TRANSCRIPT 🔗
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Hello and welcome to the Friday edition of the Shesify podcast.
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Steve and James are here.
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How are you, fellas?
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All very well.
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Excellent, excellent.
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Um, tricky few days for markets with uh tech stocks getting whacked and uh fears of higher rates.
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But who cares about markets when we've got flying cars, right, Steve?
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Finally, finally.
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It's been at least 10 years in the making this.
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Uh so so for listeners who are not sure.
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So this is um Tesla's Elon Musk pet pet um pet uh uh product push.
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Um it's the Tesla Roadster, but it's the Tesla Roadster that allegedly can fly now.
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There's great YouTube go and check out the YouTube clips.
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There's there's lots of them around.
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I I mean I think of it more as a kind of a kind of a bit of a circus toy.
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I mean, it can just jump over things and it can it can do all kinds of tricks in mid-air.
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Whether it can actually fly or not, I think it's still open to to debate.
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But go and have a look at it because I mean, simply from an engineering perspective, it's a fantastic success, it's incredible what it can do.
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Um, but whether that that's ever going to come to market as a saleable product, I mean sincerely seriously.
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It can go up walls and then it lands on its wheels.
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It's just brilliant.
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Absolutely, yeah.
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If you think, if you remember when um when what was that motorbike Barry Sheen, was it?
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No, not Barry Sheen, no, the good Eddie Kidd who used to do the tricks of motorbikes, it's a bit like that jump paper, double deck of buses and stuff.
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Great fun, but um anyway, markets are a bit choppy, and why was that then, Steve?
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Well, I mean, you you yeah, and listen to the project picks up.
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I mean, there's there's been um this this kind of squeeze on on debt funding.
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So we know that loads of tech, uh loads of money's going into AI, so they're you know looking to capital raise using bond markets.
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So this is basically going out to markets and saying, you give us some money, we'll give you a guaranteed income over the the term of that that that loan.
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Some companies are doing it really well, uh, your Microsoft, your Amazons, etc., and they've got relatively low yields, uh, corporate yields of five and a half, six percent or so.
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Core weave was a big story because it's a business that is going out, it's having to spend loads and loads of money, it's going to bond holders, and those bond holders are starting to go.
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This looks much more risky than other parts of the market.
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Now, consider where core weave is, it's a it's a pre-profit company, it's relatively young and it's working in the part of the market that is pretty much brand new.
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So, to expect it to have a long history of profits is probably asking too much.
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The question, really, then for investors is given where it is and its trajectory where we think it might go, what is the state of pay now?
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And it's not unreasonable to say it's been overwrecked by investors.
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So its bonds have been uh been crushed, and it's it's investors were basically saying you're gonna have to give us a much more attractive yield for us to go and lend you some money, and and their yield has gone up to about 15%.
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So that impacts their equity price, so the share price plunges, but it is quite specific to that kind of um edge cloud business space.
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So Nebias, uh, one of the the businesses in that similar space also has uh felt the pinch.
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But when you look at the core your your alphabets, your Microsoft's the Amazons, as I say, Meta even.
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I mean, their bond yields have not really gone outside of um investigable grade.
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Yeah, excellent.
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Uh James, busy week in um investment trusts this week.
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Couple big games reporting.
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Indeed, yeah, talking about things that are flying high.
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So we had results from Seraphim Space, now it's more than doubled in a landmark year.
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I mean, really strong performance, valuation gains across the portfolio.
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The the standout one was this I side, this Finnish satellite operator.
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But I think analysts have picked up on that the value creation is broadening out across the portfolio, and the trust has got lots of firepower to back existing holdings and make new investments.
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Um, today we had JP Morgan UK small cap growth and income, rare performance blip last year, bit of underweight to materials, and this cerulean slump sort of hit performance as well.
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But um, we've got Kate and Patel coming on the podcast on Monday, and he's also going to be at the Showfly Wealth and Retirement Show, so he can tell us about the opportunities he's
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seeing.
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Excellent.
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And um, also talking of the show, um, Lord Adventure uh coming on, and you've written a note on that as well.
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Yeah, that was huge things on the deep dive, aren't you?
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Yeah, that's uh I mean it's it's a it's a really fascinating investment trust.
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We we've had um the um one of the managers at Laura Foal on our uh podcast uh early in the year that's still available in our podcast section.
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Um ultimately she's handing, she's taking on full responsibility for the trust, but not until next summer when James Henderson retires.
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But it's it's it's got this sort of two-pronged elements of the business, and it really needs explaining, but it makes it uh it gives it a really different twist and quite a valuable twist, in my opinion, uh, to investors and their portfolios.
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So there's an extensive research note we put onto the website yesterday.
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So go and have a read of that, it's it's it's free to read.
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Um, and she will of course be presenting at the um wealth and retirement show, get the words out, um, in November as well.
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So come along, get a ticket, come along, and and hear directly from her.
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Yeah, genuinely differentiated approach to it.
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Um, and talking of which, I was at a presentation last night by Mark Ellis of Nutshell Asset Management, uh, talking about the growth fund.
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Um, now quality growth.
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I mean, you only have to ask Nick Train what quality growth has been like for the last five years.
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Obviously, it's been a very tough market.
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Um, I think according to a Morgan Stanley chart I looked at, it's at a 25-year relative low, and low quality stocks have really ripped since 2021.
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So, of course, Mark set the fund up in May 2020, right in the middle of COVID, and right as all the as low quality was starting to rip up.
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And yet, this this is up 170% since then.
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Um, it's a compound annual growth rate of just under 14%, and it's been top quarter 88% of quarters, and the way they've done it is they're quality growth, but they work on a relative value basis, so they and this is a slight sort of throwback to the hedge fund uh era where you buy and sell things on their relative value relative to each other, so they're owned about 35 stocks, they're all very high quality and attractively valued, but you now and then get these blips in the market.
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So, for example, the other day, uh Dutch semiconductor business, which we know well,
Steve, ASML put out results, and as you said, they were great, but expectations were too high.
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Stock got smashed down at the open six-seven percent.
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And Mark's model said, Oh, we we need to buy this.
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Um, so sold something else to add a bit more ASML, and and this is adding, they reckon, something like six percent to the uh to the annual returns, which is fantastic.
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I mean, it's a really interesting diversified approach.
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And the the other uh thing that listeners should be aware of with it is it's quite a flexible model.
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So it's got something like about 30, it might be 35 or so different criteria in this model, but it is flexible.
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And as they find uh identify new criteria that they really feel will add value, they add that to the criteria.
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So it's it's it's it's expanding.
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I mean, maybe there will be criteria that fall out the back end as well, but it's it's refining constantly as well.
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So it'd be really interesting to watch.
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It's it's very similar, I think, um, to to the Terry Smith uh view of the high quality thing.
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And one of my observations is that uh this is more mechanical, I think, uh the nutshell um model.
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But one of the things that Terry Smith has done famously this this year is think I'm gonna go and chase more um uh momentum-based, and that isn't what Mark Ellis is doing with nutshell.
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So it'd be really interesting to see how that might play out over the next couple of years.
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And and those two have diverged quite a lot.
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I mean, famously they in 2024 they had a bet, and um nutshell won, and Terry Smith had to give money to charity.
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But that has that that gaps continue to widen.
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I mean, the results speak for themselves, it's very impressive, I have to say.
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Well worth a look.
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So it's nutshell growth fund.
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Check it out.
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Um, what do we got coming up this week, then, fellas?
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Uh sorry, next week.
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What do we got?
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Yeah, there's quite a lot, James.
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You won't you far away, James?
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Yeah, so we've got uh Domino's Q3 update on Wednesday.
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I've already flagged a boost from the World Cup as you expect.
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Lots of excitement around this chicken dip product.
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I don't know if you've uh you've sampled it yet, but anyway, I suspect they'll um they'll flag more games in the kind of pizza market, and we've got lots of other consumer names, so Sainsbury's, Halford's, Gear for Music, and then overseas Proctor and Gamble on Thursday and a slew of luxury names and personal care.
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So L'Oreal, Hermes, Montclair, very interesting week to come.
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It's interesting, isn't it, James?
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Because the last um many weeks we've been doing this this coming next week uh feature on a Friday, and um, we do this little image that shows you that the the corporates, the big corporates that are likely to drive markets, and the EU column has been pretty much empty for ages, but now it's really starting to fill up.
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And as I say, the luxury space in particular is one where there are a lot of um EU-based companies that are announcing, so it should get really uh European heavy as well, didn't next week.
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Yeah, we're really interested.
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Steve, you you've got some big names to look at next week.
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Yeah, I mean, obviously, the um so that the the US uh Q3 reporting season has really got going now.
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Next week, we'll start seeing uh names like Netflix and Meta reporting.
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Uh, they're going to dominate a lot of the headlines for sure.
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Um, actually, I think one of the more interesting companies to watch is another EU company.
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It's the German software giant SAP.
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Now, people might not be aware, it's it's classic enterprise software, it's it's a really big, important company.
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And what they've been doing over the last few years is gravitating towards cloud infrastructure.
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But now they've also obviously engaged with AI and how they're incorporating that.
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So it's a really interesting metrics to look at is their backlog and their cloud business backlog.
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So um, we've done a little preview in our in our feature today of coming next week.
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Um, it tells you exactly the kind of figures that um uh the market's expecting and what it's like to drive share prices there.
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So, for once, yeah, I don't think the most interesting company next week is necessarily going to be a US Tech.
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Well, I'll be watching um the two areas really, I think uh house builders after we had that decent update from Bellway.
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Uh so we've got persimmon on Wednesday, uh, which is generally considered one of the better quality builders, uh, and then banks onto UK banks.
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Now we were talking before the podcast about this uh this rumoured uh surcharge that the Treasury might introduce and whether that'll come into the budget.
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So that'll be very interesting.
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Barkley's is on Thursday.
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I mean, just give it just a bit of background.
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I mean, it's it's a surcharge that was uh um stripped away, not entirely, but stripped away by Jeremy Hunt uh under the previous government, and uh and now it's um it's down about three percent, I think.
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And the talk is that um this next budget might add it back up to about eight percent.
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Now, I I understand from analysts that uh banks are largely expecting it to go to about eight percent, but if it goes higher than that, that's going to be a real blow to the sector.
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Um, anything up to about eight percent is it's largely priced into the market as well.
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So I think it will be quite an interesting space to watch the UK banking uh industry.
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Yeah, so loads to look forward to, and as we said on Thursday, four podcasts next week, you lucky people.
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So uh we wish you good weekend and catch up with you on Monday.
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Yeah, see you Monday, guys.
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Bye for now.