Future Generation Australia Limited ($FGX)

Hello, everyone, and welcome to the Future Generation Australia Full Year 2025 webinar. Thanks very much for joining us. Before we start, I'd like to acknowledge the traditional custodians of the land where we are and pay my respects to elders past and present. I'd also like to introduce the two people here with me. Geoff Wilson probably requires no introduction. He's the founder of Future Generation and Director of Future Generation Australia. Thanks for coming along. Geoff.

Thanks for inviting me.

Pleasure. We've also got Matthew Kidman. Matthew is the Co-Founder and Portfolio Manager of Centennial Asset Management, a long-time supporter of Future Generation, pretty much from the day dot, I think, both in terms of time.

From day dot.

Day dot, I think so.

Probably even before day dot.

One of the first phone calls probably for Future Generation. So thanks very much, for coming forward or coming along. And before we start today, I would just like to make sure everyone is aware of the disclaimer, and the small print there essentially says that the three of us today, anything we say is general in nature. There is no personal financial advice being offered today. So please speak to a financial adviser, if you want any of that. The agenda today is Geoff is going to give us a quick update on 2025 from the Board's perspective in terms of dividends and in things and then I'll give a quick update on the portfolio, how 2025 went, how we're positioned a little bit of a look-through on how we're currently positioned. And then we'll have a chat with me. There's plenty going on in the market. Matthew's had a great year in 2025. So it will be good to find out how he achieved that and how he's positioned going forward. So with that, Geoff, we might get a few comments from you.

Right. Look, thanks, Lee. And look, thank you all the Future Gen shareholders. You know why we do this is to communicate with you guys on a regular basis. It's your company and the Board is there. Even the Board does work pro bono Matthew and all the other fund managers do the work pro bono. So look, thank you for that. and thank you for your support. In terms of the last 12 months, it was really a very solid year for Future Gen Australia. The portfolio outperformed the market. And actually, it was going the portfolio is up about 14-odd cent. Now that's before the 1% goes out to support our children at risk. The -- and the market over that period of time, the Ords was up about 10%. So that's really, really solid outperformance. In terms of dividends, you'd all be aware, the dividend was able to continue to be slightly edged up and provide our shareholders a yield of about a little over 5%, I think it's 5.3-odd percent on the share price and gross that up, you're in the 7s, around the mid-7% in terms of if you get the refund back from the government. And in terms of -- that's on share price. And you'll be aware that the share price has trade a little bit of a discount to NTA. I think it's around about that 8% or 9% discount NTA. Go back it was at a larger discount. The plan for us is annual, I know Lee's came in more recently, actually. You might be able to claim most of the credit.

Claiming all of the credit.

Because it's the discount is narrowed as continue. And Bonnie, who's joined us as General Manager to take up in Carolyn. We expect Lee and Bonnie and the rest of the Future Gen team to continue to from a Board's perspective is continue to perform in terms of into the investment committees selecting the right managers. So there's underlying performance there for investors, but also to get the share price to fully reflect the value assets. And at the moment, sort of like you go down to BMW to buy a car and say it's a $50,000 car and you're only paying $45,000. But actually, if I went about the BMW, I've got to be paying a lot less than that but it is to me, it's relatively cheap as you're buying assets cheaply and where should it trade. There's an old theory about listen to investment companies. I think when I started looking at creating a first listed investment company, which I did with Matthew Kidman when he worked at [indiscernible] Management in the well, we won't say good old days.

He's going to say previous Century.

When we're looking at that, there there's a theory that maybe a listed investment company should be trading at a discount, which is the net present value of the management fees. Now you'd be aware with Future Gen there's no management fees. It's like all the work, Matt and the other fund manager do pro bono. The Board is there pro bono. There's no performance fees, no management fees. So if you work out -- and if you accept the 1% going to support the charities and you do a net present value of that benefit, then you could argue that both these Future Gen entities should have an employed premium to pretax NTA and what's the NPV probably gives you a 6% or 7% premium. So we're looking forward to a pretty period of time where they've traded at a discount. Future Gen Global is trading within a couple of percent of NTA. FGX is [indiscernible] 8% or 9%, and the plan is to get it to fully reflect the traded NTA, if not a premium. Thanks.

Yes. Thanks very much, Geoff. So from a portfolio perspective, 2025 was, as Geoff said, a good year, [indiscernible] well ahead of that 10.1% return of the all ordinaries. The first is we have some fantastic we think, the best fund manager in what the equities working with us. There are 16 and [indiscernible] the other so the objective we're trying to deliver market or better expense but with lower volatility as a measure of risk than the index. And if you look over the life of FGX, that's been achieved. So better than market return since it started, and the volatility, something like 17% or 18% lower than the index. So getting great risk-adjusted returns. So we get good managers, and we make sure they're appropriately diversified. The managers all invest in different ways. We have large cap managers, small cap managers. We've got long/short managers, systematic managers, all sorts of different strategies and styles. And the blend of those that the investment committee were working for free put together is the secret sauce that helps us to deliver those results. Periodically, we do look-through analysis to look at what those managers are investing in. So we're picking the fund managers. We're making an allocation to those, but they're picking the companies they invest in. Around the world, one of the issues that's been around now for over a decade, its markets have been coming more and more concentrated into a small number of very large companies. That's not been so much a trend for Australia. It's always had quite a lot of concentration inside the top 10. But when you look at the spread of the index across market cap bands, you can see that there is a heavy concentration in the top end of the market. So to put some context around that, there are around 2,000 listed companies in Australia. The all ordinaries represents the 500 largest of those, but the top 20 largest make up over 50% of the index. So they're really dominating the performance of the index. When you look at the Future Generation Australia profile, we have a much broader spread outside of the top 20, top 50 companies. In fact, something like 60% of the companies that are held by the managers we invest in are outside the top 50, and that gives us a much broader diversification. That diversification really helped us in 2025, smaller companies, the smaller company index had a really good year. It was up around 25%. So more than double the all ordinaries, the broader index. So they're having that diversity and that's spread into small- and medium-sized companies was super helpful for us and help to drive returns. If we go a layer deeper and look specifically at the very large companies in Australia, you can see, I think, on your screens now, the top 10 companies in Australia, quite concentrated. CBA alone is 10% of the index. If you add together big 4 banks in Macquarie over 1/4 of the index, they're very dominant companies inside the all ordinaries. Future Generation has exposure to those, but it's much less. We have closer to 8% exposure to the financials index -- the financials part of the index. and a much lower exposure to the top 10. So that enables us to spread the risk and diversify our exposure. That's particularly important at times when uncertainty is heightened. We don't have all of our eggs in one basket. We're spread across the market. So that's how the market is positioned now at how the portfolio is positioned now. And we think that's a sensible way to be positioned as we face a lot of the uncertainties, which I'm going to speak to Matthew about in a moment. So the other major objective that Future Generation Australia has is to do good. So we realize that we've got to do well for our shareholders first. But because of the way the model works, once we're doing well with the portfolio, which we feel we're meeting our objectives there, we're able to do a lot of good in the community as well. Because, as Geoff said, all the fund managers work performance and management fee free, a lot of our suppliers all work for free, we're able to make some very significant savings. In fact, in 2025, the fee and expense savings in FGX were over $11 million. That's a pretty chunky number. Of that $11.4 million, to be precise -- about $11.4 million, we were able to donate 1% of assets, which was $5.7 million to some great causes that support some people at risk in Australia. We haven't got time to go through the detail of all of the great organizations that we support, but it is worth having a look at our website. We've got all of them to all the not-for-profits that we support listed out, some detail about what we did in case studies of the types of children that we're supporting. So our second objective is to do good. As I said, last year, Future Generation Australia donated $5.7 million. Its let's been close to $50 million and when you look across the Future Generation network, more generally, $100 million has been donated to not-for-profits, and that's against a saving of $175 million. The difference, of course, as Geoff was saying, guys, back into the company, and it's to the benefit of shareholders. So that's the update on the portfolio. If there are any questions, we'd love them. I can see some questions coming through already. So please keep those coming. But we might turn to you now, Matthew. As I said, you've been a long-term supporter you've surrendered a lot of fees to our good causes. I do know how many, but I wasn't going to tell. It's not embarrassing. It's a good number. So thank you for that. It's really that transfer of be saved to the charities, which makes the whole model work. So thank you very much. A fantastic year last year for your performance. So thank you for that. Could you maybe run us through how did that any particular contributors? Any factors you saw that really helped you in 2025?

Yes. So it was a solid year. As you said, small caps did really well in the market, and we concentrate on small caps. Now we've got a lot of flexibility. It's out of the Geoff Wilson kit bag, keep as many options available as possible and it said in the early years, I watch it how he went about managing money in a portfolio sense. It has for us, it hasn't changed that much. So we can do a lot of different things. We can go as much cash as you want, and we can go into big caps if we need to. We can go right across the board. So last year was an interesting year. Like most of you are in the markets, but we had the tariff impact from the U.S. So in that period, we were highly cashed up. There was a reporting season and then end of February in the market just fell away dramatically into early April. At that stage, we were 35% cash. But as it became obvious that the U.S., we're going to back off on that tariff strategy, we [indiscernible] an opportunity because on the other side of the ledger was interest rate cuts from a macro policy. So we went back to 95%, 97% invested for us. That's about as much as you can get. We don't hear. And we normally have 45, 40 to 50 stocks. We don't follow an index. So we just pick the eyes out of what we think is working. Why we probably knock the cover off the ball was that what really drove the small cap world was the resources are mainly gold. And we don't pay we're always underweight that area. I've never been great investing in resources. So we did it slightly won arm tied behind our back last year, but that flexibility really helped us that asset allocation. We did -- a lot of our fund managers are allowed to do that, but we prioritize it. The other thing is that we're small. We're a $280 million fund. 20% of the money in the fund is the insiders, the 4 or 5 people that work at 5 people in the office for on the investment side. We've all got reasonable amounts of our money in the fund. And so we'll protect the downside as much as possible.

Because it's your own money that's right. You don't want to lose it.

Yes, exactly. And is a reason you said before that you want flexibility because a lot of the small cap funds at different times get absolutely smash because when liquidity dries up in the market. The small caps get hit harder for obvious reasons, that will migrate towards where the liquidity is, it's got a comfort area. The businesses are more developed and so on. So you want to be. So that really worked us. So on average, over the 15 years we've been going, we capture about 30% to 35% of the downside for the small cap market, and we get about 70% of the upside. And so if you mix that through with the portfolio structure we got, we should do net, and you guys it's slightly different because of the performance fee structure in that, we should do that 13%, 14%, a bit higher under Future Gen. And we've done that almost to the number. Now that's a bit of like. It might say me negative market is down 30%, and our numbers are a bit less than that or you get a more market, you'll go above that, but that's what we do. And my final answer to your question, where do we go? We're small enough to go where things are happening positively. We don't have to think 2 years and trying to guess where the world is heading. So what worked last year was CapEx. CapEx right out of the U.S. finding its way into Australia, data centers, electrical services companies. Also, there's a big CapEx spend in energy transition and there's big spend just generally in the mining area. So the CapEx side of Australia, which has been under fed for years, all of a sudden is now the dominant. And we stayed away as best as we could from the consumer or that part of the economy, which is about 60%. And it all changed in the end of the year when we went from -- we're going to get more in straight cuts next year to -- by October, it was saying, maybe there's no cut. And by Christmas time, we're going to get a rate rise, and that has been a huge impact on the market. The 10-year bond went from 4.1% to almost 5%. And at the short end, there were RBAs going down. We're not quite sure how much. We might get an interest rate increase next week. I don't know. And that's made the market really heavy. So in the last few months, we've gone very defensive. We've lifted our cash position. We're...

Do you know how much cash would be able to holding there?

Well, that 95% turned into about invested turning to about 70% to 75%. And we've got a lot more defensive than we 75% invested.

75% invested, so 25%.

It's not a disaster. It's not like in '21, '22 when rates, we didn't know how high they got because the rest of the world, we're putting rate up in a rapid clip after so low. This is more of an adjustment we hope, but it's enough to just sit back and watch it for a bit. And we've even invested in companies at the bigger end. It's not a dominant part of our portfolio. It's still small cap guys, but we've got a position in Woolworths at the moment. They're operating really well. It's food. It's not a bad place to park your money for the moment, but we won't hold it for that long. But things like that we're doing to move around and try and adjust. So I would say what we're doing today, you've got rates on the rise, that's a worry. Let's see where that ends. And when it does end, we'll switch again. You have a war in the Middle East that's causing a lot of anxiety and obviously, a bit more inflation with the oil price. You've got disruption with AI, which we talked about pre-webinar. We're talking about what it can do from business, but it's turning some business they have to stay away from the tech software. I think we're lucky enough to do that. And so at the moment, you want to play defense and protect your money.

So what is defense now? I mean the bank I mean I know you have small cap, but the banks looked expensive for AGS Resources, their leverage to global growth consumer potentially risk interest rate rises. Is it hard to find...

It's narrow, but CapEx spend. So we've done really well out of mining services because the miners are spending a lot of money. There's been an underspend from Australia's big -- the culprits actually BHP, Rio Fortescue and a few others. That is going ahead and the plans for the next 2 or 3 years are enormous spend in that area. The AI spend is accelerating and those CapEx budgets sort of coming out of the U.S., those unbelievable numbers that we hear about, and it's going to get to $1 trillion from -- it's like it's back like the days from the dotcom burn except back then, it was the equity markets that were dolling up the funds to get these. Now it's the big U.S. tech companies that have just got so much cash, and they're just pouring it in. Where it ends, I don't know. But all the companies we speak to soon, it's accelerating. So you stay with that trend. That's Southern Cross Electrical, that's Genus Plus, which also do energy transition. That's SKS Technologies. And then there's just a general CapEx spend. There's the Southeast Queensland is flying and in the Olympics are not paralyze companies like Wagners. So at the small end, there's this smattering, but you've just got to maybe just -- as I say, it's the CapEx cycle that's working in your favor, but you don't want to be in financial, so you don't want to be in discretionary retail, in particular. You just want to buy a bit of defense. And then we'll do a few turnarounds like we've been in Tabcorp. So Gil McLauglin's there. He's coming in, and it was poorly run. There's costs to come out, and there's revenue gains to be made. And it's a business in decline, but it can be a lot healthier than what it is. Valuations, all right. We'll play that. I mean it doesn't get as...

Has he done a good job?

He's doing a good job. It's probably only halfway through. And he's identified what needed to be done is implemented is a great politician required. It requires everyone in the industry to come on board, politicians and everyone because gambling is a sensitive thing like wagering. And I mean some time won't invest in that, we're okay with it. That's fine. We'll move ahead with that. It's more of a turnaround. There's a little bit of pieces like that, and you put it all together. So we don't follow an index. And when we're a bit nervous, sell some things out that aren't working, take a bit of cash, don't be too nervous about the fact that markets are jumping up and down. You come in, you got 25% cash. The market is up 2% or 3%. One day everyone goes, oh, we're not invested enough, but it's still got that volatility. It will come down. I'm actually quite bullish on the markets. And the main reason about that and maybe I'm preempting some questions is I think the interest rate cycle in Australia will level out. But in the U.S., once the Middle East -- I think the Middle East is temporary. There's only so much appetite from all parties, hopefully, and that will go in the next 2, 3, 4 weeks. Oil will settle down, and we'll get back to where the U.S. actually needs to cut rates again because the economy is not that healthy. The consumer is not doing that well. We got an election at the end of the year. We would think there's more rate cuts to come. Good for equities. So I think -- now the biggest market in the world, if everyone behaves themselves, will pick up at the back end of the year. That's the dream.

That's great. To hear some optimism. Fantastic.

How many change? We're a amount. Yes. You never different.

I guess though, as you say small enough to be able to get in and out some of those positions relatively quickly if you mind changes on some of that stuff or there's some other -- because the world has changed a lot, as you said, since...

Since October last year, it is a different market. 4, 5 months how out of the tariff saga and the Liberation Day, whatever you want to call it, it was just one-way traffic was straight up, which was great, but it's changed since then.

Yes, fantastic. All right. Well, you covered the broad-ranging answer just about everything I had here. So let's turn to the there's quite a few questions coming in from shareholders. Let's answer this. The first one is from Casey. What is the impact of the Middle East war on Future Generation in Australia? Maybe -- I mean, that's a difficult one to answer.

Yes, you answer that.

Matt's just sort of covered off a lot of that, but from -- the answer is I don't know, but the way that we try and manage that risk is through diversification. We're hoping that we've got enough of a spread of strategies, enough of the spread of opinions amongst the fund managers who we use to make sure that all of those uncertainties out there, a lot of which Matt's mentioned, things like the oil price inflation, bond yields, what's happening in the U.S., private credit, all of those things...

That's why I didn't mention private credit. We like worries though. Worries the market.

That's right. And there's always worries. I mean there's always been. So yes, there's enough spread in the opinions and the positioning of the fund managers that we're invested in so that we feel we've got a balanced approach to -- however that ends, but we don't have a view on how that would end. There's a couple here for you, Geoff. From Gary is asking to explain the profit reserve and Peter is saying, I'm invested like the income. Will dividends remain an increase in the future. They're probably similar questions.

Well, the -- because we've got a company structure, there's a list of investment company. Then when the value of the portfolio goes up, then on a monthly basis, the Board can then whatever increase, say it's $100 million. The portfolio goes from $100 million to $120 million over a month period. Then, what the Board does is that $20 million change in the value, we put it into the profit reserve. Now if then the portfolio dropped from $120 million back to $100 million, then -- and it stays there for the full year, then we actually -- it doesn't come out of the profit reserve, but you've actually made no money. So in your -- in the balance sheet, it will have a $20 million profit reserve and will have retained losses at $20 million. But one nets off the other. So effectively, a profit reserve is a structure that is more an accounting structure that allows you to have confidence as a Board that you can pay dividends because the Corporations Act or the tax guys so that you need a profit to pay a dividend. For it to be franked, you need -- and they call it a booked profit and that's why we do it monthly, so it be booked. And also, if it's fully franked, you need franking credits as well. So what you might find is that the profit reserve could increase a lot. We could have retained losses as well. And then you'll say, well, why don't you pay it all out as dividends is because we actually don't get the franking until we get the distribution from the fund manager with Frank from the shares that he owns or we pay tax inside Future Generation Australia. So it's not a simple concept. It's just to be aware of it. The fact is the profit reserves there and what magnitude is it at the moment?

It's about 6.3 years.

Yes. So what dollar amount, whatever.

$0.0045 I think, 6.3 years.

So you as an investor can be confident that we can keep paying dividends at least at that rate for 6 years plus. The plan is to gently increase them. And -- but our ability to pay the fully franked dividends means we need to make some money and pay tax or get distributions from the funds in terms of how much franking?

We carry a couple of years.

We like to have about 2 years up our sleeve. So there's a confidence now obviously, their Board decisions. I'd say if the market fell significantly over a 12-month period, the Board may decide to cut the dividend. They don't need to because the profit reserve there and the rankings there. But yes, to me, they're all Board decisions. Does that answer them both?

Yes. I think so. So I think, yes, in terms of certainty of the dividend, you can have some confidence because there is a profit reserve there. There is some franking on the balance sheet.

But it's one of the great things about the list of investment company structure, these -- I mean these investment companies are never going to grow at the right ETFs. ETFs are open end of pools of capital. So a lot of money can flow in also a lot of money can flow out, and you don't quite know what you're going to get from an ETF in terms of dividends or distributions or distrust of the distributions. Yes.

Yes. So there's a question here from Craig, which sort of opens up, I think we were just referencing to, does the current portfolio allocation include any exposure to private credit debt or non-equity alternatives through the underlying managers? Or is it fully focused on Australian equities. Well, the answer is it's focused on Australian equities, but we did just mention private credit, and it's a bit being written about that Canary and coal mine being referenced quite a few branches.

You want something you work about.

Well, yes. Look, there's 2 ways in my mind that private credit can come unstuck. One of them is a recession or a bad cycle and so there's a lot of bad debts, and that skill any lending business because you end up having to pay up more capital and so on and whatnot. I don't think we're going through that at the moment. But the Americans are hitting what is the other risk, I think, which is the liquidity events. So what you've got is investors like moms and dads now, which are a bit more nervous previously that was just institutions. But in the last couple of years, they are structured products for moms and dads. And once they get a bit nervous, they want their money out. The assets that are being funded within those businesses can't be liquidated in that short time frame. So they've got a mismatch and assets and liabilities. And that's where you get gates go up and capital being stuck in there, then they got to sell assets, which hits prices again in terms of the asset prices. It doesn't feel too bad at the moment. There's been a couple of frauds, one in the U.K., but not in the U.S., that has got a bit people a bit nervous where they place the assets 2 or 3x the same assets, which brings most is needed stuff like that, but that's isolated to that the ones in the U.S., which are the really big ones. And they are meaningful, but people are saying it's not a big enough amount of money in the U.S. to really send a shock way through, but it can definitely cause a lot of anxiety. And at the moment, it's that mismatch between assets and liabilities and the investors are trying to get their money out, but then not being able to get those distributions because of the assets can get a lot worse if there's bad debt.

And in terms of the Future Gen portfolio has no exposure not direct.

But you can invest with listed equities in Australia and you then you can invest in things like [indiscernible]. Now, there's no problem to quality. They're very good operators, but you can invest in financial. There's a version. So you can do it through the ownership of the companies that are lending, the one who manage the partners not director.

Yes. But in terms of Future Gen.

It's where invested with equity managers who are buying equity. Those equities that they invest in have somehow.

I don't know the seats on that. I imagine it's time.

If it was anything. But as you said, like there could be one listed here that's been sold off significantly and a countercyclical matter, could buy a little bit businesses.

I mean they're really businesses.

Yes, would be point nothing of the portfolio.

Yes, I imagine so. yes.

What were there was private credit? What were the other things that they...

Debt, Non-equity alternatives. So no we don't have any of those.

All the money is with equity managers. And does it have a skew to mids and smalls, which you showed?

Yes.

And that's been challenging in the last month or 2.

Yes, that's been challenging. I mean the other thing to say is that because we're so diversified, our largest exposure typically tend to be 2% or 3% most of the whole portfolio. So among those smaller players who have some exposure to private credit, the overall exposure for FGX would be relatively small yet tiny.

But none of that -- we're not aware of any of our fund managers that have -- look, they don't have private credit funds?

No, no. No, I think you can safely say that negligible exposure. From Gary, what is the selection process criteria for choosing fund managers? Maybe I'll just have a crack at that one. So we're very lucky in the support that we get in Future Generation in Australia in that the investment committees that I get to work with include some great people, highly experienced people there. CIOs, superannuation funds, their fund managers, their institutional asset consultants, they're highly experienced, highly credentialed investment professionals. They've helped us to develop a process for selecting managers, which is extremely robust. We basically white label, we borrow some of the best institutional asset consultants processes to help us do due diligence on managers. So I spent a lot of time meeting with fund managers. We try and make sure that we're finding the best ones we can possibly find. We then put them through a very extensive and probably quite painful for them due diligence process, lots of paperwork, lots of DD. They meet with the investment committee at least once everybody gets to us than the questions that they want to ask. And then we use some quantitative models, which we also get for free to make sure that if they're a great manager, they may still not fit ideally within the current portfolio. They may not be additive to the risk return profile of the portfolio. So we use some quantitative tools to help figure out the best allocation, if any, and then the investment committee approves that. So it's a pretty detailed process to get and difficult for fund managers to get into the portfolio. And then once they're in there, we meet with them all very regularly. So I meet with them frequently. And then when there's a problem or a reason to sort of ask more questions, we get them in to meet the full investment committee. And that could be anything from their returns aren't what we would expect the worse -- either significantly worse or significantly better than we would expect or there's been some changes within the people managing the money or something like that, they'll come into the investment committee, and they will be reviewed. So we're not per se worried about individual manager performance at a point in time because we would expect, given our diversification. Some managers to do well at some point in the cycle and some to do less well. But by balancing it out, we had to do smooth the returns and do well through the cycle. But if they're doing something which is not what we had modeled or had expected, we would certainly look in a bit more detail.

And in terms of how many managers have we had?

So we've currently got 16 in the portfolio. We -- over the life of Future Generation, we've changed somewhere in the mid-20s, managers in the mid-20s. So people do leave the portfolio from time to time and new managers come in. And that's just to optimize the portfolio for what we think the outlook and to get the best balance in the portfolio. So yes, we're active -- we actively manage them. We also actively manage the weights of the managers that we have in the portfolio. So you may be a high conviction manager with a large percentage, but we might reduce that times in the cycle. We also reduce if the manager does really, really well. The their weight in the portfolio will go up or naturally trim that to make sure they don't become too big a part of the portfolio. So it's quite an active quite an active management. For Matthew from Sarah. When it comes to the traditional Australian blue chips, do you believe the still deserve blue-chip status? Do you hold these? And are there any companies that you think should be treated as blue chips as a staple for a portfolio and maybe aren't?

Yes, never kind of grasp that idea what a blue chip is because every business is a business is as much as they can outperform. They can underperform their fragile Yes. So look, there are some terrific companies in Australia that have gone to test of time. The banks, in particular, BHP, Rio, they've been around it a CRA and RT and all these, but in the same assets over time. But the majority of companies have their moment in the side. And that's why we like being stock because you try and pick that moment a catalyst. At the moment, one of them in that blue-chip level, which became in everyone they got into everyone's portfolio over the last 15, 20 years with [indiscernible] and today, it's underperformed dramatically. And so stocks like that make every one question, like Sarah just said, are they blue chips. I would say that you have to be aware of every stop that you've got, and nothing really is bulletproof. And there's no that idea, you put them in the bottom drawer and open the month, 10 years later, and they've gone up, you've got all the dividends, they're the minority of companies, even at the big you have companies that come from nowhere. Look at Goodman Group, used to be Goodman, all those years ago, I want to break a food company that pivoted into industrial warehousing and became a global player and. Now it's struggling a bit, but it went from nowhere to something to. Business a very dynamic change. So I wouldn't classify anything as a blue chip on any income.

On the other side, green chip you going to become blue chips have you got any of those for Sarah? Yes, it's always tough what's just out of the I'm just trying to think.

Maybe we come back to you.

The tough thing is it tends to be a company that's growing very rapidly. And we know with companies growing very rapidly. there's usually Well, they're taking a lot more risk.

You are. And here's the hesitancy in what I said. If you asked most people 12 months ago, what's our next blue chip they'd probably say things like WiseTech or ProMedica, global businesses that have got a niche, huge returns on capital and growing nicely and that's what you want. I mean that's the Buffet ideology. What everyone wants to find. Well, guess what happened? They've all halved, down 60%. And you had a terrific run and now they've halved. Mostly will think it's been solidified this idea that you only need a handful of companies. And Australian investors have changed over the years because they've been able to access borrow markets a lot easier than they used to. So everyone now seems to have Apple Microsoft, Amazon, Facebook in their portfolio, the magnificent 7. In 10 years' time, they all of them might have had terrible decades. Things that will change all the time. There was only 1 company after 100 years that we're still in the Dow out of the 2, and that was GE. And we know what's happened to GE. It's been kicked out since then. 120 years, basically got dismantled. So no, I don't know. It's hard to [indiscernible].

I mean I suppose one thing we do know that in the blue chips and particularly...

They're liquid, I like that.

Yes, yes, yes.

You've been trying to change your mind here.

Look at Australia, like the banks like they're just great franchises. You've got an oligopoly.

Yes, it's with the banks.

I know they're expensive.

The journey since the GFC is quite interesting, right? That used to have higher credit growth, higher returns on their equity because they're very leveraged businesses. Since then, there've been the regulators that made them higher -- hold a lot more capital. So the returns on equity have come down. They've made them go into residential real estate rather than across the board a lot more and their multiples have expanded. So against financial...

If wouldn't normally think because it's reducing growth.

Yes, it's against that. Reducing your returns and growth but they're less risk, and I think that's why you've got a few more PE points out of them. Commonwealth Bank has got a 3x book. It's expensive around the world, but heavily regulated, dominant in its position and it's also, as we look to Geoff -- I remember having a conversation with Geoff at the time, I said, do you think these banks can re-rate because they're government backed. They're too big to fail. And you said, well, not the equity.

The equity can [indiscernible].

The institution can stay there. And I do thought, yes, you're right. Everything can just [indiscernible] right. So the long answer is not [indiscernible]

Yes, great. But this one I really like. This is again for you, Matthew. You started your career as a journalist. How has that helped you to become a portfolio manager?

Well, I started as a journalist, but as Geoff picked up when he hired me, he said, oh, you did a law degree. We'll go to market with that Well, I did a law degree. We'll go to market with that.

You did a law degree. So obviously, you've got a great way of thinking. To me, that's just degrees.

And economics degree and economics law.

And also, you actually did have an operating business. that you worked in business.

Yes, my wife had a cafe. Well, we had a couple of retail shops.

So you understood business.

Businesses were interesting, and I grew up on a farm, which is a bad business, but we always talked about business. So yes, there is that conversation. In terms of journalism, I've gone into journalism because there was no jobs for me. I came out in the early '90s recession, done a lot degree. And I thought, journalism sounds all right. I've never invested in the share market, never had me money, wasn't in the family, but I started reading stuff about the share market. I was interested in economics. And I got a job out of Campbelltown for a year on a general newspaper, which was terrific learning experience and then got a job in the business section at the Sydney Morning Herald. And that's where I met people like, Geoff. It was a new world to me. What did it teach me? There are a couple of things you do get out of it. There's been a couple of journalists that have done really well. Alex Pollock, who Geoff knows. Alex was a journalist briefly. John Sevior, who's now retired. He was a journalist. So there's a few of them. And it teaches you basically two things. One, it teaches you -- as a fund manager, you sit in the middle of a lot of information, sources everywhere companies, brokers, industry people, other fund managers. And you've got to distill down to what things are actually important from all that information you collect. That's what a journalist does every day. It collects a lot of information, what does the article look like? What are the key points. So I like that, sorting information. And I suppose the other thing is you interview a lot of people and you got to be skeptical. So fund managers always have this excuse, the guy lied to me or the person lied to me or the company, they're fraud. Part of your job is to try and pick that up. And it helps on that front.

And you're very good at collecting information.

Am I?

You're not journalists.

That's what you're doing. You're on the hunt all the time for information because that's what interests you. So that -- yes, I agree.

Which helps in terms of trying to work out what company is worth, what are the drivers for the company's profit.

Curiosity and what's going on.

Yes, it's all about that information.

Yes.

There's a question from Peter. What is the FGG and FGX annual returns since inception? Well that's a great question, Peter. You've given me the opportunity to point out that FGX has outperformed over just about every time period, so 1 year, 3 year, 5 year since inception.

Does that answer the question?

No, I'm about to, but I want to be. So over the life of FGX, it's delivered 9.8%, I think, is the number, which is about 1% better than the index has done over that period as well.

With less volatility.

Yes. Over that period, 17% less volatility. So you'd expect there to be a direct relationship between volatility and returns.

So you expect it to be 17% worse than the market where it's actually been 10% better.

Yes.

It could be a study in that one day. How did they do it?

Diversification.

You need a PhD.

After deciding on a fund manager, do you also decide.

FGX...

FGG, I think, is 9.5% since inception. A little bit below the benchmark. I mean I don't going to FGG at the moment. The global market has been very highly concentrated amongst a small number of companies, which is a risky position for a low volatility fund to try and take. Where was I? From Kate, would you consider FGX as a bottom of the draw stock. I guess -- I don't know how to answer -- that's kind of what it's designed to be in some ways.

Yes. Look, it's a diversified portfolio. Yes. To me, like it can be the top drawer or the bottom drawer. But in theory, you're taking a medium, long-term view. I mean, first of all, you're buying $1 of assets at $0.92. So you're getting a free kick of that 8% discount. And one day, it will reflect $1 or if not, as I mentioned earlier, more than that. And it gives you a really nice diversified portfolio of fund managers that you've got a professional investment committee that's looking through the data and works in the industry all the time, talking to -- and selecting people like Matthew at Centennial to manage part of it -- and there's FGX, there's 16 of them that are spending 100% of their time.

Definitely a lot more bottom draw than an individual stock because diversification. Stock picking is difficult. And everyone has to go at it. But at the end of the day, this product gives you great diversity, both managers and the underlying assets. So it's terrific.

Yes. And really the structure, like a lot of people think of ETFs. And to me, an ETF, if you know nothing about the market and just want to get exposure to the market, then buy an ETF. If you want to do a little bit more work, and I sort of call a listed investment company the thinking person's ETF is because you can do some really basic analysis, which we've done for you and told you what the NTA is. And you can work out you're actually getting a good deal by buying it cheaper than that.

There is a question here from -- I think that's Angel, but I might have that wrong, sorry. Any plans to increase AUM given there might be an opportunity to purchase good companies at a good price when volatility increases? I guess that's a good one for you, Matt, in the sense that you said you're holding a lot more cash at the moment. Presumably, that's partly defensive, but partly to take advantage of opportunities as they come up.

Yes. So we look at it maybe over -- as I said, we don't like to go too far out. So we look at over the course of this year and what lines up is what things -- there's always something going on in the market. So you never get an absolute clean run, but there are moments where things get better. Like I said, last year, it was when you pick the pivot on the tariffs because everyone got so obsessed by the tariffs are going to lead to a recession in the U.S. and maybe globally. And then that changed and then the relief factor went ban. And that's what you're looking at. So maybe the first step there is the situation in the Middle East. As I said, I don't think it's got a long phase. The Americans haven't gone in there with the idea they're going to be there for years or so they tell us. So let's hope that, that ends fairly soon. That's a relief. And as I said, then there's the interest rate environment, which is the earnings and interest rates are the main drivers of markets. Earnings okay at the moment, but the interest rates are weighing heavy because we're not quite sure how high they go. It affects not only the valuation of companies, but the future earnings of companies because it slows down the economy. It's got that double whammy. That can level out, flatten out, and we don't go into a recession, probably not a bad scenario for the period, as I said before. And add to that, the U.S. will be cutting rates hopefully in the second half of the year. Now as I said, that can change, but that's the scenario that we kind of think that once we get through this period, it could be a nice inflection point, we would try and invest our money as best we could with the best ideas we've got to take advantage of that.

And we're putting a Future Gen directors hat on is that we're trading at a discount to NTA. So we won't be raising any money at this point in time. If we get to a premium and we're there for a little while, then maybe we will. How would we do it? Obviously, it's a Board decision. It could be an SPP, something like that. And then they have more capital to give to you guys.

But the idea is to grow it over time.

Yes, yes. And which like when we -- it's $620 million of assets now when we floated it initially, it was $200 million of assets. So in theory, to grow.

Yes. And I guess I...

But we need to get to a premium.

The other opportunity, I guess, for active managers at the moment is that there could be quite a good setup here in the sense that markets have been quite concentrated, big divergence between PEs of some companies and others. It kind of could be classic active management kind of territory pretty quickly.

It could be. And what I like about active managers is generally what goes up for a year, everyone eventually owns that.

The active manager or everyone.

The active managers. Normally they eventually -- because the market draws you when you have, you're going to perform you and you. But if you're small enough, and that's what we pride ourselves on, our idea is to stay around that $300 million mark for the small cap, mainly small cap Australia, you can pivot quickly enough to go somewhere where you need to be. And hopefully, that delivers pretty constant returns or consistent returns.

There's a question from Mark, which I feel is going to give Geoff the opportunity to increase my KPIs. But anyway, I'll ask it. The vision for Future Generation was to get to $100 million in donations by 2030. You're already there 5 years ahead. What's next?

Well, it's funny, when we got to $100 million. The tough thing is you think $100 million is a big thing. Well, when we created Future Gen what, 10, 11 years ago, we thought if we raise $20 million, so that means we'd be giving $200,000 a year. That was one of our goals. But then when we got bigger, we had a bigger -- I know I shouldn't probably say it, but like you got to say $1 billion.

Well, yes.

That's got to be -- in theory, these entities have, at some point, it might be in my lifetime.

What am I...

68. -- made it to 87. So I think I'm about -- I get 95, 96. So I don't know if we'll get to giving $1 billion away by then. But that would be nice if we had.

Yes. I think...

It's not about giving it away or sorry, donating the money to the charities is -- and I know we're talking about investing. But if anyone who's invested -- look, we've got shareholders on. So thank you because you're all making this possible. And everyone here is making it possible is -- and when we set this up, I think if we could just save one person's life, and it was our children at risk, youth mental health, they are enormous problems. They get worse. We talk about technology and investing in it, that's great. But we all know the negative, the downside impact of that. And we've all probably had personal or ourselves or seen it or with friends. And to me, like just hope that luckily, we've had the generosity of everyone that's been involved to create an investment vehicle that may have saved someone's life. And if it saved one person's life, then we've succeeded. Yes.

I think in addition to that, if I just put my investor hat on, and Geoff and I like this a long time ago was that people like to be involved with growth stories. And it doesn't have to be extreme growth and growth done taking too much risk. But the Future Gen vehicles are a growth story that you're going to grow the business. And that's good to be associated with. And we weren't a number of years ago, we kept buying back stock in the Wilson products. At the end, that wasn't -- people wanted to see a growth story. So good for investors.

A question from Amy. I'm new to Future Generation and thinking about buying shares. Can you explain how it works? Well, it's really easy to buy shares in Future Generation. They're traded on the ASX. So you can buy them through any online broker or through any high-touch broker, full-service broker that you're aware of.

If you want to not pay brokerage.

If you want to not pay brokerage, which a lot of people don't want to pay, I say as a former broker, ComSec rebate your brokerage when you buy Future Generation. So another little incentive to use them. There's from Bill, I think.

Yes. So you just buy shares.

Just buy shares.

Buy shares on the stock market.

You can sell them whenever...

FGX for the Australian one. If you want global equities, it's FGG, depending on what exposure. And then you get a fully franked dividend on a 6 monthly basis.

Exactly. And as part of our philanthropic efforts, you get also to have a say in where the donations go. You can look through on our website the not-for-profits that we're supporting and vote which one you'd like to be supporting. A question from Bill. Matthew seems bullish at the moment. Geoff is often bearish. What's Geoff feeling at the moment?

To me, it's all the second order effects. The -- and particularly the run on the private credit. To me, that's going to be fascinating because the unexpected consequences of what that will do in terms of -- and my sort of -- what I've seen over time is when the -- when people gate stop you from redeeming, it tends not to be a good end result. And one is like someone is quite topical at the moment, Bill Ackman, who's floating his management company at the same time as doing an LIC. The last couple of days, he lodged the prospectus.

For his management company.

For an LIC, but you couldn't get away last time say he's putting some of the management -- he's doing what Rob Luciano did with VGI at some of the management company staple to get people to put money. But like I remember going and seeing them off before this is when that Pershing Square, which is his management company, gated people.

Yes, yes.

And I don't know, I can't remember they had $6 billion then or $8 billion or $9 billion. I was reading the prospectus the other night, $900 million in that fund. He's got his listed investment company, which is listed in Europe, which has got $15 billion or $16 billion or whatever it is. But when you gain things -- and so you got all that -- the billions of dollars that's created liquidity for certain companies, I'd like to see what the negative impact of that is -- I mean there's no doubt the war will finish at some point in time. I know our guys, Matt and Damian think next week or so. I know you were saying next couple of weeks. And we've seen by the oil price that are saying things are going to change. It's fallen from the peak it got to. Obviously, there's the inflationary -- the negative impact of the inflation that's got to play through. And then to what extent the market is going to look through that. Yes. So to me, I'm just -- I'm a little more -- well, Matt, you've got 25% cash.

The market it's tough, yes. I'm kind of looking out 2, 3, 4 months. There's no doubt what's happened in the Middle East. The war can end. It might take a little bit longer because there's more than one player just because the U.S. says it's over, it doesn't necessarily -- it means it over. There's also a lot of damage being done. And I'm no expert because we haven't seen this quite happen before, but they've got to reboot a lot of the production. It could take several months. But as long as the market knows that's happening, [indiscernible] but the private credit stuff, let's just hope that -- I haven't got a lot of faith in U.S. regulators. They're pretty loose, but let's just hope they're getting on top of that and they're tightening everyone up because we've had that canary in the coal mine. A couple of cold caches run out, I would say. So yes, let's get back to normal transmission hopefully.

Back to Bill's question. Yes, what I have learned is that -- and I know Katrina, who runs our global fund gave us all a book that showed, I think, over a 20-year period, it looked at the U.S. market. And if you hadn't invested -- if you missed the best day a year for 20 years, so it's only 20 days of performance, the market over that 20-year period, if you just invested at the start of the 20 years and at the end of that 20 years, you made about 8% per annum. If you missed the 20 best days, your return, you have made no return, whatever the money you put in at the start was the same at the end. So even though you can feel negative today and you think, I should sell everything. And what does the average investor do? And Matt talked about a little earlier, is the average investor gets about half the market performance. So the market does about 10% per annum. The average investor gets 5% because what the average investor does, he tends to buy when things are going really well. And sort of when things are tough now, he tends to sell. So yes, so to me, what have I learned? Is it market timing or time in the market, time in the market.

Bill. There was some optimism there from Geoff Wilson.

Don't listen to what I've said, Bill, just stay invested.

Yes, that's fantastic. Well, I think we're at time there. So we might thank everyone for joining. Just a couple of other a couple of things to highlight. I think Geoff mentioned Bonnie in his opening remarks. So Bonnie has joined us as General Manager in Future Generation. She's been with us about a month, I think, now. She'll be coming on the roadshows with me. So she joined us from the Acker Foundation. She's extremely well credentialed, and you'll be seeing a lot more of her. We've got some roadshows coming up. They're on your screen now. We'd love to see you at any of those. You can register using the QR code or from our website. But before we say goodbye, I'd just like to say thank you again, Mat, for joining us.

It was a lot of fun.

Yes. Good to chat. Good to see you.

Yes. And Geoff as well.

Thank you.

And thank you all for joining us. We'll see you next time.