Global Equities - How to Get the Most of Your Offshore Exposure

Hello and welcome toe asset TVs. Outlook 2021 With meat market in this program, we're looking at opportunities in global equities to discuss that I'm joined by a quartet of experts. Let's meet them. They are Andrew Hardy, co head of research and fund manager at Momentum Global Investment Management. Kareen Shadid, director on investment strategist at BlackRock. Andrew Burkly, portfolio manager, Franklin Templeton Global Equity Group and Luke Bars, head of club portfolio management for Fundamental Equity at Goldman Sachs Asset Management. Andrew Hardy Let's start with you. How do you run the money at momentum? I am Momentum. Our global equity fund is fundamentally well diversified across sectors, geography on styles. Andi critically actively managed as well because we believe that is the best way to capture mispricing opportunities across the market. On particularly to capture the greater opportunity that we way persistently see in mid and small cups mid and small gaps. The numerous in the thousands globally listed, but the only amount to about 8% or so of the world index. Overall on, there's a wealth of academic evidence over decades off the outperforming potential in that part of the market. The high growth potential hired by a potential on indeed the greater opportunity for active managers. Toe take advantage of lower self ID coverage on our performance opportunities that mispricing. So we own to take Thio. Take full advantage of that within our portfolios on bond. Also, we believe this approach mitigates the various imbalances that often are introduced from a more index based approach. Thank you, Anne Karim. She did a black rock. Are you is a strategist. Are you working predominantly on actively managed or passive funds or across the whole range? So, yes, I'm lead strategist on the TF side of the business CTF and Index side. And I look at what? Cross asset in terms of my my focus equities, fixed income, commodities, Andi, really through the lens off what products are make most sense in the current market environment and in the evolving market environment. And how to position for this change in market views. Andi Berkeley of joining us from the States today. Tell us a little bit about how you, Franklin Thompson in the global equity group are seeing the markets right now. Yeah, sure, Mark. So you know, we are unconstrained bottom up value stock pickers. Essentially, what our team of analysts around the world are looking to do is to uncover mis pricings in in in stocks and businesses. So essentially, the first thing we're looking at when we're looking at a potential investment is what is the value of the business. You know, what do we think this company can earn in terms of cash flow or return for us over the next 56 years? So very much forward looking, then we want to discount that back and say, Okay, well, where's the mispricing? Is the market missing something that maybe we can take advantage of and and find an opportunity so unconstrained in the nature that you know we're not wedded toe one geography? Um, you know, we're looking for where opportunities are around the world up and down the market capitalization spectrum. So we have products that are large cap, mid cap and small cap, and we also have regional specialization products to So we do have teams in Europe. We have teams in Asia, We have teams teams in the Americas again, and that's what they're doing, kind of constantly looking for the best value out there. Mhm on if you took a good representative Global value product today. And where would your main over weights and under weights big. Where you seeing the value? Sure, sure. So you know the biggest differences than, say, the benchmark for us would be that we are underweight. The US You know, we do think the U. S market has had a great run. The fundamentals have been have been fantastic. There are good companies there. But broadly speaking, it's harder and harder for us to find new value opportunities there. So if you look at the U. S. Benchmark, it's 55 60% of the global index. Um, you know, we are underweight in that area. Ah, lot of the overweight that makes up for that is in Asia, particularly in Japan, is really where we've increased our waiting, uh, pretty considerably over the last. Call it two years, which is interesting for Templeton. You know, Sir John Templeton was really famous for being one of the first global investors to be underweight. Japan back in the late eighties, early nineties, when the bubble was forming essentially, you know, back then Japan was 55 60% of the global indexes. And again, uh, Sir John Templeton, you know, kind of took the stand that there was no value there. Really? There was a lot of risk and went underway. Um, so fast forward to today. It's been several decades, but we have been building back our Japan Wait, really focused on a couple or a couple of factors a couple of reasons behind that. Um, you know, economics, which we're all familiar with, has really been the driving force behind some of the reforms in Japan. Um, that's really, really accelerated with the new appointment of Souda as the new prime minister just last year. You have Kuroda in the central bank roll. Um, you know, we do think there is an interesting growth dynamic story going on in Japan and a lot of investors aren't talking about. And certainly, if you look a lot of global portfolios, there's not a lot of investors. They're overweight Japan today. Okay, Lubars, what's the investment style at Goldman Sachs Asset Management? Yes, sir. Mark personally, thank you for having me. So So we sit as part of the fundamental equity group within Goldman Sachs asset Management and so effectively, we are long only bottom up managers. We have a very clear quality bias in terms of how we approach the investment opportunity globally. So we're very focused on sustainability of returns. And then within that the sustainability of internal practices around things like environmental, social, corporate, governance, practice, right? Ondas, you look at the markets at the moment. Look, what's your take overall? Are they offering good value? They're looking fairly valued or the expensive. We've obviously seen a very strong rally in the last 18 months or so, and that's something we have to be conscious off. Um, especially coming off the covert crisis from really March or April last year. That rally has Bean, I think, far stronger than maybe people would have expected that point in time. When we look at equity markets today and we think about the growth rebound, we're likely to see through the course of 2021. As long as you're able to apply a little bit of a discriminatory lens on, really think about the valuation that you're having to pay to enter into specific companies, we still see a lot of opportunity across the global empty landscape. I would say that for us at this stage, we're slightly more biased towards the emerging market in Asia region in lieu of maybe developed markets on. That's primarily underpinned by the fact that that recovery is a little bit more entrenched on DFO rank. Evaluations, for the most part, are still a little bit more attractive than we find and maybe some of the parts of the U. S. Market. Well, Andrew Hardy, Let's bring you in. What's your take on where markets are at the moment? And where have you got your over weights and underweight? I've some markets up now as being probably fair value roughly on average. We think there's good return potential this year if the recovery plays out as expected. Generally, we see corporate earnings driving returns this year as a post evaluations eso very much the flip side of what we saw last year. Um, and you know, extra. They're not cheap overall, but certain parts of equity markets, particularly more values, technical side of things we think is cheap, and overall you you can't discount the fact that rates are at all time lows on are likely to stay there for for a long time to come. There's risks around basing your ex allegations on that sort of view. Um, but at the moment we think they provide a very strong underpinning for markets. At this point, we do think there's there's a much better opportunity on the value side of things, which typically is more cyclical but doesn't necessarily need to mean the deepest value most cyclical parts of the market. But the valuations delivery depressed. And there's a good good margin for safety overall, especially if we see the rebound this year that so many of us are expecting. Whereas on the other side of things that your tech giants on the high growth side of things valuations do look pretty high there. And we think there's probably some pretty large Ted headwinds thio that part of the market over the course of this year and we've seen a bit of a rally from value stocks in the last few months. Do you think it's sustainable? Yeah, we've seen a few of these over the last several years, right where you know, values really had these big surges that ultimately, you know, didn't last. And we all know the trend over the last call a decade where it's really just gone back to growth time and time again. I think what's interesting If you look at the recovery rally that we've had since March, it's really been two distinct phases, right? We kind of had that early growth phase, and then we just had this tremendous value rally, Really, Since the vaccine after the US election, Uh, in mid November. Um, if we look out, we think you're gonna wanna be a little bit more flexible, certainly in in 2021 going forward, we don't think it's gonna be an all or nothing kind of value versus growth that that we've seen. But we think it's going to be kind of a blend, you know, we really are. Mantra has been We wanna be in the middle. We don't wanna be chasing expensive growth stocks. We don't want to be looking in the kind of more cheapest, depressed value areas of the market, but we want areas that are gonna be cyclically exposed that are gonna benefit from the recovery. As the vaccine rolls out, we're going to see economic activity pick up. So there's certain value segments to the market that will continue, uh, to benefit from that. But then we also want some quality and some growth in the portfolio if we confined at a reasonable price. And we think that diversification is really gonna benefit investors. Certainly this year, you know, it's interesting if you look at correlations among stocks, they've come down quite a bit. But correlations among factors are still very, very high, Which tells us that investors still really are just in this kind of growth versus value mindset. And if that starts to break down, that could be the surprise for the markets that you know. It's not just all one way, but this kind of blended approach. Um, it may make sense in in 2021 going forward, How worried should investors be if a company that they're invested in mrs their earnings targets this year? Yeah, I mean, I think if you think about earnings this year, it is. It goes back to that K recovery right, which is the idea that there's the have and have nots in the market in the economy. You know, all those companies that really kind of benefited from the pandemic a lot of revenues and earnings pulled forward. They're cops. They're gonna be much harder. Uh, this year, as they start to compare against those pulled forward earnings, But then you have the bottom of that K, right? That's a lot of the cyclical areas. The energy, the banks, They're cops. They're gonna be much, much easier. So I do think you are going to see companies that are gonna disappoint, but they're probably gonna be the ones with the much harder expectations that air in the upper part of that K. Not necessarily. The companies in the lower part of that band, um, where they're they're cops will be much, much easier. So I don't think beating earnings is going to be a challenge broadly for the market over the next couple quarters, especially for with all the stimulus that's coming through again as economic activity re accelerates in here, Um, the bigger challenge is probably holding on to a higher valuation or higher P E multiple. You know, if you are one of those companies that, um, you know, did benefit last year and and and and can they keep that multiple going forward? So I would think that's the risk is probably not on an earnings misses. It is on the valuation side. Well, Korean. You mentioned that you're quite heavily connected with index funds and passive investing in ETFs, but is now a good time to be an index investor or is now the time you really want to be an active manager? I think it's first of all in terms off terminology. We we tend to move away from the division around active versus passive, because it it gives an impression that 111 investment is active in nature and the other is not. Whereas we prefer the, uh, terminology around Alfa and and Index. And I think this is crucial to to your questions answer which is, um, there's room for both in portfolios and really on the index side, it zits being it's investing in, in, in in index. In when we talk about opportunities and equities from a beat, a perspective Onda, the fact that there's, uh yes, yes, 2020 was driven very much by multiple expansion. But looking forward, there might be room for earnings to deliver and drive markets a bit further, and there is some very fair value to quote. Uh, my Panelists, fellow Panelists here, I think this'd investment in on the beat aside can be done Most cost efficiently in index. But that doesn't mean that there isn't room for Alfa at the same time we've seen it. For example, in 2020 in Europe, where there was plenty of room for Alfa generation in European equities and at the same time, uh, broadly, equities were doing well at a broad beetle level. So you just have to be more selective. And here that's why I like to use the terminology around Index and Alfa because you invest in index. But then you also you free up room When you when you put money in index, you free up room for pure alpha generation in the Alfa side of the book on There's Room for both. Well, I want to move on Thio. How is you? Look at investing across the world whether stories big investment stories like Biden presidency, for example, are those valuable ways of thinking about the markets investing or are they something of a distraction? Lubars. What are some of the strengths and weaknesses of thinking in terms of stories when you're investing particularly 2021. Yeah. No, look, I think, as I said earlier, we are at at our heart, fundamental bottom up investors. So every decision we're making is based on the merits of owning on individual business and its prospects going forward and what we're having to pay for that. But I think what we also have to take into consideration are some of these long term secular growth trends that are likely to influence the addressable market, the demand pattern or, frankly, just the opportunity for some of these businesses over the medium to long term eso. Whilst we wouldn't necessarily dictate to portfolio managers or define our our portfolios based off of these views, it's very clear when you look across our portfolio. Some of these transcend a number of different regions, be it d carbon ization on the potential tail winds we see around environmental solution providers as we go into that decolonization trend. If you look at health care and you think about what's happening in the genomics and precision medicine space and how disruptive that could be to traditional big farmer on, then I think also just in the consumer space, and we saw this very clearly last year. The challenges the big box retail faces in a world where e commerce penetration continues to grow on online comfort with consuming products through virtual platforms becomes increasingly familiar thio many more than just your traditional millennial consumer on DSO for us. As I said, as much as we wouldn't dictate our views based on those long term secular trends, there's absolutely some that we think are crucial for investors to consider Andi. It reflects in the way not only our traditional active portfolios have been built, but also in terms of actually some of the product design we've seen and launching new products specifically targeting some of those longer term themes. A great picking up on that when you're creating index based products, how how do you create ones that could take advantage of some of these themes picking up from what looks So what would you say? Some of the major ones that we need to consider as long term investors? I think, um, there's plenty off themes and and there is, ah, room to think in a thematic nature when, when looking at investing to also, you know, comment on your earlier question. There's plenty of themes that are coming into play here that have that are likely to continue to play out over the long term. So these are the themes that play on this structural change, not cyclical. So it's, you know, we spoke about value and cyclicals, those air more tactical in nature. But here we're thinking about the long term dramatics that are going to play out over the long term. Regardless, what happens with the business cycle. Few things come to mind here. Digitalization, eyes, one, robotics, the whole infrastructure ecosystem around the digital economy, including things like digital security. The more that our lives have become online, such as right now, the more we have to worry about information security. So there is a growing industry around that allow the infrastructure around, ensuring that everything alarm business that have become virtual. This is more secure aan den. Also, there are themes to do with the aging populations, where it's no secret that we have a generational challenge ahead of us as, uh, demographics continue, continue aging. And so there's themes to play here around changing consumption patterns. With an aging population, onda changing economy, often with deflationary forces when it comes to an aging population. And then last but not least, the global growth pole is shifting east. And so there's thematics to play here that have to do with China and and the China orbit. So these are something that themes that have come into play, which you can see also can be, can be played through index investing. Well, you just picking up on that last point. How important do you think the state of U. S. China relations are going to be in 2021? I mean, just in terms of geopolitics, but in terms of what it could mean for equity returns, Yeah, It's an incredibly important factor for the for this year, the part of the pandemic and the recovery eyes by far and away the most important factor there's gonna be determining equity markets returns over the course of this year, no doubt about the efficacy of vaccines and the roll roll out there off. But, you know, if we start getting to a stage where God willing, in six months or so, then the world is starting to emerge from this pandemic. Then it'll be time for markets to start refocusing on on some of the other risks out there on, but, uh, yeah, I mean, he clearly had a change of presidency is coming on, but, uh, we've got it now, Andi, With that, it's brought return toe stability and reliability from the US we would expect. But that doesn't mean a thawing of relations with China. There's going to be continued tension there. There's clearly a significant bipartisan support for, you know, some sort of reset of that relationship. Eso It's gonna be a key factor, not just not just this year and once once we get past the pandemic, but for several years to come, I would say. But one thing to bear in mind, though, is it is very much unknown factor on Do you know, in some of the most affected businesses that most sensitive to those relations and particularly trading side of things, then you know that there's gonna be a degree of that being priced in on the biggest risks that investors should always be worrying about is the ones that aren't expected aren't priced. Um, yeah, Well, Andy, given that you're our man in the U. S, has a buying presidency gets underway. How are the markets taking this success? That the Democrats were not just in terms of the presidency but also control off Congress and lots of implications. Has that got for how you look at your US equity exposure? Yeah. I mean, I think what the markets have really been focused on and what they want to see is is that bridge Azzawi Get the vaccine rolled out, getting to the other side of the pandemic and really maintaining the economy. So you know anything in terms of increased fiscal stimulus is gonna be taken as a positive by the market. Certainly in the near term. Um, you know, I think that's why the markets have rallied since the election. Um, you know, Biden's package just introduced recently, We'll see how big that ultimately becomes. Probably not nearly as big as they first introduced, but, you know, certainly enough to again keep the economy moving forward until we get past. The pandemic on the vaccines really could be rolled out more aggressively now, longer term, I think there are some secular trends that this is just perpetuating and the idea that you know, we can't just keep providing mawr stimulus and layering on more debt. You know, ultimately, we think this is going to lead to an inflationary environment and maybe not necessarily a good inflationary environment, you know, but one where the Fed kind of lets the genie out of the bottle on. It's very difficult to put that back in. Um, you know, the pandemic is accelerated. Many secular trends on Dwan of them is this idea that inflationary pressures could start to creep back. Andi, that's not necessarily good for the for the US market. We do think there are areas around the globe that could benefit from that. But that would be our primary concern. But, you know, for now, I think as long as we can get that bridge again where the economy keeps moving forward, the markets will respond positively to that. Well, we were talking about value there, but I suppose one of the really big stories in 2020 has been this extraordinary rise in growth, particularly tech stocks. I don't have a little look at that. Now, Lubars, from your perspective, is I think tech and of associating now makes up almost like 40% of the s and P 500 eyes that a play that you think Clark should stick with in 2021? Or is it now time to get onto the value train? Look, we're still very constructive on what I guess has become termed growth stocks over the medium term. We have to be conscious that there will likely be some period potentially short term in nature where you get some reverse in that growth value phenomenon, especially if we see continued recovery from the covert crisis, especially if we see some increase in interest rates that will be supported for some of those more traditional value stocks. We ultimately think that over 3 to 5 year period, if you have companies that could grow in the mid teens levels, that's a very appealing place to be now on tech. Specifically, that's had a phenomenal run. I think what we have to be conscious off there is the potential concentration we're seeing in Indices on the fact that there is some increased regulatory risk associated with those big names within the tech space. It doesn't for us mean that investors should be shying away from in totality, but we just have to be a little bit more cautious, a little bit more thoughtful in terms of how we're approaching, valuing and assessing those business, especially over the short term. On what I would say, just the final point on technology is alongside that comment around concentration of indices towards technology. We also have to be conscious that there's been concentration around this select group of names on our view is that the growth leadership in the technology space and frankly, more broadly, is likely to come outside of those half dozen names going forward on. So we're very thoughtful around trying to go down the market, that spectrum also going outside the US and trying to find some of those technology and growth orientated businesses that can tap into some of those secular growth trends we mentioned earlier as opposed just fixating on those half dozen names that have done incredibly well over the course of the last 18 or 24 months. Well, Andrew, picking up on that point in a lot of commentators would say these really big tech stocks have built, um, vast motes around themselves. They, you know, pretty much nothing that could take them down. Apart from a government. Would you go along with that? Or is there are a lot of opportunity in perhaps today's minnows? Tomorrow's winners? Yeah, I think there's a There's a lot of risks on the horizon for those those big tech companies. Clearly, this year, with new Biden presidency, there is gonna be an increase increasing focus on these businesses. From a regulatory point of view, various kind of antitrust issues are going to be raised on, so there is a threat to their dominance. Overall, Um, technology in general has bean quite a fast changing industry for many decades. It's it's been less so in the last few years, especially when we talk about these big tech giants. You know, the likes of Amazon, Netflix, Google, etcetera. Which way kind of bucket is being tech, but but actually, then they're not your pure tech. They're not your semiconductor businesses or whatever it may be, which are the is the area where you would expect to see the more rapid technological driven change. These are These are not that sort of text business. They have their platforms, their ecosystems in and of themselves. So they built up, you know, to use your terminology a fantastic most around their business on network that they're really does preserve their their position on valuations are high in many of these areas overall, but we don't view this is being another tech bubble type period. These businesses are phenomenal. They're making huge earnings on, but they very, very much deserve consideration. Replacing Investorsportfolios. The most important question I would put forward Thio most investors is. Do you want as much in your portfolio as you've got now? Because if many actively manage strategies and particularly passive strategies have very high allocations to those names on as Luke was saying that there's a world of opportunities beyond those names on. But I think you need to look down the cap scale and internationally to capture some of the best growth opportunities over the next 5, 10 years or so. Thank you, Green. What's your take on that? And the Tech winners today likely to be the tech winners in 5 10 years time? I think. Firstly, on the tech question, we don't see the tech sector in a similar place as it was at the peak of thes sort of millennium bubble because there are differences in terms off the balance sheet fundamentals today, where tech remains ranking quite highly on the quality, um, levels. So with high R o E and and good cash amounts on balance sheets and also in terms of earnings potential and earnings growth, which which positions tech now better than than than that time comparison off the millennium peak tech bubble. Having said that, I think, um, tech winners today may may well change to answer your question versus tech winners off the future. And I agree with a lot of the points that Andrea just put forward around near term risks with some potential for risk from the policies off. What now is, uh, Democrat? Majority? So So we have a united Congress, although having said that, the majority is not that big. So it's not we don't see like any major overhauls coming. Um, I think when looking at some off the tech themes going forward, um, it's important to look at it from a global perspective. So I also agree with that point. And here, you know, even though we were talking about U. S. China tensions earlier, I would even flip that on its head and called it an opportunity. U. S and China are competing in the tech space, but they're winning in different areas. The U. S. More in cloud computing, China Maurin innovation and artificial intelligence. So I think there's a place for both to win, um, in different areas on board. The way that we think investors can invest expose themselves to that is by owning both, owning both U. S and China Tech in portfolio. So it's beyond the big tech names in S and P 500. It's more than that, e. I could just add if it's okay one point just just off the back of what Corey instead, which I think is really interesting is that you do have this this prevailing view that China has suffered through that rising tension with the U. S. Especially in terms off, then also the impact of covert on multinationals trying to move their supply chains away from China or at least diversify in some capacity. I think what's also been interesting within that for us is that China is observed that it has a dependence on the US to a large degree Silicon Valley for some of those real high tech manufacturing components on. So what you've seen is a huge amount of focus on the Chinese government to try and uplift manufacturing to really make sure they have independence in some of those areas. I think on areas like the green economy, especially with China's commitment to be carbon neutral by 2060. We should also expect to see a lot of leadership coming out of China, where it's entirely possible those businesses that are solely servicing demand from within China. But that can, as we've seen a number of different areas across the technology space B'more than sufficient to create globally relevant businesses. Well, Andy, you've got very much of value strategy. But does that mean things like technology, These these kind of platform businesses and cloud businesses air completely outside the remit for your fund? Or where are you finding value in that part of the market? Yeah, that's a great question, Mark. You know, I think what we really try to do is find mis pricings in the market. So, you know, sometimes you will find that in areas of growth, sometimes it's more of a kind of a classic value story. Um, but you know, many times areas within technology like semiconductors, for example. You know, that's been an area that we've been able to find good value certainly over the last several years, and you have a lot of market leading companies in there that are just not being rewarded, in our opinion, for their tremendous earnings growth. They're putting for it. So it's particularly in Asia where we have a number of holdings in semiconductor space. It's kind of one area within, you know, generally expensive technology segment that we can get exposure to. So what are some examples of what evaluation one of these stocks looks like in general terms compared toa the sector as a whole? What makes it value for you? Sure. So I think you know, the first thing we're always looking at is on a forward basis. You know? What can we think that the company can earn over the next say, five years and a normalized business cycle? You know, in many of these companies air trading, it kind of mid teens multiples, you know, certainly not the 40 50 times that some of the mega cap growth names that you know would be a little bit more expensive, a little bit more difficult for us to own. So you know the fact that they're leading in terms of developing technology, they're putting money back into the business on. There's been a lot of consolidation in that area within technology as well. That's taken a lot of capacity out of the system. Okay, thank you for that. Andrew Hardy. Um, there's a lot of talk around values for amongst compliment today, but value investing, cyclical investing, often a C can come across a synonymous. Do you think they're the same thing at the moment, Or and if not, what is important to distinguish between them? You know, it is an important point to bring up. Everyone thinks of something different when they talk about a value style or value portfolio. Were like, uh, deep value strategies. Um, example of that might have a very high concentration in cyclical sectors and beaten up stocks. Onda, uh, weaker balance sheets, etcetera. That's one expression of a value style, but it doesn't have to be how you implement a value investing approach. You can you can have the same weightings, azi indices or higher allocations to technology or whatever it may be, but implemented a value approach within that paying less than intrinsic value. Ultimately, Thio Thio access opportunities on a subjective you off what you think intrinsic value is on. That's been a very significant across across different different firms and different approaches on Rightly so. So it doesn't have toe correlate with a cyclical approach. At the moment, there is a high correlation between those Those two sort of styles value investing. The value factor has been out of favor for a decade now, on many metrics. Value stocks, uh, across many different definitions are the cheapest in several decades, cheaper than during the tech bubble. On some measures, a Z cheaper has ever going back as far as data goes. So But yeah, it does depend how you define that on. Do you know some some of the, uh longer standing original measures of value in a low price to book and on the like. Investors do need toe be wary off becoming to reliant on one particular factor or one definition of off value, uh, changes in accounting methods Onda like perhaps make make book value slightly less reliable. Eso uh, on active approach. It is what we would advocate in terms of implementing getting good exposure to a genuine, value oriented strategy that isn't simply a sector cyclical type play, but Andrew just toe push you a little bit on that. What's your view at the moment on how much cyclicality you want in the portfolio, given where we are in terms of the economy right now, Yeah, I think it's a key question. Investors need to think about how they got enough exposure thio value within their portfolios. For those reasons, I just mentioned in terms of value being very cheap on many measures, you know there's value and value. I think a lot of investor portfolios on indeed, most of the market industries don't have enough value exposure. Overall, there's been a a dominant momentum trade essentially in markets for the best part of a decade, with US markets growth stocks tech in particular outperforming for a long time. So there's a natural concentration that has built up in that area that has come at the expense of value. Whether that whether you define that is just companies that are out of favor or the cyclical sectors in this case is is really both. So we are definitely favoring an awful for him, making sure that we have enough exposure there. We don't believe in style timing. We think that the best way toe get the best returns out of global equities and manage risks along the way is to have a blend of styles on, then add as much value as you can through active stock selection beneath that. But it's critical at this point. Thio maintain enough value exposure I saw a headline just today about, you know, an industry store war veteran who who proclaims that value is dead. It za brave statement to make. I would say, because often when that's been said, it's often marked somewhere close to the bottom of the cycle on. But it's very hard to call. We don't try and do that. It's it's a low quality, better, I'd say, but I would reckon that were we're closer to the bottom, a tous point, and there's I wanna five, any of you from here I would have high conviction in a value oriented approach, outperforming thank you, Karim. I wanted to just jump back if I made towards the issue of U. S. China relations. We're seeing a lot of fun managers getting quite excited about China exposure. At the moment, we're hearing a lot about the growth of Chinese stock markets. But on the other hand, we've got a number of corporate trying to reduce their exposure to China. Western corporate riel, tensions between the states and China around some areas of corporations. And who could do trade with what? Why is asset management so keen to get into China whilst other parts of industry seems to be quite keen to get out? At the moment? I think with China's financial markets opening up to foreign investors and here we've had some important milestones when it comes to index conclusions over the past couple of years, this is a really crucial as as to why China is coming up as increasingly as a as an opportunity in terms off asset management that in terms of the world of investing, uh, versus sort of other corporate industries, I think in terms of the index inclusion events, we've seen the inclusion off China A shares and Main e M and disease, which has accelerated the opening up off Chinese uh, onshore stocks and then similarly on the bond side last year alone was another couple of inclusion events off China C N Y. Ones into main benchmarks that are followed by the fixed income index industry on DSO. I think the reason collusion events are important milestones for the opening up off China mainland stocks and bonds. In terms of the the investment opportunity, it goes also beyond the opening up of the market. It's also, you know, from the fixed income side, um, Chinese government bonds are yielding above 3% and a yield starved world in a very yield hungry world, and the rating is is pretty good. It's, uh uh top operating a A plus. And so you have this sort of unicorn in the income environment where you have highly rated and highly yielding bonds on done on the on the equity side. Increasingly, we're seeing Chinese equities, uh um, showing a source of diversification in portfolios. And when we look at the average wealth portfolio in Europe and more broadly, the West and I would make a distinction between Europe and the US here because I think the two regions are in different places off the journey in terms of investing in China, where Europe is a little bit, probably has a little bit more appetite through the When we look at European wealth portfolios, generally, everyone is still underweight. China. On DSO You have this growing market with increasing access for foreign investors with increasing investment opportunities and yet a very strong over underweight across portfolios. That's, Ah, that's a big gap which asset management can can help those mhm green e. I think you mentioned earlier that one thing China did was extraordinary innovation in technology in certain key areas off it. But not so long ago we saw Jack Mar, who's definitely a big man when it comes to innovation, and he was criticizing quite a lot of the Chinese structure, would not be pursuing as much innovations it could, and he's quite publicly being slapped down. Does that put a damper on the innovation story Long term? Is that is that indicative of perhaps the way the world is moving in China? I think it, uh, outside of this idiosyncratic story, the bigger theme around innovation in China is very much still there. What you have in China tech industry is there has been ample innovation and new ideas when it comes to artificial intelligence. And there's been also because the environment in China is different when it comes to privacy. When it comes to data, there is a lot more that can be done with data that you can't find another market. So you've got a large amount off data in China and more that can be done with it. And that doesn't go away with one story or another. It's It's a bigger theme than that. Let's play that will continue to play out. So I think there is still room for more. E think the innovation team is still well and strong in China. We've got about five minutes left, so I wanted to sort of circle back and perhaps pull some of thes thes themes and ideas together. Um, let's start. Look with you. You were mentioning. Start some of the really big long term trends that that that that we're facing that investors having to think about, Can you give some examples of how you connect that sort of long term view together with sort of short term, how you think about investing in global equities? Yeah, absolutely. And frankly, at this point in time that there's a huge amount of commonality in those two views for us when we look long term. As I said, there's really for mega trends that we think are driving the change in investment landscape, frankly, global growth. Those are continued advancement in technology, the New Age consumer, that millennial consumer. That's much more affair with technology and shopping online, the changes we're seeing in the healthcare space and really the future of health care, which is tied to genomics and precision medicine on then this broad need for much greater environmental sustainability on. So when we look across the spectrum of opportunities tied into some of those themes, we still find a huge amount of interesting and exciting opportunity. I think this comes to one thing, Andrew said earlier, which is We have to distinguish here between cyclicality on value. There are a lot of names within that universe of companies tied to some of those structural megatrends that is still cyclical in nature. But if we think about some of them that involved in providing solutions to core environmental challenges, being on the clean energy side of things being on the automation technology side of things the E V side, especially when you think about the need around infrastructure to facilitate those stories. Those are businesses that are heavily dependent on government and corporate Capex in the short term, but ultimately going to be successful over the long term because of their alignment. What is a very critical structural trend on DSO? We find that not only can we access some of those long term themes within our portfolios at reasonable valuations today, we can also build fairly balanced portfolios because you have that shift to cyclical exposures in some of those thematic areas on then. Also, some of those more obvious growth areas that have been in favor for the last few years being in e commerce or some of the technology related place on whilst we have to be very discriminatory around the quality of the business. Andi made some of these comments early around. Just management execution in some of these areas has been very strong, but we have to make sure that we have conviction in that going forwards on that we're paying the right price to be invest in some of those names at this stage in the cycle. Thank you. That Andy Berkeley. From your perspective, we hear a lot about sustainable investing. Are you still worried? It could be a bit of a bubble. There's too much money chasing too few opportunities. Yeah, I think there's a lot of things that we saw. The pandemic pulled forward. A lot of trends, right? I mean, one of them is certainly digitalization and kind of those growth technologies. Uh, the other is a lot of the SG focus in investing, you know, not only from a fun flow perspective where we've seen just massive amounts of, um, you know, investor interest on money flowing into those areas on there certainly are areas. I think that are, um, kind of the obvious issue. Candidates are the ones that are really front and centers that probably drawn a lot of that capital where the valuations probably have, you know, gotten well ahead of them. Um, I think what you really need to focus on is almost kind of those second tier names. Um, within s g. You know, areas that will be part of the solution going forward, you know, areas that, um, you know, maybe not quite as obvious as, say, solar or, you know, wind or kind of those front line. But, you know, maybe names that, uh, in the traditional energy sector that could be part of that solution going forward. So I think it's certainly, uh, a factor that's here to stay. I think it's taking a giant leap forward, uh, from investor interests from, um, corporate interests, especially on the societal, um, side. I think, you know, kind of societal issues during the pandemic have brought that front and center. So it's certainly been something we've always incorporated into our investment analysis, really, from an economic perspective. But I think the way you want to think about it is, um, you know, what are the companies where that can improve their economics and improve? Um, you know, their, uh, their profitability going forward. Um, not focus on the areas that may be kind of the obvious. Candidates have taken a lot of the money so far. Uh huh. And you just sticking with sustainability. You were taught worried that a lot of companies we're talking the talk, but actually 2021 might be a year that some of them get caught out, and that could have some negative implications for share prices. And for investors? Uh, not so much necessarily. That doesn't mean that risk to begin with, wholeheartedly, agree with everything. And he just said then I think his comments was spot on on Just adding to that. Our own approaches is to go down the three integrated roots on SG Inc and sport photos rather than focusing too much on the positive screening or negative screening approach, both of which have their merits on Benny, many, many firms do well way think integration makes a lot of sense because all industries, really and all businesses at some point should be a part of the solution on, ideally, would be a part of the solution overall, um, and would move in the right direction. Our whole industry is on a journey and ensuring sustainability is, would say, adequately integrated into how we run our businesses, but critically in terms of the the offerings that that we provide to investors as well and making sure that that we live up to the to the needs of clients there there. I think the most important thing to recognize that sometimes is perhaps overlooked is that There are many, many, many different shades of sustainability, investing and integration or whatever it may be. You know, I mentioned a few kind of top level categories, but there's so many different shades underneath that of how you could go about implementing that. But I think thing to recognize is that the whole industry is on this journey on it. Zab, salute Lee the right journey to be taking, and it's and it's one of those come back to your earlier point about kind of thinking about the top down side of things and how much. How much weight do you place on that? The move towards sustainability and SG integration is one of those inexorable friends that is not going anywhere. There's gonna be bumps and Trump's along the way, but the direction of travel is is very clear on bond. Every firm needs to be ambitious and strive to improve how they're doing it. There's no necessarily right or wrong. It's just, you know, start on that journey and on move in the right direction and then be honest to investors about where you are on that journey on. Then I think the the other side of that is that investors is beholden on them. Thio recognize that sustainability is is not a tick box X tick box exercise on, then it's also after them. Thio. Find out what what they want and interrogate their managers to make sure they're getting what they want from from their investment products. Andi think if if we will move down down that course over the next few years that the industry as a whole, then there should be there should be less of a bubble in, not in a bubble. But there should be less of that obvious mispricing where a select few companies maybe it looks very expensive because they take a few of those boxes. That's really not a kind of three end solution that we want to get. Thank you, Karim. She did. Could I get a final thought from you? Um, if you're looking what to do with your global equity exposure this year, what's one key piece of information you should bear in mind? The key, a piece of information I would say is equities have moved a long ways, and in 2020 they rallied. A lot of it was multiple expansion from the lows back in March, December, we saw significant inflows into equities as well, and this has continued in January. So we were getting asked a lot. Does this rally have more to run? And I think to answer that question, you should look at how much cash there still is on the sidelines. And the answer is quite a lot. When we look at flows in 2020 a lot of the flows into equities, Yes, but there was significant wall of money going into cash into money market funds back in March, and we still see around excess $900 billion sitting in cash, Um, and so there's more room to run. There's more cash to be put to work, and that could benefit equities further. And I agree with the comments earlier that this could come from earnings, not just multiple expansion. This year. We have to leave it there. Thank you very much for watching. I don't take this opportunity to thank our fantastic Panelists today. They are Andrew Hardy, Kareem Shadid, Andy Berkeley on Luke bars from all of us. Here. Thank you very much for watching and goodbye for now.