WAM Global Limited (WGB) Earnings Call Transcript & Summary

Good morning, everyone. It's Geoff Wilson speaking. Look, thank you very much for calling in. We had a shareholder call 2 weeks ago, which was -- we actually had a record number of shareholders calling in. And just because of the incredible heightened volatility and how the market's moved -- well, how the whole economy has moved significantly over the last couple of weeks, we thought it made sense that we had another call. We've had a lot of shareholders calling in, and we really thought it was an opportunity to communicate effectively with everyone. There's myself on the call and the other lead PMs, Catriona Burns, Matt Haupt, Oscar Oberg and also James McNamara, who runs the shareholder engagement communications area. He's on the call. And of course, look, thank you, everyone, for sending the questions in, and we'll try to cover them all. It's quite strange that we can think back 2 weeks ago when we had the call, we were all in the office and Catriona was in Paris. Obviously, since then, she's come back. And for the last couple of weeks, soon after that call, we've all been working out of the office. And in terms of how we've been working out of the office, the -- it is -- it takes a day or 2 to adjust or a period of time to adjust. Luckily, we had already tested that out before we came out working out of the office on a consistent basis. And what we do is, each morning, we have -- on Skype Business, we have a video call with the investment team. Each of the areas of the organization have continued open video communication with each of the teams on a regular basis. And then once a week, we actually -- it's -- this afternoon, just after 4:00 each week, we have the 34-odd employees. Historically, we've been using Skype Business. And today, we're using Zoom, so we can see each other and communicate. In terms of the current market environment, obviously, it's I think challenging on another -- a number of levels. Normally, an equity market that's falling a bear market, I'm incredibly excited about. From an investment perspective, I still am, from an investment perspective, I think the tougher thing in this current environment is just the -- not only the economic pain, but the human pain and disaster that's occurring because of this virus. What we do know is we will get to the other side of it. We will know -- there will be vaccine developed. And there'll be -- herd immunity will increase. And in a couple of years' time, the -- or at some point in time, this whole process will not be as daunting as it currently feels at the moment. From an investment perspective, in terms of the various e-mail questions that people came in with, a lot of them were saying, "Look, what is your current NTA? Your cash levels? Profit reserves? And if you go to Slide 6, which we've announced to the market, you'll see the NTA as of the end of -- as of last night, effectively of the various funds, we've also shown you the cash levels. Now you'd be -- you'd see there that the WAM Capital -- the companies that look at sort of exposed to more medium-sized -- the medium and smaller companies, there's less liquidity in those companies, and there's probably a bit more volatility. So the cash level has been increased there. And you'll see in Global and Leaders, they have lower cash levels and, say, WAM Capital, WAM Micro, WAM Research and WAM Active. And that's really a function of their portfolios are highly liquid, so they can change them from day to day. And you'll see Leaders as of yesterday, had a little over 7% in cash. If you went back just less than a week ago, it was 15% plus in cash. So the matchability to move that cash around, there's a lot quicker where Oscar and his team, with mids and smalls, it takes a period of time. And also, when there's been a big adjustment, when you're changing the portfolio, and Oscar and Catriona will talk about that a little later, it does take quite a lot of effort. And there's -- just in these periods where there is a lot of change in your restructuring the portfolio, it's just -- there's a lot of work that goes into that. Now in terms of the dividends, a lot of -- there were a number of questions about what's happening with the dividends. All -- you'll see on Slide 7, all the dividends that we've announced will be paid, and you'll see the dates there because that was for the period -- the 6 months earlier. And in terms of our ability to continue paying dividends, that's really a function of profit reserve, profit we end up making and also tax we pay with franking. Now in terms of how the profit reserve works, the -- I mean, with the current volatility in the market, who knows what the market will do. But assuming the market stays around these levels toward June, then the profit reserve -- our ability to put profit into the profit reserve starts again from the 1st of July. So that just gives you a bit of feeling of what we've got there. And the profit reserve is we have the ability to put money on the profit reserve or to put -- to increase the profit reserve on a monthly basis. And it really, as I mentioned, resets on the 1st of July each year. The -- in terms of -- look, why don't we now go to Catriona, Matt and Oscar and just talk a little bit about how they've adjusted the portfolio over the last little period. And probably before -- actually, before I go there, what are we looking at from an investment perspective? We know that -- and I suppose where are we? And Matt circulated internally to us, which we've put in the slide pack, a very nice sort of the cycle of market emotions. And when Matt flipped it around to us last week, we felt as though we're in the desperation panic area. Now we're probably just in -- we don't think we've gone down to the -- or actually, the fear and desperation area, we didn't think we're in total panic. So we currently think we're still in that area. So in terms of the market, what you're seeing is you're really seeing the battle between the market in terms of adjusting to the significant economic impact that the coronavirus -- the fact that there's been the forced shutdown of significant parts of commerce globally. The impact that will have on corporate profitability and then also companies. And we've been adjusting the portfolio. So we've got companies that will survive during this period. We've purposely adjusted the portfolio moving away from companies that have significant debt in -- that's due in the next 12 months because we saw that in the GFC. Those companies tend to be at high risk. And to companies that will -- to either cash levels or companies that we believe will come out of this a lot stronger, we've also positioned the portfolios to benefit from the capital that will be raised over the next 6 to 12 months. We saw during the GFC, it was over 10% of the market's capitalization. It was raised over that period in terms of recapitalization -- recapping a number of companies, and we're starting to see that already with some equity raisings. And we think there'll be significantly more equity raisings over the next period of time. And we want a portfolio that's incredibly well positioned that when we do get to the bottom of this bear market, then we can really perform on the way up. And really, what I believe in investing, it's not -- when you get hit -- we expect the creative bear market, it's very hard to forecast those or see them. It's really to adjust the portfolio. And it's really not about losing money in the bear market, it's how quickly you make it back on the bull market. And back -- during the GFC, we all took a bit of a hit in the bear market. But it only took us a couple of years to make that money back and go above that, when the overall market, on an accumulation basis, took over 6 years to get back to where it was. So the team has been adjusting the portfolio to have the stocks that we want. They've also done a detailed list of companies that we want to be exposed to when we have a bit more confidence that the market has bottomed. And in terms of going back to the market, so what we've got is we've really got the battle between the impact on the economy and the impact that has on corporates globally. And on the other side is you've got the monetary authorities and the fiscal authorities being incredibly responsive to try to create a bridge over this period. Whether they'll succeed or not? The question is out. And then how long will this period be? Of course, the question is still out on that. So why don't I go to now to the lead PMs. Why don't I start off with Catriona in terms of how you've adjusted your -- the portfolios?

Yes. Thanks, Geoff. So on the call earlier in March, we talked about how we'd increased the cash level from around 5% in December 2019 to about 10.5% by the end of February, and we're now sitting with cash at about 19%. Whilst we have held various core positions, we've been adjusted -- actively adjusting the portfolio since coronavirus occurred. In our view, we think there will be long-term consequences of coronavirus and really how people live their lives. We expect more automation, more diversified supply chains, more online shopping, more working from home with faster moves to the cloud and more use of video conferencing and then increased thriftiness as the unemployed have to get through what will be a tougher period. And as such, we've adjusted the portfolio to take advantage of these thematics and the new reality that we are all living in. So back in February, we quickly moved to reduce the exposure to areas such as travel, outdoor entertainment and retail, which we thought would be significantly affected by the coronavirus. We saw names such as CTS Eventim, Booking.com and LVMH. Now whilst these are really high-quality businesses, our view was that their share prices at the time were not reflecting the new reality they were facing. They've since seen significant falls, which means we can now look at them with fresh eyes and decide whether we think the downside risk is now priced in or not. We've increased the liquidity and added some larger stocks that we thought could potentially benefit from the shutdowns or which we're well placed to weather an economic downturn. We sold stocks where we had even the smallest concerns on balance sheet and cyclically exposed stocks, such as American Express, Airbus and United Technologies. And what we've done is we've added positions in stocks that we thought would do well in this operating environment. And these include certain FMCG companies, like Nomad Foods and Nestle; food retailers like Kobe Bussan out of Japan and Costco in the U.S. We've taken the view, the indoor entertainment businesses should do well in this environment. And we've added positions in global gaming businesses such as Activision, EA and we already own Ubisoft. We also already own Tencent out of China that we've added to this holding. We think the payment space is one with structural tailwinds. And the push this virus provides to online shopping will help this transition occur more quickly. And so we've used the sell-off to add positions in PayPal, FIS and Visa. And finally, we've added positions in companies that we think are relatively recession resilient, such as Dollar General, Lowe's and AutoZone.

Thanks, Catriona. Matt, do you want to just give a bit of a feel of how you've -- how you're dealing with this volatility with the market? And how you've adjusted the portfolio?

Sure. Thanks, Geoff, and good morning, everyone. I hope everyone is doing okay in their isolation. So the way we managed the portfolio Leaders through this crisis, and it has been across, this has been the quickest crash we're seeing in history. So the changes we made immediately were removing a lot of the REITs, so the real estate companies and the infrastructure companies. These are predominantly seen as defensive companies. But the concern we had was highly leveraged, and we hadn't seen them stress test it through a recession for a long period of time. And a lot of these companies, which are classes defenses, are very economic sensitive. So we removed a lot of those companies very quickly, which has worked in our favor. We -- like Catriona, we pulled out a lot of the cyclical companies, which are exposed to economic trade. The reason why we did this, obviously, we're going into a recession. The world is going into a recession, and you just don't need to be in these companies at this point of the cycle. They'll become incredibly cheap, and they're getting cheaper by the day. But it's still a little bit too early to play in this space. Also, consumer discretionary. Again, it's pretty tough to be in that space, too. So a lot of those consumer pressured names we pulled out of as well. On the plus side, so you see our cash is not as high as WAM Capital. So we'll try to invest through the cycle as well as we'll flex our cash up and down a fair bit. As Geoff mentioned, we've been hovering around that 8%, 9% flexing up to over 15%. And the reason why we're staying a little bit invested is there's opportunities in this market, so consumer staples. So we're being -- we were quite early on the trade buying. A lot of Woolworths and Coles. And as you've seen by the pictures on the news and you would have experienced is, sales are up between 20%, 30% over a period for these guys. So the benefit here has been dramatic. Also, the alcohol sales, which is another interesting point, skyrocketed too. So there's reports of Dan Murphy, it's up 30% to 40% over a period, too. So there is some businesses that benefited in this situation. The other one sector we've been active in is in the iron ore market. So China have come out of this looking pretty good. They've stopped the spread. They're slowly getting back to normal activity. They're just shy. They're probably running around 90% of normal economic activity at the moment. And one of the things they're doing is because the rest of the world is so slow, they need to work out how they can grow. And the way they're going to grow is launching infrastructure projects. So one of the key components of infrastructure is steel, and iron ore is a product that goes into the steelmaking process. So for us, this was one of the easier trades. So we're expecting iron ore demand to be around 1.1 billion tonnes run rate between April and December. And -- that's why we've invested in these companies because there can't be a supply side response from iron ore in the short term. So this has been a good trade. We continue to hold these stocks. We're just watching, of course, like everyone else, the impact ex-China and the impact it could have on these. So cash will wind up and down a fair bit. As Geoff said, we're running around just over 7%. We just took a big line in the Wesfarmers' coal sell-down. So that's dropped our cash a little bit. But I'd expect cash to hold around 9%, 10% over the next few weeks barring unforeseen circumstances. The other thing we've put into the portfolio is with upped our gold weighting. So gold has gone up just shy of 4% of the funding in gold equity stock. So these include Saracen, Northern Star and Newcrest. We bought gold after -- you would have seen gold really fell away during the crash. And the reason why this had the most viewed race for U.S. dollars, U.S. dollars was a safe haven, and everyone was trying to get their money into U.S. dollars and get U.S. dollar liquidity by raising money. So what we're seeing is gold got sold off heavily, and we took that opportunity to purchase some of these gold mines, which have done well for us. What happened in the GFC as well was gold. Initially, in the liquidity event gets sold, but then post that does really well. And as Geoff mentioned, there's so much fiscal policy and monetary policy out there that gold should be in a pretty good spot if they can get control of this U.S. dollar shortage, which is a liquidity problem. So we think we're almost there. The Fed, even last night, came out with repo operations for all central banks. So even Australia can access the Fed market through repo, so that's a way of getting short-term money without -- you put some collateral to the Federal Reserve and they'll give you some U.S. dollars. So again, they're really trying to get a handle on this. So the portfolio is -- I guess, the overarching theme of the portfolio is high quality, good balance sheets. And we're just trying to pick best of breed at the moment. So just finally, these companies that have some optimism in a pretty dire position at the moment. So pretty well positioned, but just to watch that cash, that cash will fluctuate around a fair bit. Thanks, Geoff.

Thanks, Matt. And Oscar, do you want to give the guys a bit of a rundown of what you've been doing with the portfolio?

Yes. Thanks, Geoff. Well, very similar to Matt and Catriona. There's been a deep focus on quality here at WAM Capital. I guess as we talked about a few weeks ago, we immediately reduced our exposure to cyclical sectors such as mining services and retail. I guess given our pessimistic view on the economy going forward and, most importantly, we sold some of our -- very early sold some of our less liquid companies or very small companies within the portfolio. Because as Geoff said earlier, liquidity can really dry up and this prevents your ability to sell the economies in periods such as this. So at the time when we last spoke, our cash was sitting at 34%. It averaged just over 40% for the month of March, and it's currently sitting at 38% today. So over the course of the month, we have actually seen some opportunities with companies with some high quality larger companies trading at the press valuation. And we bought small positions in Cleanaway, IPH Holdings and added to our TPG Telecom Holding. And these companies fit our investment process. And like Catriona said earlier, we think that the earnings of these companies will be quite resilient over the next few years, and we think they will actually beat earnings expectations going forward. I'm actually sitting here in Yass in country New South Wales. And you think we're stressed watching the market, you should see farmers. My parents, I don't think have slept the last few nights, and the reason is there's a lot of -- there's a bucket load of rain coming over the next few days. And here, in Yass, we haven't got the rain that Northern New South Wales and Southern Queensland have had over the last couple of months. And it's booming up there. The drought has certainly broken. And for these reasons, we've been buying. We're adding to our agricultural sector holdings within the portfolio. We see a very strong outlook for Elders, GrainCorp and Costa over the next 2 years. It is very important to talk about our liquidity within WAM Capital at the moment. Within our top 20 holdings, the market capitalization over the last month has actually increased by 30%. And in fact, we could -- if things deteriorate further, we can sell 70% of our equity within the next 10 days, if things do worsen. So while we're sitting at 38% cash, the liquidity of the portfolio of our equity exposure has increased, but we're well prepared if things worsen from here. So I think, overall, look, we're cautious, but we are seeing opportunities to buy some quality, small-cap companies, as Geoff talked about, and we do see some opportunities at discounted capital raisings and placements that could potentially be incurring in the future.

Thanks, Oscar. And, look, thanks everyone that sent their questions in. And if we don't cover them today or on this conversation, then we'll come back to you, even ones that have asked questions today and answered them.

There was -- why don't I just go through a couple of the questions. Initially, for you, Catriona, there was a question from Graeme Pennycuick. And that is, what is the current hedging of currencies in the global portfolio? And what effect on the portfolio will it have if the Aussie dollar rises or falls?

Yes. Thanks, Geoff. So the Global portfolio is unhedged. We do have the ability to hedge. But when we launched the fund, we really listened to the feedback that the shareholders gave around wanting global shares for diversification for their portfolios, which were, at that point, largely in Australian dollar-denominated assets. The Australian dollar since we launched the fund relative to the U.S. dollar, for example, has fallen, which has benefited our holdings, which are basically 99% outside Australia. But we have a variety of currencies because each company, depending on whether it's a German or a French business, will be denominated in euro. And then we have obviously a wide number of U.S. stocks. So we have a variety of currency exposures. We consider both the individual stock that we want to invest in and the currency exposure when we are adding a position. But the portfolio is unhedged and does provide diversification for the shareholders, but will be impacted as the Aussie dollar rises or falls on the translation effect.

Got you. And Matt, there was a question from Bob Hawtree, and he was -- he asked, his question, is what trading activity has occurred during the price oscillations over the last couple of weeks in the Leaders portfolio?

So thanks, Geoff and Bob. So the trading has been elevated over the last few weeks. And this market is presenting a lot of opportunities. So some of the trades we've been putting on is stocks in the same sector having a wide variance. So for example, you might be looking in the REIT sector, and you can see Goodman Group could be up 3%. And then another stock in the same sector could be down 5% to 7%. As funds or people become distressed, they start selling some of their holdings. So some of the things we've been doing is doing a lot of these trades within sectors on a relative basis during the day. These are very short-term trades, but again, just some of the opportunities you can do in this market. Also, some of the other trades is -- there's a very weak thing that happens in the Australian market at the moment. So if the market is up or down by 3:00 in the afternoon, there will be a big sell off or a big jump up in the index depending on if it's up or down. So if it's down, it will sell off into the close. And then on the match, it will get sold off a lot and then it is up. Post 3:00 p.m., it goes on a huge rally and then matches up in the match at the end of the day. So there's all these little things that you can take advantage of. So our trading activity is a lot higher than it would normally be as we try to make money in this market. So it's very volatile. It's very hard to trade outright early in the morning. So what we've been doing is sitting out for the first hour to see how it settles, and then we might trade around between 11:00 a.m. and 2:00 p.m., and then wait for 3:00 p.m. to see the direction. So very short-term focus, but that's what you need to do in these markets. So our trading activity is high and there's all these little peculiar intricacies in the market at the moment. So we're trying to take advantage of those for our shareholders.

Just trying to pick up on dollar here and there. And just on that, Matt, do you think that's the passive money like the ETFs going one way or the other? Or the passive money flowing in and out of the market?

Yes. Well, I think it is -- no one is -- in these markets, no one really knows until after the effect, but there's all these -- everyone has their best guess of trying what it is. But it appears that, to me, it looks like passive because it's matching up and matches aggressively. And to me, it's offshore passive because I've been watching the Australian dollars, so the Australian dollars as we all know has fallen off a cliff. That really protected our market. And you can basically work out if the Australian dollar is up, our market is going to be soft generally, which is funny because Australian dollar is normally a risk on currency, so our market should go up. But there's all these little weird thing. So I think it's offshore passive because it seems to move in line with the Australian dollar and then this gets amplified into the close. So into the close, it just feels like passive to me.

Okay. Thanks, Matt. And Oscar, your question was from John Benger, and it's how solid are the balance sheets of the companies in which, we, being WAM Capital, et cetera, have a substantial holding?

Thanks, Geoff, and thanks, John. I think the first thing I'd point out to our shareholders we're seeing on the call, is that our substantial shareholdings or the substantial shareholdings that you see on the ASX when they go over 5% in the company, aren't necessarily the substantial shareholdings within WAM Capital. I'll give you an example, Myer is our 40th largest company in WAM Capital. It has a weighting of 0.5%. It's very, very small. But I guess in these uncertain times, the best work you can do, and Matt touched on this earlier, is to really assess the quality of the companies that you own in terms of their balance sheet. Over the course of the month, the team has done extensive sensitivity analysis, looking at debt and cash levels of the various companies we own, just to determine how long these companies can survive if you have a period of time such as a retailer where you might not have any sales or revenue, for say, 6 months. Now for those companies that have a bad balance sheet and low levels of liquidity, we've sold out of those positions. Those companies that have a very strong balance sheet, we've held on to these companies. And in some instances, we've actually increased because we think they'll do better coming out of this downturn. Now to give you some granularity around this, we had looked at our top 20 holdings within WAM Capital yesterday. Now 25% of these holdings are net cash, which means they have more cash on the balance sheet than net debt outstanding. And then the remaining 75% have a leverage ratio of 1.3x. Now the standard bank covenant for leverage ratio is around 3x, which means that earnings -- these companies were to breach covenants, they would need their earnings to fall by 60% or more. So look, we're very confident on the larger companies that we own in terms of their balance sheets. And we think these companies will come out of this much stronger.

Thanks, Oscar. And there was -- just before we open up to general questions, there's -- I think there's -- there were a lot of questions through -- about our ability to pay the current dividends, which we are paying and then potential future dividends. Now in terms of the company's abilities to pay the future dividends, then obviously, they need profits. And for them to be franked, there needs to be a level of franking credits. Now the -- and the question is -- everyone wants to know is, what will the final dividend be, which will be announced in August this year? I mean that is incredibly difficult to say what it will be at this point in time because it really depends on what the market has done over that period of time and also the level of the profit reserves, whether those profit reserves have been topped up by the performance of the portfolios in July and August this year. So -- and at all those -- the decisions on dividends, they're all Board decisions. And for each listed investment company, obviously, there's different boards. We understand -- what we try to do is give a consistent dividend. We understand this is sort of an unprecedented period. And really -- it really depends on how the portfolios have performed when we get to August this year. So it's nearly impossible to guess because of what's happening with the market. So that's just sort of the commentary on dividends. Now James will -- going back, do you want to run through any specific questions we've got?

Thanks, Geoff. So I'll read out some of the questions we've received from shareholders coming through the webinar line before we move to the telephone callers. So the first one is from Ray Cupido, and it's a question for Matthew. For income-focused investors, how concerned should we be about dividends being cut across Australian corporates? How broad will the cuts be? And how long will it take for companies to commence repaying dividends?

Thanks, Ray. Incredibly difficult question to answer, but let's have a go at it. Companies are in survival protection mode at the moment. So we'll touch on that trying to preserve the balance sheet. So dividend cuts are coming. The quantum, I think they'll be in the range of 20% to 30% at a guess on where corporate profit is going to be. And I think a lot will be suspended as well. We've already seen companies with balance sheet issues to spend their dividend. So if they're not suspended, they're probably in a better space. And I'd be expecting dividend cuts of 20% to 30%. Obviously, it's a function of how long the shutdowns go on for. But to return from -- let's say, the economy does a stage recovery after June, I would've thought it would at least second half of the calendar year in 2021 before dividends would be back to where they would be normally -- where they were previous, and that's probably being optimistic. So I think you've really got to bank on over a year before you get dividends back to levels where they were because there's going to be a lot of pain in the short term. And it would really -- it's just really a function of the virus containment and when the economy has opened back up. So these are the 2 crucial things you need to watch there. But dividends, if not suspended, it definitely being cut.

Excellent. Thank you, Matt. And the next is from Eli Greenblat at The Australian. Geoff, do you think that due to the massive blowout in government spending and a spike in our debt, there will be renewed attack on franking credits and a fresh call for franking credit to end as the government looks to cut spending?

Look, thanks, Eli. I mean the fascinating thing, Matt was doing some numbers the other day, and it looks like that the government is going to spend the equivalent of 10.6% of GDP over a 6-month period. And that is unprecedented spending. Now someone has to pay for that, whether it's higher taxes later on or has to be paid for in the future at some point in time. The -- and where should that money come from? The -- our view on franking has always been, it's a logical system, which encourages companies to pay tax in Australia, employ Australians. It encourages people to invest in Australian companies. And it encourages companies to raise equity rather than debt. And we'll see during this adjustment period how Australian companies perform versus more globally, more highly geared companies. And I think you'll find they perform well. Our major concern with franking was the inequitable nature of the labor proposal where you could have 5 individuals that are all the same age all in retirement and getting 5 different outcomes. So I would assume from a government perspective, everything would be on the table. My view is the franking system encourages the right behaviors. And that's what you need. Whether they look at it, I'd assume everything would be on the table in terms of how is this going to be funded. So you couldn't rule it in or out. All we hope is if anything is done, it's done equitably and fairly and logically. So to me, the previous proposal was encouraging people to invest, taking money offshore, like encouraging Australian companies to invest offshore, encouraging individuals to invest offshore. Like to me, that is just illogical. In these times when things are difficult, you want capital. So you want the money to be invested: a, in Australian companies; and b, you want Australian companies to employ Australian workers and pay tax in Australia. So to me, it is a very logical system.

Excellent. Thank you, Geoff. So the next question is for Oscar from Paul Kearnan. Do you think companies like Afterpay face the prospect of high defaults from clients, higher than expected perhaps?

Paul, look, thanks very much for your question. My answer would be, yes. I do. That's one of the reasons why we don't own Afterpay. In fact, we don't own of the buy-now-pay-later players across the market. I think the key for these guys is they haven't been tested in a serious recession. And if you look at their clientele, they're mainly millennials. And unfortunately, this is a cohort of the workforce that are going to be impacted the most. I was looking the other day, I think 1 in 13 people are employed in the travel industry. I think it's a pretty similar number for hospitality. And the vast majority of these would be millennials. So look, we would be -- we're concerned on Afterpay. Certainly, the government stimulus announced in terms of salaries and so forth and the support from Morrison government will assist. But these are stocks we're staying clear of at the moment, particularly with the likelihood that unemployment is going to be well over 10%.

I mean it's an interesting comment you made, Oscar. The one thing, as investors, it's worthwhile paying attention that the significant structural changes that will happen when things do get better, when we do reach the other side of this very difficult period. And with millennials, I would assume you'll find millennials and maybe more so the generation below them will change their behavior. Like historically, millennials probably spend all their -- most of their money on experiences or most of the money they earn, they spent it. When I started in the industry in 1980, I remember the savings rate in Australia was 20%. And that was because we've just gone through a difficult period. So I think the younger generation will be less -- more risk averse, They'll probably have a higher savings rate than they previously did. They'll probably spend less money on experiences. I've even found that I've been drawn online where historically, I'd jump in the car and drive up somewhere and buy something now because that's sort of off the agenda. I'm going a lot more online. And it wouldn't surprise me if the online participation is a permanent shift, also for rental. What we're finding is just a little microcosm, our own organization, how efficient we can be with whether it's Skype Business or Zoom, communicating with each other. And I'd assume companies -- a lot of companies will look at just permanent reductions in rentals. I was talking to someone yesterday, and they were estimating it could mean 10% to 15% of rental space become surplus. So as Matt said, that has a flow on effect with property trusts, REITs, et cetera, et cetera. So to me, what we're spending a lot of time doing, not only making sure we've got a good portfolio to win -- for this -- to weather this difficult period. We've got a portfolio that we want in terms of exposure when the market picks up. And that's obviously the quality companies. The first leg of the market bouncing is usually the financials and the leverage financials, things like Macquarie, you'd want to be long at that point in time. And other quality companies that'll benefit in that first leg up. And also those companies that will find some permanent changes. So there are a number of areas that we've been spending quite a bit of time looking at.

Great. And next one for you as well, Oscar. If a company has high quality but low liquidity, would you sell it? Or conversely, does low liquidity prevent you from buying higher-quality business?

Thanks, James. That's an excellent question. I think, firstly, low liquidity definitely doesn't provide us -- doesn't stop us from buying a business. And so I think -- I'll give you an example. It's probably the best way to do it I think. City Chic, which I talked about at the investor presentations back in November, we first bought in WAM Capital at around $0.40 or $0.50. And no one liked the company. It wasn't liquid at all. And that's -- at the end of February, it $3.50 now. Over the course of time, the company went from, say, a $50 million market capitalization to around $350 million market capitalization. That's still a fairly illiquid stock within WAM Capital. In that time, it became a more popular stock. And so it meant that all our competitors own the company. And I guess as soon as COVID-19 hit, the stock dropped quite sharply. And I remember there was a buyer out there, we own sort of close to 5% of the company. There was a big buyer where we took the liquidity because it was in retail. We still think it's a high-quality business. But we knew that if everyone else started selling and all our competitors were going to go to safety, they were also going to sell their positions, go to cash. City Chic has been a very successful business for a number of years. They're happy to take profits, so there could be a lot of downside. Now what we've seen over the last 3 weeks, the stock hit the lows of $0.80 just over a week ago. Now we've actually been buying shares back quite extensively in that period. So hopefully, that gives you a flavor as to why you need to sell some of your less liquid names early because you want to beat the herd effectively, which is all your company -- your competitors.

Thank you, Oscar. And Catriona, the next off to you. First, from Chen Yu. Why was LVMH sold by WAM Global?

Yes, sure. So we sold LVMH back in February. So that was when at that point, we knew China was obviously being impacted considerably by coronavirus. At that point, the stock had barely sold off despite the fact that over 40% of their sales are to a Chinese consumer. And we knew that stores in China were being shut down and that the Chinese were not going to be traveling. So their sales come from the stores that are actually in China and then from the Chinese traveling to multiple places around the world. So we thought there was going to be a significant impact on earnings from the coronavirus. We spoke to both the company and other players in the space such as Kering, which owns Gucci, Moncler, and they were saying that foot traffic in China was off over 80%. And yet the stock hadn't moved. It was trading on a peak multiple, so the highest multiple, PE multiple has ever traded on at 28x. Historically, it's traded on around 18x. And in the GFC got to as low as 10x. So we thought it was a great opportunity to sell the stock. We still think it's a very high-quality business. And we've actually like just started nibbling a little bit given it's fallen, it fell from $420 to below $300. So yes, we thought it was a good opportunity given the stock price hadn't moved was trading on peak valuation and there was significant earnings risk. And we've -- it gives us the opportunity to relook at it now at a much lower share price.

Excellent. Thanks, Catriona. The next one is from Dan Rath. And this will be the final webinar question before we open the lines for our telephone listeners. How are you positioned in exchange businesses? And will some of them thrive in this environment?

Yes. So we own CME Group and ICE, so 2 exchange businesses. CME is the world's largest derivatives exchange offering last place services, financial derivatives on interest rates, equities, energy, commodities, et cetera. And these are just the kind of businesses that benefit from greater volatility, given that market participants use derivatives to protect against uncertainty. As such, the volumes at the moment are going through the roof. So they are very much benefiting from the volatility in markets. And we think they're a good place to be in this kind of environment.

Thanks, Catriona. And we'll now just hand over to the operator to connect the callers.

[Operator Instructions] We'll take our first question from...

It's Tim Monckton here. With the unprecedented fiscal stimulus, which the Australian government has done, which effectively is about 10% in GDP. And you've seen the RBA over the last 8 days buy $27 billion worth of bonds. And the economy is going to get the benefit of the oil price collapse, which is about 1% of GDP. How do you lot feel in terms of the recovery going forward? Do you envisage a V-shaped recovery? An L-shaped recovery? Or a U-shaped recovery?

Matt, do you want to -- you said something interesting around the other day. Do you want to have a go at that?

Sure. Thanks, Tim. Good question. So monetary policy just makes it easier for companies to transact at lower levels. Fiscal policy addresses the income hole we're experiencing. So we work out roughly 40 -- things around 43% -- around 43% to 46% of the economy is effectively shut down daily. And this is through a lot of services. So the big thing we're missing at the moment is consumption. And again, if you look at GDP, it's around 68% of the Australian economy. So the way you've got to frame how we come out of this recovery is how we implement the -- how we come out of this virus. So if you think it will be, we hit June and then it's just every restriction is lifted, then it's going to be a V-shaped. But reading a lot of material globally and the experience back in the Spanish flu was, they lifted restrictions too early and you had a second wave. So all the papers are saying now you've got an implemented stage recovery or stage lifting of the ban. So that says it's going to be more like a U-shaped. But I agree with you, the recovery in the economy will be U-shaped, but the recovery in the shares will be V-shaped. That's how I'd frame it because the policy you're seeing is so bullish for risk assets. But the risk asset recovery will be a lot faster than the economic recovery. I'd frame it that way. So I think the 2 will vary.

We'll take our next question from...

Marcus Baker here from Melbourne. Just a question for Catriona. I think Global market is down sort of 30% to 40% across the board, yet the Wilson Global NTA seems to be only fallen around 15% to 20%. How has this been achieved just down to the currency movements? Or is there more to it?

Yes. No. Look, we're -- it is -- that's right. In terms of the MSCI fall, it's has been balanced by the fact that the Australian dollar has fallen considerably. So I think per year or -- month to date, I think MSCI is down about 12% to 13% relative to much of the significant falls when you don't factor in the Aussie dollar. Small caps are down about 7% more than that. So we've fallen out commensurate with the large cap index despite having a lot of small caps, and that's because we've had that cash in the portfolio. So yes, it is -- that difference is significantly the Aussie dollar moves.

We'll take our next question from...

My name is George. I have been selectively buying in the various Wilson funds as the market has been dropping a little bit here, so dollar averaging, I guess, if you like. Usually, I take my cue from buying in the LICs when Geoff or some of the other people that are actually buying themselves. So I noticed there hasn't actually been any buying as yet by anyone so that makes me slightly nervous. Is that something that you're looking at, actually, topping up your own holdings from the various listed investment companies?

Look thanks, George. And the -- I mean, the one that's exceptional value is WAM Global at the moment in terms of the discount to NTA. And you can see the numbers on Page 6. What -- the difficult part is, well, first of all, if we take a step back, we knew at some point in time, we're going to get a bear market. In theory, at various points in time over the last couple of years, we were thinking it'll be coming soon. The -- and now, I mean, the bear market started. One thing I suppose we're all grappling with is what Matt said is we're trying to -- if there wasn't the phenomenal monetary and fiscal stimulus, then the market would definitely be a lot lower. And it would be probably like a more normal bear market where, in the GFC, I think the market fell 54% -- in the '87 crash, I think the market fell 50%. And it's really -- to me, it's -- we're trying to work out like how long will the economies be shut down? What impact does that have on effectively corporate profitability and earnings and to how much of the hole is being filled in by effectively the fiscal policies? The -- and also superimposed on that, is if this is a sort of a more normal bear market, which it doesn't appear it is at this point in time, but it may end up playing out, then what bear markets do go for more than a month. So the -- we could be exceptionally lucky and we might have seen the bottom, but that would be incredibly unusual. It wouldn't be the -- on top of the longest bull market ever in the U.S., it would be the quickest bear market ever. So personally, I've got limited resources. I've got x amount of cash. I already have a large exposure to the various LICs. So I suppose instead of dollar cost averaging, like someone asked me the other day, a young person had $100,000 want to invest. And I said, "Look, who knows where the bottom is? Why don't you just spend $10,000 a month for the next 10 months? And I'm sure you would have -- it would have been in there somewhere." So I suppose I'm trying to be a little tricky. The -- I was -- I've been incredibly tempted to buy WAM Global, particularly when I looked at the other day, and it was around that $140 level, and it was effectively trading at a 30% discount. I know it's around that -- slightly less than that at the moment. So in theory, if the market was a normal bear market and did fall another 30%, you're buying it at the bottom of that bear market, assuming it did. And I mean -- Then I was going to buy something, but it was the end of the day, it was $140, and then, of course, the next day, it was up. So I thought I'm not going to buy it today because I could bought it yesterday. And then the next day is up again. I sort of held off. But yes, so I mean, that's where I personally am. I'm definitely prepared to commit more money. I would just like to -- because there's so many uncertainties on the length of the lockdown or the whatever the shutdown, and trying to get a bit more visibility on that. And then someone -- I think there was a webinar question that got sent in is the markets rallied over the last week or so. Is this a dead cat bounce or a bear market rally? And it could well be. I actually think the bear market needs time to create its bottom. I think it's too early if we already had bottom. And back in the GFC, I think the other day I had two 20% rallies. And back in after the tech wreck in the early 2000, I think there were 2 -- in the bear market there, they were two 20% rallies. So I suppose from my perspective, I'm just trying to be a bit cute. I'm trying to get a bit more confidence that we have hit a bottom before I'm going to commit capital. I actually noticed the time. Yes. So I see like we're just on 10:00. And look, thank you for your questions. Anyone else who has questions, please send them in. We're very happy to answer. Remember, you own the companies, and we do this -- we have this opportunity because you let us do it. Even though recently, there's been enormous amount of stress, both from a market's perspective, but also I think everyone is feeling a lot of personal stress in terms of what's happening, so we do love what we do. The last month has been brutal, I think, in a number of ways. The -- for us, is when you're adjusting the portfolios, it takes time to adjust the portfolios. We're all happy where the portfolios are now. And we think we're well positioned to take any advantage that when we're pretty confident that the things will continue to improve. The big uncertainty is the fact that how long is this economic sort of black hole going to go for? Is it 2 months? Is it 3 months? We think, as Matt said, that when things do open up, it will be slow. Like international travel will be slow. There'll be a number of other things, but the market tends to look through all those. And that's what we're all trying to grapple with at the moment is, what is the market looking through? But our challenge is to -- I think everyone loses money in bear markets, and a good manager can make that money back at the start of the bull markets a lot quicker than the rest of the market. So that's our big challenge. Thank you for support, and please send any other questions into us. Everyone, be safe. Thank you.