Australia's remarkable resilience

S1 Well, good afternoon, everybody, and thank

you so much for joining us today.

My name is Simon Glazier and I'll be hosting

the discussion today, but firstly,

I just want to send a thought out

to our Melbourne friends,

families and colleagues and hope everyone's

doing okay after what has been

an unbelievable morning with the earthquake.

It really is quite surreal at the moment

and again, before we do get started,

just some housekeeping. We're planning on

going for about 40 45 minutes today.

If you have a question, you can

submit by using Portal.

I'm pretty sure we're all

experts at that by now.

And if you died in my phone, unfortunately,

that one won't be able to and we'll do our

best to incorporate everything as we go.

We've had a lot of questions

to start, which is great.

It'll get us off on the right track and also

a reminder that CPD points will be

S1 available post today's session

and probably follow up in

around a week's time.

Now today, we're joined by Paul Taylor, who I

would imagine by now is familiar to most,

if not all. And since Inception back in 2003,

Paul's fund has delivered around twelve

point three percent compared to

the benchmark of 9.7, and that's after fees.

And with the Australian market really

returning around 30 per cent in

the last few months, it's been

on a bit of a run and run off

for one didn't expect to continue

for as long as it has.

So today we'll have a bit of a talk and

walk around our reporting season.

We'll look at the different sectors and

what's impacting company earnings.

But Paul, before we do start, I want

to bring up your beloved Broncos.

It's been a tough season and let's be honest.

You know, Queensland is in a bit of a

purple patch for sporting events.

S1 Melbourne, I want to I want

to pick your brain on on.

Obviously, the new signings for the Broncos,

it's going to be a new play next year.

And you know, what is your expectation

going into 2022?

S2 Well, my expectation is that

I can only get better.

And, you know, I keep expectations

pretty simple,

but I thought you were going to ask me about

the red state rather than the Broncos,

but to me that.

S1 But are you going to the end

of the final series?

S2 Look, I I'm not. I've got

there's a couple of

the things personal things we've got going

to happening, but it is it is exciting.

What was it having the AFL last

year and the NRL issue?

It has been fantastic and actually

the real buzz is the Olympics,

and I think that's going to be that there's

going to be fantastic for the city.

S1 Absolutely. I couldn't agree more. Hopefully,

we can get up there and partake.

S2 I'm sure that's long enough. That's a long

enough lead time. So that should be good.

S1 Very good. And probably just to

move back to the markets.

You know, we've covered before

in a number of sessions.

You know, you've spoken about the second

derivative and sort of in terms of

the context of that, the emphasis

of government's early kind,

it was to build a bridge over

the economic remain again,

which you've spoken about before and put

the economy in hibernation to kick

us off today. Where are we now?

S2 You look, I think that's a good sort of

contextual point just to start with,

and that's exactly right, say this, you know,

COVID took us into March 2020.

We were looking at the abyss at that point.

And really, governments use the analogy of,

as you said, you know,

we were going to go into an economic aid

is going to be a huge economic ravine.

We needed to build a bridge over it. Or the

other analogy they used was hibernation.

So just and that was when

they were looking at

the furlough schemes like JobKeeper really

trying to hibernate businesses

so that they said that when

we get to the other side,

those businesses could could

come back to life.

I think as you said in the intro, things have

probably, you know, from that point,

I think things have probably been much better

than we anticipated at that point.

And I think a lot of the government schemes

S2 really helped us, you know,

navigate through that very difficult

phase or a lot of

the restrictions that were in place.

So I think they've done they've definitely

done their job that we not now are, though,

and the markets recovered the markets

looking forward a couple of years

as strong recovery. But we're now

at the point where if you use

the hibernation analogy, we're

getting ready to wake up.

So maybe we're just yawning and stretching

and coming back to life.

Every, you know, we're just

getting like, sorry.

S1 There is probably a few sore

heads about, I must say.

S2 Yeah, you saw heads and it's it's

it's a little, you know,

it's also a time where there's maybe a

little bit more uncertainty as well

because you're in that in-between phase where

we're not in the, you know, JobKeeper

government schemes around us.

And we're not yet in an era.

We're not we're not haven't completely

reopened and we're still trying to get

the vaccination rates up so that we can.

So we're sort of in that in-between

transition phase,

which is that there is a little, you know,

everyone's just a little bit more nervous

or a little bit more uncertainty

as we go through that transition.

But you know, overall, it's, you know,

I think we're we're in a good

spot and it's looking.

You know, we're just getting

into that reopening phase,

which I think will be hopefully be exciting.

S1 Yeah, and we'll probably discuss

that reopening phase and try

as we go through today. But you know,

in terms of reporting season,

there was quite a lot on I mean, dividends,

buybacks, really strong corporate earnings.

What are some of your key

take outs of reporting?

S2 Season is over. That's exactly right.

So it's a strong corporate earnings

and I guess we had

a few different moving parts

within there as well.

And that still reflected the last six months,

which there was periods of a government

support through that through that period

as well. And obviously, you know, quite

strong stimulus from monetary policy,

very low interest rates and also

fiscal stimulus as well.

Through that through that period by

very strong corporate earnings,

S1 the

S2 driven by which was interesting

in the lead up.

I think the resources sector had probably the

strongest earnings growth in that half,

which really reflected which really reflected

the strength in the iron ore price,

but actually the strength across a lot of

commodities and not just the iron ore price,

but actually through the August period,

we obviously saw the spot price of iron

ore start to come down a little bit,

so were getting a few different moving parts.

But the earnings growth that it did deliver

for the resource sector was phenomenal,

and the dividends that came out

of the resource sector,

you had very large resource companies

on double digit dividend yields,

which I don't think and it's a very

unusual scenario and a huge

a very strong cash cash flow.

So you had really strong dividends and

dividend we probably had across

the whole sector because the whole market,

S2 we had probably slightly more beats

the misses, but dividends,

we had a lot more beats the misses.

And I think that the dividends is an

interesting one as well because, you know,

the normal theory is that dividend should

obviously reflect the profitability and

the payout ratio, but it also reflects

a company's view or optimism about

the future. So what you saw

in the middle of COVID

companies were actually holding

dividends back.

So if you go back to the previous

two reporting seasons,

you saw companies basically

holding cash. Does that?

Well, I'm actually, you know,

there's more uncertainty.

I'm not quite sure, especially in the banks

and areas like that where I'm not quite sure.

So I'm going to hold those dividends back.

This one, they said, right, we've got the

cash, we've got the balance sheet.

S2 I think that's also what it means

that corporate balance sheet.

A really healthy position, but I think

it's also a bit more confidence about

the future that companies did said, OK,

we're now we now feel confident enough that

we're going to pay a much better dividend.

We're going to do special dividends

and we're going to do buybacks and

and our balance sheet is in is

in really good shape as well.

So I thought that was a positive

and it also meant that we're we're coming

know people can see the light at

the end of the tunnel and sells a lot more

comfortable in paying out those dividends.

There was a few other, I think,

interesting trends which are still a little

bit COVID related as well. So

we are seeing some supply disruptions

in certain areas.

And so whether it's steel or building

materials was hard to get

and we're seeing price increases.

S2 We we're also seeing some potential

light on the potential.

We're seeing labor shortages in

some areas and some of that.

The interesting thing is some of it is caused

by border restrictions internally

within Australia. So just to give an example,

a lot of the mining service companies,

especially West Australian

mining service companies,

were having a very hard time because a lot

of the a lot of their work is a fly in,

fly out. So, you know, if

they could get into WA,

but this could necessarily get out and

get back in again or there was

or they had to quarantine. Or so

there was a big restriction

on terms of getting workers to areas

different parts of Australia where they were

needed. So we source a lot of

that supply disruptions,

labour shortages and labor disruptions

through a lot of the restrictions as well.

S2 So, yeah, you know, really interesting

reporting season on the whole,

a very strong reporting season. But,

you know, areas of concern as well.

S1 Yeah, absolutely. And you

mentioned obviously

the run up to reporting season from

a commodity cycle perspective,

but obviously we've seen a pullback in terms

of falling iron ore prices, as you know,

as an investor yourself. And obviously,

we've got investors on the line.

How how, how should we respond

to falling iron ore prices?

S2 Well, going was a really interesting one,

and it's it's it's hard.

It's sort of it's it got up to well over $200

, but I don't think the the market,

the iron ore stocks didn't, you know,

didn't we never thinking that

that's the permanent $240 is

the permanent price of iron ore?

I think most people, most pick most

players in the market would assume

a long term iron ore price, you know,

somewhere like 50 to 70 dollars.

So which is even lower than where

we're sort of back to?

I think just under $100 at the moment.

So it's the iron ore price

has been sort of held up

much longer, and it got helped through the

COVID period because China, you know,

China was sort of first in, first out

and was their economy was coming back to

life and they were demanding iron ore.

And on the back of it said we had really

strong demand for the product.

S2 And then on top of that, we had supply

disruptions from our key competitor in

Brazil, and they weren't able to

supply the also Australia.

We had supply disruptions and strong demand,

which led to the really strong price.

I think the market didn't really feel that we

really felt that two hundred plus dollars

a tonne was a permanent. That was a

that was a shorter term anomaly.

And even the companies, you know,

made those comments as well.

It was a shorter term anomaly,

and it would have to normalize as

supply came back on from Brazil.

And as China's growth potentially moderated,

you'd see a moderation of

that as iron ore price.

I wouldn't get too caught up in the huge

fluctuations of volatility in that price,

but make that more. I think what's more

important is that long term assumptions

and and the bottom line for for Australia

anyway, is, you know,

S2 we are the low cost producers of the world

and in mining or resource terms,

that's actually the really important thing.

So if we're if we're pulling iron ore out

of the ground at 20 dollars a tonne,

you know, if you're selling

it at $60 a tonne,

that's still a huge margin and

a huge profit and still is

an incentive to increase increase production.

So I'd and we always look at

when we look at valuations,

we typically focus on that long, you know,

it normalizing to a long term price.

S1 Yeah, yeah, that's a fair point.

So now you're not only, as you say,

it was more of the spike rather

than where we are now.

S2 Yeah, yeah. Look, I think that was like

I said that given some of those shorter

term anomalies caused by.

And like I said, trying coming out of it and

the supply disruptions in Brazil that caused

the spike to over to two hundred dollars

a tonne, so it's a short term anomaly.

And you really need to look to

the long term price just to look at what's

more sustainable for, you know,

for those iron ore companies.

And like I said, that long term price

probably more in the 50 to 70 dollar range.

S1 Yeah, perfect. And you mentioned, you know,

might just discuss this reopening trade.

I mean, as you say, we're all thawing out,

right? We're all we've come with.

We're coming out of hibernation where

we've just been consuming.

And it seems to be just gathering stuff,

online shopping, et cetera, et cetera.

You know, I definitely say there's

a there's a there's

a demand to go from buying

stuff to doing things,

but how do you see this reopening

trade playing out?

S2 You look, I think so. The reopening trade,

I think,

is going to be the dominant

thematic in the market.

If I look, if I look, if I looked at 20 22,

I think that's going to be the dominant

thematic in the market.

We are coming back to life. Like I said,

that transition maybe is a little

bit uncertain and unsteady.

Maybe we'll see a little bit more volatility

through that transition phase.

But at the end of the day, as the

vaccination rates get off and

as we start to normalize and opening

up domestic borders as well

as international borders, I think that

normalizes a lot of businesses and trade.

I think the the actual really important

thing to think about is.

Because the reopening trade is really all

about a return to normalcy in some way.

But, you know, I don't necessarily think

everything is going to return to where it

S2 was pre-pandemic. I think that's going

to be the interesting point.

So if you look at some of the big trends,

so for instance, international travel,

even domestic travel, you know, on the

leisure side, I think as such, there's,

you know, there's such pent up demand.

People want to get people are, you know,

there's definitely cabin fever.

People want to get out, they want to have the

holidays and they want to see, you know,

go get a really lovely. Interesting

destinations.

So I think there's pent up demand.

And in fact, I was just talking

to a colleague, you know,

a little while ago saying that

they're already booking.

They're, you know, they're all,

they're all their restaurants and where

they're going to in Sydney, when one,

when Sydney slots open up. So, you know,

people want to want to do things.

So I think the leisure side,

S2 the pent up demand there and that they'll

come back really, really quickly.

But I think the business side

is a different question,

and it's definitely got more

question marks over it. So

these Zoom meetings or teams or WebEx

meetings in business have found them.

You know, we sort of got forced into them,

but now we've found them to be incredibly

efficient, incredibly effective.

And I don't think it will eliminate

the face to face meeting,

but it definitely could, you know,

decrease the numbers that maybe if you

and I were catching up four times

and having to travel to catch

up four times a year?

Well, maybe going forward, you know,

we catch up face to face once or

twice and we do, you know,

a couple two or three Zoom meetings.

I just think that's definitely something

that's that's coming back, you know,

S2 and business have really adopted

this that process.

The other one, actually another thematic

through when we caught up with

a lot of companies over reporting

season was a lot.

Know the whole ESG side, I think

is really gathering pace and

a large number of companies are, you know,

have prepared sustainability reports.

And actually, a lot of companies are

committing to net zero emissions bought by

different dates, but by certain date.

So from a from a corporate entity level,

they're committing to those

net zero emissions.

And I just think for business,

for businesses to achieve

that net zero emissions,

they're going to have to travel less

and they're going to have to use

the Zoom more. Like I said, it won't

eliminate face to face meetings,

but it will lower them and they'll need to

S2 lower them if they if they want to hit their

net zero emissions targets. And, you know,

I guess it's just good business and you know,

it was obviously lowering costs as well.

So very simply for reopening trade,

it's I just think you can't assume

everything's going back to normal.

They'll definitely be some things like

leisure travel that will go back very

quickly. But

you know, the business travel, you know,

I think there's still a lot of

question marks around that.

You've got other things, you know,

like working from home.

I think I think people do want to generally

get back into the office,

but they have loved the flexibility

of working from home.

So I can definitely see some, you know,

three days in the office.

If you if you're able to three

days in the office,

two days at home will definitely

S2 become more the norm.

And that was that would have

been unusual pre-pandemic.

I think there are a few other sort of things

that are a little bit different as well,

and you will a lot of it is habits, you know,

I think that's the interesting thing through

we kind of we've changed our habits.

Are those habits going to stick when

we go into the reopening trade?

Or will we go back to our old habits?

I think is there's still a few

question marks as well.

So on the one of the other things that we saw

through reporting season is even just

gross things like grocery shopping.

So the big guys in Woolworths and Coles

have really been gaining share at

the expense of places like Aldi. And, you

know, a couple of reasons for that.

One is that we've obviously bought a

lot more online and the big guys,

what was in Coles have a much better online

presence that we've been ordering our online

S2 shopping through them. And they've been

getting they've really been dominating

market share on the online shopping,

but also it has sort of eliminated

the double shop and Aldi was

a key beneficiary of the double shock.

So people would, you know, go to Coles

for three quarters of their shopping

and then they might do another shop at

Aldi and get sort of specific items.

And we're very value valuable price focus.

But during COVID, people have pretty much

eliminated that second shop. And so they.

Just wanted to go there once now with. So I

think that's up in the air a little bit.

You know, I'm not sure that's

settled as we come,

as we guys come out of this as well as well.

People have people enjoyed that one shot and

they're not going to go back to the two.

I mean, definitely the online, I think,

is going to continue and those the big guys

will continue to gain share on the online.

I think that will continue post reopening.

S2 But you know, the second shop, I think, is

still there's still lots of question marks.

I think there are definitely big structural

trends that are likely to continue.

Post COVID as well. So if you

think about e-commerce,

the e-commerce trend was

happening pre-pandemic.

It got accelerated through the pandemic

and I think that that habit is now

is well entrenched. Are we going to see

a continuation of that penetration in

the reopening? You know, it

will post post reopening.

So now that e-commerce trends continue.

Digital delivery of food and beverage,

I think once again that was happening

pre-pandemic accelerated in the pandemic

and the penetration will continue

post the pandemic.

And I think you'll still that there'll be

a really strong trend going through.

And once again, that's a habit based

on trends and things like

S2 the cashless society. Same thing

was happening pre-pandemic,

accelerated in the pandemic and

will continue post-pandemic.

So to me, that's the really interesting thing

. I don't think so.

Some of those bigger, longer term trends

that we're going to continue.

You will see some return to normalcy like

leisure travel and like going back to

the theater and museums and

and and sporting events

or people that there's pent up

demand to do all that stuff.

Business travel, I'm not so sure about. And

I think that's still a big question mark.

And and you've got hybrid type things like

working from home, working from the office.

So they're the big questions, I think, in

terms of putting together the portfolio,

looking at where the where

the best investments are,

there things you need to consider in the in

when you look at the reopening trade?

S1 Yeah. And when you're talking to the

companies around these reopening trade,

particularly some of the the winners

and you talk you talk about working

from home and a hybrid model.

Are there any conversations

around productivity?

Is a is it leaning one way or is

it sort of continuing the same?

S2 Look, most of the time when I talk

to companies, they were.

I think the reason that we didn't go down

that path pre-pandemic was that they were

worried about productivity, that people,

you know, if they were at home,

they wouldn't be working. But I think

the general view and this is not

a total view, but the general

view is actually it's worked

and people have been working and

productivity has been good.

And yeah, I mean, it's it's actually worked.

So I think that's why.

Well, the individuals love the flexibility,

I think the corporates are

now much more open to it

because they've seen that

it actually has worked.

It has been there has been productivity.

When I when I just look at our own

team of analysts, you know,

they're probably working longer hours

because they've got rid of

S2 a lot of them that got rid

of a very long commute.

But now they probably started meetings

a little bit earlier.

Actually, the opportunity, you know,

our business is really meeting with with

companies, meeting with the companies,

their competitors, their suppliers,

meeting with different organizations

is a key to us.

And the Zoom has allowed probably an

increased level of company meetings

and discussing things with and discussing

things with people as well.

So and you've got rid of the commute, which

has opened up more time as well.

S1 Yeah, yeah. In terms of the cashless society,

you've got to feel for the ATMs out there.

I mean, what are they do in five years time?

S2 Well, that's right. And that's, you know,

they're all they're sort of remodelling now

for that, for that eventuality as well,

I think.

S1 Yeah. And just in terms of valuations,

obviously, you know, in March last year,

you know, you did make a comment.

We'll talk about this later on.

We'll look it back in at this point

at this time and and, you know,

think that this has been a great

time to enter equities.

Where where are we now in

terms of valuations?

S2 You look, valuations are definitely

above historical averages.

So, you know, the Aussie market, if you look

one year forward, we're sort of, you know,

17 18 times on a price to earnings,

which is a bit higher than normal.

So that would normally be through

it through a long cycle.

It's probably 15 times 15, 16 times.

So we're a little bit higher, but not

completely outrageously high.

Dividend yields are still

once again year forward.

You're sort of looking at the three to four

per cent, which is also pretty reasonable.

And but the critical thing, I think when you

look at any of their valuations, you know,

valuations are all relative to to a

cash level in any valuation model.

The risk free rate is a really

important input into that.

So, you know, and it's also you any investor

is going to put their money somewhere.

So it's that relative relative to cash is

S2 sort of the important feature a lot of

the time because you say, Well, I can put

it in as risk free asset at this rate.

If I put, you know, I put it

in a more risky asset,

how much more do I need to earn

to put it into a risky asset?

But you know, you're getting pretty

much very little in a bank account

or risk free assets. Like I said,

you're picking you still getting three to

four per cent fully franked dividend yield

in the market with growth on top.

So that's still quite attractive

relative to those zero rates.

And once you get it, when you

put the risk free rate into

it, net present value, discounted

cash flow valuations,

you're getting very high valuations now.

When we do it, we're normally adjusting

a little bit as well.

So if you look at the 10 year and normally

risk free rates, the 10 year bond rate,

S2 and that's sort of around about

the one per cent level.

But that's, you know, if you put that in,

everything's everything is

attractively valued.

I think you probably need to normalise

that a little bit,

assuming that that's not sustainable if those

sort of lower levels and we will see

a normalization of that over time.

Although and I should have made a comment

on one of the one of the consequences of

the reopening trade and normalisation is

potentially and as is being talked

a bit about, is about some inflation

entering the system.

As as the economy starts to grow,

you see start to see some

inflation come back in

and potentially central banks will start

to increase interest rates as well.

Now, while I think that's definitely

the other thing, you know,

we're at zero interest rates.

S2 So there there's only one way to go, though,

really, so they will go up.

I guess I'm probably still more

in the better it'll be.

It'll take, it'll be slower. It'll

it'll take longer, I think.

And central banks are telling us that

because, you know, if you look back

previously, we sort of went through with,

I thought interest rates were bottoming

and that sort of 2016 period.

The Fed in particular, tried to through a lot

through the contact with the tapering

and reduction of the quantitative easing

and try to increase interest rates.

But they they reversed gears very,

very quickly.

So I think they had a bit more cautious

this time, and we'll see that then.

They don't want to hear that they want to

normalise it, but they'll do it very slowly,

I think. So all of that being said, I

think we will see interest rates.

But it will take longer to go up,

S2 which actually will be a much better

environment for equity markets as well,

in that in that sort of normalized

normalization is good but nice and slowly.

I think we'll be much better

for the equity markets.

S1 Yeah, equities tend to continue to perform

in slow rising rates in writing problems,

although we haven't seen one in a while.

But yeah, it's interesting.

S2 So you in the early phases of interest rates.

Equity markets tend to do well because

you know you've got to look.

There's a reason why interest rates are going

up because the economy is doing well

and in the early phases, the equity market

tends to focus on the fact on that,

on that positive aspect, which is that the

economy's doing well when it gets to

a certain point, they then start to go, well,

actually, you know,

interest rates are high. That's

going to be a drag.

But in the in the early phases,

it tends to be quite positive for equity

markets because that because investors focus

on, well, this means that

we're doing much better.

S1 Yeah. And we'll we'll we'll we'll talk to her

portfolio positioning in a in a second.

But obviously something that's

very recent is obviously

the ever grand challenges in China.

Do you see any potential contagion

impact to the Australian market

and sort of what's your take on that?

S2 Well, generally, China is a is an

important market for Australia.

So we've seen that through a whole

range of areas and, you know,

I guess iron ore in particular,

but also coal.

So that's the other thing

to note, you know, while

while iron ore has been coming off,

coal has been going up.

So look, China is has, you know,

and there's obviously a lot of geopolitical

issues at the moment,

but the two economies are actually

really complementary. So.

China is very much sort of secondary market

is the secondary and waves sort of primary

and tertiary. So we don't really we buy their

products and they buy our products.

We tend not to compete with them on

a whole range of different things.

So they're very complementary

economies in that

and they sort of work together

S2 quite quite well.

So Australia has been a beneficiary of the

China sort of long term growth story.

So anything that anything that

has the potential to impact

Chinese growth in the short

term or the long term.

And I mean, that will have an impact that

will have an impact on on a on Australia.

I think it's probably a bit early to get

to concern on that particular issue,

but it's obviously one to monitor and watch

whether there is any further issues in China.

But yeah, I mean, broadly, anything that has

a negative impact for China, potentially,

you know, there will be flow

through to Australia.

S1 Yeah, I and there is a lot of questions

coming in about about the impact of that,

not only across the region

but here and whether

or not it's going to impact sentiment more

broadly. So I appreciate that comment.

Well, we might just talk to the portfolio.

I mean, how are you seeing the

portfolio at the moment?

What are you doing in terms of, you know,

positioning potential tilts?

Or how are you approaching this sort

of recovery and thawing out?

S2 Yeah. So as I said, I think 2020 to

the key point will be this reopening trade

like like I said, but you can't just say,

you know, everything is not

going to normalize.

So you going to be a little

bit selective and specific

on what you think will normalize.

So I probably put things in

about four different.

So based on, you know, my views on what's

happening in terms of, you know, we've got,

I think the monetary stimulus and the

fiscal stimulus will continue.

I think, like I said, the monetary

interest rates will go up.

It'll take a while to go up.

I think governments will still spend that

fiscal stimulus will still be there,

but you'll probably see a shifting

and maybe, you know,

it'll be less obviously less helicopter money

, just handing money out to people,

and I think it'll be much more targeted.

S2 So you'll see a lot of spend on

particular infrastructure,

and I think that will be

a focus for governments

as we move forward. So monetary

and fiscal stimulus,

I think still we've still got

a reasonable tailwind.

I think we're still seeing quite strong

economic growth through 2022 as well.

So we've got those we've got those tailwinds.

Monetary fiscal stimulus and that reopening.

So the probably the buckets, I'd put things

just first of all, that reopening trade.

So the normalization, so as I talked about,

leisure travel is going to

be going to normalize.

I would say, obviously, you know,

travel agents who are probably some of the

hardest hit I look at and you know,

you obviously got a focus in these instances.

You've got to focus on balance sheet,

so you want them to have the balance sheet

to be able to benefit from that reopening

S2 trade as well. But travel agents and theme

parks, entertainment centres, casinos,

cinemas, that sort of broad based reopening,

they're going to be well-positioned.

Like I said, as long as I've got

the balance sheet and actually

the other thing hospitals.

So I think hospitals,

people don't often think of hospital

operators as a reopening trade,

but I think they they took

some of the hardest.

They also were quite hard hit

through COVID because they

a lot of elective surgeries were

cancelled or delayed. Mm-Hmm.

And I think if it's particularly

with like hospitals,

you can postpone elective surgeries.

If you know you've got to have a knee

operation, you can definitely postpone it.

So it may be six months or a year, but you

can't you can't postpone it forever.

So I once again, I think that in the

S2 hospitals is pent up demand,

pent up demand there as well,

and they'll be a beneficiary of

the reopening trade as well.

So that's the sort of bucket of broad.

And like I said, you know, you got to

question some like business travel,

all those that are linked to

sort of business travel,

whether they will achieve the same sort

of results. So that's one bucket.

Just looking for that, that sort of

reopening trade, another bucket,

I think is that why I talked about the

the long term structural growth.

So they were there pre-COVID,

accelerating COVID.

And I still think that's going to continue

post-COVID. And that is the e-commerce.

Now that's not, you know, obviously,

ecommerce benefits industrial.

So there's a whole range of beneficiaries

around benefits software providers into

e-commerce. It benefits. Industrial

S2 property that, you know,

that's really been the growth on the property

side because a lot of the E!

Commerce robot is a sort of

working out of a shed.

Yeah, it benefits digital delivery

of food and beverage.

So those companies that are delivering food

that that has been a habit and a trend

and that continues to grow post that I think

will continue to grow post-COVID.

And that said, cashless society.

So you got those big sort of structural

trends that are happening.

Then the other ones that will continue

to work are sort of market based,

maybe market based financials. So

I think we're in a good position long term

for equity markets, for private markets.

So for some credit markets and companies,

that op is well positioned in

that I think will do well,

will do well in the market as well.

And then probably the last bucket is

S2 what I call sort of restructurings

or maybe some more cyclical sort of

special situation type things.

And I I would just give as an example

the insurance sector.

So we have at the moment quite

a tight premium market.

So REITs premiums and rates are going up in

the insurance sector because you've had

a range of different.

You catastrophes or events that

have tightened the market,

they've tightened capital. And, you know,

we're seeing premiums go up across the board.

I'm talking general insurance.

So the actual insurance market, I think,

is looking looking quite attractive

through this period as well.

So they sort of special maybe restructuring

special situations as well

as probably those. That's how the fund is.

That's how the fund is positioned.

And you can see that if you look at the

top positions within the portfolio,

S2 you can see a lot of them

fit within that bucket.

So whether that's a Suncorp on that sort of

insurance side or a dominos, you know,

we're a good moderate, which is industrial

property wise take, which is a, you know,

on the software side of software, side of of

e-commerce, you know, that's, you know,

in terms of the positioning

of the portfolio.

S1 Yeah. You spoke of markets and

private markets there.

You know, one of the things that has

continued throughout is, you know,

M&A activity. Do you expect

that level to continue

or what are you what are you seeing

in that part of the market?

S2 Look, it has definitely been.

I think it's it's an interesting one

because we've seen right companies going out

of the market, which actually, if anything,

you know, actually, that's the

interesting thing is there's

a couple of interesting consequences

from this.

So we're seeing companies coming out of the

market and we're seeing lots of buybacks.

And we're seeing big dividend payments

and special dividend payments.

So there's a whole lot of cash that's

probably going to come back into

the market in this. And it's a smaller pool,

small pool of company so that there's

a real sort of supply demand.

Issue there as well. But look,

emanate typically reflects,

obviously reflects prices and value and

an ability to get that M&A done,

which often can happen through

any sort of crisis.

Things happen that that maybe wouldn't

S2 happen in a normal market,

but you've also but I think early on,

you don't get a lot.

It's actually when you get a bit more

certainty. So I talked about.

You know, the higher dividends coming out

because people can see the light at

the end of the tunnel, I think the mandate is

probably around that same sort of thing.

We can now see the light at

the end of the tunnel.

It's not we don't have perfect certainty,

but we've got a little bit

more certainty in things.

We're going to that reopenings, right?

So that's probably a reasonable time because

you still probably don't have

the top valuations. So

reasonable, reasonable certainty, a perfect

certainty light at the end of the tunnel.

Companies feel like companies always want

a bit more.

You know, they want to feel comfortable in

making those those acquisitions think

S2 the other the other point is balance

sheets in really strong.

So we look across the corporate sector,

balance sheets are very healthy position,

which also means they probably got cash

that they they can do things with

or at least gear up. What they can borrow

at is obviously very low interest rate,

so they can borrow for a reasonable amount

of time and put more debt on

the balance sheet. All I can say, I've

probably got some cash as well.

So strength the balance sheets,

low interest rates,

a bit more certainty light at

the end of the tunnel and

the opportunity through these

periods of getting some of

the M&A done probably does

mean that, you know,

M&A activity is probably going to be

reasonable through this sort of time.

S1 Yeah, I mean, obviously, the industry

super funds as well,

and you've got some pretty significant buying

power sitting there ready to go.

S2 Yeah, I think so. And they're

obviously I mean,

they've obviously got a lot of cash

and looking to and that's

the other thing is that they are looking

they're long term investors

so they can look through. So I mean, to me,

duration trade is a really important trade.

So if you can look through these sort of

times, you're going to make a lot of money.

You can get that duration. You can

buy in a difficult time and your

but your horizon is 10 20 years.

That's that's obviously you want to be you

want to be buying during difficult periods.

S1 Yeah. And Paul, just conscious of time,

we're almost we're almost there and you make

a really good point there about

that long term horizon.

And before we do sign off, is there anything

you you'd like to sort of comment

on in terms of the way forward?

S2 Yeah, look, I just think like I said, we're

we're in this sort of transition period.

So there's going to be a little

bit more volatility, I think.

Like I said, I think 2020, the focus will

be on that, that reopening trade.

But to me, they both of those points are

sort of short term ish in nature.

I just think when I sort of look at this

period and try to imagine things down

the track, I think if we're, you know,

if you and I are having a chat five years

time and we're looking back on this pandemic,

I don't think we'll be looking

back and thinking that was

an excellent time to invest. And to me,

that's the most important

that is the most important issue.

Rather than getting caught up in what's going

to happen the next quarter or even

the next year. I think if you can look

back and that will actually that,

that will be a perfect time to invest.

To me, that's the key.

S2 And you know, that's that's I think in an

equity markets, that's how you make money.

You make it on that duration trade, you buy,

you buy for the long term and you buy

businesses that are going to be great

businesses in the long term.

And I think that puts you, you know, that

delivers the return to shareholders.

S1 Yeah, you've got a great way of making sounds

so simple and easy. So thank you.

Thanks for joining us.

S2 It is simple. It's hard to execute.

But you know, investment theory

is simple, but it's hard.

It's often hard to execute because

when things are, you know,

feel really bad around you, you

don't want to, you know,

it's very hard to sort of step up.

But investment theory is simple.

Just hard to execute.

S1 Yeah, copy that. It's been great having you

on today and everyone. This joined us again.

Thanks for your time and some great

questions coming through.

If we didn't get to your question today,

if you want to reach out to the team,

please do again. CPD points will

follow in about a week's time

and we'll all be back in touch shortly.

So thanks again, toxin. Thanks, Paul.

S2 Thank you. Thanks. Everyone thinks I'm.