Ben Wattam

Thanks, Adrian, hopefully, you can all see me and hear me. Now, when are you presenting at these sorts of things, usually, I’m quite relaxed about it but yesterday I was I was showing a survey of people who had been on webinars. The participants said that 32% on the survey, people had fallen asleep during webinars, and 20% said that they’re actually prefer to book an appointment at the dentist than sit through another one. So that’s a pretty low bar, actually, for us to beat. So as long as the feedback we get less than 20% of you have booked a dentist appointment off the back of it, I’ll take that as a positive outlook. So we’ll start with just a review of 2020. 2020 was pretty much unlike anything we’ve seen before and there’s some really big lessons that we’ve had from looking back at 2020. The first one is just behavioural finance. I’ve talked about it before, it’s so important to understand your emotions when investing, because we saw markets fall really aggressively back in March and emotionally, it’s actually quite difficult to deal with. It’s actually more difficult last March, because of everyone was so concerned about health and the health of your friends and family. So almost your investing often became secondary and I think even if you look to time this really, really well and got out of markets last early February, I would argue the more important part and maybe the more difficult part was actually to get to reinvest, we saw loads of clients, when we launched last April, May, June time, putting the brakes on. A lot of clients didn’t feel comfortable with investing at that point and it’s often that short term emotion that holds people back. Also, 2020 was a very strange year, from an economic point of view, and one of the strangest bits of data you can find is on bankruptcies. So this shows UK and US bankruptcies going back to the 70s and in the UK, bankruptcies fell by about a third last year and they actually had the lowest number of bankruptcies since the 1980s in the UK. Clearly the level of government support has been really positive. But it’s creating problems, it’s going to create issues for us, because there’s lots of companies now out there that I would call zombie companies that are only surviving because of the level of government support they’ve got. We need whilst it’s really hard and harsh, we really need bank companies to fail, for people to retrain for new companies to form. So we do actually need this kind of creative destruction to happen over the next couple of years. I expect bankruptcy to pick up quite strongly in the next couple of years. Now, as I kind of mentioned a little bit earlier that you speak to a lot of clients, and everyone’s really concerned about downside risk. Everyone’s really, really focused on how much could I lose? How much could I lose? What I think a lot of people need to be more focused on is, the potential of loss from not engaging in the upside. 2020 was a really good example of that actually, because we had some really, really strong growth in 2020. Now on the chart you can see on the screen, every blue and green bar on here is one of the assets held in our growth portfolio at the end of 2020. The orange bar on the far left is the total return calendar year for the UK equity market. The purple bar is the global equity market and the grey bar is our actual growth portfolio just calendar returns for the portfolio. The green bars are the holdings we have with technology assets and you can see the strong performance we had from technology in 2020. I want to point out the one on the far right, which was actually the best performing asset we held in 2020 in our portfolios. It’s the Bailey Gifford US growth trust. So going to the next slide, we can show you the pictures of it. So this is a listed company, listed in London and invests in the US equity market and public and private companies. The chart on the last year, the calendar return in green, the red line is the S&P 500. The blue line is the average peer performance of US equity managers. So you can see it was an absolute stellar year for this fund and you can see some holdings on the right. A lot of them you’ll know, the technology enabled businesses, take Shopify at the top if you’re like me and have done the odd impulse purchase on Facebook or Instagram in the last year, Shopify is usually the platform used to do that. They had profit growth last year of 88%. A business at the bottom stripe that you might not be aware of it’s a private company set up by two Irish brothers doing global payments, that’s now a $35 billion business that’s privately held. With Bailey Gifford US growth trust there’s actually quite a small number of holdings that produce quite a lot of that growth. That’s not actually uncommon. There’s this report that has been done in 2017, that shows the value created from the US equity market from 1926, to 2016. So this is 25,000 companies that were listed in the US over that period and there’s $35 trillion dollars of value created by those businesses. But interestingly, 90 firms, 90 companies of that 25,000 created half of the wealth of the US equity market. So very small number of firms actually created a majority of their value in the US equity market. You’ve got to be aware of capturing some of the upside in those really strong growth businesses, because it’s so important to try and capture that growth. Not everything did well in 2020. The red line is the UK equity market. So it’s down just over 11% in 2020. The blue line is commercial property markets in the UK, the green line is actually what we call value parts of the UK market. So that’s cheap areas such as things like oil and gas at the minute banking really struggled. What now, where are we going to this is a really nice little quote from Jerome Powell who is chair of the US Federal Reserve. I completely agree with him. The economies around the world are recovering, but their economy that we’re heading into is very, very different to the economy that we have pre pandemic. The economy we’re moving to is very, very different, you got to be aware of the changes that we’re moving into. And as I said earlier, we are recovering. We’re in a recovery period at the minute. Now, when we have economic recoveries, they often result in very bumpy market performance. Just look at some of the recovery years on this chart. So what this chart is the grey bars is the calendar returns from the UK equity market. Going back to 1986 The red dots is the fall of the market at some point during that year. So we take 2020 the UK market fell 12% but at one point, the UK market was down 36% with the red dots, look at the previous recovery. So just take 2009 as a great example. 2009 UK equity market was at 25%. At one point it was down 23%. Look at 2003 it was up 17&. At one point it was down 17%. 1991 is another great year, 15%. At one point it was down 12% is going to be bumpy but we generally think that over the next couple of years, we’re going to see strong returns from a lot of asset classes. So where are we investing? Unsurprisingly, one area that we really like is tech. Tech is changing, it’s becoming ingrained in our lives and I think a lot of technology it’s almost becoming common place, not really tech anymore. They used to be called virtual meetings and now just meetings, isn’t it? Cloud computing is another great area to to be investing in and it provides really strong growth, but it’s becoming the norm. So we really like tech, but it’s not going to be Apple, Google and Facebook of the world is going to be much further down and much broader. The environment is something you got to be aware of we’ve been investing with, we think one of the best teams that does this impacts since last April. This is taken from a letter by Larry Fink who is the Founder and Chief Exec of Blackrock. Blackrocks the world’s largest investor they’ve got just short of 8 trillion assets that they manage, take note of what the saying just read that last sentence, they’ve got a commitment to make sure their clients are invested in the right way. It’s coming, it’s already here, you’ve got to be aware of the changes that’s happening. The last area we like is actually the UK equity market. It’s been really poor. It’s been really weakened over the last few years, but we think it’s slowly turning a corner, the companies on the left have all been bid for in the last six months, most of them been taken over most of it by overseas buyers or private equity. They’re seeing the value in UK equity markets. We don’t think the public markets are seeing it yet, but we think it will come. The chart on the right shows the UK market against its global peers from a valuation point of view. So the UK market is now at a 30% discount to the global market, we think is too cheap. Earnings Growth in 2020-2021 is expected to be about 42%. So we think it’s going to be a good for years for the UK market.

I just want to finish on one area that’s a bit more difficult we find is actually for low risk clients because I think hopefully what I’ve portrayed is there’s lots and lots of areas we’re excited about for higher risk investing. The low risk is the difficult part. Now this chart shows investors expectations for interest rates over the next 30 years. The orange line is what the exceeds expectations were in March last year and the blue line is what the expectations are as of a month ago. You can see the expectations for the next five years is that we’re going to have negative interest rates, interest rates aren’t moving. But even going out 30 years, interest rates are going to be under 1% for the next 30 years, that’s investors expectations. That causes a bit of a problem because traditional low risk assets, Adrian spoke about it earlier, cash, government bonds, we think they can be quite a dangerous long term asset to have in the next 5 or 10 years because any sort of inflation is going to erode your real wealth. So we’ve been working hard to try and find alternative assets for low risk clients to build a cautious portfolio. I’m conscious of time. So on that I will pass back to Loz for a Q&A.