Transcript
Mark Martyrossian (MM): Afternoon. Andrew. Pleased to see that your Global Strategy has started the year where it left off last year, with the NAV up over 8% and the index up just over 4%. We published the podcast about a month ago where you analysed how you produced 44% for your investors in 2024. Not a man to rest on his laurels.
You then went on to describe the prospects for this year, and it was the comments on those prospects that really got a lot of feedback, and that feedback was dominated by the T word (tariffs) and how your portfolio or the companies in your portfolio were going to be affected by tariffs, with 30% of your portfolio in Europe and Asia.
Can you address the T word?
Andrew Dalrymple (AD): Thanks. It’s actually surprisingly easy because actually the focus is very much on my both European and Asian exposure, such as it is, which is quite low, is very, very much on the domestic consumption theme. We have two holdings in India. One is Bharti Airtel, which is the largest mobile telephone provider in India with a 43% market share.
And of course, that is exclusively providing services to Indians. Zomato is the other one, which is the leader in the new phenomenon, which is Indian Quick Commerce. I won’t describe it fully, but it’s a way of distributing food, groceries, and things extremely quickly to customers in an urban environment. Zomato has led that trend for several years now and has done extraordinarily well. But it’s very, very much a domestically focused company.
And then the other companies in Asia, I’ve got two e-commerce companies, Sea Limited, which is the largest e-commerce marketplace in Southeast Asia. They basically are providing a conduit through which shops, providers of goods and services can reach more customers via the internet and doing extremely well. So they’re not making anything which they then sell to the Americans, unlike quite a lot of companies in Asia. And indeed, this is the focus of our Emerging Markets fund. And of course, we always buy stocks for the Global fund, which are owned by the Emerging Markets Fund, and as I say, the focus is on domestic consumption only and not into manufacturing and exporting.
And then I suppose just flipping across into Europe, where again, I have three holdings. One is Rheinmetall, which makes extremely good tanks, ammunition, shells, and other munitions. In great demand at the moment. More on that a bit later. It’s done extraordinarily well, it’s been my best performing share year to date. And then Safran, which does jet engines, basically.
And then finally, another one called Prisma, which is a relatively small Italian company which provides the wiring and backup and transmission networks for offshore and indeed onshore wind farms and solar farms and other renewable projects.
So no exposure at all to American exporters. And there hasn’t been a deliberate policy of mine, but it’s just the way the portfolio is set up at the moment. And it’s not going to change in the near future either
MM: Because the other 70% of your book is in the US. And this clearly differentiates Aubrey Global from a number of your bigger competitors in the UK running global strategies. But tariffs are a two way street. So how is your US book going to handle retaliatory tariffs from the rest of the world?
AD: Well, I mean, again, we shouldn’t sound too sort of smug about it. The truth of the matter is that almost entirely, my US portfolio provides its goods and services to Americans. And this has always been the theme of my American exposure generally, which is that you’ve got an enormous domestic market in America (300 million comparatively very rich people) and you don’t really need to be buying into companies that are exporting their goods and services widely around the world.
I have got a few, obviously, that deal in international markets. I mean, I own Amazon, I own Meta, I own Netflix, but the bulk of that business, in all cases, is very much on the American domestic consumer market. My own Facebook page. These companies all have fortress like balance sheets. It’s pretty hard to put a tariff barrier up against Meta, i.e., Facebook. You could obviously put some punitive tariffs and taxation things on Amazon. These are often being discussed and talked about, but by and large, the exposure to retaliatory tariffs, as you put them, is likely to be very small indeed.
That said, I do have one company called Shark Ninja, which makes modern kitchen appliances, air fryers and robotic hoovers and things that people like to have in the house. Beyond my ken, really. But anyway, that’s what they do. And they took a bit of a hit when Trump was elected because, of course, most of their appliances are sourced from Asia, from China and also surrounding countries in Asia. Because a lot of the China tariff avoidance has been to relocate plants into Malaysia, Vietnam, etc. So I don’t know how that will pan out, but the stock has recovered quite well from the post Trump election and it’s quite cheap anyway. It’s, you know, 22 times earnings, came to about 18 or 19 for the next year. And it’s not going to get massively derated in my view anyway.
MM: Okay. One or two people said the S&P, at its peak, had come under strain. Given that the majority of your portfolio is in the US, what’s giving you the confidence?
AD: Well, I mean, I think this sort of idea that you should sell something when it reaches a new high in the market is pretty much disproven as a good strategy. I mean, you know, markets reach highs and they go on and so forth. But there’s much more talk about valuation disparities. And certainly, there is a lot of truth in that. All of the American big-cap stocks, particularly tech stocks, do look quite overvalued compared with the ten year average, that’s for sure. I mean, I think that the Magnificent Seven are said to be about 30% premium to that ten year average. And so, you know, you’ve got to be a little bit careful there. I mean, I would sort of reply to that in some respects, but I think it’s justified because they have fortress-like balance sheets, balance sheets of small countries, for the most part. They’re generating huge free cash flow. They’re definitely spending a huge amount of that on AI and other things. That could prove to be a waste of money. Who knows? The jury’s out on that. But there are lots of reasons why they should be trading at a premium, I would suggest.
Now, if you go down into the mid-cap and the small-cap end of the market, I think the premium is about 4% for the mid-cap. And it’s actually about parity with the small-cap. I think my thinking is that if the US economy continues to be strong, which I think it probably will be, the bigger danger in some respects, I think, is overheating in America but if it continues to be strong, then I think the market will broaden out into other sectors and other smaller cap companies. And the leadership will probably still stay with those big fellows, but I think there will be even better returns to be made on the sort of next step down, and lots of good reasons, valuation wise, for making that switch.
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