The second derivative is now changing - what does that mean for markets?

Simon Glazier:

Good afternoon everyone, and thanks so much for joining us today. My name is Simon Glazier and I'll be hosting the discussion today. Before we get started, just some housekeeping. We're planning to go for about 40, 45 minutes today, but if you have a question, you can submit via your Zoom portal, and if you've only dialled in via the phone, unfortunately today you won't be able to ask a question, and we'll do our best to incorporate as we go. Otherwise, we should be able to get to some of those questions at the end of the session. And today we're talking with Paul Taylor, portfolio manager of the Fidelity Australian Equities Fund. Welcome Paul and thanks for joining us today.

Paul Taylor:

Yeah, thanks Simon. Good to be here.

Simon Glazier:

Very good. And I suppose us, like many, Paul, we're all sort of working from home and remotely. So really before we do get started, I'm really interested to know how you and the team are finding operating in this environment, and by that I mean working from home.

Paul Taylor:

Yeah, thanks. Thanks Simon. Good to be here, and hello to everyone as well. Hope everyone is doing well at the moment.

Paul Taylor:

Yeah, so we are, as you would expect and I guess like most people that can, the Australian investment team is all working from home at the moment. It is pretty much business as usual, although from our own home. A few of the things that we're trying or making sure that we do is stay connected. So we've got a whole range of things. So we've got our regular local team, so the Australian team calls, catch-ups, some social calls as well as business calls. But we're staying in regular contact and obviously undertaking meetings as per normal.

Paul Taylor:

But we've also got, we're doing global calls once a week at an entire team level. We're doing regional calls, Asia-Pacific calls once a week. But we're also doing calls down our industry lines. So each week there's a global healthcare call, global industrials call, global financials called, et cetera. So connectivity is actually very high globally, regionally, and locally, I guess is the first point. And that's what we're really making sure of and I mean obviously the technology at the moment seems to be working really well in terms of keeping us connected.

Paul Taylor:

I guess the other thing and what really is our bread and butter is meeting with companies or industry experts or topic experts. That's pretty much business as usual as well. So we still... And as I guess everybody knows, we've got a large analyst team here in Australia and right around the world, 400 investment professionals right around the world. But in Australia our goal is to meet with the entire market every quarter, just systematically work our way through the market every quarter, which we think really industrialises the process. We maintain our earnings, cashflow, valuation, balance sheet model on all companies, and we're maintaining that regular contact.

Paul Taylor:

Now, the only difference obviously is that we're not meeting them face-to-face in our offices or face-to-face in their offices, but we're doing it via Zoom or a conference call or via some sort of webinar programme. So company meetings are as per usual, and actually discussions are really, really interesting, and we're just systematically working our way through the market, and we'll continue to do so. But also we're staying highly connected locally, regionally, and globally. And that's both equity markets, and several of those calls that include both equity analysts as well as fixed income analysts because that really helps us keep on top of things at the moment as well.

Simon Glazier:

And I'm assuming, then, the companies are obviously receptive to the technology as well at the moment?

Paul Taylor:

Yeah, definitely. They're obviously going down this path as well, and they've got their own internal systems where they're staying connected. Now, whether that's Zoom, which is the most common one, but a lot of companies have different types of webinar programmes or software or call programmes that they do internally that can link to us. But they're very receptive to it. We all have the same issues, and we're all doing the same thing, and we're all trying to stay connected. So it really is business as usual, but just no face-to-face.

Simon Glazier:

Yeah. You got to make your own sandwich for lunch, huh?

Paul Taylor:

Well somebody said there was a move in work for years that It was basically "bring your own device", which is your phone or your iPad, et cetera. Someone in the office commented that now it's actually "bring your own office" as well, which is taking outsourcing to a new level.

Simon Glazier:

Absolutely. Appreciate that. That's good insight. And probably to kick us off, I might start by throwing it over to you for some initial thoughts in terms of what is driving your thinking at the moment in terms of markets and investing.

Paul Taylor:

Yeah. Thanks Simon. As some people may have seen, I'm sort of regularly putting out articles "from the desk of" and things like that, so hopefully keeping people informed of and updating on my thinking. But I think it's obviously an incredibly interesting time. I've been quoting a Donald Rumsfeld, which is a bit unusual, and Donald Rumsfeld during the War on Terror, he was the U.S. Defence Secretary from 2001 to 2006. During that sort of War on Terror, during that period, when he was asked about assessing risk, he talked about the known unknowns and the unknown unknowns. He was ridiculed at the time for breaking into that where he's talking about the known unknowns being things that are more your daily risks that could be more easily planned, and the unknown unknowns being the really big issues that it's very hard to prepare for.

Paul Taylor:

Now, this sort of pandemic fits within that second group, or some people also refer to it as a black swan event, which is from Nassim Taleb's book of the same name, which is just really unusual period. It's very difficult to prepare for. Periods where there's not a lot of... Also, when these sort of black swan events or unknown unknowns, we often, especially at the start, we don't have a lot of data. So we're really working with very little data, but over time we're going to get more and more data, and that's what's happened. So through time we've got more and more data, more and more understanding of the virus, a better understanding of what works, what doesn't work. But early on it's really all about judgement .

Paul Taylor:

We've got a little data, so judgement in these sort of scenarios is really, really important. And I think in market terms, what's important when you look at judgement is sort of what we think about as heuristics, which is sort of rules of thumb. And those heuristics or rules of thumb, typically they are based on... They're like a playbook that's based on previous crises or history or different things, what we've worked out works well in different scenarios. Now, while this crisis is very different from all previous crises, there's definitely still things we can learn from previous events as well. There's a great quote I use from Mark Twain that says, "History doesn't repeat, but it does rhyme," and I think that's really accurate through these periods as well, that there are things we can learn from the SARS crisis or from September 11 or from the Global Financial Crisis.

Paul Taylor:

Now it's not perfectly relatable, but there are definitely things we can learn from it. And one of the key metrics, which I think is the interesting thing that's changed now, one of the key heuristics or rules of thumb is that typically in any crisis, you want to look at the second derivative of the thing that's causing that crisis. So in this particular instance, this is obviously the virus, and the second derivative, as I've talked about on these previously, is the rate of change, so the acceleration or deceleration of new cases. So it's not the total number, it's actually the number of new cases, whether that's accelerating, decelerating, or flattening.

Paul Taylor:

Now, when I spoke, it must've been about three weeks ago, we were still in an acceleration phase. Asia had been decelerating, but the rest of the world had been accelerating. Now almost sort of on cue, we've started to see the rest of the world follow the trajectory that we saw early on in some of the Asian markets, and it's now pretty much we're seeing deceleration in the secondary. So we're moving from acceleration to flattening to deceleration in most parts of the world. In Australia, we're now well and truly decelerating. Europe, which has had some of the worst markets in Italy, and both Italy and Spain are decelerating. The U.S. is mainly decelerating. You've still got a couple of pockets, but it's still broadly decelerating, and Asia is well and truly decelerating as well.

Paul Taylor:

Now, as I talked about last time, the key reason I think why the market focuses on that heuristic is that as you move from acceleration to flattening, it's typically the point of greatest pain and destruction. It's the peak of community concern and worry and panic, and it's typically also the point where governments are taking the strongest actions and most draconian actions as well. So it is that point of maximum pain and destruction.

Paul Taylor:

Now, as it's gone to flattening and starting to decelerate, governments, including the Australian government, is now talking about six months. So all of a sudden we can now start to see the light at the end of the tunnel. As I've talked about previously, markets are forward looking instruments. Markets will bottom probably nine months to a year before the economy bottoms. I think sometimes Anthony Bolton, who was one of our key portfolio or very senior portfolio managers in Europe and Asia as well, would always say, "a couple of key rules. You don't want to get more bearish as markets go down, as well as you don't want to get more bullish when markets go up". People think markets follow the economy, but it's actually the other way around. And the economic outlook is not the important thing. The important thing is actually what economic outlook is factored into share prices.

Paul Taylor:

So, now as we sit here today what we've got is now a decelerating second derivative. We've got now, a little bit of light at the end of the tunnel. While it's still highly uncertain how long it's going to go on for, if we look at nine months, a year, things are looking a little bit better. And one of the things he'd also say is that in markets you make a lot of your money when things move from bad to less bad. So, it's important to keep that in perspective as well.

Paul Taylor:

So, light at the end of the tunnel and right on cue. That's why markets, I think, have been doing a little bit better over the last couple of weeks, which with that second derivative decelerating we can see light at the end of the tunnel. And when we look out a year there's a little bit more, I guess, relief in the market as well.

Simon Glazier:

Yeah. Yeah. And obviously, we seem to be now living in a world of united monetary and fiscal stimulus. Any thoughts around impact of that? And how does it play it for market?

Paul Taylor:

Yeah, look that's an important question and obviously, we are. So, it's a really unusual year in that we are seeing massive fiscal and monetary stimulus. Now, governments have used analogies like, building a bridge or hibernation, which I think are good analogies and the right way to think through it. So, what we've got, and I still think this, although there's a couple of caveats. We've got this giant ravine and COVID-19 has caused this massive hole in our lives, in our economies, in our markets. But fundamentally, it is actually still one-off in nature.

Paul Taylor:

So, once COVID-19 goes, there's nothing structurally that should be impairing our economy. It's really been caused by the actions we need to take to beat COVID-19. So, fundamentally, it's one-off in nature. So, what governments are saying is that we need to build this bridge over this giant ravine or go into hibernation for the six months required so that when we come out the other side we'll be in a much better position. And we'll be looking back.

Paul Taylor:

Now, that means a few different things. One, it means if it's one-off in nature, it means that this should be a one times price earnings event and not a 15 times price earnings event. I think that's important. And what that basically means is that we shouldn't be capitalising the impact to economies and stocks and earnings into stock prices and economies in perpetuity. That they are they effectively one-off in nature.

Paul Taylor:

Now, having said that, I think the interesting thing also is that just because it's one-off in nature and we've got to get this bridge, get to the other side, it doesn't mean life on the other side is going to be exactly the same as what life was pre-COVID-19. I think that's an important point. Now, often when you have these major disruptions to economies things change. And really right at the moment, and at the start, we talked about we're working from home and we were trying all different things. Right at the moment, we're going through this massive, it's really a massive social experiment.

Paul Taylor:

We've been forced into working from home, socially isolating but still trying to undertake business as usual under these very unusual circumstances. Now, in these real periods of disruption, there's great sayings in that, necessity is the mother of invention. And that's exactly right. Until you're forced into something, you don't often try different ways or you don't experiment with different things.

Paul Taylor:

Right now, we're having to experiment with everything because it's just a really unusual environment. Now, as we experiment with things in business or in our own personal lives, some things will work and actually when we get to the other side we go, "Well, actually that was really good. I'm going to keep doing that because it worked." And what starts as an experiment turns into a habit because it's a really positive thing. Whereas, other things you might try, experiment, doesn't work.

Paul Taylor:

Now, I've also, in some of my articles, I've talked about examples of this. And I think a great example was in World War II, which obviously was a huge disruption. So, what happened in World War II, vast majority of males who could, went off to war and females then had to come in and take over the jobs. And then basically, at the end of the war when males came back, women did a fantastic job and that had forever changed the workforce. So, all of a sudden participation rate had significantly changed.

Paul Taylor:

So, the second world war was the catalyst for the significant change in the participation rate in society. Now, that change in participation rate has been one of the strongest, most significantly positive impacts on global GDP for the last 80 years. And really the catalyst to that really was the second world war. So, sometimes these major disruptions can change things. It changes behaviour, which initially is an experiment, but then turns into habit because people like the way that that change has worked.

Paul Taylor:

Or the other example I give is the Y2K bug. The resolution on the Y2K bug, really was the establishment, the blossoming of the Indian IT industry. So, that really took off on the back of the significant work that was required and that industry has never looked back since Y2K. So, you get these major disruptions, major changes that change life for us.

Paul Taylor:

So, the fiscal and monetary stimulus is there to build the bridge for us to get over that ravine. That should be viewed as a one-off. And I think that's an important point. Now, if it takes us six months to get to the other side, it's not that life will go back to where it was pre the crisis. There could be these sort of nuanced changes on the other side. And we're spending a lot of our time trying to work out what those changes might be.

Paul Taylor:

At the moment, some of those things might be along the lines of acceleration of trends that were already there. So, whether that's e-commerce, which is really obviously this period has accelerated that trend. Whether it's e-commerce, whether it's digital delivery of food and beverage, as people get a lot more takeaways and delivery home or communication networks or de-globalisation. There's a whole range of trends that could well accelerate through this period as well.

Simon Glazier:

And in terms of the ravine, obviously, there's no real clarity around how long we'll be forced to hibernate or the lockdown measures in place. Have you got any insights in terms of what some of the businesses are discussing and potentially preparing for?

Paul Taylor:

And that is right. So, the big unknown or the big uncertainty is exactly how long it will take. Now, the governments are increasingly talking about six months, which I think people are focused on that. I think that's a reasonable expectation, a reasonable number. And businesses are focused on that.

Paul Taylor:

I guess, the only thing I would say and in discussions we've had with a whole range of different businesses, as well as semi-government bodies or people that are involved in this, is if it is six months, when we get to the other side, the economy can't just turn on. We can't just go from turning it off to turning it on straight away. So, overwhelmingly, the expectation is that it'll be a gradual re-establishment of the economy. Which will be right for the economy, but I think it'll work from defeating the virus as well.

Paul Taylor:

So, the last thing we want is for us to restart early and then get another outbreak and then go back into more isolation and then come out and get it. The negative for the economy will be this stop, start type thing. So, I think they want to keep the ... What we're in now, I think, will be kept going a little bit longer. I don't think it will finish early. But what we will see is gradual releases of different sectors.

Paul Taylor:

So, once again, what's probably likely to come back on early is more important sectors. And I think I've talked about in some of the articles that some of the early sectors to come back for example, at the moment dentists aren't operating, they're closed. Dentistry might be one of the first sectors to come back on as that's an important sector. And people need to make sure their teeth are in good health et cetera.

Paul Taylor:

At the same time, one of the early sectors coming back will probably be elective surgery. So, same thing, you can put dentistry off for a little bit, you can't put it off for a long time. So, you'll see maybe the reintroduction of dentistry, the reintroduction of elective surgeries. Same thing, you can put elective surgeries off for a little bit, you can't put it off for a long time. And you need to try and normalise that. So, while keeping the rest of the economy still in isolation, you start to bring back some of these sectors and whilst keeping I guess, the most vulnerable and the most at risk in that isolation.

Paul Taylor:

So, six months the government has said is our best estimate of the length of time. But I don't think you should think about it like a light switch where we are on and off. I think what you'll see over this next six months is a range of gradual recovery and a gradual restarting of the economy. Starting with things like, I've talked about first. And as we move through and maybe keeping the most vulnerable and the most at risk to the last possible moment. And hopefully, that will put us in a much more sustainable position when we do come out.

Simon Glazier:

Yeah, because what we don't want is probably that situation like Singapore, whether they've had a spike in cases post relieving of some of the lockdown measures.

Paul Taylor:

And I think Australia is in a good position as well because there's definitely a second mover advantage here as well. So, we get to watch how a lot of those early countries, what's worked, what didn't work, if they're making any mistakes, we get to learn from all those things. So, like I said, the last thing that government wants is to do a stop start. They just want to make sure we got rid of it and then let's look at that gradual re-introduction rather than we're full steam ahead again.

Simon Glazier:

Yeah, and it terms to the portfolio, you've talked about leaders coming out of this and some of the winners I suppose earlier rather than later, what are you doing with the portfolio at the moment?

Paul Taylor:

Yeah. So, I think as I've said previously, we are in blue chip stocks. I'm really comfortable with the portfolio at the moment. So, we've got a lot of large cap blue chip stocks and portfolio has got a reasonable cash level. So, we've been in a good spot. I think now we're through as the second derivative starts to decline, I think the opportunities are there now to look for... And a couple of things I've talked about is upgrading the portfolio. So, the first thing you should you should be doing in this environment is upgrading the portfolio. So, if there's been companies you've always wanted to own but the stocks have just been too expensive or you just couldn't get hold of it. I think these opportunities might provide the liquidity or provide... You're getting a much better value.

Paul Taylor:

And what typically happens early in a crisis is that you get indiscriminate selling early on. So, at the start the market shoots first, ask questions second. And then as the crisis goes on, it becomes more discriminant as it becomes more obvious maybe who are the winners and losers from the crisis. So, I think that early phase gives you the opportunity to upgrade your portfolio. And I've been doing some of that. I've talked about sectors that I think will be market leadership, whether that's technology resources or I've talked about the travel related, although I might keep them separate for a second. If I look at technology, technology is a great example of market leadership but also an opportunity to upgrade the portfolio. So, technology is a really interesting one because I think through the crisis, technology is going to be one of the big winners. Because we're obviously moving some of the big trends of e-commerce, digital delivery of food and beverage, communications, 5G, whatever you want to talk. They're going to be the big winners from this or they're potentially the big winners from this crisis.

Paul Taylor:

And I think people will look to invest in companies that have exposure there, thinking that the fund they've got really... You've got a much better valuation because those stocks have come down. They've been hit because people have been concerned about global growth and a lot of the time technology is linked to global growth, but they've got really great long term fundamentals. And so, just to give you that as an example, a stock I've talked about is Tyro, which is a payments system and we think they're really well positioned for the long term, that they'll gain share within that space whether it's actual physical payments or e-commerce payments. They're very well positioned. Now, in this crisis they've got pluses and minuses. They've still got exposure to cafes and restaurants, et cetera, which we'll be doing it tough.

Paul Taylor:

But their actual strongest position is in healthcare, and that's holding up reasonably well. So, there'll be pluses and minuses within that, but as this normalises, we've got that stock price. It came as IPO, was a hot IPO, stock went up, maybe you couldn't get exposure or maybe you didn't want to buy it at the price, but that stock came right back below IPO. So, we just use that as an opportunity to say, "Okay. Well, we like the long-term prospects here. We think..." Now, the other thing you got to be careful about when you upgrade your portfolio is obviously balance sheet. So, you want to make sure the companies that you upgrading into have got the balance sheet to get you to the other side of the crisis, because if they can't get to the other side, you're not going to be able to benefit from the recovery.

Paul Taylor:

Tyro has got a very good balance sheet, strong cash position and even while some areas are doing it tough, some areas are going well, so they're in a good position to get to the other side. And then, we think the strong long-term fundamentals, we'll look back in five years’ time and say, "Well, actually that was a great buying opportunity." So, we look to technology as one of the good ones to upgrade the portfolio. Resources we're also looking at as well. Resources is one of the cheapest sectors. China, which is really interesting. The best way to think about it is they were first in, first out.

Paul Taylor:

A lot of companies when we're talking to those companies right now are indicating that China is coming back reasonably well. It's not back to what it was pre the crisis, but it's not far off. You're probably back to about 90% as a generalisation pre-crisis. So, that's actually quite a good position. You've obviously got a lot of resource stocks that are more exposed to that China, which is thinking about it first in, first out. And gold, we like gold within that space as well. So, looking to do the same thing there, which is add to exposures. There's a couple of other sectors I think that fit that bill as well, which is I put travel in that and actually the other one is energy and energy is a really interesting one. Now, for both of those... Oh, let's just deal with travel first.

Paul Taylor:

Travel obviously, that's pretty much ended. So, for a lot of travel you probably do have zero revenue. So, for them it's really being able to survive with zero revenue until we get out the other side and still have a strong business, et cetera, when you get out the other side. Now, what's really important is balance sheet in this environment, and I guess we would look to be much more selective, much more opportunistic in that space and really look to focus on companies we want to support for the long-term. And typically, that might be through a placement or some rights issue, et cetera. That's going to get the balance sheet really well positioned and look to the future.

Paul Taylor:

Now, I'd also put energy in that space as well, right? So, energy. Obviously, demand for oil has just fallen off a cliff because of COVID-19. So, nobody's flying, less people are driving cars, et cetera. Just demand is fallen off a cliff. And then, we did have the dispute between... We had the speech between China and Saudi Arabia. Now, that seems to be getting on better footings and the oil prices responded a little bit better because of that. But I think we're still in early days there and demand is probably still more important than supply, but same thing. So, you've got a low oil price, you've got a lot of the energy companies have come off a lot, so there's some really attractive buying, but you really got to make sure in this space that you've got the balance sheet to get you to the other side.

Paul Taylor:

So once again, as an example here, Oil Search is a company we liked. We supported their capital raising, bought a lot of stock into that capital, raising it at $2.10. And now, Oil Search, we really like their projects both in Papua New Guinea and the US and think they're excellent long term projects. And that the balance sheet improvement through that capital raising now means we can stay in this environment until the end of 2021. So, almost a full two years and Oil Search is still in a fantastic position. So, we are focused on those quality companies, but we're also focused on making sure the balance sheet, or whether it's through a capital placement or a rights issue, is going to put us in a really strong position.

Simon Glazier:

Yeah, and in terms of upgrading the portfolio, the funding source?

Paul Taylor:

So, I guess for us, there's a couple of different things. One is, as I said, we had a reasonable cash position at the start. So, I guess initially anyway, buying into Oil Search, adding to Tyro and to some of the resource stocks has really just come from cash. I guess though, as you look forward, one of the areas I think is probably vulnerable to a funding source is potentially the banks. Now, I think the banks... I certainly don't have a problem with the banks, I've never been a huge bear on the banks, and the banks are doing a fantastic job and I think are a key part of helping us get to the other side. But when we do get to the other side, the headwinds that were in that industry are still probably going to be there.

Paul Taylor:

So, I don't know whether I necessarily see a whole lot of new money re-entering that space and probably there's at least a risk that it could be used as a funding source into other sectors or stocks that have better long-term fundamentals or have been hit harder. So, I guess initially for the portfolio, a lot of what I did was really moving from cash into those names I talked about. But I think longer term, the banks could be seen as a bit of a funding source for... And like I said not that they're bad, it's just that there's probably going to be better ideas coming out.

Simon Glazier:

Yeah. What is your thoughts on the earnings outlook for the banks? And obviously, lending probably going to be down, interest rates extremely low. Is there a time when banking earnings start to look good again or is it still a fair way off?

Paul Taylor:

Oh, no, they'll definitely start to look good again. We're in this really unusual position now and people also... Obviously, getting a lot of questions about dividends and so forth initially as well. And over the next six months, earnings are going to be hit for a whole range of reasons. So obviously, whether it's in margins are part of that lending, the growth in lending's not there. You'll probably see a higher loan loss at all levels but as I said it, I don't think you should necessarily capitalise that into bank stocks or any stocks. So, it's a really unusual six-month period that we're going to see pretty significant declines in earnings and also significant declines in dividends. But once we're on the other side of it, they'll recover. I guess the point I'm making, and on the other side of it, I think you'll see bank shares recover and move up. It's just that I think there'll be better ideas when we get to the other side. I guess that's really what I'm flagging.

Simon Glazier:

Yeah. I can't remember, did you mention gold earlier in the call, Paul?

Paul Taylor:

Yeah, I mean, we're favourably disposed to gold. Definitely in Aussie dollar turns, the gold price is quite high. We got some good gold stocks that are making great returns and that's not a bad place to be in this environment as well. So, we've got a reasonable exposure to gold and within that broader resources industry.

Simon Glazier:

Very good. We've managed to get a few questions in as we've gone along and you've covered a lot of topics there. I suppose more generally, in terms of price and valuations. I mean, it's probably still a lot of work to be done, but do you think broadly speaking, company earnings or the hit to company earnings has been priced or fully priced by the market?

Paul Taylor:

Look, so in the shorter term obviously, we're still working our way. As you rightly say, we're still working our way through all those different companies. And I think the companies themselves don't really know at the moment anyway. You're going to see a whole range of different earnings outcomes. So, you've got, obviously, some companies like the supermarkets that are doing incredibly well in this environment, so their earnings will be up. And you've got other companies like Domino's. I'm sure people realise we've got a sizeable position in, and they're pretty solid as well. So, they won't be as good as the supermarkets, but there'll be pretty solid in this environment. And you've got some companies that are going to have next to no earnings that are in the travel or retail area will be hard hit in those sort of things.

Paul Taylor:

And the banks, like I said, we're sort of working in a difficult ... trying to come up with estimates, but you could see 30 to 40% decline in dividends and earnings in that space as well. Insurance might be okay in the short term as people probably still pay their insurance bills, but the claims environment is going to be very low. So, obviously, car insurance there's going to be hardly any crashes on the roads and you could see a better claims environment there as well. So, you're going to see a range of different outcomes I think, but overall the market will decline. I guess as I was highlighting before, I don't necessarily think whether it's the positive or the negative, and you've got to be careful on both sides.

Paul Taylor:

You don't want to capitalise those changes into the stock price. So, if we've got a 30 to 40% decline in earnings this six months, it actually shouldn't mean that we should be down 30 to 40% because that's a one times PE event, not a 15 times PE event. So, I actually think once we're on the other side of it, you'll see a really strong recovery in markets very quickly because we'll be able to put that earnings hole, if I can describe it as that, earnings hole, we'll be able to put that behind us and then we'll be really working out as things have changed in a post-COVID-19 world. Maybe that means ... And I'm still quite positive. I think some of those trends are accelerating. So, I think the supermarkets will probably still be in a good spot post-COVID-19 I think.

Paul Taylor:

Places like Domino's. What tends to happen is because of this huge social experiment we're in, people change their behaviour and they try new things, they do new things, and if they like those things that they're trying, they're experimenting with, those things become habits. So, if you're getting stuff delivered to your home, food or whatever, and you really like it or e-commerce and you're getting more stuff bought on eCommerce and you think, "Oh wow. That was good. That really worked." You're going to do that more and more on the other side. That's going to become a habit.

Paul Taylor:

So, some of those companies that are benefiting from this change, whether it's the supermarkets or Domino's, et cetera, I think they're going to be in an even better position on the other side of the crisis. But I think you just got to be careful that you don't capitalise. If we go down 30-40% in earnings across the board and as I said there's a wide sweep from some earnings will be up, some earnings will be down, some earnings will be real down. You just don't want to capitalise that into stock prices.

Simon Glazier:

And before we finish up, I'm just interested, has there been any companies that have surprised you in terms of how positive they've been received, supported, or operated during this time?

Paul Taylor:

Look, it's a good question. I can't really think of anything that's really jumping out at me that it's a major ... I'm thinking, "What a crazy scenario." In this environment, people typically are more nervous. The whole market's more nervous. So, typically, like I said, they're on a shoot first ask questions later. So, typically it's been negative rather than positive. There have been a few companies that, if the market's given them the benefit of the doubt, they've raised into that, which often tells you something as well for those companies that have held in relatively strongly. But yeah, normally it's more on the negative side than the positive side, I think.

Simon Glazier:

Yeah, fair enough. Fair enough. Paul, thank you very much for that. Have you got any final points you want to make or final thoughts you want to leave with us?

Paul Taylor:

I guess just from a portfolio perspective like I said, I remain really comfortable with the portfolio. I think we're in a good spot. I've been really happy with the performance. I think the clients who've been with us for a long time and I want to thank those clients for their trust and their investment and their loyalty over a long period of time. They would have seen us do really well in the GFC and I think we're in a similarly good position in this crisis. I think having a big global network where people are on the ground ... so, at the moment, nobody's travelling anywhere. We're in the same position, we're doing everything from home, but it's just such an advantage because we keep hearing things. China's a great example.

Paul Taylor:

We hear things about, "Well, China's going back to work." But we've got the ability to phone up and we do a regular call with our China colleagues. Well, what are they actually doing? So, not just what we hear from the government, but what are our colleagues doing? Are they actually back in the office? What are they doing? Are they going to restaurants, blah, blah, blah? So, we've got those people on the ground in China, in Korea, in Singapore, in Hong Kong, in India, in Europe, all throughout Europe, et cetera, and that just makes a big difference.

Paul Taylor:

Nobody can fly anywhere. Having those people on the ground ... and that's what helped us in the GFC. Also, we've got a big fixed income team. They're the things that help you in these sorts of environments and they have been incredibly helpful this time as well. So, I'd just say I'm very happy, comfortable, with the portfolio and I'm looking at it thinking "Well, we're going to look back in five years’ time and we're just going to see some of the best investments will have been made at this period."

Simon Glazier:

Yeah. Well, we might leave it there, Paul. We've just hit quarter to one. So, thank you very much for making yourself available today and thank you, everyone who's dialled in. The call has been recorded, so it will be available on our website in the coming hours or day. So, please feel free to listen or pass on if you'd like to. Again, thanks very much for your time today. I look forward to talking with you guys soon. Thank you.