Tye Bousada & Geoff MacDonald

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Are you seeing sufficient earnings growth to justify current valuations? Brian Kersmanc: Within the markets right now I think we're seeing valuations are elevated. I do think that earnings growth is coming under a little bit of pressure from tariffs and a lot of things that are going on right now. So, we kind of compare the two together and bring those together. The odds just aren't in your favour in a lot of these cases for really strong returns on a go-forward basis based on these high returns and what we believe is the trajectory of businesses right now. Geoff MacDonald: If you look at the US stock market, it does look rather expensive, especially the larger names. If you look at the S&P 100 index for example, which is the largest hundred names in the S&P index, you're looking at 25 times earnings on average for those businesses for maybe 10% of earnings growth. That is very expensive and in the upper end of how those businesses have been valued in the past, that's not that attractive. Having said that, if you dig a little deeper, look harder for ideas beyond those obvious names. You can find a lot of attractive valued names today – for example our portfolio is at 18 times earnings with a similar 10% earnings growth – and that's pretty attractive. How do you reconcile a slowing US economy with such buoyant markets? Brian Kersmanc: It’s an interesting dynamic that we're seeing right now with a slowing US economy and then you do see the valuations where they are. I think what you're seeing globally in terms of phenomenon right now is that a lot of areas of the market are driven by a very similar theme. And this is the expectations and the hope around AI spending, AI development for that to continue and to really be transformative going forward. That's lifting up and creating comparability issues across the board. So whether that is a consumer staple company that is a high-quality staple that’s obviously seen as high quality, that's being now compared to some of these other software and AI names and it's driving those valuations higher on a whole host of different areas where normally you wouldn't be expected to pay that much for that level of growth. So I think you're seeing this across the board. Geoff MacDonald: The market is a discounting machine and it looks past all the current numbers that everybody is paying attention to today. If you really look ahead at the US, I think there are more reasons to be bullish on the US economy than bearish on the US economy. In every market it doesn't matter if it's rising or dropping in the short term. There are companies trading at valuations that don't fully discount their future growth and that's all you have to do is find those investments, find those stocks. Our job is to invest in these businesses. If we do that those short-term ebbs and flows, the worries about the economy slowing down or picking up, don't really matter. Do you view market concentration as an issue? Brian Kersmanc: Market concentration has become increasingly a worse issue for the markets overall because that smaller number of companies are driving a greater proportion of the results. In addition, those smaller number of companies are inherently cyclical. Tech businesses are cyclical over the course of time. So you are taking a risk by buying that broad basket, that market approach, so to speak, that you traditionally do. Now, on the other side of that, if you are taking more of an active fundamental bottom-up stock picking type of an approach, you can balance out those risks, you can diversify away from some of those risks. It does really bode well for groups that are active stock pickers and picking those companies on a bottom-up basis. Geoff MacDonald: I think the market concentration is only an issue if you are invested in an unconcentrated manner similar to the current market. If that is the case, then it's an issue. There are approximately 1600 stocks globally in the MSCI index let alone the thousands upon thousands of other stocks that are investable in our mandate. There's no excuse. There's no reason to be invested in an overly concentrated or in an undiversified manner like the current index. What could surprise investors on the upside vs downside? Brian Kersmanc: There is a chance that there is continued upside momentum within the market. Valuations do continue to extend, valued with the AI theme continues to stay stronger for longer over the course of time. However, I do believe that that optimistic scenario is fully priced into the market now. So as a risk taker or an investor, we don't believe we're being compensated for that risk that we're taking that's already priced in. However, we do believe there is an opportunity that anything less than that optimal scenario – how we should be positioned extremely well over the course of time – for anything else other than that outcome, which would probably be a little bit more negative for the markets. Geoff MacDonald: With regards to surprises, investors should embrace surprise. You can't invest without accepting that you're constantly going to be surprised in the market and constantly humbled. The future is very unpredictable, so have an investment approach and a consistent framework for making decisions and let others be surprised that they got surprised.