Future Generation Australia Limited (FGX) Earnings Call Transcript & Summary

[Audio Gap] results. My name is Caroline Gurney, and I am the CEO of Future Generation. So thank you very much for joining us today. And we are incredibly conscious that this is your company, and we really look forward to answering all of your questions. So please do actually input any questions you have and press the submit button. So I'd like to begin by first acknowledging the Gadigal people of the Eora Nation, the traditional custodians of the land on which we meet today and pay my respects to both elders, past and present. Joining me today is Philip Lowe, our Chair. He's the former Governor of the Reserve Bank of Australia, and both him and I will be taking you through our full year results in just a moment. We're also delighted that Jun Bei Liu, Portfolio Manager at Ten Cap, one of our leading ProBo Fund managers, is going to be sharing her views on the market, AI, China, and she's also going to be giving us a few subjects. And then we are going to be hearing from Dr. Katrina Lines. She's the CEO of Act for Kids, which is one of our very long-term social impact partners. She's going to talk about the vital work that Act for Kids has been doing and how their support has improved so many lives of so many vulnerable young people. And then we're going to go to a Q&A session. So please, as I said before, please submit your questions and we can go to either Phil, myself, Jun Bei or Katrina. So before we go into the details, Phil, we released our full year results at the end of February. And I mean, I know that our shareholders would really like to hear your thoughts and some of the highlights from this year. So Phil, over to you, please.

Thanks very much, Caroline, and good morning, everyone. This is the first year that I've had as Chair of Future Generation Australia, and I'm incredibly proud of what we've been able to achieve. As you would know, the total shareholder return for last year was greater than 20%. That's a very good result on any measure. The investment portfolio outperformed both the ASX 200 and the ASX small ordinaries. And we've done that consistently over the 10 years the fund has been in operation. And over the past year, the investors also benefited from the narrowing of the share price discount to the net asset value of the fund. So this really good performance has allowed the Board to pay 2 $0.035 dividends over the year. Those dividends have both been fully franked, and they mean that the grossed up dividend yield is 8%. Again, it's a really positive outcome for shareholders. But importantly, we've also been able to give more than $5 million to the nonprofits that we support. These nonprofits are really helping Aussie kids who are doing it tough, who have had some adverse event in their lives. And over the 10 years the fund has been in operation, FGX has given more than $43 million to help Australian kids. And I really value over the past year being able to spend some time with some of the charities that are making a difference. And it's fantastic to see our donations really helping Australian kids have better lives. So I want to thank you, the investors, for making this possible and thank the funds managers and our service providers who do so much for pro bono, who allow, which means that the investors get good returns, and we can help kids. So thank you.

Thank you very much, Phil. That's a really good summary. For me, and I think for all of our shareholders, it's really great to see that we've had such strong financial results and also the positive impact that we're having. So I'd just like to take a closer look at some of those key numbers. And when we look at a listed investment company like Future Generation Australia, we really focus on 3 important metrics. And I know Geoff Wilson talks about these in detail, but I'd just like to go through them. And they are investment portfolio performance, net tangible asset growth, which is the NTA that we always talk about and our total shareholder return, which is TSR. So just to unpack these a little further, and I'd just like to start with the investment portfolio performance. So as Phil just mentioned, our investment portfolio performance grew by 13% last year, and that's actually allowed us to outperform the both all ords and the small ords. So we look at the small ords, and I think that's really important to have a look in terms of our performance within that index because we do have a small cap tilt. And our investment committee who all work pro bono as well as with our fund managers, they really believe that by focusing on those smaller companies, we're going to get better opportunities for long-term performance. So since inception, as we talk about a lot in terms of our portfolio, that's grown by 9.3% annually. And that has actually outpaced the all ords by 1% and the small ords by 3.2%. The next metric that we talk about is total shareholder return, the TSR. It's a really key measure because what it does is it reflects the total value shareholders receive from both the share price growth and the dividends. So in 2024, we achieved a TSR of 20.6% or 23.5% if you factor in the franking credits. And we're really pleased to deliver this to you because I know it's really important to our shareholders. This increase is driven by the strong portfolio performance and narrowing of that share price discount to NTA. So at the beginning of last year, it was 17.1%. And at the start of the year, it was 10% at the end. And today, it's actually 8.63%. So I really want you all to know that we are very much committed to narrowing this further, and we are definitely building that momentum, and I want to thank all of you who are invested or bought some more. The final metric we measure LICs with is the NTA, net tangible asset growth. And what this growth, what the NTA growth measures is the tangible value of the company's assets minus liabilities and costs. In 2024, we saw an increase of 11.8% in our NTA, and that reflects the strength of the portfolio and the value that we create for shareholders. I'd like to just highlight some of the other areas as well. So at the end of December, we had $0.379 per share in our profits reserve, and that gives us 5.4 years of dividends. And that's one of the questions that shareholders ask us regularly now. In 2024, we basically saved about $9.5 million, and that was through the generosity of our fund managers and our service providers who waive all of their fees. And that is an incredible amount of savings for our shareholders. We also, for me, which is amazing, we appointed the very first Chief Investment Officer of Future Generation. His name is Lee Hopperton, and you'll be hearing a lot from him. And he brings more than 20 years of investment experience. He's worked with investment banks. He's also just joined us from Pendal Perpetual. And we know he is going to influence both of our investment, but also our distribution capabilities. And let's not forget, really importantly, because we are about investment returns and social returns. And as Phil mentioned, we have given GBP 5.4 million to support children and youth at risk. And that brings our total investment into not-for-profit since inception to GBP 43.3 million. And I think that is just so important in today's environment. And we're going to be hearing more about what's happening with the social fabric of Australia from Katrina shortly. So I'd really like now to talk to Jun Bei, who is one of our brilliant pro bono fund managers. Jun Bei, thank you so much for joining us today.

Thank you so much for having me. As I always say, that it's such an honor to be part of your managers and then to be able to deliver social return as well as do what I do love to do every day.

So we're excited to talk to you because obviously, there's been a hell of a lot of volatility out there. But before we do that, you have taken a really brave step. You have decided to set up your own fund management company, TenCap. You've moved from Tribeca where you were for many, many years. And I really want to know how is that going? Because obviously, your funds under management has come with you, which is fantastic.

Thank you so much. Look, it's going incredibly well. I actually have been at Tribeca almost 20 years. And after 20 years, it's really just the core that I feel I'm ready to take my own destiny in my own hands. And then with the support of clients, as you said, the whole $1.5 billion followed us and as well as support of charity like yourself, future generations have been very supportive. We're able to make this happen. And 1 month, I think, officially just over a month of trading, and we're doing incredibly well. We're a team of 6 people, small business, but we're all very, very extremely motivated, very energetic and just something I haven't seen for so many years, and that's incredibly exciting.

And I think just for our shareholders, the investment committee did a lot of due diligence in terms of Jun Bei's move because obviously, we need to make sure that our money is working for our shareholders. But the fact that also her back office and her middle office was still being done by Tribeca and also her performance has been solid for so many years was really reassuring. But now reporting season. It has been so volatile. And one of my colleagues actually said that it's the most volatile he's actually seen since the global financial crisis. So tell us what are some of the key trends that have emerged and who have been the winners and losers?

That's been incredible. This reporting season, I would put very similar to the comment as well that it's probably one of the most volatile and interesting reporting season in the actually over 20 years of covering the Australian market. Look, the reporting season, putting aside the global market risk sort of meltdown towards the end of the month, looking through the reporting season, the key trend was really market is very, very keen to take profit in winners. So we have quite a lot of good company reported really good numbers. For example, you have JB Hi-Fi reported very good numbers and very good trading update, and they continue to surprise analysts on the upside. But unfortunately, for many investors, they use this opportunity to take profit. It's very inconsistent with the actual underlying results being reported. So we're seeing that key theme of people taking profit in winners. And we are seeing there's some of the laggards, if you like, the catch-up trades have actually taken place. So companies whose share price performed quite poorly into the results, who had a lot of people short seller, if you like, many people betting on share price falling into the result have had quite a significant share price uplift during the reporting season, just simply reporting a result that's somewhat in line. Some of the early example actually, including company like such as Audinate, it's a small tech business sort of audio business. We've got things like Domino when it released, it's trading up their share price up quite significantly. So we're having quite a lot of those divergence of performance that's inconsistent with earnings. Hence, why we created this reporting season is very, very interesting. And then taking a step back, I guess, looking at what corporates are sort of saying this reporting season, actually, this reporting season wasn't too bad despite the share price movement. In terms of the demand environment, it's actually pretty strong. Revenue is holding up pretty well. And then the trading so far is holding pretty well into this new calendar year. What really disappointed somewhat is the margin is a little bit weaker than people's expectations. And then many companies are a little bit cautious in giving guidance about the margins and the like, partly because we've got an election just around the corner and companies didn't want to be too bullish. This is actually very clear or very apparent in a couple of sectors, sectors like insurance, sectors like bank. So insurers reported good numbers, but they are now all talking to potentially weaker insurance premium increases. as we know, insurance rates has gone up so much. And then even they made headlines now in the front page of AFR. And the insurance companies are cautious of saying that they can continue to reap significant increases in premium. So they're cautious. That sector was under a bit of pressure. Our banks actually surprisingly also gave a softer update. I do think that partly is because election around the corner, making billions of dollars with expanding margin just doesn't look great. SCBA actually, in a way, report the best result, but every other bank disappointed, particularly the Bendigo that has really reported poor performance because of increased competition in its margin and mortgages as well. So the banking sector was under a bit of pressure. That's really bucketing the trends of what they've been going on in the last 12 months. So that sector has been tough. Now another sector, which in a way, you kind of expect should do quite okay given the environment isn't too bad is resources. And even that sector is disappointed. So with the resources sector, Even though, again, the revenue environment is not too bad, China, the iron ore price is still holding up pretty well. But the challenge is, again, it's a margin, it's a capital expenditure. So has led to quite a lot of downgrades and also, at the same time, led to quite a lot of dividend downgrades as well. So that kind of disappointed the market as well. So almost this is a reporting season. There's really not much places to hide unless you were in some of those heavily shorter names and sort of that has had a short-term bounce. And mind you, a lot of those short-term performances, they all since have come back. In the case of Tomeno, I think it rallied for a day and then sort of been drifting back ever since. And then the reported actual result share price was actually down. So it's a reporting season kind of reflective of investors very conscious of valuation. They don't want to pay too much for companies and are conscious of global tech companies being sold off. So investors' shares are selling off somewhat. At the same time, just being a little bit more cautious, sort of hiding in the defensive. Some of the defense done really well like Telstra actually reported pretty good numbers and with great dividend and capital management sort of announcement. Yes, so that's kind of reporting season. I'll probably talk too fast across everything.

No, that's great. That's such a great summary. So thank you. So what would you say has been driving the recent volatility? I'm definitely going to ask you a question about Trump's influence, but what would you be saying about the recent volatility?

Yes. The recent volatility is essentially 2 things. One is the market has become a little bit too one-dimensional ever since the Trump victory late last year. And the market took the view last year that once Trump comes in, everything is great. He's pro-market, pro-business, he's going to give stimulus and tariff, yes, it's fine. He'll just talk, but he's never going to do anything. So that was the market's view. So market literally just went on this rally and on everything pretty much. And so we've sort of seen that sort of running into a result season with very high valuation and then a little bit of uncertainty, not pricing any uncertainty in terms of tariff and other things. So that's number one. And number 2 is that, with Trump's policy, Trump's influence, we never expected him to be so aggressive. If you look at the last year when he started talking about tariffs and even January when he started talking about tariffs, the market didn't move. Every time he makes a comment, the market didn't move because the market simply just takes a view, he's not going to be serious. And clearly, when it comes to February when some of the tariffs have been really being implemented even or with the deadline to implement, that has created a lot of volatility. And what that means is that people want to take money off the table. People wanted to go a little bit defensive because the market was running so hot. It's not so much worry about everything else. It's just uncertainty and caused some of the investors to take money off the table, so much money out of the NASDAQ magnificent 7. And so just taking the money off the table is kind of one of the key drivers of that, actually, it probably will flow onto your next thing. So Trump is creating a lot of uncertainty for this market at this stage.

So actually, one question we've just got in, which I think is good timing to go before I go to tell me about hedge funds. And this is from Gary actually. How are your investment managers changing in response to Trumpi-ion-inspired chaos? Can you give us a few examples of what you've done or not done?

Yes, absolutely. I do think that in this environment, as a long/short manager, I think is a great leeway into as a long-short manager, we do have.

I know what a long-short manager is.

Of course, sure. So, long-short managers, we can buy companies like normal long-only managers. And then we can also short companies where we feel the share price will fall. So sometimes we short companies because we think the earnings is going to struggle and people are expecting too much or it's too expensive. And sometimes we're short simply as an insurance company, knowing the market is going to become more volatile. Instead of selling our favorite companies, we can actually short a whole lot of other companies that are more expensive and more volatile. So in a way, we're lower risk in the market volatility, and we can actually be very agile on buying the companies when the valuation is right without creating so much volatility for our portfolio. So that's kind of long short. But in this environment, what you call it the trumphier environment, I think it's actually throwing up so much opportunity. People, active managers like myself get pretty excited that some of those opportunities are rare, right? You don't get to see good quality companies get sold out 15%, 20%. These are large-quality businesses that have great growth trajectories. This is when you take positions. Of course, you can time it, how quickly do you go in, do you spread it out? But this is just a trading strategy. Ultimately, you want to buy more of those businesses. And so I do think this environment is throwing up so much opportunity. Some of the opportunities are on the growth side, and on the quality end, some of the opportunities is actually on the cyclical side. One of the things that we sort of always believe that heading into this year is that there will be some sort of rotation out of the more tech and growth businesses into more cyclical businesses because you look at globally, what's happening is that there's rate cuts everywhere taking place. The U.S. started last year and now looks like there are another 2 to come this year. And Australia only just started, and then we probably have another 2 to 3 to come later this year or actually, it might be sooner than expected with the global backdrop. In this sort of environment, you want to buy a company whose earnings are leveraged to falling interest rates. And these are companies generally a bit cheaper than your tech companies and their earnings will grow faster simply because the earnings are at very depressed levels. And then they will give you the next leg of the portfolio return. So this is what we look to pick up. Some of the quality names when they sold off a lot, yes, we position more, but it's a cyclical end. We're seeing a lot of opportunity, particularly Australia is on a sort of decoupled path compared to the global sort of the U.S., particularly consumer sector in the U.S. given the Trump uncertainty, tariff today, tariff, no tariff tomorrow, it is now creating so much impact on the consumer confidence, corporate confidence. So we are actually seeing the hard data, the confidence, the lead indicator is now turning in the U.S. The consumers were doing so well by December, and now we can see the data will start to turn because of the confidence. And corporate is not going to spend when they don't know how much tariff it's going to be. So there's just too much uncertainty. So whereas Australia, we don't have too much of that problem. We got rate cuts that just started. We're already seeing that actually after one rate cut, the consumer confidence is picking up, some of the softer lead indicators picking up. So you want to buy the Australian-centric company. So yes, you do need to stop there. I'll just keep talking. lots of opportunities.

So let's go to interest rates. I mean you've always been really positive on cuts. And obviously, we've seen what the RBA has just done. What's your outlook there? You're expecting further cuts?

Definitely. So in Australia, we're expecting further cuts. We think 3 more to come. And I think the next one is not too far as well. Possibly in the next few months, we'll see one more cut. So I think the path is very clear. I know late last year, there was discussion whether it's coming or not. It was very clear. Australia is not that completely decoupled from global. It's just we're a little bit later. And we're a little bit lagged compared to the other markets. And we saw what happened to other markets like the U.S. market after the first cut. Usually, after the first cut it's usually between 6 to 9 months, you can see quite a significant impact. In the case of the U.S., it was very quick. So what we're seeing is that our consumer company is very well positioned into that kind of cut cycle even though we might have an election in the middle. We kind of we'll see if there's any polarizing policy sometimes can affect consumer confidence. But at this stage, we are not really seeing too much.

So it would be remiss of me if we don't go to your stock picks because obviously, since reporting season, as you said, there have been a lot of companies that you've been reviewing. What are your 2 stock picks for our shareholders, please?

Absolutely. So I think the #1 is A2 Milk. I think this company has really demonstrated its incredible execution to win market share in a tough market like China, selling baby infant formula into a market where it's saturated with global brands and domestic brands, and they continue to take share. Now the company delivered an incredible result, delivered double-digit growth for the first half, and this is against the backdrop of a fall in the market in the industry stats in China. And now they're predicting earnings to accelerate, revenue to accelerate in the next 6 months. And this is assuming the Chinese baby infant formula market continue to be very tough. And that's just incredible result, still have $1 billion of cash on the balance sheet. And we just think this company is looking incredibly valuable. Even though share price has done well, I think it will continue to go higher. So another thing is that there's a lot of lead indicators now coming through that China. So this year, we just entered the year of snake. It's great, it's very auspicious for Chinese families and for weddings. And so the leading indicator for a lot of wedding registration is actually well up. And it looks like we'll have babies to follow and then baby infant formula clearly is not too far away. So the market is going to turn for a company that's actually winning share has cemented its position in the world's probably the largest market for babies. So yes, so I think that's a buy. Now the second topic, I must say, with the market volatility, we are seeing so many opportunities. This company, I've liked it for a very long time. And I think with the current market volatility, it's making it very interesting, and that's Pro Medicus. I think Pro Medicus has been this incredible Australian-born company that has really gone to the U.S., really cemented itself to be the leading provider of imaging software provider for hospitals. And they are now in many of the largest hospitals there in the U.S. And right now, they're only in the radiology department. And over time, they're now launching into other space such as cardio. And this is not to mention even going to global. And for every hospital they go into, the client retention is incredibly high because it's very difficult to change software and clients are super happy with their product. And the clients continue to use more and more image because the higher resolution for images, for radiology pictures, and the like. So we think this company, again, it's one of those bottom-draw amazing growth company. Share price pulled back quite significantly because of the sell-off in the U.S., and this is something that we think looks fantastic for the portfolio.

They're 2 great stock picks. I actually just have to say, tell us about China. Like are you seeing a true recovery actually happening in China? Or is it going to be a full stop? But I love the fact that you said it was the largest market for babies. What's happening there?

Yes. So look, so China itself is actually doing, the green shoots is definitely happening, particularly in the consumer front. So we've seen so much high-frequency data from the late last year after the stimulus in November, we've seen consumer doing better, consumer spending, they're traveling, they go to visit restaurants. So all the high-frequency data is actually really strong for consumer, which should be because governments have been targeting all the stimulus towards the consumer. And so it's doing really well. Chinese New Year trading very strong. You see Macau doing incredibly well because consumer doing well, they go to the Macau, unfortunately, gaming and travel and holiday. So the China consumer is picking up. And latest data has shown also the Chinese housing market has stopped getting worse, which is, is a good sign because it's been many years, it just nonstop sort of decline and now stopped getting worse. And the government just announced a bit more stimulus towards the local government and also the consumer again. So, there's all these things happening that China is absolutely turning around. If you look at the China share market has gone up significantly. Of course, part of it is driven by the DeepSeek, more the tech sort of angle of things. But Chinese market is definitely sort of on the way out, which usually because they have very high retail investor participation, usually is a reflection of consumer confidence than anything else. So that China is actually on the way out. Now in terms of babies, China has really determined to drive in babies in the newborn. So right now, it's something like 8 million every year, Chinese newborn is about 8 million and it's been in decline for many, many years. So, China has changed policy from 1 baby to 2 babies to 3 babies. And now they late last year, they just started giving out handout. They tested in a few regions and now just be rolling out nationally because it's working really well. We all remember how it worked with the baby bonus. So they're doing the same, and it's working incredibly well. So, we are going to see a lot more babies born. And if not, we'd expect to see a lot more policy drive towards that angle.

Amazing. Thank you. And a reminder to everybody to please put in your questions for Philo, Jun Bei and also for Katrina. So, I'm just going to go now to Katrina, who's the CEO Act for Kids and an amazing not-for-profit, one of our long-term partners. So, Katrina, thanks so much for joining us.

Lovely to be here, Caroline.

So, could you actually give us a brief overview of what your organization does? And maybe, if you could do it with a case study because I think that really does show the depth of the work you do with the child and the family you've supported, please?

So, I think a really good illustration is a case study about a little boy called Tony. He's now 10. His parent separated around 4 years ago because his mom had significant drug and alcohol issues and unsafe associates basically who are in the house and putting Tony at risk and his dad and mom ended up separating. Dad took Tony away from the house. And at 10 years old, he was in really a lot of trouble at school. He was having lots of angry outburst. He was having a lot of trouble settling. He was running away from school and home to the point where police had to go and get him, really poor concentration and difficulty making and keeping friends. So, his dad kind of was at a bit of a wit end and brought Tony to an active kids center for therapy, and he really kind of wanted Tony fixed, which is an attitude a lot of folks have, but it's the relationships around kids that have caused this issue. And so that we did engage therapy with Tony for about 8 months. And it helped him understand and manage the feelings of trauma from some of the scary things that had happened to him when he was a little boy, but also grief and loss around his mom not being around. She's actually not safe for him to be around supervised. And so, he learned to manage and regulate behavior and also help him make friends and keep friends. And we also provided psychoeducation and support to Dad and the extended family and the school. So, everyone could understand the impacts on the trauma he had experienced. So, he could have just been considered like all the kid at school, but all of his experiences have really disrupted his development and his social and emotional well-being. So, at the end of therapy, he is an engaged and happy kid at school. He had stopped running away completely. He had friends and his friendships were going really well. And he and his dad have a much stronger, healthy relationship and dad understands his needs and where some of his behaviors might be coming from. And Dad and Tony also decided to reach out to mom just to develop a safe relationship with her, even though Tony can't live with her. It's great for him to know his mom because even though she has a lot of problems with alcohol and drugs, she loves Tony.

That's wonderful. Thank you. Thank you so much for sharing with that. So, I mean, the work that you're actually doing with children and families when they're facing trauma, it's just so vital. What impact is the funding that future generation has given you done in terms of some of the programs and services?

Look, it's been absolutely amazing. Not-for-profits, work hard at trying to be sustainable so that services like our therapy services can continue for families for kids like Tony who actually don't have access to government-funded therapeutic support and Tony's dad can't afford to go and see a private psychologist. And they're highly specialized services. So, over the last 9 years, the future generation grants have allowed us to provide specialized trauma therapy to nearly 6,000 kids like Tony, and that's more than 120,000 hours of psychology speech therapy and occupational therapy. And those kids would not have had access to any of those specialist supports and a really life-changing therapeutic experience without that vital funding. So, we're incredibly grateful for the long-term and generous funding coming through the Future generation grants.

I mean, obviously, at the moment, so many people are feeling the pressures of rising living costs. What impact are you seeing on that in the children and the families, particularly in terms of violence, stress, domestic abuse. Are you seeing with the families that you have?

Well, we've noticed an increase in the families referred for domestic and family violence, particularly since COVID. And so, I think everyone can reflect that those cost-of-living impacts and inflation and housing pressures have been around for the last 5 years, and they have really negatively impact children and families. And so, we've seen families seeking help for stress and family dysfunction and violence who have never sought help before and probably would think that they would not be a family that would experience that. So, we're assisting families who are living in cars, single moms who are living in cars because they can't afford rent or aren't competitive in a rent market. We have people, families living in overcrowded homes with up to 16-plus people in a home because of the housing shortage in particular and the cost of renting. So more than 80% of the referrals we get for families from health, education and child protection across 4 states include domestic and family violence as a risk factor for children. And once we start working with families, we know that it's way more than 90% of families. So the impact in our society is huge, and it's great that we are talking about it. But what happens is that there's lots of intervention for parents who are experiencing this stress, but very little in the way of therapeutic interventions for kids who are experiencing trauma through this distress.

So speaking of more stressful situations, I mean, obviously, Queensland, Northern New South Wales with all the severe weather and everything that is sort of in terms of the -- what is left behind in terms of ex cyclone Alfred. So what are you actually seeing there? Because I know you do a lot of work there. Or actually, are you seeing some more issues that are going to come to the forefront and that's stress and anxiety.

Well, I think, unfortunately, Alfred has exacerbated exactly what I was talking about before. And situations where we're facing the unknown and outcomes could be negative are really stressful. And so many people in Southeast Queensland and Northern New South Wales have never experienced a cyclone before. And it took so long to get here that last week, we were all prepared and on alert for the whole week, and it just kept changing what day it was coming. So kids didn't go to school from Wednesday last week. And then so many houses and schools were without power that many of them only went back to school yesterday and some are still not at school. So you've got parents who are stressed and worried about the impact of the cyclone. There are some of them trying to work from home. They're managing kids who were bored and trapped inside because the weather was horrible. So overall, it was a really stressful time for families. And everybody, I think, is feeling a little bit exhausted afterwards.

Katrina, I think what you said in terms of we have to talk about these issues more and more. I think that's incredibly important. So what would you sort of give in terms of advice, especially some of our shareholders, I mean, parents, grandparents, how can they help keep children safe and support efforts to protect those that are actually facing these kind of issues?

So the family environment where kids' development is optimal is where there are loving relationships, open conversations about everything from worries to how was day to absolutely everything, where kids have access to play and school and sport are the kinds of families that can weather anything that comes their way, any storms that come their way. And that can be really hard for parents to manage all of that and a lot of expectations. Those of us who are parents have all experienced that perfect parent expectation. So that's where grandparents can play a huge role because they can provide that safe, fun place for kids to spend time and be an ear when kids and parents need someone to talk to and just try and keep that kind of calm, routine environment that really supports children feeling safe and supported and able to engage with school, which is just a wonderful place for them to be for their development.

Thank you. Thank you so much. Thank you so much for the work that you do as well. So now we're going to move on to the Q&A session, and we've got some great questions that have already come in. Some of them are for Jun Bei, some for Phil, but please do send them in now. So I'm going to kick off with this question, which is going to go to Jun Bei, and this is from Gabriel. It's quite particular. It's whether do you have a position on select harvests? If not, why not, given the considerations retariff effect in America, labor costs in America, exchange rate considerations and many other factors? Jun Bei, can you answer that?

Absolutely. Gabriel, look, I think I do have a position now that you measure in select harvest, I think select harvest, it looks incredibly interesting at this point. Almond prices has been low for many, many years, and that has really caused a lot of supply of almond acreage being taken out, particularly in California where the big producer of almond. And as you know, almond tree takes about 10 to 14 years to mature. So once you start pulling the tree out, you can't add back in and then to have supply. So because it's been low for so many years, and in fact, last year was the first time we've seen all these negative growth, well, the decline in the acreage. Now we're actually seeing the almond prices started moving. Particularly, we now see more new regions started increasing their demand of almond, as we know, almond is a super food and the like. So we've seen the almond prices start moving quite aggressively. And there's only one way to play here in Australia, which is select harvest, incredibly leveraged to this higher almond prices. And then they continue to produce very good volume. And consensus numbers or analyst numbers is still too low based on where the almond price is going. I think this company is going through this great cycle, upgrade cycle for the next few years. In terms of the tariff and others, yes, there will be impact, but it's just there's a shortage of almond now with the demand from new markets like India.

Thank you very much. So I'm actually going to ask Phil a question. Phil, really, so listening to those stories that Katrina was just going through, do you have any comment on that? Because obviously, I know that you do a lot of things with your time. And why did you join it's quite gratuitous in fact, but why do you join FGX? Because I think it's really important that we have the investment in the social impact side. And I love hearing from both of our fund managers and our not-for-profit. So before I go to the questions on tariffs that we're getting, I just wanted to ask you that.

Thanks, Carol. And I grew up in a type of family that Katrina just described as an optimal family for support, strong loving parents, open conversations, plenty of sport, and grandparents around. So I'm kind of feeling incredibly lucky. But Katrina reminded us with the story of Tony that there are many people, many kids who aren't so lucky. And what gets me is the inherent unfairness of it. I was lucky enough to be born to a loving supporting family. Tony was born to a family that has all these issues. And it's inherently unfair because kids don't get to choose. So choices that are made by the people affect them for the rest of their lives. And all the research is that if you don't grow up in a kind of type of family that I grew up in, it can often leave a shadow over you for the rest of your life, and it's really hard to move out of that shadow. And what I really like about Future Generation Australia is that it helps kids who have adverse events early in their lives. It helps deal with the inherent unfairness of kids having bad luck early in their lives and then having that cast a shadow over them for the rest of their lives. So I wanted to join Future Generation because it was helping kids who have these adverse events early in their lives and was able to do that while giving the investors good returns. As I said earlier on, the 10 years the fund has been in operation, the average return has been higher than the ASX 200. So high returns, it's been able to achieve that with less variance and a steady stream of dividends. So it's a really good combination. People get good returns, and they're able to help those who are less fortunate than ourselves. So that's why I'm part of the team.

Thank you. We're grateful to have you. But I've got some more questions because we've got one from Steve. Where do you think the economy is headed? I mean Jun Bei just shared her views on interest rates, and we've seen the RBA cut recently. What's your view in terms of inflation and interest rates going forward?

Well, growth is sluggish. Everyone knows that. It's been sluggish for some time, and I think that's likely to continue for a while yet, growth might pick up a bit. Inflation is coming down quite a long way, and that's good news. Broadly, the strategy the Reserve Bank has put in place has worked. Inflation has come down, unemployment is still low, and I'd expect the unemployment rate to stay fairly low and inflation continue to come down a bit. Having said that, the battle against inflation is not yet entirely won. And that means that I think the RBA was right in being cautious when considering further interest rate cuts. I expect interest rates to come down at some point. But the battle against inflation is not yet won. I think we will win it, but it could take some time yet. So while rates will come down, I think the RBAs are correct to be cautious about the timing, and it's quite possible it could be some time yet. But rates are higher than average, so they'll come down, but the timing still to be is determined, and we need to get inflation down a bit further and be sure that it's going to stay down.

So we've got a question from Edward. As an economist, Phil, what's your view on Trump's policies, especially tariffs?

That's a very good question. Well, some elements of President Trump's policies are good for growth. His policies towards technology and encouraging the uptake of technology. His policy is on easing the cost of doing business and lowering the cost of energy. So technology, ease of business, and lower energy costs, that should be good for growth. On the other hand, the tariff policies, I think, are a disaster. They're going to increase prices. They will slow growth. They increase uncertainty, who's going to invest behind a tariff war when you don't know whether the tariff war is going to be there for very long. And you're seeing the effect already on consumer confidence as Jun Bei talked about. And we're also seeing now regrettably other countries retaliate. So we get into global trade wars. So I think we run the real risk now of the misguided tariff policies offsetting the good elements of President Trump's agenda and the global economy, including the Australian economy could well suffer as a result.

So I've got a question now from Peter to Jun Bei. How real is the LLM AI tech story? And I think LLM is for large language model. Jun Bei, can you answer that?

Yes, sure. Look, it is real. Of course, we had all the hives. And obviously, last 18 months, it's been incredible and see this exponential growth of the sector or anything to do with AI. We think it's real because you see every business is talking about it. Every department of a business is talking about it because can be so easily widely used. Everyone on the street can use it for the ChatGPT and others, which is a version all the way to more sophisticated version that can be actually filtered through every department. Every company can find efficiencies. Every company can find revenue opportunities by leveraging off that. And we've just seen so much investment going into it. Clearly, for some sectors, looking at how to profit from it, some sectors has run very, very hard, the chips and others. But then there's this thematic is going to continue. We will see more technology, better-improved technology coming through as we heard from the DeepSeek and others. But that's just a natural progression of this development of the thematic, every technological trend followed by a cheaper technology, better, more efficient. And what it means is that more people can use it. More businesses can use it, small businesses can use it and they just filter through every part of our life. I'm very excited by this thematic. And I'm always looking for ways to find companies actually leverage to those and not to worry, people always worry about what company is going to be destroyed. Is it going to create all these other issues in the economy. I do think our businesses, especially strong businesses, they're great at adapting. And this is a tool for improving your business and your services to your customers, and we should embrace it and to take advantage and to be better.

Thank you. Philip, there's a question from Choi, who read an article in the Australian recently where you talked about the imperative for Australia to improve productivity. How can we do this? And what happens to Australia if we don't?

Well, if we don't do something about lifting productivity, our living standards are going to stagnate. That's the harsh reality. For the 30 years up to the pandemic, Australians enjoyed a tremendous increase in our living standards. We've been slipping down the global rankings in the '70s and '80s, but a combination of good policy and good luck meant that we reversed that. And we moved up the global ladder and enjoyed very high living standards by global standards. However, in the last 4 or 5 years, those living standards have stagnated. And if we don't do something about it, then we're going to have to get used to maintaining a high living standard, but it won't be improving. 6 or 7 years ago, when I was at the RBA, we were predicting that productivity growth would average a bit more than 1% a year. Over that time, it's been 0. That means the economy is roughly 8% smaller than we thought it would be. And that means people's incomes are 8% smaller than we thought they would be. That's huge. It's having a much bigger effect on people's real incomes than the increase in interest rates. So the lack of productivity growth, first order issue is impairing our living standards, and it's an imperative that we address it if we want to go back to have rising living standards. Otherwise, we're just going to stagnate. There are plenty of ideas out there about what to do about it. Many of the ideas though are politically difficult. So I really see this as a political rather than an economic problem. somehow our society needs to find the ability to build coalitions to take decisions that are difficult in the short run, but that will benefit our kids. These reports that have been prepared talk about the ease of doing business. They talk about tax reform. They talk about slipping education standards in Australia. They talk about the way we design and plan for housing, plan for population growth infrastructure and the way we design our cities. So there are lots of things that we could be done. We just need to find a way to build coalitions within the society to get those done. I think if we can do that, then we can once again have rising living standards. But if we don't tackle some of these issues, our living standards will stagnate as they have done for the last 6 years. I think we can do it, but requires work.

So I've got some questions here for Jun Bei. So what are the sectors or stocks you're avoiding and why?

Look, I think in terms of the sectors I'll be avoiding now is really those, in particular, the expensive part of the market. I like the quality name of it. It's the expensive part of the market where it's not profitable. I think those unprofitable techs is a space I'm just a little bit cautious. It's just given the valuation is now a big problem for the market, investors are just not willing to pay a bit higher for the previous person. So likelihood for the capital return is very, very minimal. At the same time, you don't get rewarded by dividend. So these areas I'm careful about also the areas where the tariff potentially might impact negatively. For these businesses that trade globally, tariff is incredibly difficult to manage, especially when you don't give much notice and they're changing by the day. It creates a lot of and creates a lot of inefficiencies for those businesses. In Australia, we do have a couple of companies that they sell to the U.S. and then they make their stuff out of China. And when U.S. first put the tariff up, the company tried to move the supply chain to Mexico. Now that Mexico might potentially have tariff and the China tariff will be even higher. So it's almost impossible to plan it and each supply chain takes 5, 10 years to really get full efficiency out of it. So for those companies, your margin is going to be a bit more challenged. Your cash flow becomes a little bit difficult. So I'm just caution those areas.

So another question to you, Jun Bei, and then I've got one more and then we're going to have to wrap up. But this is from Matthew. We've been a prolonged full run since the GFC. Is it on its last legs or is there further to run?

Look, I don't think it's on its last legs at all. I think it definitely have more to run. Remember, for equity market to have a correction of 8% every 18 months is very, very normal, 8% to 10%. It's just a healthy pullback. I think if you look at the underlying fundamental of the share market, it's actually pretty good. We have economic activity not too bad. We have interest rate about to get cut more, so a loosening financial condition. We have consumer holding up okay. So the backdrop is strong. And the leverage is not very high across Australian corporates. It's actually a very healthy balance sheet. So this environment is actually really good for share market. Now unfortunately, I have a bit of hiccup because of what's happening with the U.S. and the tariff and everything. We watch it. But at this stage, it doesn't look like it's a significant headwind yet.

So Katrina, this is a question from Karen. Children who have had adverse or traumatic childhood experiences often live with that for the rest of their lives or education relationships, et cetera. What you were actually talking about? What, if anything, can be done to reverse this trajectory?

Well, I think when Phil was talking about kids born with that shadow and it not being their choice, he also mentioned early intervention, and that's actually the key is recognizing that children's development is not set in stone. It is really negatively impacted by adverse childhood experiences. But there's so much research evidence to show that our brains are incredibly good at recovering. And if we can provide the right kind of therapeutic environment for kids and help their families function better as early as possible, then the outcomes for kids are not necessarily lifelong and bad, and they do go on to have jobs, finish school and happy families of their own.

I mean that's exactly what we think, and that's what we're trying to do. So thank you. I mean exactly what Phil said as well. So I am going to thank Jun Bei and obviously, Katrina and obviously, Phil, because we've run out of time. Thank you so much for joining us and your continued support of Future Generation. And thank you, obviously, to our guests for sharing their insights. But if you have any follow-up questions, please do phone me or e-mail, and we will come back to you. We've got our national roadshows that are actually happening in April. So we'd love you to come. So please do register on the Future Generation website. So thank you very much. Look forward to seeing you, and please call us if you want anything else. Phil, is there anything you'd like to end with?

Just to again thank the investors in Future Generation for their support. You're helping young kids move out of the shadow that adverse early childhood experience can deliver. And you're able to do that while earning good returns, as I said, better than the ASX 200, best experience and steady dividends. So that's what brought me to Future Generation Australia, and I'm going to continue to tell the story to people so they can understand what a great job Future Generation Australia is doing. Thanks for your support.

Thank you so much. That sums it up so well. So please, thank you very much for supporting us, and we look forward to seeing you soon. Thank you very much to everyone. Bye.