Finding global equity ideas for your portfolio in 2023

Candice: [00:00:11] Hello and welcome to Talk Money To Me. Thank you for tuning in. I'm Candice Bourke.

Felicity: [00:00:15] And I'm Felicity Thomas. Now, Candice, can you believe how fast this is going? I swear. The older I get, the faster the years fly by. 

Candice: [00:00:25] I know this year is absolutely soaring so far, but let's jump straight into today's episode. We have a very special guest sitting down with us today. A bit of background on our guest before we bring him in. So Jeff joined Schafer Cullen Capital Management back in 2013 and currently serves as the managing director and product specialist for the Cullen Domestic and Offshore Business lines. Prior to that role, Jeff was an employee at the Bank of America merrill Lynch, where he ran the fee based programs as well as their mutual fund that a couple of ETFs there and insurance products lines. He has 29 years experience, as you'll hear in the capital markets space. He's really well versed when it comes to great quality value led companies with strong earnings growth and growing their dividend. Tick, tick, tick. All music to my ear, as you know, Felicity. So really excited to bring you this conversation today.

Felicity: [00:01:21] So make sure you listen to the end of this episode because he's giving us a lot of investable ideas right till the very end. But remember, our chat today is not considered personal advice. Even though a registered advisor at Shaw and Partners, please note that this product and the content discussed does not constitute financial advice, nor is it a financial product. Everything discussed is based on facts known at the time, which is the 31st of January 2023. Welcome, Jeff, to talk money to me. We're so happy to have you here. 

Jeff: [00:01:51] It's great to be here. 

Candice: [00:01:52] Awesome. We are so pumped to be chatting with you today because you are the man when it comes to global equities, I would say. So I want to start and set the scene by chatting about how you're feeling about this market. You know, what's your take on what's been going on, particularly as 2022 was was really volatile, right? 

Jeff: [00:02:10] It was. And it depends on what side of the the markets you're on, whether you were a growth investor or a value investor, whether in emerging markets or in European equities or U.S. equities. But there really was no place to really high besides cash because you had the same kind of situation of a downside on the bond market as well, which really hasn't happened too often in many people's lifetimes. I'd say right now it's there and we feel generally pretty good overall. What we we kind of wouldn't be surprised if we saw a quick pullback in the markets between Q1 and Q2. You know, on one hand, GDP in the US came in a little stronger than expected. Inflation is coming down. You're reading the headlines probably about U.S. inflation over in Australia, but it's not likely on its way to 2%. The US unemployment is stubbornly low at 4% and it's really not moving. As a US citizen here, I can tell you there is help wanted signs all over the place. So while you're seeing headlines of tech layoffs, you know, at the local shops, still you are seeing help wanted signs. So it's it's nothing. That's clearly where this unemployment number is going to be rising to five, six, six plus percent any time soon. It's very hard to see that happening now. 

Felicity: [00:03:26] Yeah, that's quite crazy, right? Because you'd think that low unemployment is actually a good thing for the economy. So I do still find it very interesting that they do want to increase that. 

Jeff: [00:03:37] Yeah, it seems to be that they are trying to play the playbook of decreasing demand through pulling out people's discretionary extra money, and that will slow down demand for goods and services, allow supply chains to pick up. It will allow pricing to come down in certain areas, whether it's housing, whether it use cars, whether it's brand new cars. But I don't know if you're seeing it in Australia, but what we're seeing in the United States is companies are adopting. So you can only go in New York City and want to get a full meal at 11:00 at night. Restaurants just are closing. You know, they're basically open till 10:00 where they used to be up until 12. So that the reason to keep a kitchen open for two more hours for five people coming through isn't there anymore. So they're closing things down. What's been happening I seeing is that the consumer is the one has had to adjust to them. You wanted to get a haircut. Now it's only open Tuesdays, Thursdays and Fridays. You see that more and more often. And yes, you're just having to adjust to the reality of what's what's happening. 

Candice: [00:04:35] Or pay the higher prices as well as the consumer. Right? As we live in this inflationary world.

Jeff: [00:04:39] It seems to be the case. Absolutely. It's not only showing up in food, but it's in services and that's sticky. Prices really have a hard time falling besides, say, gasoline and energy. I mean, once people start to increase prices, they tend to be sticky. But even the energy prices, you know, it's been a mild winter here in the northern hemisphere, at least for us in the UK. States in many parts of Europe, and everyone was worried about the Ukraine war and what might happen to energy prices in Europe really ratchet it down and try to stockpile as much as they can. And you all saw all the liquid natural gas things going on over in Europe, and yet it's been more mild. So now you have prices on energy, especially in the United States, kind of coming down to 350 a gallon. Where I used to be at the peak was about 480 or so. But it's been it's staying around there at that point in time. It's not not dropping any further at this point in time. But that and now you have China opening up. That is another kicker. So you have this inflation thing and everyone's getting excited about what's happening. And now you have China seems to be somewhat unleashing their economy and letting their people kind of get out there into the world and start their economy again. And that could reignite some more inflation that they're trying to tame.

Felicity: [00:05:46] Absolutely. And I mean, is consumer sentiment still quite positive in the US? Because it is quite positive here in Australia Still. I know that the US is very driven by the consumer, right? I think it was about 70% of GDP is consumption. So what is the I guess general feel in the US at the moment?

Jeff: [00:06:05] The general feel is like you have it, it's pretty positive. Yeah, restaurants are crowded, you know, you have to wait to get reservations. You know, this is the you don't see the signs of a pending global doom. I mean, now what while there's a lot of predictions by CEOs in the United States that they will have a recessionary timeframe, remember, a recession could be just a function of the math working out to negative quarters with a rising unemployment and you'll kind of trigger it. But if it's a very soft or very subtle negative GDP growth, it's not like a huge recant. Yeah, there's a lot of workers that just haven't come back to the market in the United States, post-COVID. And there is this kind of theory of this quiet quarters where people are just kind of slowing down and they're getting a better stock of what they want to do in their life.

Felicity: [00:06:55] Yeah, I was reading that it's more like a staggered recession, so it won't all hit at once. It's all various different sectors. So that's quite interesting. I think it's not going to be what everyone's kind of predicted.

Jeff: [00:07:08] Yeah, you can see it in people like Peloton where people are buying peloton bikes and you know, you knew that it was going to come to an end at some point in time. People eventually could start ride their bikes outside. So it is that you see the positive earnings and such coming from airlines. People are travelling a lot. The strength of the US dollar is now making it very advantageous for people to travel to Europe and they're doing so they're booking trips. So I think the demand is going to be pretty strong and it's not going to let up, like you're saying. 

Candice: [00:07:36] Well, that's positive. So really, to recap, you're sort of a little bit cautious and uncertain. For the first half. You were saying we could see maybe a pullback sometime in the next near term, but then maybe, you know, it will look better than what is expected by the market. So I guess a lot of chat around the investment community is when it is uncertain. We saw, you know, growth stocks really get sold off quick right there at the top of the chain to be sold off in a risk perspective. And a safer place to hide is value, which is really what the portfolio that your team and you run are really great at. So just before we move on, I just love to hear any kind of comments on growth versus value in that philosophy. It's very well debated, you know, throughout time really, isn't it? 

Jeff: [00:08:19] It really is. It's always the versus and instead of the combination of the two, and that's the way a lot of us investors buy their US equities, their own growth and their own value of their own both. If we think of the S&P 500 historically as trying to be both, but sometimes when the market's going more in favour of growth, it winds up being a growth year type market for the S&P 500. If you look back at statistics, many, many years ago, you know, ExxonMobil was one of the largest stocks in the SP 500, and now it's all dominated by technology over the last five, six, seven plus years. What's happened really in the US too, especially as there's been this strong bifurcation. So if you see the way we divide things, the United States is we usually do it through the Russell Indices. So you have the Russell 1000 value, which is the value indices, you have the Russell 1000 growth, which is the growth industries. And most people would think that those are distinct indices you will actually find if you pull back the onion that there are some stocks that are in both indices. They're actually listed in both the Russell just as it's they don't pick one or the other they kind of weight them slightly different and other. So you can see this is kind of quasi blend approach that exists. And for last year, as interest rates started to rise, all that really did was push, push down valuations. So when you do this kind of cash flow analysis and you have increasing interest rates, that is going to do nothing more than push down your valuation levels and growth stocks. And that's what happened. And the value side there, certain areas in the markets that do super well, but there's a higher weighting toward energy in the value sectors, there's a higher weighting toward financials in the value sector versus growth. So as interest rates increase, that's usually good for banks and net interest margins. So that's why some of these areas start to do well. But if you really look last year, the largest or the best performing category as a sector was energy, probably up about 70 plus percent. You know, very, very strong. We had some stocks in this portfolio that done very well. And that's really where to to your point, your asking about this pullback. I did want to elaborate a little further that why we're slightly hesitant here on this beginning of 2023 is more about the earnings growth rate. It's all about the earnings in year over year growth. And while we talk about inflation kind of being sticky and we talked a little bit about harder to find workers, their wages are going up and that's has to hit companies bottom lines at some point in time. Plus, their material costs are going up for the goods and the commodities that they're using to produce their products. So this is where you start to see some of these layoffs come in the tech cyber. You're not seeing them that drastically outside the tech world, but that's the concern as the year over year earnings growth will have a negative growth and that will pull back equities. And then that creates a really nice buying opportunity for clients. We think if that happens, because as you were both describing, the health of the US economy is and the world economy is kind of starting to do pretty well. 

Felicity: [00:11:07] And look, we love a good buying opportunity. Now you run our global equity income portfolio at Shore and Partners under Cullen Capital Management. Now it's had really impressive returns since it was launched at Shaw and Partners in the last six months, eight and a half percent and the last three months, 11%. This month it was slightly down 1.97%. However, the objective is the MSCI all country World Value Index. So you're really smashing that objective. A little bit more about the global equity income model. It's a global strategy that invests in concentrated direct portfolio of dividend paying, large cap global stocks and managed using an income and value style. So we really think it is a bit of a stock pickers market. So could you explain more about your stock selection process for this model? Yes. 

Jeff: [00:11:58] So the exactly as you described it, what we do is we look for three parts to our selection process. We look for lower valuations as measured by predominantly low price to earnings ratio. So low p e ratios. So we're looking for lower lower price to earnings multiples than that of the market. But when you get into specific companies and we're picking, say, a health care company in Sweden, it's going to be measured versus all the other global pharmaceutical companies on a relative basis. So we want to see that to be purchase at a low as best we can. But we also they are looking for stable businesses. We want large, multinational, very stable businesses and those are the businesses that pay dividends. And while and then the final thing that we look for in our companies is we're looking for dividend growth and we want that dividend growth to come from earnings growth. So it compares in contrast to other things because you could just pick value stocks and not worry about the dividends or cash flows. And then what you're trying to do is hopefully turnaround, maybe a turnaround story or something that's fallen from grace and you're trying to predict that it could turn around. We don't try to catch those what we call fallen daggers. It's you can get hurt that way. What we'd rather do is find very stable cash flow businesses where they're multinational in nature, and they grow their earnings from their grow their dividends from earnings growth rather than from borrowing money from the financial markets. So we don't want to see we don't like when people, you know, they can borrow money for a lower interest rate and pay out a dividend or do share buybacks. We don't like that. We prefer companies that are doing nothing more than growing your earnings at 10%. You increase your dividend at four, you pay out a 3% dividend yield and you keep the risk for reinvestment in your business. That would be ideal for us. 

Candice: [00:13:41] Slow and steady wins the race in Australia. I love that term. The fallen dagger, we call them value traps here. So similar. I love it. 

Jeff: [00:13:48] Yeah, they really exist. They're enticing because they're usually good stories and something happened. You know, if you look at the US just with what's recently happened with Intel, that's just one. It's always been a darling stock. Everyone's known Intel and they still are having a hard time turning that company around.

Felicity: [00:14:05] Yeah, because then you invest more in technology, right? I think they're following a little bit behind the wayside compared to some other stocks in that same sector. Now, in Australia, we absolutely love, you know, dividends. We also love free cash flow. Companies. So exactly what you've been talking about. Now, many of our listeners mostly own Australian stocks and bonds. So I guess, Jeff, what would you suggest investors look outside of our home market for investment ideas? 

Jeff: [00:14:31] The primary reason is because when you look around the world from an investment standpoint or even a company standpoint, it's just world class leading companies that are just located outside the Australian borders. No different than Wall Street located outside of the American borders. You know, you look at firms that we have access to by things like companies like Merck based in the US, global pharmaceutical Siemens industrial conglomerate based in Germany, Jp morgan or Apple or Microsoft. You talked about some of the tech stocks that exist there. We own Toyota in this portfolio. We own Zurich Insurance, one of the largest well-run insurance companies that you can actually buy. Novartis is another global pharmaceutical based in Switzerland. So only focusing on the companies in a home market allows you to only really compare Honeycrisp apples to Honeycrisp apples or different farmers or different orchards. You know, you can only pick from what is in front of you where I think this portfolio is a good compliment because the dividends are so important to the Australian consumer that this portfolio has really been generating at least a 5.5% plus dividend yield. And for a couple of months we are above six. And yet you have exposure to non diversified companies outside of your Australian Australian markets that are global diversified, they have different revenue sources, they have exposure to the US dollar, to euros, they're globally emerging markets. That's why I would look outside. 

Candice: [00:15:53] Yeah, you know that on the head, because we have to remember here as Australians we're about only two or 3% of the world economy. Right? And really well-run Australian quality businesses are smart enough to diversify their revenue streams offshore. So I very much agree with that thematic to look at, you know, two other markets. So I'm going to put you on the spot here, Jeff. Why are you, you know, different? What's your value add to other managers in the global space? 

Jeff: [00:16:19] Well, as you alluded to at the beginning, there are many different kind of styles of investing in the global space. You could do a growth style, you could do a blend, you could do a value. So on one hand, we only do one style of investing at our firm. We do not have strategies that run the gamut. We don't do fixed income, we don't do growth stocks. All we do is one kind of style and that is value oriented investing, which is nice because it keeps the majority of our resources from a research perspective focussed on, you know, from a valuation perspective. I think for us we're very disciplined and focus on that dividend yield and dividend growth and that keeps us focussed basically on the discipline. So that allows teams like yourself to properly asset allocate us in deciding when to use us in clients portfolios and when not uses in client portfolios. And, and you know, that's sometimes the answer is it's not to be used, but that's really what we were known for in the United States. We're known for sticking to this discipline. It's a very easy to follow process and is a little bit more difficult to actually implement. But you can wrap your head around not overpaying for a company. Buying a company has good dividend cash flows and we look for dividends above basically above three plus percent. You know, some of our dividends are actually paying 8%. Last year in this portfolio, we owned Petrobras, which is a Brazilian energy company. Because of what's happened with the price of oil, they paid out one of the largest dividends of any company in the history of the portfolio. And everyone who owned this portfolio got that dividend. So finding those dividend growers and tying them to earnings growth is really that that discipline is probably what distinguishes us from others because a lot of great managers stick to that process. But following those three disciplines and sticking to it is important to us. You know, to give you a slide example to fill your question is, you know, the index that we're compared against has 60% in the US equity market. So what normal global managers do is they hug the benchmark. They're going to have around 60% in US equities and we don't in this portfolio because if we did, the dividend yield would be around 2%. We couldn't find the dividend yields to to attain that yield. So we basically are building a bottom up portfolio and trying to stick to the mandate that we were hired for and then you decide when to use us. 

Felicity: [00:18:31] Yes. So basically as a global manager, your portfolio is made up of I think it's 29 and a half percent U.S., followed by 10.7 in Switzerland and about 10% in Japan. Just for our listeners' benefit, what was that dividend that Petrobras paid out? Was it over 20%?

Jeff: [00:18:50] Yeah, it was about, I want to say it was around 25% of their market cap. The wow was about 25%. It was a huge windfall. 

Felicity: [00:18:59] That's amazing. 

Jeff: [00:19:00] I mean, we don't own Chevron in our portfolio. We own ExxonMobil in this portfolio. But two days ago, Chevron came out with record earnings and they increased their share buyback to $75 billion over the next five years because they're flush with cash. 

Candice: [00:19:14] They are loaded with cash.

Felicity: [00:19:15] Yeah, that is definitely always a good sign. I mean, we actually really think that there's definitely a space in our clients portfolio for your model. We actually did another inflow in today. Now we're going to go into a bit more detail on your top three stock ideas for these countries. However, first, let's hear from our sponsors. And we are back. So, Jeff, this is what we've all been waiting for. Can you please give us some more detail on your top stock ideas in these countries? I think we'll start with the U.S.. 

Jeff: [00:19:47] Okay, great. Well, the top three positions, you know, we weight our portfolio based upon where we think we're going to have the best appreciation. And right now, our top three positions inside the U.S. are Merck, JPMorgan and ExxonMobil. Now, I do have to mention that Merck, in a market that was down last year, I believe Merck was up about 49%. And one of the reasons is they have a drug called KEYTRUDA, which is an immuno oncology drug that they use basically to fight cancer. And it was originally supposed to be a two or $3 billion drug. And I believe last year it did about 18 or $19 billion in sales. And they have a new oncology product coming out shortly. So there's a lot of momentum behind Merck. It's our largest position. We've actually just took it down a little bit because it was getting a little bit too higher in the waiting in the portfolio. But Merck is a strong favourite within our company, across all of our portfolios. We owned Jp morgan was down about 13% in 2022, which is not too bad and it's about 5% year to date. You know, banks should at some point in time be strong beneficiaries of net interest margin increases. So at some point in time there's going be a spread that the banks can make good money on. The capital markets for IPOs. Obviously has dried up a little bit, but their brokerage business is doing super well and Jp morgan's flush with cash. You know, Jamie Dimon has been the paper in the news kind of worried about a little bit of recession. And we've been watching JPMorgan increase their their reserves. So potential for recessionary times. You see that across the board on some banks. So we were concerned on that. But as banks go, you know, Jp morgan is really at the top of one of our list and the next on the same way Exxon was up huge last year was up about 87%. This year, it's about 5%. You know, we energy is still an underweighted or an under owned weighting inside of many, many global indices and global products. There seems to be more room for energy to run. Obviously, not only what's happened in the Ukraine, if that ever spiked up even more and in a negative way here you had an incident that happened in Iran overnight and that creates any kind of any kind of volatility in the Middle East always has an effect on energy prices. And there's just no clear moving away from energy any time soon. And while these companies are much more involved in liquefied natural gas and trying to be clean, this we talk about all the time, it's going to be very, very difficult for the world to solve the energy crisis without the energy companies 100%. 

Felicity: [00:22:22] Yeah, absolutely. And we talk about that as well, which is really interesting. So we've got Merck, JPMorgan and Exxon Mobile. What about in Switzerland?

Jeff: [00:22:33] In Switzerland are one of our largest positions. Is Novartis, again, another global pharmaceutical? We you know, we've positioned the portfolio. We took down some of the risk last summer. First of all, the portfolio is really not that risky. We own these global multinational companies, but we even got a little bit more conservative with our weighting because we we see what I kind of mentioned the beginning. There could be an earnings an earnings issue. So we we've had the portfolio and a little bit of a barbell approach right now with a little bit of an increase of defences. And then we have some areas in the market that are focussed on cyclicals. But you know, Novartis would, would fall right into that defensives. But it's also a growth oriented story. They're a very, very consistent producer of new drugs in the pipeline. They've had very, very good strong success. They have cardiovascular and oncology pipeline drugs to fight breast cancer, prostate cancer. So Novartis is one of our largest holdings. We're very strong fans of it at this point in time. They also interestingly spun out something called Alcon, which was an eye care division of their company. They spun that out last year and they also have a generics business that they're spinning out this year. So what happens when companies spin out side companies that they own is it makes them a pure play and then those stocks get a rerating on valuation. So what can happen here is just by spinning off the generics, as you could get a rerating on the upward slope, which will have a positive impact on the stock price. So we're big fans of that. We also own the Zurich Insurance. As I mentioned before, they own something called farmers in the United States. That's one of the very strong insurance companies. So they have life. They also have a non-life outside of Europe. Non-life insurance is all insurance. But what's happening here a little bit is during COVID, you know, there weren't people driving and there weren't a lot of accidents. And what's happening here is people are starting to drive again, obviously leading to more accidents on the road. But the cost of those repairs are increasing because the input costs have increased that car companies. So the Zurich Insurance is actually able to pass on or they're pushing out. The premiums are increasing the premiums for clients. So again, back to the client is the one who's affected at the end of day, but they have the pricing power to do so. So they've increased. You know, what we're seeing there is the potential for increases in premiums. And, you know, that just leads to a nice, stable cash flow business. Depends what happens, obviously, on their claims. But we like Zurich very well diversified global multinational insurance company. Yeah. 

Felicity: [00:25:00] I mean, we have Zurich here in Australia as well. So I mean we definitely use that insurer for our clients for life, TPD and Income Protection. So we've definitely heard about Zurich Insurance for sure. 

Jeff: [00:25:11] And then all those premiums are coming in. They're just reinvesting those premiums that are on the balance sheet, a higher interest rate environment. So that, again, is one of those behind the scenes. No one's really paying attention to it. They're basically taking all your premiums is why Warren Buffett loves insurance companies and everyone keeps paying their insurance premium each and every time they take that money. Unless they have to pay it out, they're reinvesting at a higher rate. It's a nice business model. 

Felicity: [00:25:31] That's true. Because you think that you do think that the minute you cancel your insurance, well, then something is going to happen, right? Actually, that kind of luck. So you just kind of want to hold on to it, even though it does increase.

Jeff: [00:25:42] And the final one for us is Nestlé. So immediately everyone loves Nestlé. And do you really think of chocolate and, you know, everyone goes to their happy place here but Nestlé, you know, it's another defensive company, super steady business, steady dividends. What we like about them is their emerging market exposure and the ability to increase. So you have folks that live in China and India, etc., etc., They are now, you know, getting their products more and more into emerging markets. But as global diversified, they offer coffee, pet food, nutritional and health care. Obviously, they make ice cream and chocolate through confectionery. And then they have a a very big liquid and water division. So very, very steady business. And I don't know what's happening in Australia, but in the US, you know, packaged products, there's this push for health and Whole Foods and all the such, but they're packaging those healthy foods as best they can. I mean the on the go person, the United States is readily available. It's more on the move than sitting at home and having a huge meal every single night seven days a week. 

Felicity: [00:26:48] Yeah, it's like that here as well. Definitely. I think Nestle and I think Kit Kat, I love Kit Kat. I still don't. I still like snacks. All right. So then we have Japan. Yeah. Which is definitely a country that probably a lot of our listeners haven't directly invested in yet. Yeah. 

Jeff: [00:27:05] So Japan for us is a growing market. And when I say buy, that is for many, many years Japan has historically been 100% about the worker and full employment and less about shareholders and shareholder equity and reinvesting in the business versus paying out dividends. So historically, for many, many, many years it hasn't been a market that has paid good dividends over time, but that's changing. So we own three positions over there. We own two telecoms. As I mentioned, we've gotten a little bit more conservative. So these are we own NTT and SoftBank. These are the two largest telecom operators in Japan, if you're very familiar with the Japanese market, is very they have always been, I think, in my opinion, one of the leading edges of mobile devices and access to the markets and those data networks are built out tremendously. So they're kind of past peak of spending to actually build their infrastructure. So when you pass past your peak on spending, on actual hardware, everything else becomes very much a cash flow basis. So those two have been very strong. And you know, to give you an idea, in 2022, NTT was up 8% and SoftBank was flat. So when you have a global market that's down, you know, you, you have people rushing to where there's consistent dividends. NTT pays a 3.5 yield and SoftBank is a 5.8% yield. And then the final stock we owned there is Toyota, which had a little bit of a surprise as of late. Their chairman stepped down or was moving over to a different role, Toyota as his name. But you know, Toyota as a company, they've done a great job managing the supply chain. So, you know, if you look at a lot of the car companies who had issues with semiconductors and chips for cars, Toyota, actually, they did very well managing their supply chain. They are also flush with cash. They have a great reputation and they are moving into EVs a bit more slowly than a lot of other companies. A lot of other car companies are diving into the EV space, which is still, you know, to be determined by demand. There's obviously a lot of demand headlines that exists, but there's a lot of room for these combined engines, which is a battery and also an internal combustible engine. So I think there's going to be a transition in Toyota's well positioned to to benefit from there. They also have huge cash flows where you can see them probably, I don't know for sure, but probably start to build some of their own battery factories and capacity. 

Felicity: [00:29:24] Oh, that's interesting. Yeah, we definitely still like hybrid cars here in Australia as well. So it's good to hear Toyota, which is very well known to all of our listeners. 

Jeff: [00:29:34] Yeah, it's been a. It's one of the kind of global multinational companies that we like. We like to own. 

Candice: [00:29:39] So to recap just those kind of top names in those different geographies. The themes I was catching up. Big pharma, financials and insurances. Definitely energy is where you need to be for, you know, 2023 as as those companies benefit from higher energy prices and flush with cash. Consumer goods and staples still love them telecoms and then obviously car manufacturing your liking the Toyota in particular EV play. Have I summarised that correctly? 

Jeff: [00:30:08] Yes, you did. 

Felicity: [00:30:09] Also very lucky. We got lots of peaks here. We got nine stock picks. 

Candice: [00:30:13] I was expecting three and we got nine. How good is that? 

Felicity: [00:30:16] This is a good episode for our listeners for sure. 

Candice: [00:30:19] So let's keep the good conversation going with all these amazing stock ideas. Can I ask you some of your lesser known positions? Perhaps they're smaller in the portfolio for a reason and they seem to be in the materials sector. So Smurfit Kappa Group and UPM. Why do you like those names? 

Jeff: [00:30:38] So Smurfit Kappa Group and UPM, they're similar companies. They're in the materials sector and what they focus on is paper products. So corrugated boxes. So think of the boxes showing up at your door from anyone that shipping. So the United States knows. Obviously Amazon super popular Walmart ships to your home. There is more and more where people are just constantly doing e-commerce. It's easy on their on their day to day lives as we talked about people are busy so that the explosion of e-commerce has to be shipped and those boxes are basically showing up in corrugated boxes. So those two companies are two of the leading companies that we like. They focus on making not only the boxes for e-commerce start up, but there's also a huge push in the United States to get off of plastic as best you can from a packaging perspective, from plastic bags inside of supermarkets like in the supermarkets where I live, if you don't bring your own reusable bag you are charged to buy, you have to basically buy the paper bag from them. So it's not even plastic is not even an option here. So there's a big push for that. You see it in children's sandwiches, not only brown paper bags, but 18 sandwich bags that are showing up as paper. So these two companies are standing to benefit from the increased demand. That is not going to reverse itself. It's only going to increase over time for the use of paper products and that move away from plastic.

Felicity: [00:32:07] We see that exactly in our Woolworths, right? They used to have plastic. Now you can't buy plastic bags, you have to buy paper bags. And of course I always forget to bring my paper bag. So then I end up having to buy more paper bags. So that completely makes sense.

Jeff: [00:32:21] Yeah. Yeah. I like the incentives. You know, the incentives are good. And in fact, we have Whole Foods here in the United States. They're owned by Amazon right now. They will pay you back if you bring your own bag. So it's not only that you're not getting not charge, they're actually going to give you a small credit for bringing your bag. They actually ask you at the cashier, how many bags did you bring? 

Candice: [00:32:37] So that's a great incentive. 

Felicity: [00:32:39] That's great. I wish they had that here.

Jeff: [00:32:41] Yeah, it's you know, it's small, but it's that reminder for people to do it. And that's the part that has to change is the consumer behaviour that needs to change to make this a cleaner, you know, cleaner environment. For us, it's too easy to take a plastic bag and just throw it away, walk away. But yeah, there there's a bigger part of an ESG focus here and really to what are your you were mentioning themes before you and one of the bigger themes that we have, as well as not only on the materials side, but also within the material space, we're huge fans of like the miners of copper and iron ore, especially copper and nickel, the use of copper, nickel inside of leaves and all things electronic is just going to be on the increase for the foreseeable future. So, you know, I would round out our materials sector with what some of those positions are, are definitely attractive to us. 

Felicity: [00:33:34] Yeah, absolutely. 100% agree. And we've said it many times on our episodes, various episodes, future facing commodities. Right. Are really going to be where you want to be invested for the next 20 plus years because there's actually not enough supply to meet demand. So it's a bit of a no brainer to invest in those thematics. So you've given us quite a few, but are there any other investment thematics that you and your team are looking at or investing in coming into 2023? 

Jeff: [00:34:00] Well, you know, obviously ESG is a very popular investment style inside the United States. I think around the world people are kind of conscious about it. So we like the materials, as I mentioned, and some of the packaging. We also have a focus on renewable energy of sorts. We own an EL, which is a utility operator. What you're finding in some of these utility operators is there their cash flow rich because people are paying their monthly bill for utilities, but what they're investing in is. Many instances is either solar or wind, and they're starting to generate renewable energy from that from that source, like in the United States, for example, is a stock we own in some of our other portfolios, not this particular portfolio, but it's called NextEra Energy. And the way it works is basically it's a utility company and they each state needs to buy a certain percentage of their energy from renewables. And if the local utility can't do that, they have to buy it from someone who is producing it. So you have this when you build out your infrastructure of renewables, either through solar or wind, and then you have this extra capacity that you can sell that either other utility companies, it creates a really nice windfall for not production. And we're starting to see that in Europe. And that's probably one of the themes you see. You also see in this portfolio a bias toward there are certain areas of the world that are kind of easier for companies to do business. And so while we own total, we probably prefer more of the US operators of energy, because to be an operator of energy inside of Europe has a lot of regulations around, it becomes very difficult for them. There's a lot of compliance that they have to follow. So there are certain areas of the world tend to do certain markets and sectors a little bit better. You know, generally speaking, you can say I like the Swiss for pharmaceuticals, I like Germany for industrials, I like the U.K. for global multinationals. Because of their laws, you could headquarter your company there, even though you're doing multinational around the world. 

Candice: [00:35:59] They are some really interesting themes of thematic, and I definitely agree with them. And I think, you know, they're not themes that are just going to benefit well in 2023, but they will stack up for years to come, hopefully decades. Right. So really good to hear that. But just quickly, coming back to today's market and what investors are facing right now, let's say you've just met a new investor. They've got $1,000,000 to spend into the markets. You know, what would you say investors need to be cautious on? You know, risk on risk off that conversation. That debate we're all having internally is now, you know, cautiously edge in. That's what we think. Or do you just wait? It's really hard to time the market but no crystal ball. I guess the next big news is the Fed's meeting very shortly. What's your thoughts on that? [00:36:44][45.4]

Jeff: [00:36:45] The no crystal ball comment is a perfect one. It's I think the leg in probably always seems to be historically that doing this for a long period of time the proper way. It's completely difficult to call if Jerome Powell gives any indication that the Fed is going to raise one more time and not three, then we're off to the races. And if he kind of hints that we're going to stay longer into 2024, even though the markets are not expecting that, that you're going to get a pullback. So I think, you know, for a lot of clients, one thing to do is as interest rates have risen, it's given you a really nice opportunity to be ready in cash. And while the interest rates I, I don't know exactly the rates over in Australia at this point in time in the US you can get a CD for a 4% interest. They're about taking that cash and having that opportunity to leg into certain sectors or certain markets would be probably a good a good opportunity on our particular strategy. You know, the fact that we're value and we're dividend, you know, where you have some insulation on the downside here, you know, when things go poorly, investors rush to the kind of things we own because they want the stability, they want the defensiveness, they want the dividend cash flow. So you have a pretty good backstop of investors coming our way. And if the market goes the other way and completely rips forward from everyone from a speculative stock, we're going to participate as well. We're just going to maybe like a little bit compare to some of the growth your names in the marketplace. So, you know, having some exposure, I think across the board is good. I think legging in is probably the proper way to go. It's very, very difficult. You know, if you looked at CIO write ups from various firms that we follow very closely, they were expecting a fourth quarter pullback and you had a super strong fourth quarter for the most part. So they get it wrong very often. The only thing that I keep in mind probably is Powell has been very, very, very, very, very consistent on the higher for longer everyone from the Fed is singing from the same tune. So for him and the team to put an about face, you lose credibility. So there's a little bit of a you might have a little bit of an ego game going on here, but we'll see. The wild card probably continues to be US unemployment. And I would just leave you with as a US person here. Yes, you got remember, unemployment isn't necessarily measured by the amount of value that job had versus the other one created. It's a one for one. You let a tech worker go and you hire someone to do a different kind of role that maybe doesn't pay as much as store a one for one. So there's still demand showing up on literally windows when you walk into a local Starbucks or we have Dunkin Doughnuts here or something along those lines or even like a a little restaurant, there is demand for people. And, you know, most of the most of the layoffs you see from these tech companies, you can feel like they've overextended the. So as they were trying to get into A.I. and all kinds of interesting things, which maybe is there, but they're not paying off any kind of dividend. So it's not surprising if you start seeing mass layoffs by industrials and other companies, then I'd be surprised. But we're not seeing in the headlines at this point in time, which would tell you that that number is going to stay low for a longer period of time. And that's gonna put pressure on Powell to keep rates higher. 

Candice: [00:39:56] Yeah. Yeah.

Felicity: [00:39:56] I mean, that's what we think as well, right? We know the tech companies are really cutting the fat they've over hired during COVID in the last couple of years when interest rates were low. So I guess I don't know if you can tell us this, but I mean, what areas of the market or potential stocks are you looking at adding to the portfolio that haven't actually been added yet? No, it's a cheeky question. A lot of people don't like to give it away. But can you give us a little hint on what you're potentially looking at adding?

Jeff: [00:40:25] Okay, I'll give you three more name. I can't give you the names of the companies because they're actually being we're in the process of trying to add them to this actual portfolio. The trades were being ushered in through the trade desk for the communication today. But I will give you an idea, a general feel. 

Candice: [00:40:41] So it's a guessing game for us and our listeners love it. 

Jeff: [00:40:44] We are looking to buy an ag company that basically does a lot of things with fertiliser because of what's happened in Ukraine. You've had with all the wheat that's produced there and because of what's happening with Russia, you're going to have a you have a need, there's a global need. So other areas of the world are stepping up to be that farmer for wheat and such. So they're going to need ag products. And there's a company that we're looking to purchase in that portfolio. We are looking to add another mining company. They do iron ore, coal and copper. So there's it's along that same kind of play of materials of what's happening inside of the creation of of actual goods versus services. And I say the next one. 

Candice: [00:41:26] Because it's. 

Felicity: [00:41:27] In. Why do you think we're going to get it. 

Candice: [00:41:28] Well it's probably in the name your guess it yeah. 

Jeff: [00:41:30] It's local to you. 

Felicity: [00:41:31] It's local to us. Interesting I wonder it's something we've already actually pitched as well and took money to me. Well, look, I guess we'll find out soon anyway, won't we? You? Well, we will. And we can update our listeners when we do find out. And then you can consider whether you want to put it into your own portfolios. 

Candice: [00:41:47] I can't wait for those three companies to be added so we can do our own research on them.

Jeff: [00:41:51] And do research. 

Candice: [00:41:52] Well. Jeff, that was really great insights. Thank you so much. You went up and beyond with, you know, talking about thematics for 2023, investable ideas and of course, the portfolio. One final question before we leave you. We asked all of our special guests on Talk Money to be here, coffee, tea or tequila. What's your preference? 

Jeff: [00:42:11] What time of day is it?

Candice: [00:42:12] We're recording at 11:00 local time. So what would you have. [00:42:15][3.0]

Jeff: [00:42:15] 11:00 local time? It would be likely a second cup of coffee. 

Felicity: [00:42:20] A second cup of coffee? You know, that makes sense. 

Candice: [00:42:22] Unless they coffee or a Starbucks. 

Jeff: [00:42:24] Probably a Nestlé coffee. If it was my first cup, it would be a Starbucks and it would just be one. Then for the day, Starbucks tends to be a little stronger. 

Felicity: [00:42:31] I agree. That's great. Well, thank you, Jeff, so much for joining us today. This is a fantastic episode and we look forward to seeing what those stock ideas actually are in the coming weeks or months. 

Jeff: [00:42:42] Thanks very much for having me. It's a pleasure. I think really enjoyed being here. And it's an exciting podcast to be a part of.

Candice: [00:42:49] Wow, that was a great chat. I was writing down so many great investable ideas and I hope you did as well. Now, before we sign off, please remember, although Felicity and I are advisors at Shaun Partners, as always, our discussion today does not constitute as personal financial advice and you should always go out and seek your own professional financial advice before you make your investment decisions. The companies and facts are all based on at the time of recording, which is the 31st of January 2023. 

Felicity: [00:43:16] If you want to get access to the Sean Partner's Global Equity Income Model portfolio, you can contact us at tmtm@equitymates.com or follow us on at Talk Money To Me podcast for daily market updates. We really hope you enjoyed this episode as much as we did. If so, please give us a five star review on Apple Podcasts, Spotify or every you listen to your podcasts. We'll be back next week. Until next time.

Candice: [00:43:41] See you then.