Expert: The Search for Generational Businesses | Fidelity Global Future Leaders

21 October, 2021

James Abela & Maroun Younes are the co-portfolio managers of Fidelity’s Global Future Leaders fund. Today we’re going to talk about how they broadly construct a portfolio, then look at the specific individual stocks that they hold, and close out with our final three questions we ask every guest.

You can check out the top 10 holdings from the fund here, and the guys also write a quarterly ‘From the Desk of’ which listeners can subscribe to on the fund page.


In the spirit of reconciliation, Equity Mates Media and the hosts of Equity Mates Investing Podcast acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people today. 


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Bryce: [00:00:14] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce, and as always, I'm joined by my equity buddy Ren. How are you going? 

Alec: [00:00:29] I'm very good. Bryce. I'm very excited for this episode. You often tell me that you're a future leader. You sign off emails, you put it in your LinkedIn and you remind me daily. 

Bryce: [00:00:44] Fake it till you make it, right? 

Alec: [00:00:46] We're joined by two portfolio managers today who specialise in the area of future leaders. So I'm excited to see you pitch yourself to them. But it's going to be a it's going to be a great interview where we talk about some up and coming, potentially great companies. 

Bryce: [00:01:01] That's it. Ren is an absolute pleasure to welcome to Equity Mates. James Abela and Maroun Younes, guys. Welcome. 

Both: [00:01:08] Thanks, guys. Thanks for having us.

Bryce: [00:01:10] So James and Maroun are the Co-portfolio managers at Fidelity's Global Future Leaders Fund, and today we're going to talk about how they broadly construct a portfolio. Then look at the specific individual stocks that they hold and then close out with our final three questions that we ask every guest. So guys, we're really excited for today to understand everything that's going on in your fund. But before we do, let's start at the top very beginning and introduce the fund a little. So what is the Global Future Leader fund? 

James Abela: [00:01:41] So the Fidelity Global Future Leaders Fund is really a fund that is benchmarked against the MSCI Global Mid-Cap, which is just a developed market. So it's predominated by the U.S. but its U.S., Europe and Japan, and that covers all global mid small cap stocks around the one billion to the 40 billion market cap range. So there's a lot of innovators, there's a lot of new ideas, a lot of men and small cap new ideas. There's also cyclicals and there that that's pretty much what the what the idea is. There is a unique process which follows the Australian Future Leaders Fund, which which we call QMTV, which we can talk about later. But it is a very good blended process, maybe Maroun can cover off on that and what the what the product actually is that we're running. 

Maroun Younes: [00:02:26] Yeah. So basically, you know, I think as the name suggests, you know, global future leaders, really what we're looking for is companies that are going to be superstars in their own in a relevant field five 10 years down the track, and they can be in a broad range of different industries or sectors that could be solving some sort of unique problem or, you know, have some sort of innovative and new solution. And we really want to find those companies as early as possible while they begin their journey and then really sort of partner up with them and ride that whole journey up because it can be quite both from a financial as well as from the intellectually point of view, a very satisfying thing to sort of follow that journey all the way through for the next five 10 years on a on a stock by stock basis. So that that's the core of effectively what we're trying to do in the fund. 

Alec: [00:03:13] When I think about different portfolio managers and their strategies and which one I'd love to do, I think the strategy that you guys are pursuing and trying to find those next are incredible companies is one I'm particularly jealous of. I I imagine your day to day is very intellectually stimulating and interesting. I guess from a financial perspective, you know, this question may seem a bit obvious, but I think it's important we get it off at the beginning. Why is future leaders an important thematic for investors to be exposed to? 

James Abela: [00:03:43] I think there's a lot of unique, unique themes. There's some great breadth and great depth and great opportunities that are very difficult to access in the Australian market. I've covered Australian small caps for over 10 years. And it is all Australians woke up sees a very exciting place, and you can find some really amazing things at the place of birth for many global success stories today. But globally, there's just the breadth and depth is just wider. So you've got some really high returning businesses, really large addressable markets, innovators, as Maureen mentioned, niche operators that are really solving problems for the world in a unique way, and the difference is just really the breadth and depth of the opportunity set. And when you compound that over time, the return profile, we've looked at charts over 25 years and actually our benchmark outperforms large cap over twenty five years. You know, a few percent over 25 years, it ends up compounding to a higher number. And that for us is why we're spending our life doing what we are doing. Also, there's a lot of on researched nature of the universe on marine and marine. I've looked at the level of coverage of large caps versus small caps. Obviously, it's lower and that leads to a lot of opportunities. And then just lastly, being with the Fidelity Network Remote and I catch up with one one two, sometimes three analysts every single week and talk about new ideas, what's happening in their marketplaces, what are the entrepreneurs that are coming out in their marketplace? And we've seen Australia has Canva, Atlassian, et cetera, et cetera. There's a lot of innovation in the world. These are the asset classes and when you look at it. On a global basis, there's so many of these new ideas that are and this is the frontier of innovation, the frontier of society, the frontier of the human brain, actually creating the next heroes of the world, the next champions, the next winners of asset classes and asset categories. And that that is why it is really exciting. And that's why for us, you know, we're spending our life doing it. And that's why for us, it's important part of a portfolio. 

Maroun Younes: [00:05:36] It's probably worth stepping back and recognising that in the broader global context, Australia sort of makes up about two or three per cent. Whether you look at the the large cap index or the small cap index or the mid cap and except for that matter. So whilst there are plenty of opportunities available in Australia, you really are fishing in a pond that is a very, very tiny sliver of what's out there. And so you can imagine how many more opportunities you would come across and how many more exciting areas that you could uncover if you opened up your world to the remaining 97 98 per cent that sits beyond our shores. And so for us, I think that's why it's really exciting. You really are not restricted in any way, shape or form. As James said, this is the frontier of innovation, and there's just so much of that. As soon as you start to look abroad, places like the US, places like China, there's just so much activity in so many exciting things happening. I think that's sort of why you want to really want to be exposed to it rather than keeping yourself very restrained and narrow in what you look at. 

Bryce: [00:06:34] So we've seen companies like Microsoft, Amazon, Apple continue to dominate leadership positions in their industries, and they also continue to, I guess, disrupt as well. Like they just keep growing and yeah, building on the the the power that they have in their marketplace. What makes you think that they will be disrupted by the next generation of businesses? 

Maroun Younes: [00:06:58] That's a really interesting question. And I guess you just have to look back at history at different points in history. Incumbent legacy dominant players have always been disrupted. And is this really good concept, which was turned into a book by a Harvard professor called The Innovators Dilemma, which basically outlines why it's very hard for incumbents to stay ahead of the curve and I mean, to drill down into very simple terms. It's very hard when you're a very large established set in your ways and you have an existing book of business to then spend a lot of time and effort and money developing a new disruptive technology which will cannibalise your own existing business. It's very, very hard, whereas if you're starting from a blank sheet of paper, you don't have those existing relationships. There's existing customer relationships, the existing revenues to protect so you can go out there, go on a limb and try for the moonshot. And so I'll give you an example. If you were a BMW or a Volvo, it would have been very hard for you, having spent the last 50 years spending billions of dollars in finishing the next generation of petrol engine to then come along and simply say, we're going to pivot a hard pivot straight into shading to, you know, electric motors, for example, electric vehicles. Because your whole business model has been predicated on selling a better version of the petrol engine. But for Tesla, they didn't have any any of those issues to to protect. So when you started with a blank sheet of paper, you can often do things that that are out there and innovate and take the bold move, which is which is quite hard to do. And so not necessarily saying Microsoft and Amazon and Apple, you know, their days are numbered. That just history would show us that over time, it's very hard for for a leader to stay number one for 20, 30, 40 years, and it's throughout history. 

Bryce: [00:08:44] Yeah, she's alive to see Amazon get knocked off. There'll be some special company Amazon. 

Maroun Younes: [00:08:51] Amazon is a classic example, right? If you go back 20 years ago, Walmart was in the US. The be all and end all, and no one would have thought Walmart would have been knocked off its purchase number one retailer, and then Amazon came along and basically knocked them off. So even even in the case of Amazon, we've seen them disrupt someone else. So it is possible it's hard to envisage now where we at this point in time. But it is possible that in 20 years time, something else comes along and Amazon becomes like the Walmart and the target of obviously get Bryce. 

James Abela: [00:09:19] It's fascinating. I spent a few plane rides reading the massive Bezos book called The Everything Store, and that was a massive book. But it just shows you the psychology and the motivation behind what he was doing and how it took 20 years to get there. And now he's there. And now it's, you know, messy trillion dollar company and even Jeff Bezos, he said. He said in 20 years, Amazon wouldn't exist. You know, it'll be something else, so it'll be in a different game. So it's fascinating that even the guy who's the success story, you know, massive success story of the decade is himself said exactly what the question you you're asked what Marion's comment it is in 20 years, this will be different, and that is the nature of disruption and innovation. It's the human brain. Human brain comes up with new ideas. Business is competitive, and that's the nature of the beast. It is the nature of change, but it is fascinating. 

Alec: [00:10:09] It is fascinating. And I think that's the thing we love about investing. It's. You know, it is obviously of exercise in finance and studying companies numbers, but it really is about the changing world around us, and you can learn so much about so many different industries by becoming an investor. But when you guys are looking at all of these companies, we imagine that one thing that a lot of companies say is that they're going to be a future leader if you take a leader in a new industry or an existing industry. And, you know, as an entrepreneur or as a CEO, you have to have that belief that you're going to be a future leader to invest your time and your resources into, you know, into this business. So as fund managers looking for those really special future global leaders, how do you cut through all the noise and all the salesmanship out there and really find those special gems amongst the investing universe? 

James Abela: [00:11:04] Ren and I have our own different skill set on this one, so I'll I'll discuss mine. Then there is Covid Australian small cap. There's a lot of storytelling, a lot of entrepreneurs, a lot of founders, a lot of innovators, a lot of leaders, a lot of genius as well. And that's the case in global mid and small caps as well. But they're also future failures and fraudsters, and we've seen blow up after blow up in the Australian market. And what you need to do is keep a very close to the ground and really understand your marketplace, know what the market is, what are they disrupting? What are they displacing? What are they actually adding to the marketplace? What's the problem that they're solving for? So I'd say it's a bit of an art and science of focussing on the numbers and focussing on the people as well as the business. On the art side, you've got to focus on the idea, the concept, the innovation, the new, the creative and the inspiring. And that's all the good stuff, the creative stuff. And you need to keep your eyes close to the ground to make sure that you actually absorb that and listen to that creativity and newness on the hard side. On the science side, you need to focus on the numbers, the markets, the market structure, the reputation of the company, the reputation and the management, the reputation of the product, what problem and solutions are there and what is the ability to actually either move this company into a success environment or move the company into a failure environment? And a lot of that comes down to science. So there's a lot of art and a lot of science, and I think you need to use art and science left brain, right brain numbers, words, people, markets. It's a real, I guess, collective. And like Manga said, it's a multifaceted, multi-discipline process to go through, especially in midcaps and smallcaps. But that's how I've sort of characterised it in how I've sort of survived the last sort of 10 years in NZ. And that's what we're doing in global Xamarin handed over to you. 

Maroun Younes: [00:12:48] Yeah. Look, I would reiterate a lot of the point James mentioned, especially about combining the art and the science part because it is a blend of both a couple of things I'd add. Firstly, what's the problem this holding? Is it a big problem solving and is the product or the service they're bringing? Is it a slight iteration or improvement on something that's existing? Or is it something completely revolutionary and new? Because if there is a slight improvement or a minor iteration on something that we have there, it's just it's a little bit better version of what we have, whereas something that's new, you know, it's completely revolutionary. That is different. So, so the addressable market will be huge. The problem that they can solve will be huge, and I think that's a key point. The other thing you got to look at is where are they like in the industry lifecycle? Are these guys the first guys in there? Is there a lot of people doing the same sort of thing because if they are the first in there and you look around and you look around for a long time and you can't find anyone else and these guys really have a head start on everyone else. And by the time other people start to sort of think about, Hey, we should get into this area, they've iterated again and again and again. So you really have to look at how crowded that space is because often you find this new exciting area. But there's already 10 people trying to solve that problem, and it's quite hard trying to pick a winner out of it. Whereas if someone's got a clear head start, they're in there before anyone else, you could sort of see, Okay, these guys have a head start and then this, they shoot themselves in the foot. They should be able to maintain that lead going forward and everyone will always be playing catch up to them. It's pretty hard to to sort of play catch up so that those sort of two areas to be able to sort of cut through, I guess the the storytelling, you know, this is the real deal. 

Bryce: [00:14:28] So let's turn to chatting about actually building the portfolio you mentioned there that you know you're looking at a global set of companies. The fund is very well diversified across a number of different geographies and industries. Why? Firstly, look at different geographies. What advantage does that give you guys? And then also, how relevant are top down, you know, macro economic factors when assessing companies in different geographies? 

Maroun Younes: [00:14:54] Yeah. So basically, I mean, on the need to sort of look global, I sort of touched on that a little bit earlier in the sense that Australia is in a two or three per cent of the world. So I think if you really want to maximise your chances of finding that next exciting story, you really need to look beyond that. The world is a huge ocean. Australia. It is a small lake. Ideally, you want to be fishing in it in a huge ocean rather than in a small lake. And so I think that's sort of why you want to look across multiple jurisdictions, multiple geographies. The US, for a number of different reasons, has been the hub of innovation that continues to be the hub of innovation. Globally, China is fast catching up. But there's a lot of infrastructure that sort of goes into building a hub of innovation. You need to have really good universities, which the US has plenty of. You need to have a well ingrained culture of innovation and being entrepreneurial, which the US definitely has in spades. You need to have access to a lot of capital because these ideas, they do require capital to get them off the ground. And so the U.S. has a very broad, very deep capital markets, an especially sort of in the venture capital and private equity role. So a lot of that infrastructure sort of goes into it. U.S. is naturally the biggest exposure in our fund, and it also is the biggest exposure in the index itself. So I think that really is just a reflection of the fact that they are a global innovation leaders. Now, in terms of top down, we do take into account some top down, especially around things like where we are in the cycle and things like interest rates, inflation. We're not dogmatic in terms of we only want exposure to this jurisdiction. We really are trying to find the best ideas globally. And so if that stock is situated in Europe or Japan or the U.S., wherever it may be, we're really trying to uncover that and find it. Because for you to be a future leader and continue to grow for the next five, 10 years, most of the time you're going to have to wind up becoming a global business anyway, right? If you're only a domestic business, there's only so much growth that you could sort of tap into before you cap out because you've dominated your home market. So really, we're trying to find the stories that can grow for 10, 15, 20 years. Those sorts of names would naturally have to step out of the own home market in most instances and start to dominate the globe. But I just happened to be situated in a particular geography. So it doesn't really matter too much whether the base in the business is Japan or Europe or the U.S. or anywhere else in between. Effectively, what we're trying to find is those sorts of companies, and they are diversified across across industries as well. We can sort of touch into that. And if you want that, yeah, I think that's sort of the need why you want to look beyond just Australia. Yeah. 

Alec: [00:17:29] Well, let's turn to industries because you just mentioned there, we had a look at the spread of industries in the portfolio, and it's incredibly well diversified across different industries. Five industries each have over 10 percent of the portfolio IT industrials, consumer discretionary, financials and health care. So, you know, a broad range and I imagine a pretty diverse array of businesses in each of those industries. But if you think about the portfolio holistically, are there any sort of key thematic or key traits that tie these businesses in different industries trying to solve different problems together? 

Maroun Younes: [00:18:09] Yeah, it's that we've actually touched upon. Basically, irrespective of your industry, if you have a unique solution to a problem that there are many other people doing that, existing players trying to solve for it. If you have the right infrastructure, if you have the right management team in place, if you have the right culture, basically you have a long growth runway. And those particular areas I.T., consumer discretionary financials, health care, industrials, a lot of those will allow you to invest in the business and differentiate yourself. So if you sort of look at what's not included in their energy, for example, resource is not included in that. Why? Because you're a commodity product, there's no way for you to differentiate yourself on mining to iron ore, and you're mining for iron ore with those price takers. I could be a little bit cleverer on on the cost side, I can lower my costs and therefore I can earn a slightly higher margin than what you earn. But ultimately, we're selling the same thing that there's no room for us to differentiate ourselves. Whereas all those sectors you mentioned I.T., industrials, consumer, like you can build a brand, you can separate yourself from everyone else that gives you pricing power, that gives you brand affinity, brand awareness, brand loyalty, and then you start to invoke a particular emotion with your customer. So if if you're known for a particular luxury brand, for example, it's very hard for someone to invoke that same sort of emotional response in the consumer that you do, for example, or if you're Ferrari, you know, Holden is not going to invoke the same sort of emotional response in the consumer as what a Ferrari does. So you really separate yourself. You become a very unique offering and that gives you the ability to grow to 10, 15, 20 years. And I think that's sort of why those sectors are a much larger in the index, 

James Abela: [00:19:50] higher return to be the only thing. I'd add all those things, Maroon said. It delivers you a long runway of higher returns. So we use a thing called viability, sustainability credibility as a as our stock picking pillar and viability is about high returns. The persistence of those returns, how frequent they are, how long you can hold on to them for the sustainability is about the market structure and how long will the. Holds you as a leader, and as Mirren mentioned, it's about customer entrenchment and also reinvestment, and when you do have something where there is a love factor or a trust factor or an X Factor, those things will allow you to hold that position for many years and sometimes many decades, if you can do that and compound that at a high rate. You've got a future leader by definition, and that is what we try to spend a life trying to find. 

Bryce: [00:20:40] I love the love factor. We've heard a few managers speak about that. So yeah, it's it's an interesting one. We often talk about different investing philosophies here on the podcast. You know, everyone has their own thoughts on the most appropriate way to invest or what works best for them. But it seems like you guys take a really interesting approach by combining sort of four philosophies being quality, momentum, transition and value. And I guess from that, you believe that the balance across those four factors deliver consistent returns. So are you able to explain your thinking or the research here? 

James Abela: [00:21:15] Yeah, perfect. We'll come back to love again. So it's quality, value, transition momentum. Basically there the four quadrants. And for me, I've written a written actually paper on this one and talk about this. Basically, that's the investor psychology. And once your brain is in that position, your whole parameters of even where your eyes go, where your eyes go is actually judged by where you put the company on the journey on the coveted journey. So I'll just go through the four quadrants quickly, and you can sort of see how the mindset shifts. And the thing is, this tells you why you'll win and while you'll lose as well, because it's much like four different jungles or four different environments. So first one quality is I do call it Love Quadrant. It is. It's a beautiful thing. You got beautiful compounders in there, companies that are multi baggers and things that compound over years and decades. And I call it, it's like a long term marriage on the beautiful side, you know, you can create and build empires on beautiful marriage, marriages, companies like LVMH or, you know, these sort of companies, even Ferrari. There's a family businesses, and Wal-Mart is Merryn mentioned before. They've gone four generations, actually. It's a beautiful family business run with high returns, very respectful culture. And that's what you get in the beautiful compounder Australian context. We've had cochlear, Cecil James Hardie, Domino's Pizza, JB Hi-Fi high quality businesses that have compounded over decades and caused multiple multiple returns. On the downside of the loss of Quadrant is blindness. Love is blind and this is the danger of investing. You fall in love with the stock you forget about the market structure. You forget about competition. So business is not like a long term marriage because it is competitive. There is complacency, there is ego, there is innovation and there is consumer change. And this is what eventually erodes away either a superior return or super normal profit into something a bit more normal. And when that happens, that's when you can start to get phrase and the love story. The love story starts to break, and that can lead to a lot of different things multiple downgrades, earnings misses, et cetera. But that love quadrant is about sort of 40 to 50 percent of the portfolio, which gives us quite a big quality skew. But that's what I call a love quadrant. The value quadrant is different. This is a land of neglect. It's the second group that we have. It's where earnings people aren't, I guess, focussed on the stocks. Earnings are there and the balance sheets good. The market structure is good, but the valuations just very attractive and too compelling from murder not to ignore. And that's what we call the value quadrant. That's the positive story. On the negative side of value, you can have companies with poor balance sheets, poor market structures, poor earnings, poor outlook, structural losers that in and I wouldn't own. Those are the ones that you know you want to avoid structural losses, but the value stories have potential in them. They have stability, they have pillars of success, but they're just not either appreciated or not loved at all. It's the opposite of the love. Transition is the next group, which is about turnarounds. It's sort of the no man's land or the land of hope that the land of change and this is where the value stories can either get up with with change, cultural change or some sort of a plan to get themselves out of that land of neglect. So it's really the land of hope. I call that quadrant, the land of hope, the land of change and in Australia examples QANTAS and, you know, picked that one up at a dollar. There was a lot of change by Alan Joyce. The market improved oil price move. The stock went from a dollar to $5, and that's what can happen. Value transition to momentum Those sort of three phases can be 5x in a cyclical. And momentum is really a consensus party. I call it the nightclub quadrant. The nightclub quadrant is cool. It's hot, it's sweaty. It's liquid, it's popular. It's fun. People will feeling good. But that's that's the great thing about it. But that's also where the risk lies, that there's a lot of complacency, there's a lot of confidence. There's a lot of, I guess you call it Dutch courage. There's a lot of comfort, much like those booked. So you hear about a heard, you're in a heard or you're on the not on the on the dance floor. You're surrounded by everyone dancing and everyone's having fun. Then if you're in a herd in the jungle and that herd shifts and you're in the middle of that herd, not on the edge of the herd, you know you're at the risk of getting of getting run over. So you need to be very careful in the spring of that back to stocks. You know, it's a hot sector. It's a popular stock that everyone likes and then something happens or it's peak cycle and then the party's over, basically. So when you hit peak earnings, peak cycle, peak valuation, peak sentiment, that's pretty much the end of the journey. And then it will start to go back into transition and start to go into no man's land again. And that's what you've got to be careful of buying momentum. It's happened with cyclicals. It happens very much in themes as well. Cool themes, hot themes can be really hot and then not as much like property, your resources or any sort of cyclical weather is not structural growth, which you may seen those those ones Alex mentioned in terms of industrials, health care and technology. That's where you get more structural growth. Whereas a lot of the other sectors, it's all about cyclical growth. So they tend to be momentum, transition value and work in that work in that triangle, whereas the structural winners tend to work in that quality quadrant. So you need to be careful of the quality cracks. That's where that's that's sort of taking 20 years of development in my head. Yeah, but it's really it really keeps us safe. It keeps mirror nice safe because we know came around and I talk about it, you know, for half an hour, we'll talk about one stock return. Are we in love with that maroon as management lost it? Are they getting too cocky? Is their competitors why they're making a super normal profit? What's the market structure? Why is it lasted so long? What's it going to be like in two years time? And analysing stocks in the mindset of this paradigm allows us to think about the risks in a multifaceted way. That's what we're doing. Quality in momentum. We'd ask those questions about cyclicality of earnings sentiment, profits, et cetera, is that maroon is a pink maroon. It's peak pink peak peak. We need to sell. And so it's very much this sort of the love the nightclub no man's land in the land of Neglect is a paradigm shift, and it really, I guess, keeps us, keeps us in check. Yeah, it's 

Alec: [00:27:24] awesome. Well, James, if it's taking you 20 years to develop that paradigm, I think you've done very well to summarise it in four minutes. So congratulations on that. Thank you. And I think I think it's just a reminder that there are many ways to make money in the market. But what you guys clearly have is a very clear framework in the way that you approach it. And so I think that was that was great to hear that. Now we want to move to some specific stocks that you guys hold in your portfolio here, some that you guys love or that you guys are really excited about. So as I mentioned before, the break, we want to move to, I guess, get specific and talk about some of the the stocks that you hold that you're particularly excited about. So before we started recording today, we asked each of you to think of one stock that's in your top 10. Well, it doesn't have to be in your top 10. It could be just in the portfolio that you're really excited about. And I guess we want from each of you to hear what the company is, what it does. And then, you know, sort of how you discovered it and what you think the future prospects look like. And I'm particularly excited to do this because I had a look at your top 10 holdings and I only recognised two of the 10 names. So I think I'm going to hear about some companies that I don't know about before. So Maroun, why don't we start with you? Of the companies in your portfolio, what's one that you're particularly excited about? 

Maroun Younes: [00:28:52] So one one I would sort of highlight is called Arthur J. Gallagher. The name isn't particularly inspiring, and actually what they do isn't particularly inspiring. But you'll sort of see why. Why? I think it's a really good story. Basically, Arthur J. Gallagher, it's an umbrella company. It owns a bunch of different insurance brokers. It's one of the larger ones around the world now. Insurance broking, believe it or not, is actually a really good business. It's capital light because you're not the one that's underwriting all the risk, but you have all the customer relationships, right? So the so the customer goes through you and then you, you find them a commoditized insurance product. So you really own the key part of the value chain, which is the customer relationship. And coming back to something James mentioned earlier, trust is a big thing. So if you trust your insurance broker as a business or as an individual, you will sort of get back to them over and over again. And even if you shift policy from from provider to provider, you still have that relationship. So they own they own the key part of the value chain, which is really the customer relationship, which makes him a lot more indispensable, whereas the actual underwriters themselves are the ones providing commoditized product. And so what does that translate into? Well, this is a sort of company that we think top line revenue could sort of be around mid-single digit growth year in, year out, and they have a really long track record of doing that. They expand margins each and every single year because one of the things they do is they acquire some of the smaller brokers. So if you have a small insurance broking operation, you've got five individuals there. You come along, you get acquired by this, by this bigger entity, they suck you into their group. They operate on your own. But a lot of the costs get shifted outright, so you no longer have overheads. You no longer have a whole bunch of costs that you were doing on your own because now the parent takes care of that. So there's margin uplift there that takes place each and every single time. So these guys grow their margins and they have been growing their margins over time. So what does that result in results in earnings growth pretty much year in, year out somewhere around the mid-teens, which is a really good way to sort of compound over time. You've got return equity again in the mid-teens. They generate a lot of cash because they don't need to fund working capital to grow. So they use that cash to pay dividends, they use that cash to acquire. And so this business, I think, is one that you can buy the Ren a really good part of the value chain and you can sort of hold it for the next five, 10 years and it will be one that we think will be able to give you very attractive. Call it 15 percent type returns year in, year out over the course of the next decade. And so whilst it may not be the most sexy company out there, I think it definitely forms a really good core holding that you could sort of just bank on and put it in your bottom drawer and leave that for the next 5-10 years. 

Bryce: [00:31:26] And James, what about you? What company is exciting you in your top 10? 

James Abela: [00:31:31] One of the top 10 is one of a favourite is called Icon, PLC because it's a London one actually based in Ireland, and the code is ICLR in the US listed on the Nasdaq. It's about a 20 billion market cap stock. It actually does consulting and clinical development in biotech in the health care industry. It was founded in 1990. So it's thirty one years old. Does about $5 billion of revenue currently is a very feature late as well as it ticks all the boxes. Very steady, high quality. One of those beautiful compounders that looks really, really great. It's gone up 11 times in the last decade, so 11 times over the last 10 years, but really good return. A respected leader has actually won quite a lot of awards 2019 and twenty nineteen. It was award winning in life sciences and clinical research on the, you know, the last sort of five or six years expanded more aggressively into the US, UK and Japan. And just recently bought a big similar business to themselves. PRA Health Services, which is at over $10 billion transaction and is now really imagine a world leader in clinical testing and clinical trial support and clinical development to the pharmaceutical industry. It's a B2B business. It's it sits in the background. It actually did quite a lot of work during Covid and a lot of the Covid tests and the Covid PCR test this company was involved in that they were quite proud of that. And there's a lot of news flow around that. But yeah, a really great business like Mosaic. Great returns, great multiple, one that we've held for a long time. Yeah, one that we're really like and it is in our top 10 and hopefully we hold it for a number of years. 

Alec: [00:33:11] Well, look, as I said, I didn't recognise a lot of companies in that top 10 hadn't heard of either of those. So that's great. Two more companies for me to take away and research. One company that did catch my eye and that I do know that was in your top 10 was Pinterest. And I think a lot of listeners would be familiar with the platform, but would be surprised to see it considered a future leader in the social media space. There's obviously some big names currently leading that space. So what's the thesis with Pinterest? How do you see it becoming a future leader in the space? 

Maroun Younes: [00:33:45] Yeah, that's an interesting one, because Pinterest often gets lumped in that social media category, but we would tend to think of it as something completely different. If you sort of think about your Facebooks and your Instagrams, you usually go to them every day you're looking at what your friends are up to or you just killing some time. Pinterest really isn't one of those things. Pinterest is more about inspiration for a particular special interest. And so what these guys specialise in is is giving you inspiration. So whether it's planning a wedding or some honeymoon or vacation destination ideas, maybe you want to do some remodelling to your house or, you know, redo your living room and you want some inspiration around different sort of styles that you can bring into furniture, etc. So Pinterest is one of those things where you go there because you have something and you want to see what's out there because you want to get some ideas, you want to get some inspiration and incorporate it into whatever project that is that you're doing. And so they spend the first, you know, the first phase of their life really building that user base and they have a decent user base. Now there's about 90 odd million active users in the US. There's about 300 is about four times. That's about 350 million active users outside the U.S. And so they're building that, but it's still very small. If you consider the likes of Facebook and Instagram that billions of users out there, these guys can continue to add more and more users. But the really interesting thing about Pinterest and where I think the business is going to develop over time. Let's say you're doing a new kitchen and I can relate to these. I'm in the process of building a house right now. So, you know, my fiance and I have set down look through Pinterest, looked at different site kitchen ideas. And so you see a really cool kitchen. You really like this stone benchtop right now. In the past, you find that sort of image on on site Google images and then you spend the next week or so trying to go to different providers. Do you have something similar to this sort of stone benchtop? Yes. No. How close can we get it to that? We're Pinterest want to go to is they want to integrate with all of these product providers. So. So I see a stone bench top on a photo I like. I can click through to that and I can actually find the provider who sells that exact stone bench top. So it's not only now going to give me inspiration for an ID, it's also going to take me straight through to the person who's going to sell it to me. So there's no more running around two or three weekends in a row trying to find, you know, stone that's just similar to this thing as possible. Or a couch that looks very similar to what I click through takes you through the Nick Scali or whoever it may be anywhere around the world. You see that exact sofa, you see the price, you buy it. They get a cut out of that. So really, what they're trying to do is channel that loyal customer base. And when you go to Pinterest, you're not really looking at inspiration on Facebook, for example, you're not looking for how would I do up my living room on Facebook? Or maybe you'll get some ideas from Instagram, but again, you don't really have that sort of connexion to be able to buy it. So what does that mean for them? The other to which is the revenue they generate per user right now is very low compared to other, I guess, digital platforms. We think that can grow over time. The more interesting part is the up to in the US is about three or four times the size of the ARPA internationally. Now the US obviously a developed market, high disposable income, but you'd have source of the same. Australia's also the same. There's lots of other places around the world that are also the same. So by virtue of the fact that the more their legacy is the US, we think that over time, as they develop more in places like Europe, Australia, Canada in a part of Asia, we think that up to in the rest of the world segment can grow and get close to where the U.S. is. And when you're talking about a user base that's four times the size in the international segment versus the US, that's pretty powerful there in terms of what the revenue uplift they can generate over time. So it really is, I think, going to occupy a space that's very different to everyone else. It's it's very niche, it's very special, needs inspiration driven from that from a business point of view, why would you advertise an interest? Will you have a warm lead there? Like I can put my sofa if I'm Nick Scali, I can put my sofa and advertise it on on Facebook, but it's very hit and miss. There might be a thousand people that scroll past my ad and only resonate with one particular person, whereas if I put that sofa on Pinterest, then I get a click through. I know for sure that person is very, very interested in. That particular sofa, so the conversion rates from a from a business advertising point of view is going to be very, very a lot higher than what it's going to be for a very shotgun scattergun in this type platform, which would be, you know, an Instagram or Facebook. So it is very different in our minds, to it, to those. It occupies a different space. It doesn't really compete head to head. And I think what it's trying to do is is very unique in that regard. I love 

Alec: [00:38:28] that. I love the the fact that, you know, I thought I had an idea of what the company did. And, you know, five minutes later, after hearing you talk about it, I have a completely different view of it. I think that's that's why we love speaking to expert investors because there's always so much to learn. And you know, you guys have put a lot of thought into a lot of these things. So I think that's that's a really good place to move to our final three questions. We always like to finish by asking the same questions before we do. If people want to find out more about the two of you and the fund that you both manage together, they can go online. Fidelity's website. It's the Global Future Leaders Fund, but is there anywhere else, you know, social media, maybe Pinterest if they want to find out more about the two of you online?

Maroun Younes: [00:39:14] LinkedIn we have a presence on LinkedIn. That's probably about it. 

Bryce: [00:39:17] I think so I would jump in there and say, Fidelity, accommodate you. But you also do write a quarterly called from the Desk, of which the Equity Mates community can go and subscribe to on your fund page and the website. Additionally, sign up to your Insights newsletter that Fidelity produce. That's not just the two of you providing incredible insights, but also access to your global research team as well. So I'd suggest giving that a read. If you've enjoyed hearing what James Maroon have spoken about today 

Alec: [00:39:47] and go and look at their top 10 holdings because see if you can beat me, I need to say if you need more than maybe. But you know, we love finding new companies here at Equity Mates, companies that are doing really interesting things that we haven't thought about, and it's really cool what you guys are, what you guys are uncovering and what we can learn from 

Maroun Younes: [00:40:05] just out of interest. What were the two that you recognised? Pinterest was wrong and what was the other one? 

Alec: [00:40:09] Pinterest and tech tonic. Okay. Yeah, yeah. I don't know. Judge, Judge, I 

James Abela: [00:40:16] know it's so good. 

Maroun Younes: [00:40:17] Actually, not a lot of people would not electronic that they would know the brands at tiptronic owned. But I know a lot of people that we speak to know the sort of parent company, you know, the umbrella that owns all those brands. And you feel really people go, Yeah, I know that way. 

Alec: [00:40:32] The only reason I knew it is because we've spoken to a few other experts on the podcast and then on our own show, and it gets brought up a little bit. It's a really interesting company doing some don't like just it's got an incredible story. And, you know, obviously you're not alone in thinking that it's got incredible future prospects. Yeah, absolutely. Yeah. So we'll we'll move to these final three questions. We'll ask them to each of you and we'll start with, do you guys have any books that you consider? Must read and James, why don't? Why don't we start with you for this one? 

Maroun Younes: [00:41:07] Sure. 

James Abela: [00:41:08] Look what Maroun and I are doing. I guess someone in the US has done for decades before us as well, and someone that I've actually spoke to is one of my sort of training sessions. After 17 years with Fidelity, spent a number of years talking to guys like Joel Tillinghast so the book is called "big money thinks small" and it's called the big money thing. Particularly focussed on small caps, but a really great one to read. The other one is Christopher Mayer, which is "100 baggers" stocks that return 100 to one how to find them So that's all about how B&G is. It's our world and particularly focussed on small caps and the other ones. Another Fidelity one, actually Peter Lynch one up on Wall Street. An old classic, I guess. And just saying that a lot of people, you know, just like you, you know, two out of 10 and out in our top ten, there's a world out there that's changing that, you know, talking to you all the time. So just kind of listening and read and listen to people in conversations. And a lot of the time, a lot of ideas in the world are right in front of your face. So one up on Wall Street, an old classic by Peter Lynch, that's my third one. 

Alec: [00:42:10] Nice one. And Maroun. Anything, any books to add to that list? 

Maroun Younes: [00:42:13] Yes, I would. I would choose Intelligent Investor by Ben Graham, another classic, and I think everyone sort of has to read that book. It's almost like the Bible on how to think about investing. It was written in a different day and age. Have some of some of the valuation concepts a little bit dated. You know, this is where we are today. But I think in terms of giving you a framework in terms of how to think about investing, I think that that's an absolute must. Another one I would choose is called thinking fast and slow, which is more of a psychology book. But I think it's really important for you to be able to understand the natural limitations that we as humans are born with in terms of how our brain operates and how our brain thinks. And quite often we can be our own worst enemy in terms of we can do things that are really adverse to our. Long term financial health and well-being, and so I think understanding those shortcomings and understanding where we can trip up ourselves and being aware of that, I think is the first step towards, you know, making you more aware and potentially a better investor at the time. And then the final one, I'd say, is another sort of fidelity one, we'll throw it in there. But Anthony Bolton, it's called investing against the tide. And for those that don't. Anthony Bolton, he was a very successful fidelity investor for almost 30 years, spent a lot of his time in the U.K. but the last sort of three or four years in China, amazing long term track record in the U.K. as the sort of 20 25 years he was, he was able to sort of compound over sort of 20 per cent per annum. So staggering record. And his approach is very contrarian. So it's a bit different that he sort of goes into different chapters to sort of think about different concepts about investing. I think it's well-written. It's very easy to understand. It's not overly technical. So I think it's it's it's also a good one to sort of pick up very early on in your in your investing career and then learn some insights from someone who's done it day in, day out for it for a long period of time. 

Alec: [00:44:11] Love it! Six great books there to add to everyone's reading list. Will move to the next question, and this is a tough one because we ask you to try and answer it in 60 seconds or less. Forget valuation. Forget, you know, investing in it right now. Today, just looking at the company itself in 60 seconds or less. What's the best company you've ever come across? And James, why don't we start with you again? 

James Abela: [00:44:37] To me it's real I was told by someone who's very experienced that this is the best thing he's seen in his life, and he was in his fifties or early sixties. So it's a real estate dot com that are you Australia's number one retail portal real estate portal. Went From 20 cents to over $100, which is a 500 bagger over two decades. That is not something that you see very often in your lifetime, if at all, but for 500 bagger, that is the most exciting investment I have seen in my life. 

Alec: [00:45:07] 500 bagger. Well, I love to say it. Maroun, what about you? You got another five hundred bagger that you can share with us? 

Maroun Younes: [00:45:17] Not quite. It's quite rare to find these four baggers, but I'm going to pick one and it's going to be Google really these guys in terms of what they've been able to innovate into. They started off as a search engine platform. They weren't even the first to market right to those who were old enough. You might Ren the things like Yahoo and Ask Jeeves and AltaVista back in the day. I mean, these guys were sort of late to the party, but they just did it better than everyone else, and they've just been able to continue to innovate and get into new areas. And, you know, they do things like driverless cars and potentially getting into glasses and all these sorts of things. And they are really one of the leaders in AI and machine learning, I think, going forward. So the fact that, you know, they've defied, if you sort of go back to the question earlier about being disrupted, these guys have have maintained their edge, even expanding beyond just the search engine platform that they've been able to maintain that culture of innovation. I've had the privilege of going to Silicon Valley a couple of times and seeing two of their campuses. One is their main campus, the other one is their Google Cloud campus. And it's just an amazing place that these are the talent they attract, the culture they have. It really is a staggering company. It hasn't gone up 500 times, but I think IPO at $50 and now it's close to $3000. So even though we didn't go out 500 times, if you managed to buy it very early on, you would not be upset with yourself today. 

Alec: [00:46:34] Yeah, yeah, yeah, I love that. Two great companies. And then if we turn to our final question, if you think back to your very early days starting out as investors, what advice would you have for your younger self and maroon this time? Why don't we start with you? 

Maroun Younes: [00:46:52] Yeah, sure. I mean, for me, one thing I'd say is, this really is a lifelong journey. There are no shortcuts. It really is a case of continuously investing in yourself, educating yourself, whether it's reading books, whether it's listening to podcasts. There's an enormous amount of information out there. You don't have to become an expert on this overnight, but I think education is a big thing. And so, you know, sometimes you hear stories about people who sort of go in there blindly and sort of, you know, a day trading or things like that, and they might sort of hurt themselves. I think if you take the time you invest that early, but you invest in your own education, this really is a lifelong journey. And not only will your returns get better over time, but I think the intellectual development that you gain along the way is also very gratifying, you know, to sort of see self-developed as an investor through through education, through learning from different people, through hearing, you know, other people's mistakes, I think is really important. So I would say keeping up in mind, I'm in my late 30s now, James in his mid 40s and both of us still act like we're relatively new to the space. We're really hungry to learn, even at our age, having had sort of two decades of experience in the markets. I've got a list of. That is always 20 ahead of sort of where I'm up to, so I've got enough books on that to sort of occupy me for the next two years. And that still won't stop me from trying to acquire more and more knowledge. So never stop. 

Alec: [00:48:13] Yeah, I love that. I love that sentiment. And James, from your perspective, what advice would you give your younger self? 

James Abela: [00:48:19] You know, it's I just think big and be open to being inspired. I guess future leaders change really rapidly. The world is changing really fast. I think it was Ferris Bueller that one that's the world's changing pretty fast. You blink and you'll miss it. So look, the world is changing fast as innovations and entrepreneurs and new ideas coming at us every single minute of the day. It's a fascinating place. So just think big and be open to being inspired. And I'd I've heard companies talk about an idea 10 years ago, and now they're over $10 billion companies, and that is just something that you need to constantly keep your eye open for. And it's very difficult to see sometimes, but you just need to keep your eyes and ears open and be open to being inspired. 

Bryce: [00:49:02] Or James Cameron. It's been an absolute pleasure chatting with the two of you. You've certainly continued to inspire me about the opportunities that investing has globally, and I'm sure the same goes for Alec, and I'm sure the same goes for the rest of our community. It's been great listening to you, and I've taken a lot away from this conversation, so thank you very much. Just a reminder to the Equity Mates community. Fidelity. Com Today you if you'd like more information on the fund that James and Maroon Run. Sign up to there from the desk if you'd like to get some written content from them as well. And also, there's a newsletter that has plenty of insights from Fidelity and their global research team as well. So this episode was proudly sponsored by Fidelity, and we thank the two of you very, very much for your time, and we look forward to catching up again in the future. Thanks for having us. 

James Abela: [00:49:52] Thanks very much.

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