Investor Forum Autumn 2025

MARK ATKINSON: Well, good afternoon, everyone. Thank you very much for joining us at this investor forum. It's certainly been an eventful year. We've been bombarded with headlines ever since January, and I'm sure you're keen to hear how these have impacted the management of your portfolio. My name is Mark Atkinson. I look after investor relations for the company. We'll start today with a short presentation by Craig Baker and Stuart Gray from WTW. They'll be giving you an overview of the portfolio's performance and positioning, including discussing the manager changes that were announced to the London Stock Exchange last week. Then we'll hear from two of the underlying stockpickers, Jonathan Mills from Metropolis and CT Fitzpatrick from Vulcan. C.T. has travelled all the way here from Birmingham, Alabama, that is. The three presentations will be followed by a Q&A. And at that point, Dean Buckley, the chair of the trust, will join us on the stage. I should say that there are various other board members in the audience here today and if they want to raise their hands, but they'll all be mingling with you at the drinks afterwards. For those of you in the auditorium, we'll have roving mics for the Q&A. If you're online, you can submit your questions through the Q&A function on your screen. At that point, I'll hand over to Craig. CRAIG BAKER: Great. Thanks, Mark, and good afternoon, everyone. Another great turnout. Although Stu and I are not naive enough to think that you've come to listen to us, you've come to hear the stockpickers. But it does give us an opportunity to just update you on what's been happening in the trust this year. I'll kick off with an explanation of performance for 2025 to date, and we've got performance up to the end of September so just a week ago, and also, what's been going on in markets to explain that performance. And then Stu will dive into a bit more detail on what's been going on within our portfolio. But before I do dig into performance, I've got the obligatory summary of our approach. Many of you will have seen this slide many times before and heard me talk about it many times before, but it is important just to reset. It does give good context for everything we'll go through in the next hour or so. So just as a reminder, we are a truly global multi-manager approach. And we're essentially finding who we think are the world's greatest stockpickers and then asking them to run a highly concentrated, bespoke portfolio just for Alliance Witan made up only of their very best ideas. And then our job at WTW has got a few parts to it. So one is to identify who those great stockpickers are from all around the world. The next is to decide what weightings we should give to each of those, to come up with the perfect blend in the portfolio, so that stock selection will drive everything. We're trying to avoid big macro bets driving the portfolio and what stock selection to always be the reason for outperformance or underperformance in short periods of time. We then, on an ongoing basis, will be thinking about whether we need to evolve those weightings in order to think about managing risk in the portfolio. And occasionally, we do take the decision to replace one of the stockpickers with another stockpicker, if we think that's in the best interests of shareholders. So that's essentially how it works. Up here, we say what we think, that means the key advantages of this approach are relative to other global equity, trusts, or open-ended funds that you could invest in. So one, that high conviction only their best 20 ideas maximum. 2, diversification because we're blending managers that think about the world very differently. 3, competitive costs we use, both the scale of the trust and the scale of WTW to keep the OCR at a very competitive level. 4, exclusive access, we do actually get you access to managers, some of whom aren't available in UK retail space other than through Alliance Witan, but in every case, you're getting their best ideas portfolio that can't be got any other way in the UK retail space. And then finally, the board ensure that we continue this 58-year running streak of growing dividends for the trust as well. So that's the backdrop as a reminder. Let's dive into performance. The first thing I'll say for 2025 to date is that it's another year so far of positive, absolute returns over the period that we've been managing the portfolio, which is now 8 and 1/2 years, it's achieved a return of 115%. So it's a very strong absolute returns over any period you want to look at. However, relative to the benchmark index, so far, 2025 has been a very tough year for lots of managers, but for us in particular over this period of time. So to give you a feel for this, our return in the first nine months has been 3.3%, which is 6.9% behind that benchmark index. And it's about 4% behind each of the peer groups that we tend to look at for that nine-month period. So the first being other investment trusts that follow a global equity approach. It's a small number of those, it's only 11 including us. And then secondly, the much more representative Morningstar database of over 600 global equity funds that are out there. As we show on this slide, the vast majority of the underperformance this year has come from the third quarter of 2025. And actually, within that, a large part of that has come from specifically the month of September. And I'll come on to talk about the reasons for that. But it is important to say that that now means that since inception, that 8 and 1/2 years, we are now 1% per annum behind the MSCI All Country World Index. That's not where we aspire to be. We aspire to be well ahead of that. And over the course of the next 15, 20 minutes, Stu and I will talk about why we're very positive on the fact that we'll be able to do that going forwards. But it is worth, before I leave this slide, just pointing out that although it's been incredibly tough to beat that MSCI All Country World Index benchmark, that has been true generally. There are three other metrics that the board tend to look at as well to judge our performance that we talk about at every one of these, and the AGM, namely the equal weighted version of that index, more representative when the market has been very skewed to a small number of companies, and these two peer groups. The good news is that over three years, five years since inception, pick your time period longer than 12 months, we've significantly outperformed all of those. So let's dive into a little bit more detail of why there's been that poor relative performance over the first nine months of this year, and this chart tries to do some of that, but I'll put a bit more context around it. Ultimately, as you would expect, stock selection has been the reason for the underperformance. As I said before, we try and make sure that is the case, so that shouldn't be a surprise to anyone. But importantly, that's not because we've been owning a number of companies that have had profit warnings or done incredibly badly in their businesses, and that's reflected in significant share price drops. That hasn't been the case. In fact, the majority of our portfolios continue to do very well from a fundamentals perspective. Instead, it's because we haven't been invested in some of the things that have been on a real tear this year within the index. There's three groups of companies that I'd highlight that have really driven market returns this year that we've not had as much exposure to as the index. The first group is a bit like in recent years, some of the stocks that have done incredibly well for a number of years, some of those have continued to do very, very well. We've got two examples up here in red on the bottom five there, NVIDIA and Broadcom as examples. Typically, our long-term fundamental managers that we've got in place would be getting out of those stocks as their valuations get a bit more stretched. So not a major surprise that we're underweight some of those things. Secondly, which is a bit different for 2025 than the last few years, that there's been a lot of stocks from outside the mega-cap pool that are a bit more speculative in nature, that have done incredibly well this year often. Well, a lot of these have not been profit-making companies. Indeed, some of them haven't even been making revenues, and we'll touch on that as we go through. But they've been linked to themes that have been driving the markets, AI being an obvious one. Again, our long-term fundamental stockpickers tend not to be in the more speculative ideas. They tend to be in companies where they can see a path to revenue or profitability over the course of the next few years. And then thirdly, there have been some stocks driving markets that have been benefiting from fears of sticky inflation and hence, keeping interest rates high in the US. So things like US banks in particular. We've been pretty neutral in financials, as we often are. But we've had less in developed market banks than some other areas of the financials market. Essentially, we've been underweight momentum in a period where that's been the best performing thing to have. On the manager side, we've got up here how some of the managers have done. I mean, it's just a nine month period, but the manager that's been by far the worst performing of our managers this year is GQG, who have been pretty much the best performing manager in every other period I've ever stood up here when talking about the portfolio. Their underperformance alone accounts for about 40% of our underperformance this year. Ultimately, they rotated the portfolio out of some of the things that are done incredibly well for them and have become very defensive in their portfolio, in particular in the last six to nine months. Now, they may turn out to be absolutely right on that. And I'll talk through some reasons why there is some exuberance in markets. But at best, they're a bit early, shall we say. The other two managers we've got up here, one of which is Vulcan, C.T. can talk about his portfolio much better than I. This is just a nine-month period. Vulcan have done very, very well for us over a long period of time. SGA is the other one up there. They suffered from a number of software companies that got hit on the fear of AI taking over from them, despite those companies actually continuing to do pretty well in their businesses. Interestingly, as Stuart will explain later, SGA is no longer in our portfolio. Although them coming out of the portfolio recently was not a consequence of performance to put this in perspective. They've actually outperformed since the period they were in the portfolio. So I've now got a quick series of four slides that will give you a feel for what's been going on in markets and why we sit here actually really quite excited about our portfolio relative to if you were sitting, for example, in a passive portfolio looking like the market index. So I've shown this chart before. This is an independent assessment of how much uncertainty there is in the world, be it geopolitical, be it what's happening economically. And you can see that there's been an explosion of uncertainty over the course of the last two years, 18 months, in particular. Not normally a great backdrop for speculative companies with no earnings and generally not normally that great for equity markets as a whole. Yet a similar gauge on sentiment shows that sentiments are not far off highs, and certainly hasn't been falling in recent times. And then when you actually take it to global equity markets, you can see that momentum has really been driving everything. As I said before, a number of the companies that have done really well in share price terms seem to just keep going up as if there's almost no limit to their price. What's interesting is that there have been a few things just in the last two days that have been coming out. I've put up here an example of an FT article yesterday where the Bank of England were warning about some of the dangers to valuations, given the AI theme. And Jamie Dimon of JPMorgan came out last night talking about more widely, valuations in the US equity market and some concerns there as well. But this chart is really interesting. So over this nine months that we've seen in 2025, the average return here from loss-making businesses has been 25%, whereas for those making profits 9%. You can see that some of these loss-making companies have been driving markets. They're not the things that we want to be sitting necessarily hitting. I'm not saying that these are all going to be bad companies or that we have nothing in the portfolio that is interesting in that sense. What we're saying, though, is that there's a huge number of them doing incredibly well. They're not all going to be winners in their respective areas. I've just given three examples on the left-hand side. I could have picked quite a few. The one I'd pick out is on the bottom, not because it's up nearly 400%, but because not only is it not profitable, it hasn't actually made a single dollar of revenue yet to put this in perspective. Now they're all following an AI theme or being able to be linked to something like that. On the right-hand side, I've just given examples of stocks that are actually in our portfolio that have continued to do well business wise. And just because the market either isn't focusing on that area or just thinks, well, they're not doing as much in AI, so therefore they're a threat to AI, they've actually seen some share prices come off despite their businesses continuing to do well. So we sit here today pretty comfortable about our portfolio in that it's made up of businesses that are pretty robust, in that they're not just about one speculative theme, which may continue for a while. But if it turns down, that certainly won't hurt our portfolio. And generally, these are businesses that would still do relatively well if there was some kind of market turn as well. I shall hand over to Stu at that point. STUART GRAY: Great. Thank you very much, Craig. And good afternoon, everybody. So talking a little bit more about the portfolio in detail, I'll try and rattle through this so you can hear from the stockpickers. But we're showing the top active weights in the portfolio currently. There's a few things to say on this slide. But the first thing I normally say is that when you talk to an individual stockpicker, they'll always show you their top 10 or 20 stocks and say, these are my highest conviction positions, and these will really drive the performance of the portfolio. But remember that in Alliance Witan, we asked our stockpickers to only invest in their top 10 or 20 stocks, and hence, every company in Alliance Witan portfolio is one of the very highest conviction ideas of our stockpickers. So Alliance Witan is very much about the whole portfolio, not just about the top 10. Nevertheless, we show you the top 10 positions. A couple of things very quickly, you can see that companies like NVIDIA, Broadcom. These are companies that we've owned in the portfolio in the past. We've been overweight in the past. But as Craig described, our stockpickers have generally been taking some profits as these have appreciated in value very considerably. So we've now got quite a lot of underweight to some of these large US companies. Conversely, you can see a couple of names that are big positions, big active bets in the portfolio that are not your typical active bets. So whilst we still own companies like Microsoft and Meta and Amazon, our biggest active weights are in companies like Everest or in Progressive or Diageo. And I'll let C.T. and Jonathan maybe talk about this a little bit later in the session. I will spend a bit more time talking about managers. So this is our manager lineup that you all have seen several times before. Again, as Craig described, our role is to make sure that we have the best stockpickers in your portfolio at any given time. So we have a whole roster of stockpickers we rate very highly. And our goal is to get the best stockpickers in the portfolio that fit best together. We evolve the portfolio gradually. And every time we make a change, we're trying to make the portfolio better. So, as you may well recall, about a year ago, almost to the day, we made a manager change, we brought in EdgePoint and Jennison. And if you remember, EdgePoint we brought in, they go down the cap spectrum. They find some deeply undervalued companies in the smaller cap space when the whole market seems to be focused on large cap tech. We think they're bringing some fantastic opportunities and they've been doing a great job in the last year. Jennison we brought in because they focus on growth companies that are accelerating their growth rates. As you can imagine, given what Craig said about momentum in this market, they've been a great addition to the portfolio and they've been one of the few managers doing very well in this recent environment. And if we roll forward to today or perhaps last week, you'll have seen the announcement that we brought in two new stockpickers. So we brought in Artisan Partners and Brown Advisory. So again, we're trying to improve the portfolio and bring something new to the lineup. So I'll talk about what they do in a little bit more detail in a second. Brown tends to focus on large cap quality companies. They replaced SGA. Artisan value manager, they're replacing ARGA. So we're making that trade because we have higher conviction in these two managers and how they're positioned and the ideas they're bringing to the portfolio for going forward. Very quickly, on the point about allocating capital to these managers. Again, you may recall that we typically rebalance very occasionally. We know that managers go through cycles. Sometimes they're outperforming, sometimes they're underperforming. No one outperforms all the time in a straight line. So typically when managers outperform for a period, we tend to trim some capital away. And typically, if managers are underperforming, we'll add some capital. And that helps us maintain some balance in the portfolio and hopefully, gain from some of those cycles through time. This year, though, because momentum has been such a strong driver and because we're seeing such massive divergence now between outperformers and underperformers, these boundaries are widening. And so we're widening a little bit our boundaries around this rebalance approach. So we actually have not been very aggressively rebalancing the portfolio because of today's market momentum. So it's a balance between applying discipline to the portfolio. But doing that in the context of the environment that we're in today. So there's your slide, Craig. I'll come back to that one. I'll talk a little bit about Artisan and why we're bringing them in. So as I said, value investing philosophy. But Dan and Mike based out in Milwaukee, they've been managing global value portfolios for a couple of decades. Dan has more than 30 years experience. He has around 20 years experience having founded his own value investing franchise with Artisan, a couple of decades as a PM, not just as an analyst in a portfolio, as a lead portfolio manager on his strategy. He's running north of $30 billion. He's been very successful for a very long period of time. Bringing that experience to the portfolio today in a market which has as much noise as we have right now, I think, is very important. Also, his focus on the US, he is a global investor, but he has a bias to the US in this portfolio. Everyone says the US is an overvalued market. It's all about growth. Actually, there's a lot of opportunity in the US. It's a very deep market. There's a lot of companies. Dan is finding some really undervalued businesses that are good quality companies but undervalued in the US. And that's really compelling for the portfolio today. Brown Advisory run by Mick and Bertie. Their focus is on quality companies. Now it's hard to describe a quality approach with it's sounding quite similar to most other quality approaches. They're looking for high and sustainable return on investment capital. Companies that have got good barriers to entry or some moats, that means they can sustain high growth rates for long periods of time. What makes Mick and Bertie a bit different? Two key things. The first thing is their focus on customer loyalty. So when you think about all the barriers to entry that companies have. Their focus is on, why does a customer keep coming back to this business to buy their products and services again and again and again? If you have customer loyalty, if you're doing something unique that makes your customer come back, you have that loyalty, you have pricing power. And that's very important in an inflationary world. So in an increasingly unstable, uncertain, and potentially more higher inflationary environment, we think Brown is going to bring some ideas which are really important for the portfolio going forward. So very excited to have those two new stockpickers bringing ideas to your portfolio. Sorry. I'm going to do my outlook and then I'm going to go back to the slide we skipped. So outlook. Very important to reemphasize this point around uncertainty remaining high, yet market sentiment and market momentum is very, very strong. And I think that makes sense to a point. AI is transformational. It is growing very fast. It is accelerating. There is lots of reasons to be positive about AI. But the question mark is around how quickly the market is moving. And just by how much and where these valuations are today versus the long-term certainty about some of these companies. As I said, in a market where there is an incredible amount of noise, our conviction comes from the fact that we have stockpickers in the portfolio that have decades of experience as professional money managers. They have skills that are very high quality. They know what they're doing, and what they do is to understand businesses and to value companies, and they are good at what they do. In the portfolio, we have companies with strong fundamentals. The fundamentals, I think, are stronger than the market and certainly not being well-reflected by market pricing today. So we're very cognizant that some of this optimism has come at the expense of some recent short-term underperformance. But the opportunity it's creating in the portfolio today is really quite significant. And that's the point at which I'm going to jump back to this slide, which just shows the performance of the portfolio over different periods, 1, 3, 5, and since inception. And it's breaking down the returns of the portfolio by what is driven by the fundamentals of the companies growing through time versus how much is coming from the price of the portfolio in the market. So the dark purple bar is really the growth of the fundamentals and the fundamentals of what drive share prices in the very long term. And what you can see is particularly recently, but over all periods, the fundamental growth of your portfolio has been stronger than the market. And this, again, is where our outlook and our conviction in the portfolio comes from, which is we have great businesses growing their fundamentals and we think they're deeply undervalued. And at that point, I'm going to hand over to our stockpickers to tell you more about that. Second of all, we're going to hear from C.T. He'll describe his approach to investing-- value investing all the way from Alabama. But I'll hand it over to Jonathan, who's come all the way from Amersham, just outside of London if maybe you're more or less familiar with that than Alabama. But anyway, Jonathan, let me pass over. Thank you. JONATHAN MILLS: Thanks to you. And thank you for inviting me to present here today. So my name is Jonathan Mills. I co-manage the Metropolis Value Fund with Simon Denison Smith. I've known Simon. I've worked with him and invested with him for 35 years. We first met at Bain and Company, the strategy consultants. And after advising companies for four years, we set up businesses ourselves in the software industry and the media industry. We grew those businesses by organic growth and by acquisition. And the acquisitions, we made 30 of them over that period. And in 2008, we moved into public markets. We transferred the skills that we developed in private markets into public investing. So we think that background is as a business, builders, founders, buyers, and investors is different. We do very detailed analysis on the companies we invest in, just like we did when we were buying whole companies. We do a private equity style of due diligence on them. And we have a long-term mindset. So we think about businesses as if we're going to hold them forever. Our holding period is actually five years in public market equities, average holding period. It's low turnover strategy. In the past year or so, we've outperformed the market despite having low exposure to the Mag Seven. The two that are biggest detractors, Diageo, which was on the list earlier, and Kubota have been hit by a Trump trade tariff issues. We think that's overblown in those cases. Overall, our approach finds high-quality businesses which are undervalued, underpriced for particular reasons. We categorize those reasons under these four headings. So the first, golden nuggets in muddy waters. These are industries that generally have poor economics. The average company in one of these sectors wouldn't be a good investment long term. But we've invested with exceptional, high quality companies that have always gained share in those sectors and will do well in the future. The second category, cyclical market leaders. So these are industries that may be out of favor. But again, we're investing with market leaders. They gain share during downturns. And these industries are not going away. We can normalize through the cycle. The third category of companies, these are companies that look like they're superficially fully valued. But when we look at the long-term drivers of their success and future success, we can see that the market is actually undervaluing their growth. And then finally, there are companies that have slowed down and they've been punished by the stock market growth. Investors have given up on them, and they're now trading below their intrinsic values, below their discounted cash flows. This is the other way we look at our portfolio. On the vertical axis, you've got the one year forward multiple against free cash flow. That's essentially the price that they're trading at in the market. On the horizontal axis, you've got the annual growth rate of cash flow that we're modelling over the medium term. So the solid line is the line of intrinsic value, fair value. Given our discount rate, that represents the price you should be willing to pay for a company growing its cash flows at those percentages. Obviously, you should pay more for businesses growing cash flows more. Anything above the line is overvalued. We've put Oracle on there. It was in the portfolio for over eight years. We sold it recently. It's way above what we think is a fair value for Oracle. It's on the watch list. It would need to come down to get back into the portfolio. By definition, our portfolio is below that line. What this is really showing is that we're looking for value across the growth spectrum. So a traditional deep value manager will only look on the left hand side of this chart, because that's where you see the low price earnings, price to book ratios. We think it's possible to find value across the growth spectrum. It's more difficult as you move to the right hand side. It's maybe more quality there and typically, less value but there are examples of value. So in a moment, I'm going to talk about these two stocks, which are two of our more recent stocks and two of our more undervalued stocks. We track the intrinsic value of our portfolio over time. This is a bottom-up analysis that comes from the valuation models of each of the businesses. Our aim is always to grow that over time. The market value obviously is what is in the price in the market at the moment. That gap is the margin of safety. That reached a very high level in October 2022. And our performance subsequent to that has been very good. At the moment, it's still above average. So that bodes well potentially for the portfolio. This shows the characteristics of the portfolio. It has a high return on equity than the index, which represents quality. It does that with less debt, so less risk, in that sense. It trades on a lower PE. And also, in terms of revenue growth, the portfolio is growing at about 11% year-on-year revenue growth. The market, S&P, is growing at about 5% to 6%. So we think that combination of characteristics is very positive. So the first company I'm going to talk about is Whitbread. It was founded about 300 years ago, just short walk from here. For most of its history, it was a brewer and a pub owner. Today, it's got one very dominant brand, Premier Inn. Can I ask the audience who here has stayed at a Premier Inn? That's a pretty big majority. It also has these smaller brands, which are food and beverage brands, which essentially support Premier Inn. They're usually attached to the hotels. So Premier Inn, so Whitbread rather was the owner of Costa Coffee until just before COVID. It built that up from scratch and it sold it to Coca-Cola for 3.9 billion, a very good deal. When you look back at how it was 20 years ago, it was primarily a food and beverage business. Costa would have been in there. Now, its vast majority is room revenue. That's 72% revenue is actually about 90% profit. 90% of the profit of the business is coming from Premier Inn. And it's coming from Premier Inn UK, where it has 840 hotels. It also has 60 hotels in Germany. That's the startup business for it. And it's not making any money yet. So focusing on the UK Premier Inn business, you can see that it's primarily a domestic market. It has less business from inbound travellers. And it's also a more business-oriented market. Half of its room nights are sold for business purposes rather than leisure. Over time, it's been relentlessly gaining share along with the other branded hotel chains. And this has been at the expense of the independent hotels. It's incredibly difficult to run an independent hotel in the UK now. I was speaking to one just a few days ago, independent hotel in Harrogate. And he was saying that given the increases in the cost of labour, the amount of money they have to pay to the booking companies, it's basically impossible to make a profit. His business has been for sale for some time but he can't find anyone to buy it. And so the number of hotels, that's completely normal in the industry, the number of independent hotels is declining all the time. Premier Inn, when you look across the globe, is quite unique. There's no other company we found with such a dominant hotel brand in a single market. It's also got a very unusual business model. Most of the hotels that you see that are chains are not actually integrated at all. You have a company that does the property development, another company or individual that owns the hotel asset, the real estate. You have a brand that may be licensed from Hilton or Marriott or one of those kind of companies. The hotel is operated by another company that actually employs the people that work in the hotel. And a lot of the business comes in from the online booking companies like booking.com and Expedia. Premier Inn, as I say, is different. It has its own property development. It owns the majority of its freeholds. It controls the brand, markets the brand. It also employs all the staff, and it's very good at running hotels. It has a really good focus on efficiency. And importantly, it does all of its own distribution. It sells all of its hotel rooms itself, almost all. So in terms of the property, the fact it owns half its property gives it some advantages. Firstly, it means it pays less rent. So in a downturn, it has protection. It can do sell and lease backs when it wants to raise money, if that's sufficient. And it also has a very strong covenant. So when it is signing leases, it's always a preferred bidder on properties. Coming to that distribution, the selling of the rooms, Premier Inn essentially gives no money away to the online travel agents, the booking.coms. An independent hotel would give away 20% and a lot of their business would come from that route. So on 100 pounds of room night revenue, they may be giving away 14 pounds, whereas Permier Inn is giving away 10 pounds. It has a very well-respected brand, both in terms of value and quality. It's typically regarded as a four-star experience at a three-star price. We did our own analysis of this. We looked at 50 Premier Inn hotels and compared the Google results, the ratings on Google Maps to their nearest competitors, those hotels within a 15-minute drive. We found that they were generally more highly rated. And interestingly, the ones that we found that were lower rated, we spoke to the company about and they were able to immediately explain why. And it's because they were hotels that were tired that needed a CapEx refresh. So it was reassuring that there was a very obvious reason and they were on top of that. So Premier Inn in the UK, currently, 86,000 rooms. They can see-- they've got a pipeline to get them to 98,000. And they have a plan filling in the gaps in the map to get to 125,000. So there's a lot of growth there from organic growth within the business. In terms of valuation, it's trading on a low multiple of normalized free cash flow, about 11 times at our purchase price. And it has a lot of property backing. The value of the properties that they own is about the same as the enterprise value of the whole business. So why is it undervalued? Well, people are concerned about downturns in the economy, potential recessions. We always look back over time. We like to invest in companies that have a long history, so we can see how they've done in past recessions. When you look at Premier Inn in the GFC, it did go down a little bit, but it wasn't much and it bounced back quickly. The key is that it's a budget hotel chain, so people often downgrade to it if they're trying to save money. So overall, you see a business which has got a unique vertical integration. It's got very big scale advantage compared to its competitors. It's got direct distribution, which saves us a lot of money. It's a leading and trusted brand. And it's got a very strong balance sheet. The second company I want to talk about is a bit further away from us, in terms of its headquarters, at least-- HCA Healthcare. It used to be called Hospital Corporation of America. So you may think that the US would have the vast majority of its hospitals would be profit-making hospitals. They're not. Only about 20% of hospitals in the US make a profit. 80% are non-profit. Of those, about 20% owned by government, state or federal, and 59%, the vast majority, are owned by foundations, attached to universities, local charities, that kind of thing. Now, critically, the for-profit hospitals, because of their scale and efficiency, operate at a lower cost. The inpatient costs at those hospitals are significantly lower, significantly lower than the nonprofits. That means that they can make a profit while still serving customers at the same price. So HCA was founded in 1968 by the Frist family, who are actually doctors. It has 191 hospitals across the US. It also has seven hospitals in London and another one elsewhere in the UK. It operates in 20 out of the 50 US states. It has over 2,000 other treatment centers attached to hospitals. It's really a significant business. It's $100 billion market cap business. And to give some scale to the operations, it has 50,000 hospital beds, which is about the same as Sweden, Denmark, and Norway combined their entire health systems. Its market share across the whole of the US is only 6%. But when you look in the locations that it's based, it's 27% And that concentration, that local market share is very important. So it gets about a third of its revenue from Medicare. Another 11% from Medicaid. That's all government funding. It has no ability to negotiate price on that. It's told the price of every procedure and it has to either operate, do the work at those prices or not. It makes money by being more efficient than its competitors. But on the 50%, which is the commercial insurance, it can negotiate higher prices and smaller hospitals because it's so important in its local areas. It can't be left out of insurance plans. Everyone knows that demographic trends in terms of aging are good for the healthcare industry. It's obviously more expensive to look after older people than younger people, so it benefits from that trend. But it also benefits from another trend because it's located in states in the US where the population is growing. About half of its business is in Florida and in Texas, which are growing their populations very steadily. Forecast to grow over 1% a year for the next 20 years. Comparing it to its competitors, its nearest competitor, commercial competitors, Tenet, it's over three times larger. That gives it a significant margin advantage as it's spreading its costs over a wider revenue base. So why is it viewed view negatively at the moment? Well, essentially it's two legislative Trump-related issues-- the reduction potential reduction in Medicaid in the Big Beautiful Bill and the rollback of extra subsidies in Obamacare that Biden brought in. In fact, these are the two reasons right now that the US government shut down. I didn't realize when I decided to present this that this would be the cause of the government shutdown, but it is. Because the Democrats have dug their heels in on these two points. They've dug their heels in because it's such a popular issue. So we've also quantified these, and they represent a very small percentage of revenue. They are in no way a catastrophe for HCA, even if they go through, as Trump has suggested. There have been many changes to the US healthcare system over the last couple of decades. The Deficit Reduction Act was potentially a big threat. Obamacare, the Affordable Care Act, that was a potentially big threat. There was Trump first term. It was COVID. But throughout that time, HCA has grown its revenue and also grown its profits. That's turned into an exceptional share price performance. On a total return basis reinvesting dividends, its share price has gone up 17 times since it floated in 2011 compared to the market, which has done very well, but it's only up four times in comparison. The Frist family still owns 30% of the business. So we like that. We like it when there's owners that have a strong share in the business. The chairman is from that family. He's the son of the founder. And the CEO, who we've met, we think is exceptional, he's been in the business over 40 years, and he himself has a half billion share in the business now. It's been built up over time. The CFO has been there for over 30 years. Very impressive management team. They buy back shares on a very systematic basis. Very strong capital allocation. And they also apply that strong capital allocation to their expansion. When they buy hospitals, they buy loss-making hospitals, usually for more than the build costs. And then they turn them into profitable hospitals by bringing in all the cost savings that they can bring in. So you've got a leading player in an industry that's got secular growth. It's got high margins, an excellent track record, very strong management team. It's also got a strong balance sheet. We bought it at a trailing PE of 12 times, a very low, low valuation. So why? Well, one reason is that, of course, the things I've just said about the threat from Trump and legislation. But the other reason is that it's not seen as an AI company. But actually, when you talk to the management of HCA, they employ data scientists. They apply a lot of data analytics to their business, because what they're trying to do all the time is to look for sources of competitive advantage within their business, benchmarking across the different hospitals. What's this hospital doing that's better than this hospital, and they can spread across the whole network. That's how they drive the efficiency in their business. And so AI is actually potentially hugely beneficial for them because it helps them to analyze their data more efficiently. Thank you. [APPLAUSE] CT FITZPATRICK: Well, thank you. It's a pleasure to be here today. Just some brief information, a brief introduction to our firm. Everybody's been very kind to tell you a little bit about us, but as has been noted, we're in Birmingham, Alabama, very different than Birmingham, England, if you've never been there. But we are named after Birmingham, England, which we're very proud of. We have 43 employees. We have 14 members of our employees or on our research team. So we're research-centric. 21 of our employees are owners in the company. We're very proud of that. We currently have about $6.5 billion under management. And now the most important thing on this page is the last statement. We are value investors. When you think about value investors, you think about people who are looking for discounted securities, cheap stocks in the vernacular. However, we do not. We're value investors, but we do not look for cheap stocks. We look for businesses with inherently stable values. Most of those businesses are overvalued by our math most of the time. However, from time to time, enough of them become discounted to help us form our portfolios. So when you take those two things in combination, we call it our dual discipline, where it's disciplined in the types of businesses we'll buy as we are in the price we're willing to pay. So we want to own businesses over our five-year-plus time horizon. Whenever we make a decision, we're viewing it through the lens of five years. Not next quarter, not next year, but what are the next five years going to look like? I can't tell you what the next five years are going to look like for very many companies. For the companies we own, we have a high degree of confidence that they're going to become more competitively entrenched, produce free cash flow, and steadily grow their values over our time horizon. So if you're going to have a long-term time horizon and you're going to hold things for a long time, it's critically important that the values be stable over that long-term time horizon. We don't want to buy something that's statistically cheap at a point in time, but then something happens. And yes, it was cheap, but the value itself was unstable. And you turn around a couple of years later and you've lost money. Things didn't work out the way you thought. Not because you made a mistake on the front end, but because the value itself was unstable. So as value investors who focus on value stability, we can take advantage of stock price volatility when it occurs. And I'm going to go through some examples of that in a second. But we like stock price volatility. By limiting ourselves to stable value businesses, we can take advantage of stock prices when they are volatile. So I'm pleased to be able to tell you that we've enjoyed double-digit returns recently and actually, over the long term as well. But since January 1, which is the time period we were asked to comment on of 2024. We've been up in the mid-teens. We're very happy with that. Key contributors, Microsoft and Amazon. I'll talk more about all these names later. Key detractors, LVMH and Skyworks Solutions. Oh, and you know what? I think I am not-- there, sorry. Now you can now you can see. OK. So the next slide is our portfolio. This is every name in the portfolio. I'm going to go into more detail about some of them later. But our largest position is Microsoft. At the bottom of the portfolio, our smallest position is Visa. Other names, second largest position, Everest Group. I'm going to spend some time talking about that. That's something we bought almost exactly a year ago. Followed by Amazon, Alphabet, UnitedHealth Group, another new purchase, CoStar, TransDigm, Salesforce, CBRE, Ares, and Mastercard, and then again, Visa. I'll talk more about Mastercard in a little bit. Portfolio activity. What have we done since January of 2024? If you look at this, we're five-year investors, but you'll see some things that have come in and out of the portfolio fairly quickly. First one, Live Nation. We bought this and have it held it nearly as long as we intended. And the reason is a good reason. The stock has rallied really hard since we bought it. We paid, we think, around $0.50 on the dollar for this business. Half of what we thought it was worth. The stock's gone up an awful lot. And it simply got very close to our estimate of fair value. As value investors, when something reaches fair value, we don't want to own it anymore, no matter how much we like it, because we no longer have a margin of safety. So we exited that name and used it very importantly to buy more discounted names in the portfolio, which I'll talk about in a second. LVMH, we did not hold that very long. We intended to hold it for a long time, but we had a lot of volatility with tariffs, which I'll talk about in a second. And with that volatility, as much as we like LVMH, we actually had other opportunities to buy even better businesses at even larger discounts, which we did. Other names that we purchased during this time period, CoStar Group. They provide-- they're the leading provider of data analytics to the real estate industry. You talk to-- I mentioned CBRL. CBRL is the largest real estate services company in the world. You see their signs around London, you see them around all over the place, literally all over the world. They manage buildings. They lease buildings. They buy and sell buildings. And they are a typical client for CoStar, as is more locally, Savills, which of course, is headquartered here in the UK and does the same thing, but it's a much smaller company. Wonderful business model. We're really pleased to be able to own that business. Everest Group, I'm going to talk more about that in a second in some detail. Recent purchase, Ares Management. They're an alternative asset manager. This is a company that specializes in credit. That part of alternative asset universe is growing faster than private equity. Wonderful business, thrilled to have the opportunity to own it. And then UnitedHealth Group, which I mentioned. We're very pleased to add that to the portfolio. We think at a very attractive price. Names exited. I mentioned Live Nation and LVMH. General Electric, we exited over a year ago. General Electric was a fantastic investment for us. I wish I had a lot longer to speak about it, but that was a company that had had fallen on hard times. It had been one of the stable value companies we would own, and we call these businesses our MVP list. We won't own anything, not on our MVP list. We took it off the MVP list over a decade ago, because the company had fallen on hard times and just frankly, been mismanaged, and its value became unstable. There was a big change in management about four years ago. And they started righting the ship and fixing it. The company improved itself dramatically. And it became-- the value became stable again. We had the good fortune to add it to our MVP list right before COVID hit. After COVID hit, it was down about 50%. Half of our estimate of fair value. We were able to buy it during COVID and then sold it. A fantastic investment for us about a year ago. KKR, another alternative asset manager, similar to Ares in some ways, but a lot bigger. We own that for about 6 and 1/2 years. It was a fabulous investment. We paid less than half of what we thought it was worth when we bought it. The value itself compounded at a mid-teens rate while we owned it for 6 and 1/2 years, compounding the value year in, year out at mid-teens rate. That's amazing. We got that plus the price to value gap closing. That was a great investment for us. Skyworks was not a great investment for us. And we would have continued to hold it. But we had other things in the portfolio that we wanted to buy even better quality companies at larger discounts. So we sold that. Carlyle Group, another alternative asset manager. It worked out really well for us, not as well as KKR, but we had solid double digit returns owning that. Held it for about five years, and we exited that to allocate capital to other wonderful businesses that are more discounted. The portfolio, as a result of all these things that I've just kind of gone through pretty quickly. Our weighted average price to value ratio, that is taking every business that we own and looking at its current stock price and dividing that by our estimate of intrinsic value, and then weighting it by the weights in the portfolio, weighted average present value, is approximately 70%, that's $0.70 on the dollar. 70% of our estimate of fair value for the whole portfolio. And that is despite double digit returns. You would think that if the returns are mid-- call it mid-teens kind of returns, if you're up that much, your values can't be up that much. So your price to value ratio should not be as attractive. The good news is good performance. The bad news is future performance won't be as good because your price to value ratio is not as attractive. And more importantly, you don't have the same margin of safety. Well, because of reallocating capital from these more fully valued businesses to the more undervalued businesses following our discipline, we've been able to maintain the price to value ratio at that 70% level, which we're very pleased with, and that's in a market that is not particularly cheap. So we're really happy with that number. A lot of work went into producing that. We have increased our exposure with respect to insurance and health care. We have decreased our exposure with respect to payments. Visa and Mastercard prices have gone up more than their values. We've reduced their weights in the portfolio as a result. And alternative asset managers. You notice that we bought Ares, but we've sold two other names, KKR and Carlyle. So net-net. While we still like that, we still finding opportunities in that area. Our exposure is down from where it was. And our exposure is also down in aerospace. Given our bottom-up investment process, we don't invest with a theme. We don't look at things and say, gee, we think health looks good, let's go find some health companies. However, themes will develop and I think health care and insurance is a theme, I guess, is developing within our portfolio, but that's from just doing the bottom-up work, name by name, and finding those opportunities. OK. Everest Group, this is a name again that I mentioned that we purchased about a year ago. Thrilled to own it. It's a company that we've owned for maybe 15 years or so and some of our other portfolios. We got completely out of it about four years ago. And about one year ago, we had the opportunity to buy it again. Everest group started as a small cap company. It grew into a large cap company. It's now one of the top five reinsurance companies in the world located in Bermuda. Insurance is an interesting business. It is more management dependent than a lot of other businesses we look at. A good management team can create tremendous value and a bad management team can destroy value equally significantly. It's really all about capital allocation. These are financial institutions that have a lot of capital, and how it's allocated matters very, very much. And the key is underwriting discipline. It is the key differentiator. Some companies write at a profit, and they're very valuable. Some companies write at a loss. They still have value, but they're not nearly as valuable as ones that operate at a profit. If you think about your own personal experiences, we all have insurance. You pay your premium. You hope nothing bad happens. But if something does, the insurance company will cover some catastrophic event. What happens is they get to hold that money for a really long time and invest it, and they earn a return on it. Many companies operate with an underwriting loss, but the cost of that is low in relation to them going out and just borrowing money. Said simply, they can have an underwriting loss and have a low cost of funding and still earn more on their investments than they're paying out in losses. But those losses are real liabilities. The claims that they have, the reserves they have to set up to pay claims should something bad happen, they are real liabilities because they do have a cost. On the other hand, a company that can write these policies and produce an underwriting profit has no economic cost for their liabilities. Think about having a mortgage on your home, but instead of you paying the bank, the bank pays you. That economically is what happens to an insurance company that has an underwriting profit. It should be worth a big premium to book value, because the book value is understated from an economic point of view, there are no liabilities. Everest Group has produced underwriting profits on average for many, many years. Now, they have a reinsurance business that's called long tail insurance. You don't what's going to happen for a really long time. They also have a primary insurance, which is shorter tail. So the results do bounce around year to year. But on average, if you average it out, they operate at a profit. The company maintains a strong balance sheet, and it writes aggressively when markets are hard, meaning that prices are attractive compared to the risk that they're taking. And they have a discipline to pull back during soft markets when pricing is low compared to risks. The stock market tends not to this because it creates a volatile earnings stream. Instead of growing revenues and profits consistently, they'll pull back when it's not profitable to do so. That enables your balance sheet to strengthen while competitors continue to write business that ultimately turns out to be bad. Those competitors inevitably get into trouble. They have to pull back capital. If they lose money, every steps into the breach when prices rise with the strong balance sheet, they have the capacity to do so. And they grow their value tremendously. When the stock pulls back and it's cheap like it is today, they take that capital, their free cash flow, which they have a lot of and repurchase stock. Today, Everest Group is trading at a discount to tangible book value. Theoretically, you could take all their assets-- and it's not even really very theoretical that most of their assets are in bonds. You could take all their assets, liquidate them, settle all the liabilities, and the surplus or tangible book value you could distribute to shareholders. That would be-- and that would be what you would do if you were just earning no money. There was no economic return. But they earn a lot of return. Remember, they have an underwriting profit. So they should be worth, in our view, when you run the math back on all that, at least two times book. They're trading at a discount to tangible book value. The company knows this. They're very smart about it. And instead of writing a bunch of aggressive policies right now, they're taking that capital and repurchasing their shares. Because the return on that, if you think about it for a second, is 100%. Every dollar they spend, they're paying $0.50 for. So we have an immediate 100% return on every dollar of capital they spend. Now, the stock has gone nowhere since we bought it. We've owned it roughly a year. I think it's down approximately 9%. Guess what we're doing? It wasn't the second largest position in the portfolio when we first bought it. Now, it is. We keep buying more because it's one of the most discounted names. And the price-to-value ratio keeps improving because the price is going down, it's hurting us in the short run, but the value is compounding while we're waiting through great capital allocation. So we're thrilled to own this business. It's the kind of business that we would like to own forever. We've had great success in the past. We think it will be successful in the future. Next business I want to talk about is Mastercard. This is a business that we bought during the financial crisis. I mentioned, we own Visa as well. I mentioned their weights in the portfolio, among our lowest weights now. The price has improved. The price has gone up a lot more than the value. Everest is the opposite. Its price is down, its value is up. That's why Everest is a larger weight and Mastercard is a smaller weight. We actually have used proceeds from Mastercard to buy more Everest. But Mastercard is a wonderful business. It's one of the largest payments companies in the world. They basically have a duopoly with Visa. American Express is in there a little bit. But competition between these two giant organizations is rational. They both compete on innovation and not on price. The company generates a lot of free cash flow. It has high returns on capital. And they just like every three, they allocate capital brilliantly. They buy their stock aggressively when it's cheap. They're one of the few companies that have made value-added acquisitions. And they've done a wonderful job defending their business franchise against a number of competitors. We've owned it now for about 18 years. And we've seen our value compound at, again, a mid-teens rate for 18 years. Now, I can find a few companies that are able to compound their values at a high double digit rate for a year or two or three. But to do it for almost two solid decades is unheard of. When we first bought Mastercard, we thought that we were paying $0.60 on the dollar. That was the week that Lehman Brothers declared bankruptcy. After we bought it, the stock was down a lot, maybe roughly 30% I don't remember the exact number. They report earnings. The value is actually up, not down, which is now a $0.40, we bought more. It became one of the largest weights in our portfolio. And I should probably get the slides to match my words. So there we are-- after the collapse of Lehman Brothers. Its max weight in the portfolio was 18% it in 2019. Its minimum weight was 5.4% in 2014, and its very close to that number now. Again, we've sized according to discount, the lower the price to value ratio, the higher the weight in the portfolio. Back during the financial crisis, we bought more at $0.40, even though we lost about 30% in about three months. It looked really risky. Gosh, there's a lot of volatility. The stock's down. Why are you buying more of this? Well, it had net cash on the balance sheet, a huge free cash flow coupon. They reported earnings in the midst of a terrible recession and still grew the value. There was very little risk. In fact, there was a huge margin of safety. And we added to it. But we had to suffer in the short run. We looked really stupid, quite frankly, between the fall of 2008 and the winter of 2009. But we look pretty smart later. And that's where you come in. We need you. And we greatly appreciate you as our clients of having our time horizon, undertaking the time to be here today, understanding what we do and why we do it, so that your patient capital can allow us to buy Mastercard after it declines during the financial crisis. So that it can allow us to buy more adversary today. And for that, we thank you very much. [APPLAUSE] MARK ATKINSON: So now we'll move to questions. But before we get started, can I just mentioned that we've got some feedback forms in the bags on your seats? We'd be very grateful if you could fill them out. For those of you online, they're pinned to the Q&A function. We've had a number of questions in advance. Excuse me. Let me just scroll through these disclaimers. All right. There are roving mics in the room. So if you wouldn't mind just raising your hand, a mic will find you. As I say online, there's a Q&A icon. But maybe we'll start with a couple of questions that came in in advance. Craig, there's one here about performance. What steps are being taken to improve poor performance? CRAIG BAKER: Yeah. So well, the first thing to say is that we come in every day and say, have we got the best portfolio that we could have. So it doesn't matter what our performance has been. That's the number one objective every single day that we come in. And often in investment, the best thing to do, following a period of slightly worse relative performance, is actually to do very little if you're very comfortable with the portfolio. And hopefully, when we went through the presentation, we sit there actually pretty excited about our portfolio relative to if you are holding a wider index portfolio given what's been happening in markets. So mostly, we're not doing a lot other than what we would normally do, which is challenging each of the stockpickers, understanding how they fit together, seeing whether we've got the right weightings to get the balance right in the portfolio so that we're not going to be driven by one type of style, one type of impact and the portfolio. Now we have made a couple of manager changes just because we thought there's a great opportunity to slightly improve the portfolio. We'll do that in time, but that hasn't been a response to short term performance. That's been a response to this daily, can we get a better portfolio? MARK ATKINSON: OK, I'm looking for hands in the room. If not, I'll carry on with the questions that came in advance. But there's a couple at the back there. Perhaps we could take the gentleman there. Yeah. AUDIENCE: Yeah. Yes. Today Jamie Dimon said the stock market will go down 30% because of the risk of the IT, the big IT companies. Do you think that is possible? CRAIG BAKER: It's definitely possible. The first thing to say is that he did cover himself a little bit in that he said at some point in the next 6 to 24 months, it might go down 30%. Well, I would agree. I mean, I think as we talked about or certainly in my section, I went through some of the things that have been driving markets. And there have been a lot of these speculative, not profitable, potentially not even renewable companies that have been doing incredibly well because they just fit an AI theme. As Stu pointed out, we're actually pretty positive about the AI theme. Don't get me wrong, but that doesn't mean everything can just keep going to the moon. Some of these are going to be winners and some of them are not. And there's a time period before a lot of this adoption comes. So we certainly think those things are possible. We indeed build the portfolio knowing that that's always possible, that markets could take such a hit. It's not our central expectation that markets are going to go down 30%. We're not sitting here with a bullish or bearish view on the market per se. We're just making sure that we've got a portfolio that is generating really strong fundamentals that we think hasn't come through in prices. And therefore, if markets go up or down, we should actually be able to produce better outcomes. Now in short periods of time, that's not going to necessarily be the case as we've seen in the last nine months. But we feel pretty strongly over the long term that will be the case. MARK ATKINSON: Jonathan or CT, if you wanted to come in on that at all. JONATHAN MILLS: Sure. I mean, there's different ways of looking at this. A good macro way of looking at it, I think, is to look at the Shiller Cape 10-year cyclically adjusted PE ratio. That hit a peak in the dotcom boom of 44. It's currently at 40. So it's getting pretty high. So that shows us some potential risks. When you look at individual companies, if you look at a company like NVIDIA, it's nothing like as overvalued on a PE multiple basis compared to, for example, Cisco in the dotcom boom. Cisco was on a PE multiple of north of 100. NVIDIA is on I think 33. But NVIDIA has extremely high margins. It's got 56% net margins. Cisco back then had 14% net margins. So the question with NVIDIA would be, does competition come along? Does some of that CapEx spend that's driven their growth reduce/ And so is it a fundamental correction that happens there? I mean, 33 times is also quite punchy. But it's not like some of the dotcom ones. Another example that was in our portfolio, as I mentioned, Oracle. A very strong company. Its database business and so on, just incredible businesses, very well-established. But it suddenly jumped up 40% in one day because it made this announcement about forward orders having increased from about $150 billion to $450 billion in one quarter. They didn't say where the orders had come from, but it later turned out that 300-- that $300 billion essentially came from one company. That company's OpenAI. OpenAI has done an amazing thing with ChatGPT. But it's a loss-making business, it has about $10 billion of revenue and it loses about $10 billion. So somehow, it's got to fund $300 billion to Oracle over the next few years. And that's only part of what it's signed up for. It's signed up for about a trillion of CapEx in one way or another with different companies. So where's that money coming from? It's either coming from financial markets. Maybe they will keep giving it money, but it's a lot of money. Or it's going to come from its own profits. It doesn't have any profits at the moment, so it has to generate them. Now the bet with OpenAI is that it's going to get to some level of AI, general AI, the level of humans or even super intelligence. And then it will be able to do all sorts of things that we can't see at the moment, and that will generate lots of profit. And there's no doubt if it hits some level of AI that's like AGI, its market value will jump, and probably it will get an almost unlimited amount of capital. But if it doesn't, then I don't see how it's going to pay its bills to Oracle. And actually the funding of Oracle's doing at the moment building these data centers, it's doing a lot of it itself. It's raising money in the debt markets. So a lot of people are taking a risk on OpenAI. And I think that's clearly an area of concern because the numbers are getting really big. And the numbers compared to the dotcom boom are much, much bigger because then the companies were all relatively new and total percentage of the market. It wasn't as big as it is now. A 50% fall in some of these really huge multi-trillion dollar companies now would have a much bigger impact on people's net worth than a 70%, 80% fall then. MARK ATKINSON: OK, let's carry on with this theme. Bring Stu in here. There's a question online. Someone's asking if there was a market correction, a recessionary conditions did arrive, what adjustments might WTW make to the portfolio? STUART GRAY: Well, that's an interesting question. I think the portfolio is reasonably well-positioned. We're not running a high beta at the moment. The beta is probably a little bit lower than the market. I think a recessionary environment and some price correction in some of these more frothy companies would not necessarily surprise us. And I think the portfolio is very well-positioned for more difficult times. What we would do in the portfolio, it depends a little bit also on what the stockpickers are doing. We monitor the portfolio every day. We see what's going on with the portfolio. So when our stockpickers rotate capital, I mean, CT described quite well how he resizes positions based on where price to values are moving. Some readjustment may occur in the portfolio without us having to do anything. Nevertheless, we may also find that we want to rebalance capital between some different managers. So given the broad set of managers and styles we have in the portfolio, we have the opportunity to rebalance between different styles depending on where we see the best opportunities, and maybe how to better protect the portfolio for different environments. MARK ATKINSON: So there was a question at the back there, I think-- AUDIENCE: Yes could I just ask about the FT 100 is at a peak as well. But the assets are energy and finance and not IT and AI as the US market. What's your opinion? Is that due for a fall? MARK ATKINSON: Jonathan, are you going to-- or you're more of a UK. JONATHAN MILLS: We're a global investor, we're based in the UK but we're a global investor. So we are looking at global markets. We don't really look at the FTSE. We do see some value in the UK. As you can see, we've invested in Whitbread. We have some other UK names, some of which are actually global businesses that are listed in the UK. But for example, [INAUDIBLE] it's listed in the UK, it's moving to the US. Most of its businesses in the US. Diageo is in our portfolio. It's a UK-listed business, but really its UK isn't a big market for it even. So, it's very difficult for me to comment on a particular FTSE index stocks to be honest. MARK ATKINSON: Let's go two rows back. I think there was a gentleman with his hand up. Can we get the mic to him please? AUDIENCE: Thank you. Good afternoon, or I don't know if we've tipped into evening yet. May I say how pleasant it is to hear a voice from the south of the United States this evening. My question relates to something that was remarked on earlier about if one of your managers on the portfolio has underperformed, the likelihood is that you'll actually allocate more capital to them. Now, I understand that from the point of view of having a firm conviction that they are good and they will eventually prove so. But is there not an inherent risk in that that you're maybe doubling down on a mistake and something that goes down, or proves not to have performed particularly well, may have a bit further to go down, and therefore, you're maybe just doubling down on a mistake? MARK ATKINSON: Craig, do you want to take that one? CRAIG BAKER: Yeah. So the first thing to say is that the rebalancing isn't like automatic every day. We're trading it to get back to an exact number. But as Stu said, we do on average take the principle that we try and understand what's driven the performance of a manager. We try and break that down as to how much of it has been, because they've been-- so if they've underperformed, for example, have they underperformed because they've called the fundamentals of the businesses wrongly? Or have they underperformed because their style has been out of favor? If it's the latter, so they've actually been calling the fundamentals of the businesses correctly, their businesses are continuing to accrue value, as CT was explaining on some of the businesses that he was talking about, and it's just been their style that's been out of favor, then we're quite likely to want to give them more. If they've underperformed because they've been calling the fundamentals of the businesses wrongly, then that would give us more pause for thought as to whether we want to do that. Now, just to be clear, everyone makes mistakes. So I'm not saying you suddenly then are negative immediately on a manager that's made some mistakes on the fundamentals of their companies. But that's the thing we're trying to split between the two. So it's not just an automatic, they've underperformed, give them more. It's why have they underperformed. And if it's because their style is out of favor, then give them more. And that also helps in the risk management of the entirety of the portfolio. Because otherwise, if you start with a fairly style neutral portfolio, if growth, for example, massively outperforms, you just end up with a growth portfolio rather than a market neutral portfolio. And it's no longer what you were actually building a portfolio to do. AUDIENCE: Thank you. MARK ATKINSON: Let me just have a question for Dean. And if we go to the gentleman there next. Let me just the one that came in advance for Dean. Does the trust review dividend policy, a 2% dividend is neither fish nor fowl? DEAN BUCKLEY: I understand the idiom, but I don't believe that there are only the options of fish and fowl in terms of dividend strategy for the board. If we just to recap on what our strategy is, we're a total return portfolio, where capital appreciation and dividend growth both form part of the total shareholder return. As an investment trust, the structure of the investment trust also gives us some additional flexibility where when we can use reserves to ensure smoothness in the dividend payments. And I think most of you will that we've managed to increase our dividend for 58 consecutive years, which is something that the board is very proud of and something that we hope to maintain moving forward. Also, when I talk to shareholders, which I will do later on upstairs with refreshments, dividend is the area where I get the broadest range of feedback from shareholders. And I guess the fish argument is that we shouldn't pay any dividend at all, and that all of the return to shareholders should come from capital appreciation. The fowl argument is that we should pay a much bigger dividend, possibly as a fixed percentage of NAV, which some of the other investment companies do. The problem with that is that it leads to a volatile dividend and possibly a dividend that could fall in the future. So where the board are is that we think that we appeal to the broadest church of investors by pitching our dividend at a slight premium to what you might get in the competitor global equity funds, whether they're open-ended and closed ended. And broadly speaking, an index fund in global equities will deliver a yield of about 1.4%. Our yield is 2.1%. That yield, that dividend is sustainable. And it's at a level that we can grow in the future. And that's something that the board are firmly committed to doing. MARK ATKINSON: OK. Let's go to the gentleman there. AUDIENCE: We've heard a bit about some American companies. And obviously, the excitement of AI is mainly American. But could you remind me a little bit about the geographical breakdown of the portfolio? This is a global equity trust in terms of its weighting to the US versus Europe or Japan, for example. And secondly, would you like to say something about discount management? MARK ATKINSON: Yeah. Well, let's save the discount management for Dean. But the geographical exposures of the portfolio, perhaps, Stu, you want to deal with one. There's another question online along a similar angle to that saying, why have you got so much in the US? STUART GRAY: Well, Craig has given me the numbers. I think, again, by principle, we're not trying to take very significant macro bets versus the market. So the portfolio looks broadly similar to the market in terms of its geographical exposures. That said, we are underweight in the US. So we've been underweight in the US actually for quite some time, but it's in an absolute sense it makes up the majority of the portfolio. So it's a bit over 50-- where are we? 50-- I can't even read that, high 50s percentage in the US. So again, it depends if you want to look at it. It's a high exposure in absolute terms but underweight relative to the market. In our view, it's sized appropriately because the US market is significant in size. There's a lot of companies a lot of opportunities. So we want to take advantage of the opportunity set available. It's a rich opportunity set with some great businesses, some growth businesses, some deeply undervalued businesses. But equally, we do want to take advantage of the rest of the world. And so we're overweight. Well, probably Europe and Japan, but only marginally. We have a bit of exposure to emerging markets, but not that dissimilar to the market overall. Within emerging markets, we've been long India and underweight China for a while. That has at the margin tilted a little bit. We've had a little bit more exposure in China recently. But I said, by and large, we're trying to take the opportunities at the stock level and not have significant deviations from the market at the total portfolio level. MARK ATKINSON: OK. Maybe we go to the discount question. Can I just clarify, what the question was on the discount, how do we manage it or-- So how do we think about the discount management, Dean? DEAN BUCKLEY: Yeah, we have a very strong approach to discount management. We believe that we are more attractive to shareholders if shareholders can rely on our discount being relatively narrow. So we ensure that we pay close attention to it. And at points where the discount is widening, we're quite prepared to buy back stock. And if you look at our discount management over many, many years, you will see that our discount has had lower volatility than our competitors. It's traded much tighter to NAV than our competitors. And we've needed to buy back less stock than they have to get that outcome in terms of discount. So we're very proud of the record that we've got on discount management. And we'll continue to focus our efforts on ensuring that discount stays narrow. MARK ATKINSON: Any more hands in the room? There's one here in front of this pillar. AUDIENCE: Thank you. We've heard quite an eloquent exposition of how the investment case is made for individual firms. Would it be possible to comment on what time horizon falls into that analysis? So you found your firm that is a dollar for $0.40. But when do you hope-- or in making that investment, when do you hope to cash out? Or do you simply say we'll just it'll be as long as it takes? MARK ATKINSON: Can I just clarify. That's a stock question, not a manager question, is it? AUDIENCE: It's a stock question, but it's to the managers as to how they make that-- MARK ATKINSON: CT goes first. CT FITZPATRICK: Sure. Thank you for that question. We want to be paid to wait. As long as we're being paid to wait, we're very, very patient because if the stock goes nowhere or it goes down and the value is continuing to compound, and your example, you said $0.40, well, pretty soon, it's going to be $0.35 and then $0.30. And at some point, it just gets to be so extreme that either the market can ignore it, or maybe a competitor can't ignore it. And they say, goodness gracious, it would take me 10 years and a fortune to build this plant and equipment that I can buy at $0.35 on the dollar. Of course, they won't be able to buy it at $0.35 on the dollar. They'll have to bid up more. And that's when you read these big headlines in the paper that such and such and such as being taken out, and the stock is up 50% in a day. Sometimes it's just the market itself will just turn around and say, we were negative, negative, negative on this. And then all of a sudden, it just turns around like Oracle. Jonathan, we owned Oracle in the past. We didn't own it currently when Jonathan did. But the market was negative on Oracle forever. And Oracle just kept doing its thing. They bought in a ton of stock. They generated a lot of free cash flow. They made the investments that ultimately led them to be able to offer OpenAI these cloud computing business. And the stock is up dramatically in a day. And I noticed that Jonathan wisely sold it. Good job, in my opinion. But the key is to being paid to wait. I talk about how important value stability is. Our companies produce a lot of free cash flow. If nothing else, the cash flow just builds. And it creates our value. And our companies do grow. They do grow their bottom lines. And so if we're being paid to wait and our value for compounding, say, at 10% a year, frankly their compound faster than that, then we'd be happy to have the stock go nowhere, because as the price-to-value ratio continues to improve, we just add to our wait. We just buy more and buy more and buy more. It takes patience. But, sometimes you don't get paid for years and then all of a sudden, you're paid in a very dramatic fashion. Sometimes the stock does tend to steadily get closer to fair value. But we're happy. We're patient forever as long as the value is compounding. If the value is not, that's when we stop everything and we say, we made a mistake here. If these companies were as good as we think they are, the value should be moving north. And if they're not, then we have to reassess it. And perhaps we made a mistake and we'll have to reallocate capital and move on. But long-winded answer to your question. Our patience level is forever, as long as the value is compounding. MARK ATKINSON: Jonathan, anything you want to add anything to that? JONATHAN MILLS: Well, we have a very similar approach. So if the share price is going down, that's not a problem for us. The problem would be if the fundamentals, the revenues, the profits are going down. If those are going up in a way that we expected given our models, then the cheaper share price is just an opportunity. And how does it turn out in reality? Our average hold period is just over five years. So that means that some stocks actually go up quite quickly, and we sell them within a year or two just because of the share price movement. Other stocks, we've had in the portfolio for over a decade, but they've still been good investments. We've had Cisco in our portfolio for over 12 years, and it's been going up at about 13% a year on average compounding. And actually, we've done much better than that because of our trading because as stocks go down, we buy more. As they go up, we sell as they get closer to intrinsic value. We've been compounding that at about 17% a year. So in a way, what can be better than a stock that stays in your portfolio because it's never hit intrinsic value, but you compound at that kind of rate. MARK ATKINSON: OK. Another question there. AUDIENCE: Thank you. Strictly from a UK perspective, what is the panel's view on UK housebuilders at the moment? MARK ATKINSON: View on house builders, is it? AUDIENCE: UK housebuilders, yes. MARK ATKINSON: Jonathan? JONATHAN MILLS: We have looked at housebuilders occasionally. We've never invested with one. And I think they're tricky businesses. What we look for is the three headings that we look at in terms of the moat of a business. One is scale advantage, another is difficult to replicate assets, and the other is customer stickiness. And there's various subheadings under that. But when you look at a house builder, there's very little in the way of customer stickiness because people buy a house from Barratts, and they don't buy another house for 30, 40 years. So that makes it quite difficult for us to get those over our quality score. The other thing about them is, of course, they are dependent on the availability of mortgage finance. Higher mortgages can influence that business. So I wouldn't say that anything like an expert on that sector because we've never invested in it. AUDIENCE: Just one last question. How about this present government's large investment in social housing? I mean, they say $300,000 houses are going to be built each year. And a large percentage of them, we go back to the '50s, are going to be social housing. MARK ATKINSON: What effect? What comment would you have on that if any? JONATHAN MILLS: Well, all I can say at the moment is that very little is being built. And I think that the government needs to look quite seriously at what's going on, particularly in London. The number of starts in the property market for flats. And indeed commercial buildings is at pretty much a record low. And there's all sorts of reasons for that. But fundamentally, things are not being built. And I think that's the biggest issue of all. AUDIENCE: One final question. Would your-- final one, would your comments on building contractors be the same? People like Balfour Beatty, Costain, McAlpine? JONATHAN MILLS: They wouldn't pass that quality test. As a business, it's very unlikely they would pass high quality test because we just don't see the sustainable moat in those businesses. And businesses that live from contract to contract, if you've ever dealt with the builder-- we've all dealt with builders-- it can go horribly wrong sometimes. MARK ATKINSON: There was a question right at the back, I think, if we could go there. But before we take that question, let the microphone get up there first. There's one that came in advance. Perhaps this one's for you, Stu. It's saying the number of managers has increased in recent years. Has this-- how has this impacted performance? And do you have plans to reduce the number of managers? STUART GRAY: That's interesting. So we have 11 managers in the portfolio. We normally say it's around 10 managers. And I think we've guided 8 to 12 would be the typical range. But around 10 is about the right number. There's no perfect number. I think the key for us is not getting the number of managers per se. It's getting the right portfolio. And when we look at how markets have evolved, particularly since we've been running it for eight years for Alliance Witan, particularly the last five years, the growth of these tech companies, the skew within the index and the market. We've increased the number of managers to help us manage the overall exposures, bring more diversity, bring more idea generation is giving us more levers to pull in what has been a very unusual market environment. So I would say, broadly speaking, having more managers has been helpful to us in managing the portfolio. I would say it's been additive. But you can't necessarily directly link the number of managers to the exact performance number. That link isn't as direct. So I'm not targeting to bring the number of managers down per se. I mean, it certainly could come down from 11 back to 10, for example. It could go up to 12. But we don't target the number of managers. We target the right portfolio. MARK ATKINSON: OK. Perhaps we could take that question at the back. We've been going an hour and a half. So perhaps one or two more questions and I'm sure everyone will appreciate some refreshments. AUDIENCE: Two questions, the last one, hopefully, just a-- I was a bit tongue in cheek. First question, 224 companies in the portfolio. Are you overdiversified? MARK ATKINSON: Craig? CRAIG BAKER: Are we overdiversified? Well, we definitely don't think we're overdiversified. We think that we're running a risk that's appropriate for how much we think we can outperform over the long term. I mean, ultimately, we're underperformed the index by 6.9% in the last nine months. It doesn't look as though we're over diversified. We think we can significantly outperform. We've been running portfolios on the institutional side with actually a lot more managers, more stocks that have performed over a very long period by significant amounts relative to index. But that's absolutely something we debate every day. I mean, this comes into how many managers and the like. We think most multi-manager approaches do end up a bit overdiversified, which is exactly why we follow the best ideas, maximum of 20 stocks idea. Apart from the emerging markets, specialist portfolio that does have more stocks, which is what brings it up to that 220 number. But no, we don't think we're overdiversified. AUDIENCE: Second thing was an observation, the banter about Oracle. Have you thought or do you ask the fund managers to comment on the overall portfolio maybe lagged six months so they don't follow the herd to comment critically or positively about any of the stocks? Not an exhaustive basis, but it might be useful feedback for yourself. MARK ATKINSON: Stu, do you want to take that? Do you-- comment on the stocks. Do we ask the managers to comment on the overall 224 stocks? STUART GRAY: So we don't do that in the sense that we are constantly talking to our managers all the time. But remember, we deliberately pick managers to have very, very different investment philosophies and different investment processes. They naturally come up with different ideas. So there are some looking for high growth stocks that are accelerating their growth rates. There are some looking for very, very cheap companies that are good quality companies that can still grow but are deeply discounted. They're going to disagree on companies. We know that. So we understand their views more broadly across the market, and we use their views to inform our opinion of the total portfolio. But we don't ask them to specifically comment on each other's portfolios. But all of their thinking does feed into how we build the total portfolio. And I think that's very important for getting the right balance. And that's very much Craig and his job is just to think about that total portfolio and get the right shape to it. CRAIG BAKER: It's worth noting that we've got quite a large equity research team as well behind us. And that team is meeting managers every single day. And they are asking about stock ideas with all of those managers. And they would naturally include the stocks that we're particularly overweight in our portfolios as well. So we're getting lots of comments from managers, not just the ones that are in front of you today and in the Alliance Witan portfolio, but lots of managers. And we want to hear the challenge on those stocks, because we then challenge the managers that are owning them on exactly that point. MARK ATKINSON: OK, I think we should probably wrap up, but we have maybe one last question from the room if there is one, gentleman down here. And then we'll call it a day and retire for drinks. AUDIENCE: Hi. Thank you for your insight into your companies you invest in. I'm just thinking about the world debt problem and the reluctance of ordinary people to want to pay higher taxes. And I'm looking at the insurance companies paying things like Phoenix, 9%, legal in general, 9%, [INAUDIBLE] And it suggests to me that people think these are highly risky companies. As you know, with our 44-day prime minister, it nearly crashed the whole market because they'd have to go around selling stuff. And as you know, the 29 crash itself was set off by a small bank in Austria, I believe. I believe also the man who predicted the last crash here, 2008, the American chap, I can't remember his name, made a lot of money out of shorting the property market or whatever it was. He said he really didn't understand. He'd studied insurance claims for a whole year and didn't understand how they got these returns and things. And so I'm a little bit worried about people thinking that these companies are uninvestable at these rates of return. MARK ATKINSON: Well, I mean, we've got an example of an insurance company, I think, that CT spoke about. AUDIENCE: I'm thinking more our own ones. I don't anything about the ones there. JONATHAN MILLS: Well, we've got Admiral Insurance in our portfolio. It's quite a small position now because it's gone up a lot. But Admiral is an amazing company. It's gained market share in the UK motor industry consistently over time. It's now the leading motor insurer in the UK. It's a low-cost operator, very efficient business. It's also got businesses across Europe which are growing. But we think that Admiral is a long-term winner in the insurance space. It's also gaining share in home insurance. So we like it as a company. We like the management team there. Would we invest in any other motor insurer in the UK Probably not. AUDIENCE: But I'm thinking about the LDI insurance, the insurers of paying these huge amounts out and how is it sustainable. And are people thinking they're highly risky? And could they bring the market down? MARK ATKINSON: Perhaps we can continue the discussion upstairs over a drink. Thank you. But I think we're 10 minutes over time. So if we could just say thank you to the panelists and please join us upstairs for a drink and refereshments. [APPLAUSE]