Episode 101: Fortified, not glorified: who says investing shouldn’t be boring?—Market Insights Monthly special edition

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Kevin Headland:

Welcome to Market Insights Monthly. I'm Kevin Headland, co-chief investment strategist for Mainly Invest Management, and I'll be your host for today's call.

Investors are witnessing rollercoaster rides in markets right now with a lot of headline risks coming forward, including US elections, Middle East tensions, uncertainty, riding rate, path moves for the US Federal Reserve as well as Bank Canada.

But the key is whether these headline risks are going to be disruptive or destructive. Today, to walk us through the noise and where the opportunity exists is Jim Hall, president and portfolio manager for more of asset management.

Welcome, Jim.

Jim Hall:

Hey, Kevin. Great to see you. Thank you.

Kevin Headland:

Thanks for coming. Thanks for having us.

Jim Hall:

Pleasure.

Kevin Headland:

Now, you more just recently celebrated 50 years in investment manager business, so congratulations. That was phenomenal. I heard there's quite a party I was at last weekend.

Jim Hall:

Yeah, the weekend before. It's Monday or Tuesday. So it's over the weekend before?

Kevin Headland:

Yeah. It's phenomenal to have a firm lasting cat of 50 years. I think it's quite a celebration you should be proud of. And I think the key is the success of more and the process and sustainability of the process. Now some on this call may be familiar of mower, some may not. So can you actually walk us through, more investment philosophy and what you stand for as a firm?

Jim Hall:

Yeah, absolutely. So, Yep. 50 years started in 1974. And yeah, we've been through all kinds of environments market cycles, ups, downs, different leadership, different sectors, styles, you name it. And through all of that, we've had steady, steady success in following what we call a very boring investment approach. So our tagline is be boring, make money. So it's not just about being boring.

The second part is very important, but it's it's really pretty simple. It's we will take a moderate amount of risk. And to compound investors capital over time. And the way we do that is by investing in companies that themselves are compounding wealth over time. Way to compound wealth is to generate a return on capital. It's the cost of capital over time.

Way to do that is to be a company that is selling a product or service that customers want value, and that they can provide at a profitable rate. And then they can take the profits from that business and reinvest it back into the business and grow that business over long periods of time. And that's what we've been investing in doing in a very steady way since 1974.

I guess the other wrinkle in there, other than just finding those businesses, is we have to also find them at a good price. And so that's the other, challenging thing that we're always and always have been very concerned about is not only finding a great business, but also finding it at a great price, which makes it a great investment.

And that's it. There's not much more to it than that. And that is worked through all kinds of cycles for now, 50 years.

Kevin Headland:

It's amazing as well, because that process has been successful across multiple different asset classes. Multiple different capitalizations, as you said, through multiple cycles and different environments. What is it that makes it so successful? And so, being able to use it across those different asset classes?

Jim Hall:

Yeah, it is true. It has worked across, you know, all the different geographies, market cap sizes, etc.. And, you know, I've talked about following this process because it works for the last 50 years. But frankly, I think it works because it's worked for a thousand years. It's, you know, buying good businesses run by great management teams. You know, they can provide, as I say, a product or service that they know people want to buy.

They can sell at a profitable rate and just keep investing back into that business. And it's we're not we're not here buying and selling pieces of paper stocks and know on markets what we're doing is buying and selling pieces of businesses and those underlying businesses, if they're earning that return on capital, beats the cost of capital over time.

We don't overpay for that. Then that's going to grow over time because the underlying businesses are growing. And that's I think that works all over the place and in all environments, not necessarily every day or every month, but over the long period, because it's common sense. That's how one does create wealth, and it's always been that way. So it's there's no magic sauce to it.

It's just doing that and doing that consistently over a long period. Time should work. It has worked.

Kevin Headland:

You see, there's no magic sauce, but it's that the arts essentially of perfecting or improving the process over the 50 years, identifying the different companies, identifying the price and improving the process and the price you want to pay for. And one thing I always really enjoyed is, is the fact that you can find an industry or a business, let's say, in one part of the world, for example, Canada, where you started investing, of course, started the original fund and then go to places like Australia or England and find similar businesses.

That have been successful as well. So it's applying what you see in one area and see if it works in other areas. Finding things like, at one point, stock indices or the TSC, and then also the Hong Kong, Hong Kong Stock Exchange and supplying those of, of metrics across the board, which I always find very interesting.

Now we're going to talk about two funds today, the Manulife Global equity class, as well as the Manulife US mid-cap equity fund. But I'm going to start on the global equity class. And I think that's key, because it's such a great product in terms of just a core global strategy. This is, as you said, this is, be born, make money.

This is what I like to say. You're chasing for your portfolio or your foundation of a portfolio. You kind of have this and you'll build upon it. But when you invest in a more global equity, father may have called equity class, you know what you're getting. And that's key. I think when you're building a foundation, you want to make sure you know what you're getting.

When you're looking at some of the competitive funds out there, look at them, our salespeople, when I'm on the road advisors, we're looking at comparisons. A lot of those global IQ funds, even global dividend funds, are not what they seem, especially with the U.S. equity returns being so strong. The Mag seven, the MSCI world, that used to be 50% U.S, it is that because of the growth of the U.S. market relative to other markets elsewhere, what is it about those perhaps mag seven products like Nvidia for example, that don't screen well for you?

You only have one mag seven Microsoft in your top ten. Here was about those companies that don't screen well, for the portfolio.

Jim Hall:

I screen well and you do a lot of those are wealth creating businesses. We have a smattering of them in portfolios. Microsoft is in the top ten. There are those outside of the top ten. The the reason that we wouldn't have the same exposure as maybe some other competitors out there have is, is simply valuation.

So I mentioned before that, you know, our our process is to find wealth creating businesses, those creating know that are selling great products. Nvidia certainly is. But it's really important how much pay for those businesses I've described this before is the million dollar Mercedes problem. You know Mercedes. Great car, high resale value, safe. Not a lot.

But would you pay $1 million for it? No, because there are other products that are as good or very close that, are going to cost you a lot less. I should maybe make that the $10 million Mercedes question. I think quick inflation, it might be in the millions, but, so this is the problem we've got with some of these companies.

Look, they're fine businesses. Certainly a lot of demand right now, but how much do you pay for them is a very difficult question. And for us, when we look at that on a probabilistic basis, we do the discounted cash flow models on these businesses. We don't feel that we got much of a margin of safety there for, downside.

That's pretty important to us. So when we look at, across the universe, think, oh yeah, those are those are great companies, but there are others that are also good that aren't going to cost as much and hopefully perform just as well.

Kevin Headland:

It's, as you say, that is, is you have, you know, a valuation screen essentially, or a matrix where you look at it and you can plot every company in a portfolio on that matrix. Can you describe a bit about that matrix?

Jim Hall:

Yeah. So the matrix is, is is two dimensional. So and one of the dimensions is valuation is its risk return potential. And that's a whole story of how we think about that. We are not looking at multiples or, you know, just screening. I wanted to mention like growth or, or even cheap price to book value or something like that.

So, we look at all the cash flows of a business at least 15 years discount that. Back to today's present value. That's how we think about valuation, which itself is a little different than most out there. That is one of the dimensions of the matrix. The other dimension is, the quality of the business. And so the perfect company for us would be not only have excellent return potential on a discounted cash flow basis, but also a great business model where they're earning high returns on capital, where the risk is either lower as being very well managed by an excellent management team.

That's able to continuously grow the business, reinvest capital at high rates and manage risk business. So that's what we're looking for. If we can find that combination, we would have that sort of maximum weight in the portfolio. And so companies plot on that matrix all over the place. There are very few companies that are going to find a super high quality business.

And the valuation is cheap. The market's not stupid. So we're making we make those trade offs. And so if it's a high value company but still excellent highly valued company, still excellent management team will control our risk by having a lower weight in that business. So in the case of let's just take a video again. It the valuation is is kind of so attractive for us at this point, that we would have a zero wait.

So below some point, you know, and prospectively the returns are not great for us or the risk is super high. And so we would we would just have no exposure there. And so that matrix approach is again I think different than most. I think many investors out there will look at 1 or 2, just very narrow criteria, whereas we look at many, many and wait those all in that decision.

Everything about the matrix that I think is different is that it? It's it doesn't matter what the index weight is. It has no bearing on what our weight will be is the index weight will be. We're just simply looking for companies to have, characteristics of high quality business, high return on capital, great management at a reasonable price.

And whether that's a 0% weight in a index or it makes seven weight indexes is almost irrelevant to us.

Kevin Headland:

I think it's a it's.

Jim Hall:

Different as.

Kevin Headland:

Well. Yeah, I think it's really important as well, because you do have the notion when you have a momentum market that we've been facing in the US for the last couple of years, position size becomes so important because it's it's almost as easy to fall in love and keep your position size elevated. Make sure you participate with market.

On the upside, however, it's the downside risk you need because you're too overweight in a stock and it goes poorly. Of course, that's going to be, very disappointing to your your portfolios and more. For as long as I've known the firm and known you, downside protection is kind of that bread and butter that is that is where you work.

Well, by protecting the downside and winning by not losing, shall we say, and protecting by on the downside and allows not only the companies you're talking about company compounding, but your investors compound more by not losing on the downside. And that's that's key. I think people will get returns only they don't look at actually the compound growth of their money while they invest in the portfolios.

Jim Hall:

100%. Yeah. So, yeah, the best way to make money is not lose it the first place. So, you know, we want to win by not losing. We want to win by winning too. So we want to have exposure to those companies, but we're not going to own them just because they have momentum. Nobody else is chasing them, or they're a large weight in the index.

And, you know, we're falling behind as a result. We have seen this movie before, with your cabin. You and I have lived through this movie before. You know, where single stocks or a group of stocks or a sector can dominate an index auction for a very long period of time. And it's really hard to stay disciplined and not get carried up in the emotion of owning those stocks or the pressure of not only them.

But, you know, I think over the very long term, in order to succeed in this business and corporate finance wealth over time, you have to take that emotion out of it and just look at it coldly and say, okay, am I getting a reasonable deal on this investment or am I not? Am I want to get simply because there's a ton of pressure to own it or not?

Yes. When we've seen these periods in the past, they do come and go. They do take a while, but sometimes it can take years. But in the end, if a company is just not worth it, market will figure that out. And yeah, you don't want to be holding the bank when those very heavily weighted, very popular stocks, go, out of favor because there's no there's no buyers for them year.

And you can lose money very quickly.

Kevin Headland:

As you said, the market is very efficient, but sometimes it takes a while for that efficiency to work its way through. And I think patience is so important, especially when you're investing in these, these quality businesses that may take a little longer to show the true value, but end up doing exactly what you expected over time. Now let's get into, you know, probably the nitty gritty of it more and then the fun stuff and talk about a few names and, and the global equity fund, one I like to talk about, is, UnitedHealth.

That one is interesting where it's a healthcare company. Why is this healthcare company attractive to you?

Jim Hall:

So, yeah, US based healthcare, healthcare company, the attraction is it's doing just what I said. It's compounding wealth by you know, providing a service. That's super valuable. And they have some advantages in doing it that allows them to deliver that at a price where they can earn a decent return, and reinvesting that back in the business.

So what do they do? Perhaps their business is, insurance, health insurance. In the US, the other half of the business is actually providing the services. So they are one of the largest know the largest, owner, urgent health care. So emergency rooms, doctor practices, it is very integrated. All they, an enormous company, so great, economies of scale and being able to, you know, purchase whether that's services or deliver them at a rate that beats competition.

They're, they're they're in many cases the only provider in some areas. So they're just a but a franchise that can keep growing and reinvesting back in the business. And health care is a business that has a very great secular outlook to it in the US and elsewhere is, you know, people age that the treatment options become greater.

This is a company well positioned that they've been executing very well. Not perfectly. There's no company out there that's perfect. But we think this is the kind of business that can grow and compound, investors often, over a long period time. And that's what they've been doing. So that's, you know, it's a it's not that exciting, but it is a boring make money type of business.

Kevin Headland:

Well, you said the aging population, of course, health care costs are not only going to be more necessary, but also likely going up as well as more demand. So a company that is well-positioned to take advantage of that demand is probably a really good company own. And you mentioned also something it was interesting you said, competitive advantage.

And I think one of the keys as well to finding the wealth create companies is that margin of safety in the business. You know, they can't just no one's going to come across and create a new health care company. I think one of the great quotes you said one time when I was interviewing at one of our conference over the years, you know, is nobody is, no one's come in universe, right now trying to find the next best health care company.

Right. So having that, that margin safety in business is so important.

Jim Hall:

That actually out there trying to find the next best drug. But, okay, that's pretty exciting stuff. How are you going to get there in the in the hands people or in people's arms? In a way that, you know, they can afford it. It's it's one thing to be able to make $1 million injection drug. It's a whole different matter to get it out there to people in a way that, that they can for obviously a single individual can't afford it.

The only way to do that is through some kind of insurance, plan scheme. So that's yeah, there's actually something that needs to be done and adds value because at the end of the day, this isn't about, you know, it is about selling insurance, but it's not about selling insurance. It's about, you know, why should a company exist and why should it make money?

It has to be producing something that is of value to society. And the at the end, like over a couple of years, you can you can produce all kinds of junk. But at the end of the day, you've got to produce something that actually has value, adding to the world productive. And if you can keep people healthy, you can keep them out of, you know, hospitals or if they're in hospitals, you can treat them, get them up quickly.

That is going to add value, obviously, for the individual, but also just for society as a whole. And so capital is going to be over time attracted to those, organizations or areas where there's a return to be had because there's actual productivity benefit to whatever is they're doing. And so this is a great example of that.

This is a valuable thing for the world to, to have out there. Now, it's, as I said, not perfect, not without its risks. Certainly regulatory risk in the US, there's a political risk for companies like this, which we have to be on top of and manage or at least be we don't manage it. We have to make sure they're managing it.

You know, so it's not it's not a no brainer, but it is trusted in the category of yeah, that's got good potential for what we're looking for.

Kevin Headland:

What about, Wolters Kluwer?

Jim Hall:

Yeah. So there's a I hope I.

Kevin Headland:

Pronounce that right.

Jim Hall:

Yeah. That was oh, I don't know. I'm not Dutch, I, I, I, I'm sure I'd mangle it if I tried. So we'll go with your pronunciation. I just go to stock ticker w cl in you know w cl space na on Bloomberg. So, what's his career? So that's, Yeah, that's actually a fascinating one. It's, it's essentially, the service that they provide is, knowledge.

So they have, they're selling knowledge, they're selling cumulated human knowledge. And, and, it converts human knowledge to those who can use it in their day to day lives. So one of the big areas is actually health care. So imagine you going to your part of the ER and you've got some disease and the doctor's going to type into a computer, symptoms and so on.

Maybe they already have an idea what it is. And what's going to come back is, you know, the knowledge about what what this might be. It's treatment options are and the drugs and everything else. So the Da check that. So this is, again like this is a very valuable service. They do the same thing for and they're one of the leaders in tax and accounting and legal.

Well, so imagine you're to a legal issue and, you go to a lawyer and the lawyer has got to consult a case law. They need to have a database for all of that, at their fingertips. They can consult on it and make their job a lot more efficient and make sure they make the right decisions on your behalf, if that's what's required and what Wolters Kluwer has done.

So they've been doing this for for decades. But in the old days, that was all, paper based. So you can imagine it. You know, if you're interviewing a guy like me and I was a lawyer back in the days, I'd have books and books and books stacked behind me, all this sort of case law. And it was a very impressive, now, nobody I mean, they might have just to look impressive, but they wouldn't look at that.

It's all digital. It's all online. It's all searchable online. And they can do it very quickly. And so, Wolters is one of the leading providers of, you know, the digital version of all of those books. So if you're a taxi calendar or any kind of accountant or you're a lawyer or you're a doctor, risk manager, you can consult all of that knowledge very quickly if you bring it up to date.

The editor and categorized. Think about academic journals. It's all out there, all that knowledge. You know, in my day, I had to go to the library and find these articles written by some notes. It's very easy to search. It's been properly vetted. It's, it's a super valuable service. And, starting, I'm going to guess, probably start early.

That's, let's say ten years ago, Wolters transitioned their whole business from, hardcopy print copy to digital. And while they were doing that, the market, really didn't understand what they were doing, I don't think, and was, valued very, very inappropriately. So this, this, this wonderful asset that they had, the market was just overlooking is saying, well, Wolters is a business that's not digital or is all print based, and that's going to die.

It's all going to go to Google search or something like that. But it didn't because Wolters does a lot more than just search ad. And as I said, it's editorial content, the organization and delivery of that to, to users. And so they have transitioned it to, digital. And they lost any of their business. They've kept all of their clients.

They've been able to price it better. It's way lower cost for them now. They've taken out a ton of capital. They don't have to print books anymore just in the cloud. So let's just take their cost structure down. So, you know, this is this has become a knowledge company, not unlike lots of note that Google in my world, they be a very equivalent to like a Bloomberg.

It's just like you can't be in in our business without having access to the material. You can't really be in the tax business, without having access to their database. Just you wouldn't do it. And so last five years, that business, the stock, because we were able to buy one was the same and people were writing it off as a print business.

It's compounded over five years out of a five years. So company, it's almost 20%, 19.8 in terms of total return. So that's, that's a fair nominal rate of compounding. They earn, mid-to-high double digit return on invested capital because there's not much capital in the business. They're able to compound that. Well, to reinvest in new lines, new businesses.

It's really a poster child for the kind of thing we're looking for. Overlook business. The tastic runway. The CEO, Nancy McKinstry, has done a fantastic job of this conversion. Managing it all the way through to the end result is, compounding our wealth and our clients wealth. Your clients wealth. 20% plus rates, right? 19% plus for five years.

Kevin Headland:

Five years. And it essentially sounds like a very boring company, as you would say. But boring for you is actually exciting in the end. It might seem boring to me. It's a new stock, but it's it's, Yeah. It's exciting. Finds a boring company.

Jim Hall:

Tax accounting software. It doesn't usually make the front page of the Wall Street Journal, but yeah, for me, it's the most exciting thing in the world. Oh, look at this business. I think probably. You kidding me? Yeah. But time goes on and it's kind of thing that you just, you know, with compound advancement, eventually price other people, figure it out.

And so you have to, start feeding that back to the market and reduce prices. You know, what we've been doing is still top ten holding, but, it's not one that's that we have a max rate right now because of that valuation risk.

Kevin Headland:

That's great. What about, Booking Holdings? I was looking at that. And interesting enough that the what really interested me some of these names and as well the mid-cap is when you look for these companies, you realize it's subsidiaries and the you might not know the the parent company name, but you know the underlying names. So talk about a couple of the, the, the subsidiaries of Booking Holdings.

Jim Hall:

Yeah. So booking Holdings, online travel agent. Their subsidiary people would probably like Priceline Salon.com is that William Shatner distracts. Okay. Anyway, so, everybody probably knows Expedia. This is the same business model. Expedia is the leader in North America. And Priceline slash bookings is the leader in in Europe. So if you were in Europe, that'd be the first place.

Everybody you go to to look for booking Wayfarers. There's hotels holiday trips, you name it. So those are the two. You guys are the two companies you've just absolute gargantuan franchises in the online travel business.

Kevin Headland:

And although it's, it's a it could be a physical company because of course demand ebbs and flows for it for travel. The quality the business there and the price you pay gives you that safety of riding through some of the second quarter of the company.

Jim Hall:

You know, I mean, cyclicality is it's not just for booking way through all of our holdings in our portfolio. You know, we, we we don't spend a lot of time trying to predict cycles and where we are that and, you know, reorient portfolios to position for, you know, a particular point in, cycle. Our metrics for a long time is, you know, it's be resilient, not brilliant.

So we're not brilliant enough to figure out what's going to happen next with business cycles. And I know that, you know, the macro picture we're certainly aware of. It's not like we ignore it. But we're not trying to predict what's going to happen next. So, company like Booking Holdings is a good example of that. So yeah, it's going to be affected by cyclicality in the travel business, economic growth or not growth.

But we're going to look through that when we look at the business model. Return on capital are, as I said before, our discounted cash flow models, when we think about valuation or or 15 years in a time horizon, it at a minimum in 15 years of, 3 or 4 cycles in there. And so, you know, that's a good example of one where, you know, I don't know where the travel cycle is right now.

If I were to guess, I would probably be probably peaked, right, or a year ago or so. But that doesn't mean that we shouldn't be. But owning this company might have an impact on on the wait. So if it has peaked, if we had good confidence, let's say that travel cycle and peak in Europe, that, wouldn't have that at a 5% rate or 6% rate of portfolio, it might be closer to that.

Would, you know, if everything else checks out business wise, great business, great management. Valuation looks good. And yeah, that's we would own up to that. So yeah. Good example of how we think about cyclical. And with a case in a company like Booking Holdings, we don't own in the portfolio right now because we're trying to predict the next 12 months travel business.

We own it because fits the criteria of what we're looking for. It's creating business. It's always managed a reasonable valuation. We could see a runway for, you know, the next five, ten years in this business.

Kevin Headland:

It's nice to know you're not trying to time the next, fed rate cut or what companies benefit most from from that.

Jim Hall:

I kind of feel sorry for those who are right. Like, I don't imagine they had a great week last week. I think it was quite a shock. So, yeah. Try to do as much. I mean, like, as I said, we're aware, you know, it's not like we ignore it completely. You have to be aware. However, I you're just not where we've thought, you know, working out a lot of value over time.

I didn't want to do anything stupid, but I want to start it forever. The steamroller or a freight train. Whatever image you I get, but. So we'll we'll definitely, you know, make sure that we're not exposing ourselves to macro risks, that are unwarranted. So that's risk management. That's that being resilient, not brilliant, mantra. But know I can try and, you know, make a ton of money for predicting where the market's going to go next or the macro where it's going to go next.

I leave that to you, Kevin. That's right. That's your gig, not mine.

Kevin Headland:

The, I love the yeah. The tagline is you guys come up with, that's for sure is not brilliant. That's that's a new one. I haven't heard, much. I think I like that one as well. I want to add that to people and make money. Joe, let's move on to the, use mid-cap, equity funds.

You know, U.S mid cap Mawer launched their fund, just over three years ago. Now. I think it had the three year anniversary. The male, version, essentially exactly the same is coming up on three anniversary in March of next year. What brought the firm to add a U.S mid-cap strategy? Three years ago?

Jim Hall:

Yeah. Yeah, it's come up in three years, and I. I'm a client. I have money in there. Put it on day one. And, you know, why do I put it in there on day one? If you answer your question is, and this is such a natural extension for us as a, as a firm, right now wheelhouse, in terms, these are businesses that they and I live or die on the strength of their business model, their management teams.

And that's what we're really good at evaluating. In many cases, they're going to be overlooked or just, you know, just don't get the time of day from, so sell side analyze from, you know, coverage out there because they're, they're small and off the radar screen and, or the large banks etc., aren't going to make any money, covering these companies.

And if they're the exact kind of companies we want, which is they generate enough capital to fund their own businesses, the bakers. And so I'm going to make no money, doing secondary issues for them or IPOs, etc.. So they're just they're just off the radar screen. So it's absolutely what we're looking for. A very fertile ground for us.

And then we had have that just a great team to, to run it. So Jeff Loeb, who's been on our team or long time now, he joined in oh eight, 16 years, 15, 16 years in that range. His background is in, the small cap area, Canadian small cap. Worked with Mark Ferguson for a very long time.

He's run that product has been super successful for us. And in terms of investment, it's been capital time is right. But I don't mean from a business point of view, I mean from a, returns to investors point of view. So, you know, there's nothing in this business. It's a no brainer. But when I put my money into it, I was kind of like, that's pretty obvious.

But then it's a it's a great complement to, oh, S&P 500 where, which is dominated by these great big mega cap stocks which, you know, I think as I said before is not good business up there too. But well known, well covered, well priced. And so, you know what us exposure to a dynamic economy, lots of great managers down there, lots of opportunity for growth, single market.

And it's just this is it's a natural fit, for what we do. And I think for finding great opportunities.

Kevin Headland:

I think, you know, they had there as well in terms of, diversification away from exposure, overexposure, perhaps to large band cap names. A lot of US equity funds out there, and you look at passive indices or even how individual advisors might be managing the book of businesses, buying individual companies. That's why you're probably in some of the similar names across the spectrum.

And then you go to mid-cap and when I started my career almost 25 years ago, Cap was a normal position in the world diversified portfolio, and it kind of almost got forgotten about because of the big run up in, large caps, perhaps since the financial crisis. And mid-cap is also not small. It's small relative to the large cap U.S, but for Canadian investor, these are names that are bigger than the largest, Canadian company.

So I think that's important for investors. Understand that Mid-caps aren't that way. You know, in terms of high risk because they're they're small. They're they're not. Correct. The other thing that also we saw in late summer was this big rotation, seemingly rotation from large caps of small caps there. You know, investors thought there was a big valuation gap, a great opportunity there.

And what we're saying is I think it's sort of the big rotation there is more about better opportunity. It's a sweet spot. That mid cap universe is kind of the best of both worlds, where they're big enough well-established companies, but still a lot of growth. Runway for them. And I think that's, you know, ideally you guys and your teams are trying to find those mid cap companies are to become large cap in 5 or 10 years or sooner or you know, that's that's the idea is a lot of those large cap companies start off as mid cap companies.

When the IPO.

Jim Hall:

I said yeah we're we're seeing that in our in our own, you know, times where we're poaching some of those ideas from us baked into, you know, US equity fund or global equity fund.

Kevin Headland:

It's a great segway for companies. I want to talk about, FTI consulting. It's not only in the mid-cap portfolio, but also in the global equity strategy.

Jim Hall:

Yeah. And I think, you know, to your point about this isn't a, you know, some if you think small cap companies, this is huge. It's a 10 billion ish market cap on the stick and point in there. So yeah, it is one of these companies. They, so what they do, primarily is, consulting around, bankruptcy.

That's their bread and butter is bankruptcy. So, they do M&A, they do lots of other consulting, but that's a big chunk of their business. And, you know, it's not just, your corner grocery store that's gone, bankrupt. You're talking the biggest companies out there, but they, have issues. They're going to call these guys.

So I think statistic, is approximately 40%, of Signif difficult bankruptcy proceedings in the US. These guys have been involved in some way, shape or form. So it's this they've got the franchise on this. So this is a really great, business model. They've got a niche. They do extremely well in that niche. They're strong in that niche.

And it's very hard for anybody to compete with them. You know in the, in the bigger, in the bigger, bigger categories of bigger, court cases, let's say. So just, you know, great franchise. They've been able to build that franchise by adding, their clients and also other businesses have said M&A and that sort of thing. So they're they're reinvesting the capital generation to set that attractive rates.

And the other thing that's wonderful about this, which is great, you know, interesting business down itself. But the so that's, you know, reason enough to own it. But the other thing it's nice about it from a portfolio management perspective. But you want uncorrelated assets. It offsets two things. This is a company that's going to do better in a downturn.

So it's not it's not a bad one having a portfolio for, you know, because I said we really can't predict what's going to happen over the next four months macroeconomic basis. So you want to be resilient, not brilliant at ag resilience. If you have companies that'll do better or at least be strong and resilient helps in a downturn.

So is a great example of one of those ones where it works on its own. It also works really well as a as a portfolio. Diversifier. So that's one that's, that's come up from the mid-cap world up into the now, into the equity.

Kevin Headland:

What it's interesting you say that because I think that's key for a lot of investors out there. If, let's say we believe that we're in a economic slowdown and Kanter recession risk investors would say, well I don't want to invest in Mid-caps because, that can be synonymous with risky and maybe from an index perspective or a past perspective or, you know, past returns perspective, but from an individual security perspective, that's where it really boils down to.

I think that's where it's important. I think where we are in the industry today, we even look at global equity, for example, and look at the different indices around the world. There's not many, if at all, that we look at actually on a just on a simple PE basis, price earnings ratio basis on a trailing 12 month basis that are under their 20 year or ten year or five year average.

So it's not about where you should be invested, but more about what you should be investing in. I think stock picking, you know, in you know, you talked about cycles. We've gone through different ones. But in terms of something where you've seen valuation elevated earnings are likely to be choppiness, lower economic environment. You get headline risk.

As I mentioned at the top, that's going to be happening. It's really about this environment where stock picking is going to make, make it work. I think you and your firm, proven it over the last 50 years that this is the type of environment that you really shine, where you find those opportunities.

Jim Hall:

Where we we certainly have in the past. And I think it's not just stock picking, though. That is one element. The other is the portfolio construction site is really important. And because we don't know how things are going with course, you're, you know, you're betting on the, on the best horses out there, but you need to have a stable of them because, you know, really how things are going to turn out.

So value I think, is added by, you know, picking the right stocks but also or, and also by constructing portfolios that, you know, have characteristics that allow them to do well in kind of whatever environment unfolds. And that's what we've been really successful at in the past, is not only picking great companies, but also pulling together in a, you know, logical, sensible way that should be present.

And as a result, you know, we've been to all kinds of different markets and markets, cycles and bubbles and crashes and high interest rates and low interest rates because we, you know, we're able to be resilient in those environments. So that's that's how we've survived. And that's, you know, frankly, when I put my own money here, it makes sense.

Kevin Headland:

It's almost like you treat a dynasty sports franchise. You know, you got to build a a great hockey team. It's not built just one superstar. It's building a team. There's a first line and a fourth line. Everybody has a role to play. Well, let's keep what you've done before. So, Jim, quick commercial for it for that fund.

Jim Hall:

Well, you just recently launched your version. Now we just had it for a while, and, yes, I am, lead manager on that. It is. The idea is to take, larger companies. So those that have already proven that they can succeed and which have taken out some of that, startup or unproven model, risk out. And it's what we have left is a universe about 8 or 9 or companies, in, Europe, Asia, Australasia.

And yeah, these are, these are just wonderful businesses. Many of them would be household names to you. I mentioned Mercedes before. That's potentially not in a portfolio with that kind of company. Novo Nordisk could be, one of their so these are just, you know, awesome businesses. Exactly what we're looking for just happened to be not listed or headquartered in the US.

And now we think we can, duplicate what they're what we've been doing in lots of our other portfolios, which is to compound wealth for our clients over time by investing in businesses themselves, a company wealth. It is absolutely a be boring, make money, product. And yes, I have a ton of my own money in there as well.

I'm a believer. And yeah, because it makes sense. It's exactly what we do, and it's exactly the kind of thing that should work over, five, ten, 20 years for, for me and and all of you.

Kevin Headland:

As a great way to, comment, exposure to U.S. equities, which has been such a focus.

Jim Hall:

A little bit.

Kevin Headland:

So many companies around the world outside of North America, probably are not being looked at right now. So that's a great way to perhaps compliment, a portfolio, for, for investors and advisors. So again, Jim, thank you so much for joining us today.

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