Seeing the global picture with Mary Manning – Alphinity Investment Management

Candice: [00:00:10] Hello and welcome to Talk Money To Me. Thank you so much for tuning in. I'm Candice Bourke. 

Felicity: [00:00:15] And I'm Felicity Thomas. Now, today we have a very, very exciting episode. We are joined by Mary Manning, a portfolio manager at Alphinity Investment Management. Mary is an absolute unicorn in the funds management space. She's had over 25 years experience in capital markets. And her focus is actually on the consumer and Internet sectors. As well as running the Alphinity Global Sustainable Fund. 

Candice: [00:00:38] And she has a wealth of knowledge when it comes to the ESG and sustainable investing space. So we are super stoked to bring you this chat today. Now, our guest today was previously the portfolio manager for the Asian Strategies Fund at Elston Capital based here in Sydney, where she was there for ten years. And prior to that she was an analyst at Oaktree Capital and Source Fund Management. Mary really does know her staff. She in fact got her PhD in economics from the University of Sydney and an MBA from the Harvard Business School. Wow, wow, wow. I just want to be you, Mary. So why did we want you to come on to the show? Mary's because you really, truly know the global perspective when it comes to investing. You've lived and worked overseas in Canada, New York, Moscow, London, Singapore, and now in Australia for the last decade or so. So we're super excited to chat with you about the global markets and investment opportunities you are seeing currently. 

Felicity: [00:01:32] That's it. And you need to listen to the entire episode because she gives away some absolutely fantastic ideas. So this is a full 50 minutes, guys. Now, remember, our chat today is not considered personal advice, even though we're registered advisors at Shaun Partners. Please note that the podcast discussed and the content does not constitute financial advice, nor is it a financial product. It's also based on facts known at the time, which is the 29th of November 2020, to welcome Mary to talk money to me. Thank you so much for joining us today. 

Mary: [00:02:05] Thank you so much for having me. 

Felicity: [00:02:06] We're very excited that we've got you on the podcast. So let's kick it off with our first question. So how are you feeling about this market? I mean, it's been a crazy three years for us. Are you worried about heading into 2023? And I guess what's your take on what's going on right now? 

Mary: [00:02:24] Yeah, thanks so much for having me on the podcast. I'm a big fan, so I'm happy to be on. You're right. It has been a very volatile few years. You had COVID and then you had the COVID recovery and you've had lots of different sectors performing and outperforming. Then you had the situation in Europe with Russia and Ukraine, and now you have, you know, a lot going on in China. So there's certainly a lot to keep us busy at work and awake at night. I think the one thing that I focus on and certainly which is the focus of Alphinity investment management, is looking at the earnings cycle. So, you know, share prices do follow earnings. And if you look at what happened over those three years and sort of get rid of all the noise. One thing that you will notice is that it's actually happened during all the noise also is the share price followed where earnings were going. And so when we look forward into the fourth quarter of 2022 and certainly into 2023, there is a case to be made that earnings still need to go down further from here. So a lot of companies across sectors don't have a lot of visibility for the fourth quarter. This is particularly true for retailers or any company that has to do with the consumer. They're unclear about how, you know, Black Friday sales are going to go, how Christmas sales are going to go, what the employment outlook is going to look like for inflation for 2023. So there's a lot of uncertainty there. You know, my thinking is that when fourth quarter results come out, they're not going to be great for a lot of pockets of global equities. And so you'll get another few downgrades and you may get some downgrades to earnings as companies come out and give their 2023 guidance. And that's when you want to be looking at the market and seeing what stocks look like. Interesting. I think it's a little bit early now when there's a lot of uncertainty going into the fourth quarter and 2023 guidance. 

Felicity: [00:04:06] Yeah, 100%. I mean do you think this is kind of a bit of a bear market rally then potentially? Yeah. 

Mary: [00:04:12] So you know, obviously markets did sell off quite significantly during 2022 and then when you saw the bounce off the bottom, there were a couple of things there. One is technicals and we don't really look at technicals at infinity, but certainly a lot of funds do and a lot of funds flow around the world does look at those technicals and there's also a lot of cash sitting on the sidelines. So we're, you know, a couple of months off. It's almost a year into a bear market. So funds have raised a lot of cash. And that means that there's a lot of firepower there for when you might get a sort of bear market rally. The second thing that happens is, if you remember a few weeks ago, there was that inflation print that came across as more benign than people were expecting. And that made people quite excited that maybe we are at the end or near the end of the inflation. Cycle, the interest rate rise and cycle and then be some sort of pivot by the Fed. So there were some very big market movements that happened one on one numbers coming across the tape and sort of in a few ways not to, you know, bet the farm on one macro outcome and certainly not a macro data point. But I think that was a big driver of what's happened in the bear market rally in the last few weeks. So inflation is something that we're obviously watching very closely going into 2023. But you're going to need to see a pattern of sort of inflation plateauing and then some possibility of a reaction to that by the Fed rather than just buying one data point. 

Felicity: [00:05:36] Yeah. So I guess as a global portfolio manager, you're really going to be looking at what the Fed's going to do potentially this December, right? If they do pivot from the 75 basis points or if it is only 50 basis points, that's going to be, I think, very interesting. 

Mary: [00:05:51] Yeah, it's important to it's certainly important to watch because if you look at what's happened within some sectors over the last year, you've had very expensive stocks or certainly the unprofitable tech sector companies that it's very difficult to to value if you're if you're doing a discounted cash flow analysis or something. And as those rates go up, then obviously you're seeing massive multiple contraction on those stocks. So if the Fed starts to pivot and is on pause, you would likely see a big rotation to some of those growth names or some of those higher PPI names. So I think that's what people are getting or anticipating for next year. But it's quite risky. There's a saying in the market catching falling knives for a reason. It's very risky to try to catch a falling knife. And so are you going to use it to pull that earnings leadership and to wait until you see those earnings turn around rather than try to catch the falling? That's because it's hard to get that right. And sometimes you may think it's the bottom, but you're actually, you know, months or even a year away from what that bottom is. And you can really do a lot of damage to your portfolio and a lot of damage to your ability to generate alpha if you're trying to bottom take it, rather than to wait until you have confirmation that earnings have turned around. 

Candice: [00:07:01] Yeah, I love that saying like it's probably one of my favourites. Mary. I always say to clients, it's so hard to catch a falling knife. That's a really good point that you've brought up because that's the same kind of feelings that we're getting in the market, is that we haven't yet fully quote unquote bottomed. And I'm doing my little speech marks here. So good segue way into what I want to ask you. You know, we don't have a crystal ball. Neither do you. But we really love chatting to you because you do you know, you're at the forefront of the global markets. So we're days away from the Fed chatting to us about inflation and interest rates. It's really important in the communication of what they communicate. So what are you kind of expecting here? You know, what do you think the market is priced in? And can you give us any insights from your perspective as we're days away? 

Mary: [00:07:48] Yeah, I think the first insight that I would say is that in this sort of environment, it's very important to have a diversified portfolio because, you know, I have a Ph.D. in economics. I work for George Soros. I've done a lot of macro analysis in my life. And my takeaway from that is that getting macro calls 100% right, both the call, the timing and the market reaction is very, very, very difficult. So, you know, we don't have a portfolio oriented to one sort of fed outcome or one sort of language. We are running a very, very diversified portfolio. So this is a portfolio of stocks that can perform in many different market environments. And certainly there are ways that the portfolio can change over time. But I think running a diversified portfolio in this kind of environment is absolutely critical because, you know, you need to be able to have a portfolio that can perform in different kinds of environments. And I think the second thing that I would say is to have conviction in the stocks that you do well. So, you know, rather than just owning, say, I'm going to own a major U.S. bank because it's exposed to interest rates, risk exposure, inflation, and keep going up. And I've made a call on the interest rate cycle and therefore I'm going to have to think it's important to have a conviction in the stocks that you own, sort of regardless of what happens with the macro. So one example of a stock that we own right now is LVMH. LVMH is a global luxury company. It has lots of different moving parts. If the US is doing well, it will do well. But it also has Europe that has recovery. In China, it has multiple brands, it has multiple different price points within luxury. And so the conviction that you can have in a stock like that versus if you just know 50% of your portfolio in U.S. banks, I think interest rates are going to keep going up. You know, that's a better way with diversification and conviction in the stock that you're doing right now. I think making a bet on the trajectory of interest rates in the U.S.. 

Candice: [00:09:45] Yeah, 100% agree with you. And I think the fund speaks for itself because your performance is really quite impressive in this down market that we've had in the multiple bear rallies. You know, we can see on the one year figure it's only down four and a half percent. And if I look at. Any index, it's anywhere from 15 to 20% down year to date. So really impressive there. I just want to ask one follow up question on that because we agree with you on diversification point. What would be your optimal amount of stocks in a portfolio that you have high conviction? And at the moment, how much dry powder are you running at the moment? Like, what are you pivoting in terms of cash levels to go? I'm not yet ready for it to bottom. Can you can let us in on the secrets there? 

Mary: [00:10:27] The secret is there's no secrets. So the main way that we look at it is this is a high conviction funnel. So we're not going to buy 150 stocks and just put a little bit in each and hope that it turns out it's very difficult to generate Alpha on a consistent basis if that's your approach. So we're allowed to have between 25 and 40, but on average we have between 28 and 32. So it's you know, right now we have about 30. So it's very concentrated and there is conviction in each one of those stock picks. We try to take the risk in our portfolio based on the stock level, not on the map or the sector level. And if that's the case, then you need to have a concentrated portfolio. We think 34 right now is is about the right number. And then in terms of the cash level, so cash is not a lever that we use quite consistently. We can go up to 20% cash. But there was only one time it was during the depths of COVID when there was extreme uncertainty where that number was around ten or 11%. But in general, we run cash around 5% or even slightly lower. And that's right. That's where we are right now. And part of that has to do with looking for which companies in the market are showing us earnings leadership. And if you look at that on a relative basis, you can always find companies that that are where the earnings are outperforming other companies. So, for example, 18 months ago, we had a lot of the formerly called Fang stocks in the portfolio. Google was one of the biggest positions. Microsoft was one of the biggest positions. Apple was in a very big position. We had Amazon and we had Netflix. And now because all of those companies, except for maybe Apple, have gone into a deep earnings downgrade cycle, we don't hold any of them. And we hold stocks like LVMH that I mentioned before, Pepsi, McDonald's, utilities like NextEra Energy. So these are global stocks that can continue to have strong earnings. And our view is that it's better to sort of be in those companies and be invested in the companies that have strong earnings rather than just when sometimes cash is like a tail that wags the dog. Right. And if you have 20% cash and you get that wrong, it doesn't matter if that 80% is invested in good stocks. If you had the right call, it's the cash that's sort of wagging the dog of your portfolio. So that is not sort of how we invest. We're generally all fully invested. And then when we see different opportunities, we rotate out of stock that we own into those new and better opportunities. 

Felicity: [00:12:49] So, Mary, we understand your investment philosophy as being in the middle of a growth and a traditional value investor. We know you've got a special name for that. So are you kind of trying to find the sweet spot where a company has stabilised earnings, but maybe the market's a bit too pessimistic on it or it's being sold off, or perhaps growth in the business is being missed by the market and apps are underestimated. So that's question one. And then question two, what needs to happen for a stock to actually fall out of your portfolio and for you to lose conviction? 

Mary: [00:13:20] Okay, great questions. In terms of the way that we invest, we are style agnostic. So an Alphinity growth investor is not a value investor. We are following earnings leadership and sometimes you find that earnings leadership in growth stocks. So that would be a lot of the post GFC sort of market environment and certainly from the bottom of Kogan that was led by growth. But sometimes that earnings leadership is in value and sometimes that earnings leadership is in more defensive kinds of companies, which is where we are now. So that is why you mentioned performance before, why our performance has been so consistent because stocks that just do growth, they do fantastic in a growth environment and so just do value is vice versa. But when their style of investing is out of favour, they can generate significant amounts of negative alpha. So if you have a style agnostic approach, that means that you can outperform in lots of different market scenarios. And as you guys know, I have two kids who are absolutely passionate savers. This is what I spend all of my free time doing is driving them around sailing. But there is a bit of a failing analogy. If any of your listeners are also sailors, it's like growth. Investors say, I'm sailing this way. I don't care which way the wind is blowing. I've decided that I'm going this way and value investors say I'm sailing this way. I haven't checked the conditions. I don't care what's going on with the wind. I've decided that I'm sailing this way and in certain different environments or conditions, both of those can outperform. But the alternative is saying we want to get to the finish line first. So if the wind is blowing a certain way, we'll go on a starboard pack. If the wind is blowing another way, we will go in port tack our ideas, get to the finish line first. And that's by following earnings leadership, not by. A certain style. 

Felicity: [00:15:00] I love that. That is amazing. Value in growth agnostic with such a great analogy. That was very good. 

Mary: [00:15:08] Thanks for all my time sitting on that on the start of the coach just being off in terms of analogies. But it does help people sort of visualise the way that opportunity invests. And then so your second question in terms of what that means in terms of selling stocks, we have something that we call the Alphinity investment clock, and it's a bit hard to describe. But if you want to go to our website, there's a picture of it on the website. We don't want to be invested in companies that are in an earnings downgrade cycle. So if you picture a clock, you can think of that as from like 12:00 at night to 6:00 in the morning. Those are stocks that are in an earnings downgrade cycle. We don't want to be in them, even if they're very well-known brand names or if they're stocks that are big parts of our benchmarks. It doesn't matter. We don't want to be invested in them. We want to be invested in stocks that are in our earnings upgrade cycle. So you can think of that from like 6:00 in the morning until till 12:00. What we found using a lot of that testing and of physical analysis is that to pick that 6:00 point, right, when a company goes out of an earnings downgrade cycle into an earnings upgrade cycle is very difficult. It's what we talked about before Candice in terms of that following nine, 6:00 is the following night period. So generally we wait and get confirmation that a company is in an earnings upgrade cycle and we invest, then it would be 7:00. So not trying bottoms, making sure that we're comfortable. But then to your question closely in terms of when do we sell stocks, we are not value investors saying we buy stocks that are at five times PE and by the time they get to seven, I mean, we want to be out of them. We get out of stocks when they're out of that earnings, out pre upgrade cycle or when that valuation is getting so stretched that, you know, everybody is on board with the earnings upgrade cycle, there's no surprises left and that's reflected in the valuation. So I'll give you two examples which show sort of how this clock works. One is MercadoLibre, which is a stock that I really like. It's a Brazilian e-commerce and fintech stock. And it went through a deep earnings downgrade cycle about 18, 18 months ago. The stock has more than half that to the very bottom. But Brazil's economy is starting to turn the corner. We saw two good quarters of earnings upgrades and earnings surprises. So we invested in the stock. They had another good quarter of earnings. So we increased our position. So that's a good example there. On the other end would probably be McDonald's. McDonald's has performed very, very well over the last few years and it certainly outperformed, as you know, some of these defensives like McDonald's and Pepsi, their all time highs, which is amazing if you think of when the market is overall, but it's starting to get quite expensive on a PE level. So we're taking profits in that and reducing the position. So given where it is on the Alphinity clock. 

Candice: [00:17:50] Speaking of earnings downgrades and potential concerns and taking profits, one position that I've had for many, many years is the first time ever I'm actually considering taking a profit in Apple. You mentioned you don't have, you know, many fangs for that reason. Right. So, you know, what's your thoughts on Apple? You know, are you thinking it's going to be cautious going ahead? I know a lot of analysts are actually downgrading that stock for the first time. So what's the feeling for Apple going forward? 

Mary: [00:18:18] First of all, congratulations, Candice, on owning Apple for a long period of time. I did listen to one of your other podcasts, what you're saying. It was one of the first stocks that you bought. And if you were to pick a stock to own for the long term and have a multi-bagger, apple was a good choice. 

Candice: [00:18:33] I know I've looked like it, but now I'm like, what do I do? Do I make a profit? So I really want to know what you are doing right now regarding Apple. 

Mary: [00:18:40] Well, you're in a better position than most people because you're so in the money on your trade. But I think the way that we look at Apple similar to I think some of the things that you've talked about in the past is that some people think of Apple as an iPhone company, and if you think of it as a mobile phone company, then you might not hang on to it in this sort of environment because there is some stress in that consumer, particularly with respect to buying electronics, because there was a bit of pull for there during the COVID lockdown time and then there's a bit of stress there on the supply chain. Certainly with everything that's going on in China, even if there is the demand, it's unclear in the fourth quarter, in the first quarter whether Apple's going to be able to to meet that demand because of the supply chain constraints. But that's a very, very short term view. Part of the reason we continue to hold Apple, even though we have taken some profits in the previous six months, is because the long term earnings upgrade story for Apple is likely still intact in terms of it's an ecosystem company. It's not just an iPhone company. If any of you are in the Apple ecosystem, you know, once you have the iPad and once you have the watch and once you have everything, and then I don't know about you guys, but as a family, we're all in the iPhone, we're all in the sort of Apple ecosystem. So then it's like a multiplier effect. So if you look at it from that perspective, the long term earnings trajectory for Apple. The asset light business model, their ability to generate cash, their ability to use that cash to do their EPF in a separate cycle is very, very powerful. I mean, there's a reason the biggest market cap stock in the world. And so I think that the long term story is definitely intact. It's just that short term story, whether you're going to get multiple quarters of downgrades is a little bit unclear. So we still don't want any of the famous people who never owned Facebook. Microsoft is gone. Amazon is gone, Netflix is gone and video is gone. But Apple is the one that stays in our portfolio right now. 

Felicity: [00:20:34] Well, that's lucky. Facebook or now matters because that just went backwards. More so than all of the other things, right? Yeah. 

Mary: [00:20:42] It's been a terrible stock. And this is a good example of where ESG work has come in, because some people didn't make the correct fundamental call on Facebook, you know, that it was going to go into an earnings downgrade cycle. But we actually never have Facebook because we screen it out on ESG concerns, and most of that is on the app and most of that is on the governance. And, you know, Zuckerberg's shareholding and his sort of predominance over the company and the way that decisions are made. And that has certainly been an alpha generation for us this year. But it also is, if you look at what's happening with the metaverse, I mean, it's unclear if there's going to be any return or all this investment in the metaverse at all. It's highly likely that Mark Zuckerberg is the only person in the world who actually wants to hang out there. And they're spending billions and billions of dollars of cash on that concept, which is unproven. So Facebook is now calling the whole matter in an earnings downgrade cycle and even if it manages to swing around really Walmart until it improves. 

Candice: [00:21:42] Yeah, he might be the only one in the metaverse, that's for sure. Let's leave the fangs and the kind of large cap tech there just for a moment. I want to pick your brains because I know you've just come back from a bit of a global tour, you know, catching up with companies that you're invested in and maybe ones that you have on your watch list. But what's your sense, I guess. Give us your recap on the U.S. earnings seasons that's just wrapped. You know, any new names that you had on the watchlist has gone up closer and closer to potentially a buy that you can let us know about. [00:22:13][30.5]

Mary: [00:22:13] Yeah. So you're right. We are back on the road as a team. There's there's five core portfolio managers at Alphinity between the five of us. We've done 15, 16 overseas trips thus far this year. So that's a really big difference versus what we were doing in the last two years. And it is helpful both in terms of gaining conviction in the stocks that you already own and then also in terms of finding new ideas. So one of the stocks that has gone into the portfolio recently is Starbucks. And this is kind of as I mentioned before, you know, we've been trimming McDonald's because it's done so amazingly well and it's not selling out of the whole position, but trimming it back from what was a very, very large position. Starbucks has had an earnings downgrade cycle for about 18 months. You know, you may recall that Howard Schultz, the founder and former CEO, came back in as the CEO and he's developed a whole sort of turnaround strategy, a new execution strategy. They've hired a new CEO. We've watched the stock for two quarters to be comfortable that it's in an earnings upgrade cycle. And we started adding things like initiating a new position. Obviously, China is a big driver of Starbucks earnings. And, you know, we talked before about falling knives. And what I'm thinking, it's very hard to pick the precise date when China is going to reopen and come out of it, but it's likely going to be sometime in 2023. And when that does happen, that's a very big earnings tailwind for Starbucks. So we have a relatively small position right now and I expect that to grow over time. You know, we've also travelled a lot in Asia and in Europe. And I think two things that have come out of that is that certainly the war with Russia and Ukraine has highlighted the fact that Europe needs to move very quickly towards renewables. And so we have looked at a number of renewables companies around the world. NextEra Energy is our top pick there, the largest renewable company in the US. You may know that the Inflation Reduction Act was recently passed in the US, which is going to be a huge tailwind to companies like NextEra and a lot of their customers in the US. And we have done a lot of work on Lithium and EVs and that whole EV supply chain. So another company which we recently added to our Global Sustainable Fund is Samsung SDI, which is one of the largest battery companies in the world. Those are some of the different ideas that we're working on right now. 

Felicity: [00:24:27] Amazing. Well, we love investable ideas here at Talk Money to Me, so we're very excited to delve into those a little bit deeper. And it's also very interesting because you used to run the Elliston Asian Investments Fund, so you obviously have quite a detailed experience investing in Asia, which is very exciting as it's close to home for us now. In a moment, we're going to chat more about that, and we're also going to hear a few things that we're very passionate about: unicorns, ESG investing, as well as Mary's top future facing commodity ideas. But before we do, we're going to take a quick break and hear from our sponsors. And we are back. All right, Mary, let's address the unicorn on the podcast. It is not every day that you get to speak to such a well-established female portfolio manager. I think most of the managers on our podcast have been males. We know it's, you know, not a very crowded space in finance and funds management. So we'd actually really love to hear from your perspective. Why do you think that is? 

Mary: [00:25:27] Amazing question. The million dollar question is probably worth more than that. I wish that there was a silver bullet and that there was one reason that I could say this is the reason why there's not very many female portfolio managers. And then we could just address that, that reason. But the truth of it is, I think there's there's many factors that contributed to it. One is, I think that being a fund manager is all about having a track record, and it's very, very linear in terms of you need one year track record, you need a three year track record to raise funds to five year track your degree, raise even more fun. Some investors are looking for a ten year track record. And sometimes women's lives are not that linear. My life certainly has not been linear at all. I was a vice president and I had my own suite of capital, but not a portfolio manager. And then I'd have to do my Ph.D. and then I'd move back to Singapore and then some money. And then I took two years of maternity leave, and then I came back as an analyst, and then it became a theme. And it's, you know, it's not linear. So I think that that's one difference. But there are certainly things from a structural perspective that can be implemented to make sure that women portfolio managers and women analysts can continue to generate that track record for themselves. The second thing, I think, is that there needs to be. So, for example, I have a 12 year old daughter and last year during COVID, my son's school said we should teach our children a skill. And so I said to my kids, I only have two skills: equity, invest, yoga, you guys, you guys pick which one you want. And my son was like, I don't like our dogs, but I'm going to be investing. So we had a portfolio for him and he was invested. And my daughter, she is very young, but she's like, Mom is so boring. Oh, my God, it's so boring. And, you know, I went on a small rant about how boring was funding her lifestyle. But I think that there are some people that have the perception that finance is boring. And so I know there's some really amazing organisations in Australia that are working with girls in schools and universities and helping them get into finance. But I think your podcast is a fantastic example of this is not boring. This is really, really exciting. And I don't I don't get the boring thing because I think I have one of the best jobs in the world. I mean, I get paid to think about interesting things and look at interesting companies and travel around the world and talk with CEOs like it's the opposite of boring. So I think there's a marketing thing that the finance could do to just make sure that that perception is a little bit different. Those are two things that I would highlight, but there are only two in a number of factors. I'd be interested to know what you guys think and if there's a reason why there's a 100%. 

Felicity: [00:28:07] I think what I mean, look, finance is very fun. We love it. But I think a lot of people, a lot of women don't find it that interesting. However, from a lot of research that we have done, we have actually found that female advisors, female PMS and female investors actually tend to outperform their male counterparts. I think it's because they're actually less emotional when it comes to investing. They don't actually panic or they don't get that great factor that some men potentially do not try to stereotype and talk money to me. It's just something that I've read. So I think that was quite interesting. 

Mary: [00:28:45] Yeah, actually, you reminded me of a very good point. There are some women in the US I think there are at Columbia Business School in the book about confidence. And their view is that a lot of it has to do with confidence and that just having the confidence to make your first investment and then grow that investment, but sometimes taking that first step of those first few steps is something that women lack. But it means that over time there's a very big investment gap, both from a financial perspective and from a knowledge perspective. So when I meet younger women, you know, I always encourage them. You know, Felicity, you were talking about in one of your podcasts how you've also commodity stocks like $1,000. Yeah. The first company I bought was China Mobile, which is a little bit heavier, but I was really young and it had an ADR so I can buy it in my U.S. account. And I put very small amounts of money into it. But I think just having the confidence to start is really important. And then once women or anyone really starts, I think that it can snowball from there. 

Felicity: [00:29:46] I think it's also maybe there could be a bit more risk averse potentially. I mean, I'm definitely not that I was quite a high risk investor. 

Candice: [00:29:53] Yeah. You don't fall into that category. 

Felicity: [00:29:55] But I think that could potentially be it. Which kind of falls into confidence also. Right. Being risk averse. And confidence. 

Mary: [00:30:02] Yeah, absolutely. 

Candice: [00:30:03] Interesting that the next generation of investors that we're seeing more and more focus a lot on sustainable investment goals, ESG. You know, the A if you break it out of ESG really stands up more so for women. Mary so loves to pick your brains on that because we know that you're also the PM on the sustainability fund. You know, what are you seeing in terms of the next generation trend? And like I know your daughter said it's boring the investment market, but do you have chats about the importance of ESG investing with her? 

Mary: [00:30:36] Absolutely. Actually, it comes the other way in terms of ESG. So we were in junior year shopping one day and we were buying shampoo. I took some shampoo off the shelf and she said, Mom, is there palm oil in that? And you know that palm oil was negative for Orang-Utans in Indonesia. And I was like, How do you know this? So I think that the next generation, you know, when I started investing and certainly when I started looking at ESG, it was very much a risk mitigation thing and investing in Asian emerging markets, you need to make sure that you have something, particularly on the governance side, but increasingly on the environmental and social side. It just reduces the risk that you're in a bad company that's going to blow up or get delisted or something. So ESG, maybe 15 years ago, even ten years ago, was a little bit niche. But now ESG is, you know, looking at those risks that is very, very mainstream. If you don't have some sort of ESG integration process in your fundamental analysis, it will be very hard to get institutional investors interested in your products and increasingly retail investors as well. So I think a little about it becoming mainstream as it should be. It's a very important part of, you know, minimising your downside risk. But your point about the next generation is absolutely accurate in terms of, you know, millennials and even the generations that are younger than them. They really want to align their portfolio with their core values. And they don't see words like my parents' generation. Your values are over here in your portfolio. We're over here. And if they didn't line up like, no, there is not the expectation that they would. But I think certainly with millennial investors and younger, there is absolutely the starting point is that your portfolio will align with your personal values. And I think that that's one of the reasons why we have a sustainability fund and we have a domestic sustainable fund which is doing very well. It's been going for over, over ten years, is that it allows people to align their portfolios with their value system. One thing that's critical there, though, is making sure that there's no greenwashing. Greenwashing is a trend that's been around for a while, but it's come to the forefront because of some of the regulatory changes and certainly in Australia it is taking a very hard look at a lot of funds that claim to be ESG or claim to be sustainable or to be impactful. And they're not actually. So I don't think we go to great lengths to make sure that it outlines this is our charter. So we have a very specific charter. These are the things that we invest in. These are things that we don't sell. Fossil fuels is on that list. Gambling, pornography, alcohol, tobacco. The usual suspects are on that list. And then we are very, very transparent about how we define sustainability so that people can align their portfolios with their value systems and be very confident that what's in the portfolio is what we've actually said is going to be important. 

Felicity: [00:33:23] That's always great to hear. So that's really how you use the SDGs to help frame your investment decision making. Would that be right? 

Mary: [00:33:30] Yes. So the first point is that we distinguish between ESG and sustainability because we're looking at it from an ESG risk and an operational risk perspective. Obviously, there is some overlap, particularly with those in the heart, but ESG is a separate analysis that we do in terms of operational risk and then sustainability. We're looking at what a company does, what business are they involved in, what product or service are they selling? And for that, we look at a company's revenue and alignment with the 17 UN Development Sustainable Development Goals, and that's how we define sustainability. So it's important to be very clear about those two. Otherwise I can get into the portfolio which is very strange. You can have stock like British American Tobacco, for example, which has good ESG, but it's obviously not sustainable giving people lung cancer and vice versa. They have stocks that are sustainable and their business activities align with the SDGs, but they may have very bad governance. So yeah, we distinguish between those two and that's how we develop a portfolio of sustainable stocks. They have to have good ESG. And one of the things that's. 

Felicity: [00:34:39] Really interesting, so for everyone listening, if you want to create your own portfolio, then you really need to put those two overlays essentially to get the right positions in your portfolio. I've just had a thought, you know, Mary, what would be very, very interesting if you were able to get both your son and your daughter to put together a mock portfolio and actually see how both of theirs perform over the next. One, two, three, five years. It'd be very interesting to see who actually does better in that scenario. Seen as everything you know your daughter's bringing up about Orang-Utans. She's obviously got a very good investment ethos already. 

Mary: [00:35:14] Yeah, I think so. I told her her brother is three years older, so I told her, okay. You may have thought it's boring when you're 12 and by the time you're 15, you're going to have your own investment portfolio, even if you think it's boring, because as you both well know, that investment gap is huge. The sooner you start and you know, you can see it in Australia in terms of the super gap and a lot of these gaps, you just need to start. So I'll, I'll get back to you in three years when she does have her own portfolio and see how it goes. But with all my kids and also with any investor who's, who's younger and maybe starting their investing journey. I am at the risk of sounding like Warren Buffett, you need to buy what, you know, a balanced portfolio. You know, he has Nike, which is not a good stock, but, you know, and he just buys stuff that he knows. And it sounds very simplistic, but it's much better than boring into stuff that you don't understand or where you don't have an interest that could be or becomes boring also. So, you know, a good starting point is buying what you know and what you like. They're their worst places to start. Then that. 

Felicity: [00:36:16] That's great. And what you're really interested in, right? Because that will potentially help you from selling off in a downturn and panicking. So that really helps. And when you know exactly what they're doing. So we just kind of pivot a little bit with the decarbonisation theme. Can you name a couple of businesses that you like because we obviously are very interested in future facing commodities, think that we're going into a commodity supercycle. You know, what are you looking at at the moment in this space? 

Mary: [00:36:45] So I would say two things. One is renewables. So that's why we own NextEra in the US in terms of wind and solar, it's now globally the biggest renewable utility in the world. And so that's the stuff that we really like on that front. And then in terms of future facing commodities, we do like EVs and the EV supply chain. So we own Mercedes as a sort of end user. We think Mercedes has a bit of a we and it has one of the best just transition strategies to go from ICE vehicles to EVs. And also, just given everything that's going on in the world and with the global consumer, that exposure to luxury that we talked about in the context of LVMH, you know, Mercedes is in that same basket in terms of not having price sensitive consumers. So Mercedes is a stock we like in terms of EV transition. And then in the middle of that supply chain, we do things like Samsung, SDI. As you know, a lot of the battery supply chain almost exclusively actually is in Asia. And so you have a couple in Korea, Samsung, SDI, LG Energy as a C innovation. And then you have the big one, Seattle, which is based in China. And there's quite an interesting geopolitical thing going on right now where a lot of those companies are being asked or suggested to move some of that supply chain to the US and Europe. So you don't have a redux of what's happened with semiconductors, where you have a huge amount of capacity for one product in one region of the world. And if you get a geopolitical issue in that region or you get another culprit or something like that, it can really mess up global supply chains. So Samsung SDI is our topic there primarily on valuation grounds. And because we like some of the customers that it has and then you guys know a lot about Lithium, we do own Albemarle, which is our pick in the lithium space, primarily because it's the highest quality global lithium company. There are some very good ones in Australia, but we are a global fund so we don't invest domestically and our world is our pick on lithium. 

Candice: [00:38:46] So interesting as so many good names are there, loving or loving, listening to all of that and the thematic behind it. I know you've mentioned so many great investable ideas, but are there three other or as many as you can give top global companies that you haven't mentioned? Just to kind of summarise why you're liking it as we head into 2023? 

Mary: [00:39:07] Yeah. So I think one that we like is waste connections. So when we've been talking about ESG and sustainability, it's been more on the decarbonisation side. But obviously there's, there's different parts to sustainability that aren't just about climate change. So waste connections and moving towards circular economies and recycling, this is a very important sort of sub somatic within sustainability. So waste connections are the largest, you know, recycler and waste companies, third largest in North America. And it's a stock, as we were discussing right at the beginning, that you're not betting on a certain outcome for the economy. If interest rates go up or if interest rates go down, oil price goes up. Oil price goes down. If there's different macro outcomes, people are still going to eat the trash picked up. And so that's one of the reasons that we like waste. Connexions It's a growth company, but it's relatively defensive. It's not going to fall off a cliff under different macroeconomic conditions. So that's the stuff that we started looking at for a sustainable fund, and it ended up being in a top ten position at one point as the top three position in our global core fund. One of the stocks that I mentioned briefly before but that I really like is MercadoLibre, and that's because it's not dissimilar to Apple in terms of the ecosystem conversation that we had. So we're kind of Libra. They both have fintech. So fintech consists of payments and credit and that by far the largest e-commerce platform in all of Latin America, and they have a record of anybody else, which is the delivery. And when you have that whole ecosystem sort of locked up, it's very difficult for another player to make any inroads. So Amazon is nowhere in Brazil. Shopee, one of their other competitors, have just decided to leave certain Latin American countries. So they are in a prime position and they have an ecosystem business model and they're in that earnings upgrade cycle. So that's the stock that I really like. We've talked about LVMH, so I won't mention that before, but I think luxury overall is still in a very positive space. In addition to LVMH, one stop where I'm just doing work is caring. So caring is the parent company of Gucci that's been a brand which is under a little bit of pressure, both from a design perspective, also because it has a lot of exposure to China and they just fire their old designer and they're looking for a new one. And as we've discussed before, China may turn around to 23. I think that's what could be interesting from there. And then another stock that we continue to like in tech. So from a portfolio construction perspective, if you don't own very many of the Fang brands, that there's a lot of percentages that need to be put elsewhere. So one stock that we do really like in technology is Fortinet. Fortinet is a company that's focussed on cybersecurity and certainly in the wake of everything that's going on in the world with certain cyber attacks and certainly, you know, the war in Europe, cybersecurity has really, really gone up. The priority list of a lot of businesses is going to be a beneficiary of that. So there's a few examples across different sectors and that comes back to what I was talking about in terms of diversification. I'll just pick one somatic and Chuck's ten or 12 stocks that are medical to the portfolio. We're diversified across lots of different sectors. 

Felicity: [00:42:17] So that's fantastic. And I hope everyone's listening to the end of this podcast because otherwise they're going to miss out on these fantastic ideas because we also really think that cybersecurity is an important place to invest in, and I guess somewhat recession proof and potentially even more so where there's constant attacks. What was our last one, which was Medibank. So, you know, constantly a problem. Now Mary, we have one very, very, very important question that we really like to ask all of our guests. Coffee, tea or tequila? 

Mary: [00:42:46] Oh, definitely coffee. 

Candice: [00:42:48] Coffee with a Gucci handbag, it seems. 

Mary: [00:42:50] Because as I mentioned, we just added Starbucks to the portfolio and as a result, talking about Starbucks in Australia because people have this visceral anti I don't like Starbucks coffee reaction. Yeah, so I do like Australian coffee. After living here for 13 years, I've become a bit of a coffee snob, so I'm definitely into coffee, not to not tequila. 

Felicity: [00:43:09] All right. Thank you so much for chatting with us today. That's been fantastic. Like very, very good insights. We're very lucky to have you on the show. 

Mary: [00:43:16] Thanks so much for having me. Look forward to seeing you again soon. 

Candice: [00:43:18] Thanks, Mary. Alrighty, well, that's a wrap. What a fantastic chat with Mary. Felicity for me personally. All right. She's sold me. I'm just going to keep holding onto my apple for the next couple of earnings cycles. Let's see what happens there. Now, before we sign off, please remember, although flashing our financial advisor sharing partners, as always, a discussion today does not constitute personal financial advice. You should always go out and seek your own professional advice and do your own research before you make any of your investment decisions. Our chat today is based on the facts known at the time being the 29th of November 2022. 

Felicity: [00:43:54] That's it. And look, both of those Alphinity funds sounded really, really interesting. And I really, really enjoyed her investment philosophy. So definitely ones that we need to look at potentially for our clients. Now, again, make sure you follow us on at Talk Money to Me podcast for daily market updates. And if you enjoyed it, please give us a five star review on Apple Podcasts or Spotify. Remember, if you've got any questions or you want to ask us anything, you can email us at tmtm@equitymates.com. We'll be back next week. Until next time. 

Candice: [00:44:24] See you then