows us to develop genuine relationship with portfolio managers and their research teams.

Today, we have Tobias Bucks from Ausbil, whose responsibilities include portfolio construction and strategy with a specific focus on developed markets, including US, European and Japanese equities. Welcome, Tobias.

Tobias Bucks: (TB): Thank you, Paul.

POC: Recent podcasts have focused on the impact of COVID-19 on the global and Australian economy, so given your role, Tobias, includes a focus on small cap stocks. So today's discussion, we'd sort of discuss the impact of the economic downturn on industries and companies.

Ausbil have a broad range of equity strategies covering both Australian and global equities that are available through managed funds on the Super and investment platforms, including a global small cap equities fund.

Perhaps to assist listeners, Tobias, could you start with a summary of what are small cap stocks and why would investors even consider including a small cap fund in their portfolio?

TB: Yeah, sure. So thanks very much for having me on.

POC: Yeah. Well interesting comments there Alex, given I guess it's a natural progression for an emerging economy such as China to move to a more of a consumption based economy over time. So yeah, interesting. Your comments there around the focus of the Chinese government there and effectively trying to double household income to improve the contribution consumption makes their pay in their economy.

Globally we're certainly witnessing a rise of geopolitical tensions with both the U.S. and China as authorities using a lot of rhetoric against each other. So what's Russell's view on the heightened geopolitical risk and the potential fallout, I guess, as a result of this heightened risk?

TB: Yeah. So it is quite worrying to see these tensions flaring between the U.S. and China. in terms of fallouts, the most worrying and likely is a dropping of the phase one trade deal. I mean military action is obviously more worrying, but we don't think that's as likely. But even then, our view right now is that it's not a base case outcome that we do see a dropping of the phase one trade deal and... case outcome that we do see a dropping of the phase one trade deal and a return of tariffs. On the Chinese side, what has been notable when you look at the press, and you look at what officials are commenting on, is that they are avoiding aiming criticism directly at President Trump. When we had the last trade disputes and those negotiations, there was a much more direct criticism of President Trump. I think that's important.

TB: And then, on the US side, so late last week, the US and Chinese negotiation teams had a phone call and, basically very vaguely, said that, things are going all right. And then, Trump noted that he was in two minds about what to do. Obviously a restart of the trade war would pose a very significant headwind to the economic recovery for both countries.

And then most notably for the US, it would also pose a headwind to those trade exposed and manufacturing sectors, which happen to reside in the Rust Belt, which is where Trump is going to rule, or the areas that Trump is going to rely on in the upcoming election in November, 2020.

POC: Yeah. Well, I was actually going to ask you about your views on the US Federal election and whether Russell believes Trump's handling of COVID-19 will be a positive or negative impact on his chances of being reelected?

TB: So, I mean, conventional wisdom has always been that if the economy's in bad shape, that's really bad news for the incumbent. But this is not your typical downturn, given the pandemic and the health catalyst of this downturn. I was looking through some polls this morning on President Trump's approval ratings. His approval rating has ticked down a little bit, but if you break it out into the handling of the economy and the handling of the COVID outbreak, what you see is that his approval for the economy has pretty much not moved at all. And it's been the handling of the COVID outbreak that has been slipping.

So, I think overall, it probably creates a bit more of a hill for him to climb. If you look at polling of Biden versus Trump, Biden is winning, but it's not by any means a done deal. I think it is going to be quite a tight race.

POC: Yeah, I guess it'll be interesting, your comments there around the Rust Belt of America, and I guess their shrinking middle class and ultimately how they will perceive Trump has handled this in the end.

So, yeah, I guess, keeping on the geopolitical issues, Australia's been very vocal in calling for a global investigation into the outbreak and spread of COVID-19, which has really been to the displeasure of the Chinese government. And a fallout from this appears to be the threat of significant tariffs against our primary producers. Do you believe the Chinese threats are due to Australia stance for COVID-19 or are we guilty actually of dumping barley and even hard commodities such as aluminium into the Chinese market?

AC: I think it's probably a combination of both, but even on the COVID-19 investigation and China's disapproval or anger at that, it's not just that. You can think back to a couple of other policy decisions that the Chinese government were not happy about. The exclusion of Huawei from the 5G network. In terms of the dumping, the Chinese ministry of commerce have had a investigation into the dumping of barley since November, 2018. And it's actually due to report next week, the findings of that. So it could be that the COVID-19 investigation was the catalyst to remind people of that. But that investigation had been happening for some time.

As a interesting aside, if China do place tariffs on Australian barley, then the only legal avenue that we can go down to try and overrule that is through the appellate body at the WTO. And this is something that there was headlines last year, that because President Trump was not reinstating judges, it basically is not in operation. So the legal avenue to get around or to try and push down these tariffs is severely hampered.

POC: Economic recessions are regarded as almost necessary to cleanse an economy of weaker business and business models that have survived on, I guess, stronger economic growth. So what impact on Australia do you think the recession will have?

TB: So it's something I've been thinking about quite a lot. I mean, given all this stimulus, when you think about the typical cleanse that we have through cycles, companies with high levels of debt, or that are just not operationally efficient, do end up going bankrupt or clearing the slate. And we have more efficient companies coming through. One side effect of the stimulus could be that we actually don't see as much cleansing coming through because companies are provided lifelines to get through. We have extremely low interest rates.

It has seen a clearing of the labour market. We have seen that kind of clean out and it's still unclear how much of that, if there is a structural change there. But if you look at the US corporate debt levels, for example, they were already quite elevated. We aren't going to see much of that cleanse through. So you still have a clean runway as you come out of this, but there is still that headwind, that debt levels are very high. And I think it's similar for Australia, but it's the flip side where it's less corporate debt that's a worry and more household debt.

POC: Yeah. I think I saw an article in the Australian Financial Review over the weekend, talking about even the potential negative impact of the JobKeeper package. And is it further supporting what economists call a zombie company, effectively? Do you have any views there whether some of the monetary and fiscal response in Australia is actually working to a detriment to the cleansing of an economy in an economic downturn?

TB: In Australia, there could be a little bit of it. But I think politically and socially, it would be not a great idea to have not done what they've done. So the JobKeeper, and if there are companies that are not operationally efficient, I think that it would not be the right time to let them go bankrupt and have people unemployed.

Small caps are listed equities that have a market capitalization of between 500 million US dollars and 5 billion US dollars at the top end, generally. So they're reasonably big companies, they're well-established, they're very well capitalised.

Why would investors want to have small caps in their portfolio is about the return. Global small caps typically deliver much higher returns than mid and large cap equities. So over the last 20 years, global small caps have delivered double the return or slightly more than double the return of large and mid-cap equities. For that double return, you do get a little bit more volatility, but not much more. That equates to a much higher risk adjusted return so the sharp ratios are far higher.

When we look at all the different risk adjusted returns of different equity asset classes is global small caps are the most efficient place to be invested at. They're on what we call the efficient frontier. So it doesn't make sense to just be invested in large cap stocks, definitely be invested in small caps.

I guess that leads to quite a key question is why do they have far superior returns? It's to do with most of the returns from global large caps are driven by what the company is doing, what the board and the management team are doing with employees, with research and development, with new equipment, new facilities, new marketing teams and acquisitions, much more about that than what the overall economy is doing.

Large cap stocks are much more driven by what the overall economy is doing, which makes sense because they're much bigger and more diversified. It's very hard for them to make immediate changes or the changes that they do make have much less effect on their overall share price.

POC: It's interesting your comments there around the increased volatility of small caps and I guess that has deterred a lot of investments from using small cap funds in their portfolio. But I guess I also think, like yourself there, that given it's more volatile and probably a risky investment universe, it also lends itself to considering the use of an active management strategy to not only try and unearth the next sort of Apple or next megacap company of the next decade, but also to manage the risk and the volatility of the sector there.

So moving on to the economic impact of COVID-19, I guess it's unknown the duration of isolation policies, and they certainly appear set to continue for a number of years. So in a heightened risk environment, do equities currently look too risky for an investor to consider investing in today?

TB: Well, I don't think so depending on what your outlook... I mean, if you need it to definitely make sure your assets don't go down at all then equities might be risky. But for most of the people out there, you do want to have some upside to your capital.

So looking forward, I guess the first part is do isolation policies look set to continue for years? I don't think so. I mean, necessity is the mother of invention. COVID, it's a novel influenza that has definitely taken the world by surprise and caused a lot of heartache and a lot of sadness and it's still continuing to cause a lot of deaths around the world. But humans will develop ways to get around it. The isolation policies and the shutdown is an immediate response just to, obviously, cut down the number of deaths and we need therapeutic treatments and we need vaccines.

I think the therapeutic treatments are improving and there's a lot of effort there, but also on the vaccines, we are getting some much more encouraging news more recently. I think at the start of the outbreak, a lot of experts that I heard and listened to through our research were saying absolutely not within 18 months, no chance at all. We're getting the news overnight, that Madonna with an mRNA type of approach to vaccine, which is slightly different than the traditional approach we've had. They think that they're making great ground. AstraZeneca were saying that they could have 30 million doses available for the UK by September and will be in late-stage human clinical trials by halfway through this year, so June, July. AstraZeneca think they could have a hundred million doses produced in Q4.

There's a number of vaccines around the world. There's ones in Germany, there's ones in the UK. Sanofi's got some and, obviously, in the US there's a number, too. So I think that the isolation policies could come to an end quicker than people currently think.

The US is also developing something called Operation Warp Speed, I think that's its name, which basically is starting to get ready to produce vaccines at a very impressive scale, as soon as they are comfortable one of the vaccines in development is safe and has good efficacy. So there could be a lot of upside.

I think that it's very difficult to handicap what happens and certainly I think people want a vaccine before they get comfortable enough to completely open up. But I think it's too negative to assume that these isolation policies are going to happen for a long time.

Also, in terms of equities, you made a really good point about active managers. Ausbil is an active shop in equities. We use our judgement to take advantage of improving corporate earnings and with a very strong focus on improving ESG. Whilst overall the economy is seeing a recession and that could continue given the isolation policies, there are a number of businesses out there that is seeing, one, relatively better corporate earnings outlooks than the overall market and certainly what you'd get in passive investments, but also there's even some businesses that are actually seeing improving corporate earnings outlooks on the back of this.

I think in terms of risky, there's just one other point to probably think about. It's not just so much when the isolation policies end, but what happens to other trends that are going on. So digital trends are accelerating in terms of e-commerce working from home, but also we're seeing a reemergence of issues between the US and China as they play out the friction about an emerging superpower and how the rest of the world will side with that. So I think it's a number of issues there.

POC: Yeah, I guess you do make a key point there Tobias, is that as the crisis has gone on and developed over the last couple of months, the sort of comments and feedback on the vaccine originally started with saying it could be two, three, four years. And now I see in the news this morning where equity markets jumped strongly overnight on further positive news on the development of a vaccine. So let's hope you're correct that the duration of the isolation policies is quite short lived. Equity markets both in Australia and globally have been extremely volatile over the last few months since the spread of COVID-19, so how have small-cap stocks performed during this period?

TB: So they're a little bit more volatile. So we've seen global large-caps have fallen 34% since they started falling in very late February, early March, and then they've rallied 29% off the lows. So global large-caps are down 15% overall as a group and global small-caps fell 40% and they've rallied 34%, so they're down around 20% overall. So there's a little bit more volatility than in the large-cap. But as you can see they've rallied a lot more from the lows than global large-caps. And if we go into an environment where the outlook for GDP over two to three years is improving and accelerating, you would expect global small-caps to materially outperform global large-cap.

POC: I mean it's interesting that small-cap stocks have only slightly underperformed large-cap in the down market period of February and March. And probably goes back to your earlier point about why investors should consider having a small-cap fund in their portfolio that's slightly underperformed, but they've outperformed on the upside, so it's certainly a key point to consider. Since the outbreak of COVID-19 the Central Bank's monetary response and government's expansionary fiscal policies that have been announced, have been nothing short of extraordinary. So do you believe these selections are really supporting current equity market valuations?

TB: But it's important to also note that equities are discounting trend growth at a very low discount rates, which is why we see what appear to be quite high PE multiples at this point in time. So we're seeing the S&P earnings yield is actually at its biggest discount to the long bond yield over the last 50 years. So what that means is that bonds give you such a poor return, particularly in a real yield that the discount rate with which value future corporate earnings from equities, particularly earnings that are expected to grow over the next 10 to 20 years, it's very low. And that generally should lead to much higher earnings yields, also price to earnings multiples as a function of those earnings yields.

POC: Yes, well, I guess those cash rights and bond rights have come down and down. The investment theory of the risk free return has plummeted as well. So meaning that given everything is typically valued off where cash rates are I can appreciate your point there that equities to a degree do not look particularly expensive in the current environment. Given that it appears to be some time, although the sometime before we'll see a vaccine for COVID-19, accepting your comments earlier, on a forward looking basis, can anyone determine a reasonable estimate for corporate earnings and potential stock price appreciation? And I guess, again, it's just all the unknowns going on in the market, the unknown duration to when we will have a vaccine and I guess not having full look through at the moment on the damage that's currently being done to the economy. How do you even get a handle on corporate earnings growth and what a stock price is, or are you trying to look forward maybe two to three years to move through the noise and the impact of COVID-19?

(Previous episode) weekly review of the impact of COVID-19 on the financial markets - Russell Investments (12 May)

In this episode, Alex Cousley from Russell Investments joins us discuss the impact of COVID-19 on the Australian and global economies, including the spread of the virus around the world, the impacts of a worldwide recession, rising geopolitical tensions between the US and China, the companies best placed to withstand an economic slowdown and his investment philosophy for navigating the current market uncertainty.

Listen to the episode

TB: Yeah, I think there's a bit of that. It is incredibly hard to handicap corporate earnings growth. It's incredibly hard to handicap where GDP is going to be in three years time, let alone where a company's earnings going to be in three years time. In reasonably normal times, say 2016 to 2017, it's hard. In the environment we're in, we're seeing about 25, or a third of companies are pulling guidance, which makes it very, very difficult. So yes, it is hard. I think one of the key things which you allude to at the end there, is you want to invest in equities for the future, particularly global small-caps. You want to be looking for businesses that in five to 10 years time they're going to have delivered a lot of earnings growth.

So I think one of the key questions is, is the business still going to be here in two to three years time? Do they have the balance sheet and the capital structure to get through this? And we always focus on that in our process, but certainly at the moment it's key. If you can assume that you do get through it, then you want to be looking at what it is they're doing with their capital over the next sort of three to five years to deliver growth. We really focus on businesses that are compounding value, creating events together.

I think one of the keys for global small-caps is you want to find an emerging global titan, that's what we say we look for the whole time. To try and give that some colour, I think one of the best examples in Australia is CSL. So CSL is a business that everyone should have owned for a long time. And it was an emerging global titan, and now it is a global titan. And there are particular characteristics that CSL displayed in its past and still displays now that make it a very attractive investment.

And I think that's what's key to finding an emerging global titan. It's a niche leader, which I thinks key. It's well managed. It's operationally well managed, and it's got a strong ability to deploy and allocate capital really well. It is expanding or did expand organically and through acquisitions, and it's expanded geographically and through adjacent verticals and it's always had a strong and improving focus on ESG. So that's what we look for, and I think if you focus on that, although you might not be able to predict, say what Q2 earnings are going to be next year with as high degree of accuracy as you have been able to in stocks over the last five years, what you can do is find a business that's compounding value, creating events together on its way to being an emerging global titan. And I think

that's the aim of the game and that's what will deliver strong returns. And we've got a number of businesses like that in our portfolio that we think are going to deliver similar return profiles.​

POC: Ah, interesting. Can you maybe give us an example of one or two of those businesses, Tobias?

TB: We'll be quite limited on this one is called The Trade Desk. It's a leader in programmatic digital advertising. So that's an area that's growing extremely strongly in advertising. It's a business that's had a very strong focus on ESG considerations and those focuses have enabled it to take market share off Facebook and Google. And we see Google and Facebook's business models come under particular pressure going forward from a walled garden approach and a lack of visibility approach. So they try and turn the lights off on the internet. Find a business that sets itself up with a focus on ESG can turn the lights on, on the internet for advertisers. So that's one that's kicking goals and compounding value, creating events together.

Another one we know and like that is probably a little bit less known is a stock called Amplifon which is a world leader in hearing aid centres. So this is a business that's grown globally. It's in Australia and owns hearing aid centres and it's compounded value creating events together through not only acquisitions, moving into slightly different verticals, but also improving its ability to deliver hearing aids to people at better quality hearing aids at cheaper prices. So that's one and then another one that's probably a little more bit more of an odd ball is a stock called Generac, which is a world leader in making generators and now wall batteries and inverters. So Generac's expanded geographically on an organic basis, but also through making acquisitions in the developed world and the developing world. It makes all types of generators for both residential and commercial use, both industrials and hospitals, et cetera. And it spent a lot of money on R&D to make sure it's a leader and is now gaining a lot of success in wall batteries. And that's a strong emerging trend.

So those are three stocks and just to try and explain them brief briefly. They're niche leaders. They're really well managed. They under promise and over deliver. They've got a very strong ability to deploy capital and allocate that capital really well. And they're expanding both organically and through acquisitions and they're expanding geographically and vertically and into adjacent segments. So that's what we think is the clear characteristics of an emerging global titan. And that's how you get towards finding the next CSLs or the next Google, which The Trade Desk could be.

POC: Yeah, I think you've articulated those three companies very well. And I guess the one theme in my mind as you've been talking there, Toby, is the significant longterm growth opportunity to grow their earnings by growing the markets where they're selling their products into. And I guess that really is what trying to find when we're investing in small cap stocks, those companies that are growing significantly faster than the rest of the universe and the market as a whole. So in terms of the volatility that's occurred in markets over the last few months are there industries in the global small cap company universe that have benefited, or is this question better framed on a company specific case by case basis?

TB: I think there definitely are industries and sectors that have benefited, but on a company level, different businesses have taken advantage of these or suffered more in sectors than other ones based on the quality of management and the quality of their assets and staff engagement and other ESG focuses. I think some of the working from home and stay at home themes have really benefited certain sectors. And we've seen a lot of our businesses really kick on in terms of earnings expectations and therefore the share prices, which are driven by earnings expectations. So grocery stores are a clear one, digital communication, e-commerce plays and on the back of it cardboard manufacturers, which I didn't realise that immediately when I worked out that one could see e-commerce was going to take a real kick on here.

Didn't immediately see that people who produce board were going to get a kick on too, but cardboard has been a big beneficiary. Truckers have benefited and gambling and live casinos. We don't have investments in those, but that they've done really well. And takeaway delivery plays obviously have done well. And on the flip side, you've seen bricks and mortar retail, particularly apparel, really suffer. Obviously airlines, hotels, and resorts have suffered. Restaurants have suffered. Out of home advertising and then sort of things that aren't immediately apparent again, but high speed trains, et cetera, the outlook for building high speed train lines is falling a lot with COVID. So that there's a lot of themes there that are reasonably apparent, but they do have a big effect on expectations for future company earnings.

I think that the main point you spoke about is that the trends that we've seen play out over the last five years have just been accelerated. There's been a massive kick on, so people could work from home and use different software to work from home and do virtual meetings, but we didn't do it that much. Now with COVID, it's become trusted and acceptable way of doing things. So we maybe didn't buy everything on the internet before, now we buy a lot more. So those trends have just seen a big kick on, and we've seen that in a number of our businesses. We've stayed void of airlines and aerospace manufacturing, void of hotels and resorts and out-of-home advertising and that's benefited the portfolio and we've seen strong upside from a grocery network we own in Sweden. E-commerce and our businesses that work on e-commerce have done well. Pulp manufacturers have done well, our truckers have done well. So you do get those benefits coming down to the company, but it's also an important point, different company management teams, particularly in small caps have different success on capitalising on those themes.

POC: Yeah. Interesting point you make Toby is around the trends of the last five years we've been observing have really accelerated in some areas. And I guess we touched on this before the podcast this morning where we've all been forced to adapt and change. And I think that's typically human nature that humans are depth and change the most when they have to, when we're cornered. So yeah, I can appreciate that anything around online communications, anything around, I guess, parcel deliveries and those types of industries and supermarkets, obviously we've all observed the increase in business and how effectively those industries have been beneficiaries of the recent economic volatility. Moving on to you. You touched on ESG earlier. So environmental, social and governance really covers the main criteria, I guess, in assessing the sustainability and societal impact of a company. And this just continues to receive more and more attention from both investors and fund managers. So what's occurring with ESG trends in the small cap universe and are company's really open to adapting and adopting ESG principles in the way they manage the corporate?

TB: Yeah, it's being adopted. I think ESG research creates a lot of opportunities for returns. A lot of studies are showing what we've always believed even back in the 90s and that's one of the best predictors of future quality of a company is its momentum or improvement in ESG. And that's always made sense to us. Management teams that really care about their employees, the sustainability of their supply chains, the ethical approach to producing, getting a good company culture. They care about those things as much as the profitability of their business, they're clearly in a much better position to deliver a stronger future for all stakeholders, particularly shareholders. So that's always made sense to us, but over time that's been improved. I think one of the key themes that we've seen is that almost all companies in the small caps, just as much as the large caps, have really onto the importance of having a great ESG story. So they produce all the ESG documentation and material that investors look for, but ticking all the boxes doesn't necessarily mean that the board is really as good and as focused 

... Doesn't necessarily mean that the board is really as good and as focused on these things as they say they are. If you produce the material and you tick the boxes, you will get scored well by ESG rating agencies. And if you get scored well, you'll attract more capital flow as more and more people want to invest with ESG. It's high up on the priority list, but ticking those boxes I don't think really delivers what people should be looking for. I think you need, especially now more than ever, to know how to research ESG issues thoroughly, really be able to look under the hood and you need that really strong research leadership. It's not about subscribing to ESG rating agencies and saying you incorporate it and listening to proxy voting advisors. It's really about taking leadership, and I think you need specialist frameworks to do it.

I think one of the great things about coming to work at OzBill is that we're at the leading edge of ESG research. We've been recognised as such, and we'd certainly want to be at the leading edge going forward. We've got a dedicated research team led by at OzBill. And the framework that he's developed, that really gets to look under the hood about what it is that the board of management's doing in particular areas and how to analyse that, rather than just going through the material they put out and ticking their boxes that they've bought a whistleblowing policy, a strong code of conduct, the board's independent, et cetera, ticking the boxes. It really goes under and asks a lot more questions in a fundamental sense, and that's been really beneficial for us. And I think going forward, it's going to be more difficult to discern between what companies actually taking the leadership on ESG issues and what company's just ticking the boxes.

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POC: It's interesting, your comments there, Tobias. So, as you're talking, I'll get us back to my earlier comments where I have a lot of engagement with various fund managers, and everyone's talking about now, and probably not dissimilar to the companies that you're meeting with. I find a lot of fund managers, it's just a very blunt negative screen. That just might as well be a box ticking exercise, where I tend to find, in my opinion, the better quality ESG managers out there are genuinely living and breathing it. They're undertaking qualitative assessment of the companies and particularly the senior management, and whether they're genuinely living and breathing ESG as part of the way that corporate exists or whether it's giving it some type of lip service because it's seen as the latest trend there. So, do you find that companies are open to engagement on ESG issues and, well, do you engage with companies? So, potentially a company that may not score or be viewed particularly highly by OzBill, will you then try and potentially engage with them on how they can improve their...

TB: Yeah, we do. And I think that's a key part of ESG investing, it's to focus on the momentum that the board of management teams are undertaking to improve the focus on these considerations. So yeah, we talk to them and we actually make suggestions. I think taking a leadership on not just common ESG factors that people look for, but also modern slavery, the effect of climate change in a few years time. It's not just obviously how much carbon dioxide you produce, but it's how much you get from your supply chain and how much you produce further down the chain as your products and services are sold. So, it's important to engage with people and tell people what you think. And to do that, I think you need to take a position where you're like, "This is what we believe, and this is why we believe it, and we want to work with you to help you to make our suggestions on how you can improve it."

So, I think one area we've recently been focusing on is modern slavery, which is an interesting topic. And I think everyone does care that there is slavery in the world and we need to abolish it once and for all. So, there's a lot of different factors and I think management teams really appreciate you engaging with them because everyone wants to have a discussion around what's important for people and what's ethical and what improves returns. And I think taking a deeper lead in your research really helps. One of the main reasons that the trade desk has outperformed Google and Facebook so much, not only in its market share but its earnings revisions and therefore its share price, is because it's not just their code of conduct or their whistleblowing or the independence of the board. It's much deeper around what it is they want to provide for their customers, what it is about the way they think the industry should be in the future to do with lack of personal information so you can't identify people, to showing people efficacy, that there's lots of themes underlie it that are really important, that aren't always apparent on the surface. And as an investor, you get much better returns for your clients and investors, by getting that analysis right.

POC: Also I think in my mind that given you would make so many different companies and you've got your dedicated ESG research team, you can really bring a relative perspective to the discussion with companies who may not be fully aware of the trends and the way other companies in their sector, competitors, or even other sectors are embracing and incorporating ESG into the way they run their businesses. And I guess I feel that's a little bit similar with the various fund managers that I deal with in terms of seeing some managers to my earlier comments say that have dedicated research and undertake very positive, qualitative type research to make sure that they fully understand from an ESG perspective how a company is being managed there. So, I think to a degree you have an important role to play there, Tobias, and in continuing to encourage good ESG management among the corporates that you research. So, we finish our podcast typically, Tobias, with asking gifts for any personal investing tips that you've applied through life and perhaps are central to your own personal investment philosophy. So, do you have one or two tips you could share with our listeners?

TB: Yeah, I think my personal philosophy, I came up with this I guess myself because it's how I understand things, but it is that markets are very efficient, but they have no imagination. And for me, that's absolutely key. Markets are much more efficient than you can ever be as an investor, especially with high-frequency trades, momentum algorithms and all the new technology that's being developed in markets. But the markets can never be as imaginative as you can be as an investor, so having a really strong and balanced imagination is key and imagination is the way to get alpha out of a market. 

POC: That's becoming a little harder at the moment, given all the momentum investors that seem to follow each other. So, having a different view and a different thought, I can understand your point. It could certainly result in stronger performance. Yeah, so interesting.

TB: Yeah, I think it's key and like you're saying, now even more important than ever. And I think that the second one is just the old mantra that I think is so important, is you've got to do your own research. You got to work hard that. The harder you work, the luckier you get. It's just the absolute truth. There's four and a half thousand companies in my universe looking for emerging global titans and there's not that many of them, but you've got to keep looking and keep looking and keep doing your own research. Don't take everything you read as true and just work hard and keep looking until you find the gems. I think that's the most important other point. The harder you work, the luckier you get.

POC: Yeah. Well, I guess ultimately, as my father said to me as a young fellow, you make your own luck in life. So, I think that's what you're saying there, Tobias. So, Tobias, thank you very much for joining us this morning. It's certainly been an interesting discussion in terms of your and OzBill's views on global small caps and the current economic volatility that we're currently living through. So, thank you for your time this morning. It's been really appreciated. To our listeners, thank you very much for joining us. I wish you all the best during these current times, extraordinary times that we're living through, and I hope you have a great day. Thank you.