WAM Global Limited (WGB) Earnings Call Transcript & Summary

Today for the WAM Global Q&A webinar, my name is Catriona Burns, and I'm the Lead Portfolio Manager of WAM Global. Joining us today on the call is Nick Healy from Sydney, who's portfolio manager; William Liu's here with me in New York. He's a senior investment analyst; and Zoe Landry is our corporate affairs adviser, and will be facilitating the Q&A. Before we begin, there's a disclaimer displayed on screen. What we talk about is general in nature and should not be thought of as financial advice. In terms of agenda for the call, I'll begin by giving an update on the announcement we had earlier in the week about the final fully franked dividend and a bit on the investment portfolio, before turning to Nick to go through some insights from the recent reporting season, and then Will and I'll discuss some of the insights also from recent important investment conferences that we've had and company meetings that we've attended. So we do spend an incredible amount of time on the road meeting companies that we invest in, competitors, suppliers, former employees. And one of the reasons for doing a webinar today is obviously to keep our shareholders informed. We're very grateful. This is your company. We're grateful for your support and pleased to continuously update you on how we're investing your money and giving you insights from what we're hearing on the ground. One of the -- in terms of the announcement earlier this week around the dividend, we're very pleased that the investment portfolio performance has enabled us to pay tax on realized gains and generate enough franking to be able to confirm that the final dividend will be fully franked, $0.06 dividend. Combining that with the interim dividend, that's $0.12 a share in dividends that will be paid for the year, which is equivalent on the current share price to a 5.3% dividend yield grossed up 7.3% dividend yield. In terms of the share price performance of late, we are pleased to see that the discount is very much coming in. We've had a really significant discount campaign underway, calling shareholders, spoken to over 1,000 of our shareholders. We are -- we've done a lot of ASX Investor Days, ASA. We've had our national roadshow, and we're really significantly even -- we pride ourselves at Wilson Asset Management on our communication and engagement, but had a really considerable effort in terms of the WAM Global fund of late to really bring in that discount. And the discount has gone from 18.7% at 30 June 2023, to yesterday being at the 6% level. In terms of the shareholder return that the funds had given that discount closing, when we put in the $0.0575 dividend from October and the April $0.06, plus the share price increase, that's been a 29.9% total shareholder return, which is pleasing. And obviously, we want the share price to trade at NTA, and we'll continue to work very hard to close that -- continue to close that discount. With that, why don't I hand over to Nick first off to update us on recent reporting season and recent company meetings that you've had, Nick.

Yes, absolutely. Thank you, Catriona, and thank you, everyone, for tuning in. As Catriona mentioned, we certainly appreciate your time on these calls. So today, I'll take a few minutes just to update you on some of the things that have been occurring to our holdings since we talked to you at our roadshows in April. I thought to set the scene, maybe I'd start with briefly just running over the earnings season that recently concluded in the U.S. And in particular, there were three things that stood out to me about these results. So firstly, despite remarkable economic strength over the last 2 years, even with interest rates being higher, we are starting to see some signs of choppier underlying economic conditions. A clear divergence is opening up between the lower end consumer and the more affluent consumer who continues to spend well. That lower end consumer is belt tightening, being careful around discretionary spend. And this doesn't come as a surprise to us. So interest rates do tend to have this effect. However, it has been a delayed response due to the government spending significant amounts of money in major economies across the world. Now secondly, if we take a look at the enterprise of the business, a similar phenomenon is occurring there. Again, no surprise, interest rates are up. So companies are looking to maintain a stricter view on their budgets. For me, this was most visible in the enterprise software space, where we did see some fairly soft results from the likes of Salesforce, MongoDB, Workday, Accenture. Now these are industry stalwarts. So they are a good read and a good indicator that the enterprise as well is quite careful around spending at the moment. Now if we think of this tougher underlying environment, we are very pleased with how our companies perform through this period. Now partly, this is purposeful. We have purposefully positioned the fund towards more need-to-have, less discretionary-type companies. But nevertheless, it is always good to see strong results, just to confirm the thesis in the holdings. So strong results from the likes of Edwards, Gallagher, HCA, Quanta, Tradeweb, Safran, amongst many others, does give us this confidence in how our companies are performing. Now one of the things we hear from shareholders is that they certainly appreciate when we go into details on the company. So I thought I would go into details on two businesses today are Booz Allen Hamilton and as well as ICON. I'll start with Booz Allen Hamilton, however. Now I updated on Booz Allen Hamilton at the roadshows in April. As a quick refresher, there is -- this is the best positioned business in the world to help the U.S. government adopt technology. Now our thesis here when we invested was pretty clear that the U.S. government was getting serious around the adoption of technology. We think going forward, increasingly, this will be artificial intelligence, which will act as a catalyst to drive the stock. Now this is all the same as what I said in April. What's happened more recently is so Booz Allen Hamilton had a really strong earnings result. They outperformed across the board and grew earnings an impressive 32%. And what stood out for me from the actual result itself was they quantified their AI revenues at $600 million, which is over 3x the nearest competitor. And they made it clear that they could grow these revenues to over $1 billion within a couple of years. So just very strong confirmation of the thesis that they are the best positioned company in artificial intelligence for the U.S. government. Yesterday, I had a conversation with the company. As we do, we talk to managements all the time. Great wide range in conversation, which certainly build conviction in the holding. I think for me, the thing that stood out about that conversation was the win rates on projects where they have artificial intelligence work are 50% higher than win rates on regular work. Now Booz Allen Hamilton already have industry-leading win rates. So this is a very impressive competitive advantage. For us, it's quite clear that artificial intelligence will roll out increasingly across U.S. government packages of work. That will take our Booz Allen Hamilton's win rates, drive their earnings and act as a catalyst for the stock. So we remain really high conviction that Booz Allen is a very well-positioned company. It's a core holding in the fund. If I think of the second company I want to talk to you about today, it's ICON. Again, one I mentioned in April. Now as a refresher, ICON are the best company in the world at providing outsourced clinical trials to pharmaceutical firms around the world. This is a very attractive space. It's growing really well. There's a lot of new breakthrough therapies and technologies in this space. The most commonly known ones are the breakthroughs in weight loss, the Wegovys and the Ozempics, but very attractive breakthroughs in other areas like oncology as well. Now again, I said all this in April. So what's happened more recently is they had a very strong earnings result where they grew earnings 20%, outperformed across the board, great bookings and just a very upbeat message from management. And more recently, last week, they held their first Investor Day in over 2 years. Now this was a great Investor Day, really solid. They set midterm targets that were both above expectations, but really well underpins and conservative in nature. There were two additional takeaways I took from the Investor Day that I thought were very thesis confirming. The first is, so we talk often about how we think the managers of the business as we invest in are critical. Now we knew that their CEO, Dr. Steve Cutler; and the CFO, Brendan Brennan; were very capable, honest, humble, impressive managers. But what was great about the Investor Day was that ability to see further down the org structure. So to be able to see the leaders of the individual businesses and just a resoundingly strong management team, a really deep bench, gives us that incremental confidence that these are the right people to take advantage of the opportunities here. And secondly, we love advantaged businesses. So we love companies that are better than others in the industry. ICON went into great depth on the reasons why they're taking market share and the reasons why that will continue. In a nutshell, they have advantaged scale versus the rest of the industry, and they've been investing in technology for years. So we have a very strong view that ICON are the best at what they do, and they will continue to grow faster than the industry. So if we put all that together, it's kind of a look into how we think about our investment process and how we monitor the companies we invest in, but certainly builds the confidence -- continues the confidence that both Booz Allen and ICON are really strongly positioned to benefit going forward. So with that, let me turn over back to Will and Catriona in New York.

Great. Thanks, Nick. So in terms of Will and I in the last few weeks, there's been a number of key conferences that we've attended. Firstly, we had a key European small mid-cap conference. Then we had last week, the Bernstein Strategic Decisions Conference, which is one that gets the top -- over 100 of the top CEOs across -- and CFOs across the U.S. in attendance. And then this week, we had a consumer tech, another leading consumer tech and services conference that we were at. So we've had lots of meetings with companies and management teams. And what we're seeing in terms of on-the-ground feedback from these management teams really reiterates what Nick was saying around those key insights from reporting season. Firstly, around that consumer. Definitely, that low-end consumer is increasingly under pressure in the U.S. And globally, we've had very sticky inflation, same in Australia, that's really eating up people's household budgets. And what you've seen is a reallocation of spend to grocery away from those more consumer discretionary goods items, particularly areas such as home furnishings, even home improvement have really been under pressure. And we saw that reiterated this week and last week in terms of those conversations with management. We had the McDonald's, CEO of Starbucks. We've had Etsy. We've had the Domino's Pizza CEO, all saying that the consumer is increasingly having to think about where they spend their dollars and allocate to those more crucial areas such as grocery and food and away from just -- from that -- those more discretionary items. So that was very much reiterated. In terms of the labor market, it's certainly less tight than it was. We're seeing wage inflation really come back down. There was a lot of pressure in the U.S. coming out of COVID, great resignation. Companies were hoarding staff on the anticipation that growth would be very strong. But as we talked to management teams now, that wage pressure has definitely come down, and they're certainly not hiring at the pace they were and only very much where they can see strong returns, immediate returns on that investment. The other point I'd say is that in terms of AI and utilization of the technology, there is increasingly that decision-making going on between, I don't have an unlimited budget, I am going to be very careful in where I reallocate spend. And so as Nick pointed out around those companies that have actually seen pressure, that you are having companies having to reallocate their budgets because they're not just blindly willing to spend enormous amounts on tech spend. Otherwise, their own margins are going to come under pressure. And that is negatively affecting some businesses. So we do see enormous applications for AI, but you do -- the return profile that's needed out the other side is having to be given more consideration. In terms of that feedback from Europe, I would say it's interesting. Europe has been a very mixed -- and obviously, each economy within it, has its own nuances. But growth generally has been slow over the recent period. Manufacturing sector has been under pressure. But what's positive is that it's been a very much lagged situation in terms of wage growth coming through and positive for consumption in Europe is that you are seeing real wage growth now. So we caught up with one of our core investments, which is CTS Eventim, the ticket -- the dominant ticketing provider across Europe. So the ticket head or Ticketmaster equivalent. And they're seeing -- continuing to see extremely strong demand. That switch -- that spend being very much more on services rather than goods continues. I mean, the euro versus the U.S. dollar has even seen about a large number of U.S. citizens go over to Europe to see, they do their Taylor Swift concerts, et cetera. So European travel is another area, that's been a bright spot. So I'd say in terms of where you're seeing consumption benefit, it's those players like CTS Eventim, which continue to see a very strong runway. We're very positive about that company in general. They're taking over the largest French player. They've got inroads into the U.S. And we very much think the trajectory there for earnings growth is very strong. China is an interesting market in terms of they've done -- they have announced some stimulus measures. And there is -- has been a bit of a tick up in terms of manufacturing, et cetera, and some of the more recent data. We do think, though, it isn't the big bazooka that might have historically been announced by the Chinese government. There is still a lot to be worked through in terms of pressures on the housing market excess stock, and consumption is still weak. So we do think there's going to be still some time to work through there. And the companies that we invest in that have operations in China are still saying it's tough. And so in terms of then, if I turn to what we're seeing with rate cuts, we have started to actually see rate cuts. So Canada announced a reduction in interest rates. And so did -- has the ECB. So that isn't yet to happen -- hasn't yet happened in the U.S. There is a view that we'll get our first rate cut in September. But let's see the inflation data. They're very data dependent, depending on what happens with those inflation stats. More specifically, in terms of some of the companies that we've both seen this week, one of the highlights, I'd say, was meeting with Jeff Sprecher, who is the CEO and Founder basically of Intercontinental Exchange. He's built that business from nothing to its current $77 billion market cap; an extremely impressive operator. And this meeting really confirmed they've done an incredible job in different markets over the years. They own the New York Stock Exchange, they own Futures Exchanges. They are the leader in energy market, derivatives trading. And what they're doing now is he's digitizing the mortgage industry in the U.S. And to quote him in terms of the mortgage market is obviously quite tough in terms of volumes at the moment in the U.S. with rising rates, but the business in his words that he's building there is a coiled spring for when transactions come back. And we think there'll be significant earnings growth for ICE coming out the other side as rates go down. And they're extremely, as I said, an extremely well-qualified and -- management team with an incredible track record, in particular, Jeff Sprecher being the Head of that and President and CEO of that business. So the meeting this week was very much a confirmation of what we think is a business that can consistently grow earnings over time. That mortgage businesses they've done it, it's been a tough market, but we think as those transactions come back, the earnings potential for that business within us is very strong. Another couple of businesses that I talked to that we caught up with this week. One would be Quanta, which I did talk about at the roadshows that I've mentioned before. So they do upgrading, maintenance and connections to the transmission and electrical grid in the U.S. So there's been enormous amount of data centers added. We've got EVs coming on to the grid, and we've got reshoring occurring in the U.S. of manufacturing, and this is all driving up energy demand. So this week I caught up with -- last week at the Strategic Decisions Conference. I caught up with Duke Austin and Jay Sri, the CEO and CFO. Again, very a lot of confirmation in terms of the demand they are seeing from all different areas. Those ones I mentioned in terms of data centers, the hyperscaler demand is really significant. And we've had -- you're seeing that feedback. You only have to look at the results of certain tech companies like NVIDIA, et cetera, to see the demand for GPUs. And this is -- we think that the outlook for energy demand and for Quanta's services in the next decade is considerably strong. And we see that the earnings trajectory for that business is really impressive. So that was a very -- a good meeting, and we think that management team is extremely high quality, and very much confirmed our view in terms of the trajectory there. And then the last one, HCA Healthcare. So I mean, as we pointed out earlier, we do see a, in part, a slowing economy across the U.S. And we do see that the pandemic savings that people had have started to be even up in inflation is hurting certain parts of the economy. We think HCA Healthcare, which is the largest private hospitals operator in the U.S. is, to us, a great defensive business. But even in periods of economic pressure, will consistently drive solid earnings growth. There's no doubt that the health care spend that's going on globally with aging demographics, that's going up over time. You've got this business located in the fastest-growing states across the U.S. So core business in places like Texas and Florida, which are seeing net migration -- and these -- this management team has been outstanding over time. We think there is massive scale benefits when you operate the scale of hospitals that HCA does. They've got over 150 hospitals across the U.S. They, as I said, are the largest player. They have tech benefits. They can utilize that other players can't. They're building out their network. And we think it's not going to shoot the light. It's not going to be the fastest growing business, but it will be a defensive [ chugger ] that we're happy to have in the portfolio. And as I said, that management team is outstanding and executing very well. Why don't I hand over to you, Will, to give some insights into what you've seen in the last couple of weeks in the conferences and meetings.

Thanks, Catriona. I'm really excited to share with you some of our learnings and insights from the company meetings we've had. In particular, I'd love to share with you two companies. The first one being SAP, which I've talked about before, and they're the leader in enterprise application software. They held their annual Sapphire event in Orlando last week. And it's a really great event where they have their vendors, their partners participate, and we get to interact and gain insights from broader members of the big wider ecosystem. So I want to share with you some three key takeaways from that event, which I think is prevalent to our position in SAP. The first one is that the CEO and CFO are incredibly bullish on the outlook. We think that will continue to accelerate revenue growth beyond the 2027 targets. They're not seeing any of the shift in enterprise behavior. They're actually benefiting from their need to get on to the cloud to leverage AI, and there's no change in consumer behavior. In fact, the pipeline has only accelerated in the first half of '24. In addition, we think they are very bullish on the free cash flow and margin targets, and we think they can accelerate beyond their financial targets, and we see we're quite confident on [ getting ] their numbers this year. The second takeaway I'd like to highlight is there was a real validation of their technology. SAP has multiple partnerships with the likes of NVIDIA, Microsoft and AWS. And we saw the glowing reviews on the technology and their reliance and how they enable -- how SAP enables their businesses. Microsoft announced a product launch where they're integrating SAP with Microsoft Copilot program. And then we had NVIDIA, which has one of the most complex supply chains in the world. The new Blackwell product, they're integrating 6,000 components, 75 GPUs, over 2 miles of cables, and they're interacting between 45 -- over 40 different suppliers and hundreds of different customers. And it's a really complex supply chain, but they highlight how they rely on SAP to help them enable that, and we think that was really refreshing. The final point I'll highlight on SAP is that we met with some of the integrators who helped enable their customers transition to the cloud, and they had a lot of growing things to say. Extremely positive on the pipeline. Again, they change issue their behavior, and their work is actually booked fully. So again, they're a great talent to confirm our conviction in SAP. We continue to hold SAP as one of the top positions in the WAM Global portfolio, and it's a great event to gain those insights. The second name I want to talk to you, our investors about, is Visa. And so Visa is a payment global leader in payments. We all know it. It's prevalent in our day-to-day lives. We met with the CEOs, Ryan in Bernstein Strategic Decisions Conference last week, and we came away from our meeting incrementally positive. Again, I'd like to share with you a few key takeaways. Firstly, the total addressable market continues to be incredibly strong. The company hired a $20 trillion per annum addressable market, and there is still over 50% of payments that are not yet digital and now in cash and checks. And I think that is being under pressure by the market. We see continued structural runway for growth, and we still think that's underappreciated by other investors. The second point I'd like to highlight is that Visa has been in AI for a very long time. The CEO highlighted they've been in AI for 30 years. Frankly, I did not know that AI existed 30 years ago, but nevertheless, it shows they're extremely prepared for what's about to come. And that he's highlighting an inflection point in GenAI enabling product innovation and design capabilities. And he highlighted a right range of use cases from the digitization of -- and tokenization of data to enable more personal experiences for the consumer or detecting fraud and identity in a faster and more compatible way. The final point I'd like to highlight on Visa is that it's a super resilient business model. We've talked about the diverging consumer in terms of -- we're seeing a little bit of pressure in possibly the lower income. It does not matter for Visa. These are -- Visa is the enabler of payments. Whether you are spending on consumer discretionary items, experiences or grocery, Visa will clip the ticket in all those transactions. So we think it's a great way to play the consumer, and we think their business model will be incredibly resilient regardless of macro conditions and whatever noise comes their way. We're still incredibly bullish on Visa. It's a core position in our WGB portfolio, and we're excited to speak to the CEO and share with you those insights.

Great. Thanks, Will. So with that, I mean that's just a sputtering of some insights that we've had in the last few weeks and over reporting season. As I said, our core focus and investment process revolves around finding high-quality management teams to invest alongside but where we can find sustainable earnings growth and reasonable valuations and identify catalysts that we think will drive share prices. These are just a few of the key holdings in the portfolio and some of the latest insights. But why don't I throw over to you, Zoe, and we can run through the Q&A.

Thanks, Trin, and thanks so much for sending in your questions. The first one I will start with the question from Floriana. And she says, "With the S&P looking stretched and already come off the boil, how do you see the direction of the global share market? And what steps have you taken to protect the portfolio on the downside?"

Thanks for the question. So yes, in terms of -- it's interesting in terms of valuations because the market is very much bifurcated at the moment in terms of when you look through what's been driving returns. And actually -- so the U.S. has been the key -- the real outperformer in terms of global markets. And -- but when you look at the S&P returns market cap weighted versus equal weighted, it's a very different story. So you have seen this huge concentration of returns driven by the Mag 7. Actually, our view is that outside of some of those companies, the valuations are more reasonable. The market, as a whole, does look on the slightly more expensive side versus history. But when you take out some of those larger holdings, the actual valuations of the market are actually closer to historic levels. So certainly, there is absolutely some froth. And if you -- we've had this absolute buzzword of AI and some of the earnings -- the extrapolation of earnings for companies that have revenues associated with it, we think is very stretched. But we think that when we look at the companies that we own in the portfolio, the valuations of that are much more reasonable. And for us, it's about earnings growth. If they can continue to deliver strong earnings growth. We think that's what drives share prices over time. Saying that, we did certainly, as rates were going up, we've taken a real view that we did want to position the portfolio away from the consumer. Examples of stocks like HCA Healthcare, a hospitals operator, is a great, one where we think even in an economic -- slowing economy, will continue to do well. So for us, the focus in terms of downside protection, we have about 20% of the portfolio in health care stocks, which we think will be resilient in any kind of slowdown. And I think for us, the other point is the valuation protection that we think we have if these -- if the companies that we're invested in, can continue to deliver strong earnings growth. Anything you'd add, Nick?

No, I think that was spot on. I think it is an opportunity-rich environment, just given the difference between some of these more loved, bigger companies and still fantastic companies that hit our process, but just on the smaller or mid-cap side of things. So we actually feel like it's a bit of an opportunity, this divergence that's opened up.

Thanks, Nick. This next question is from Justin. He says "Small caps have underperformed the NASDAQ and S&P 500 considerably over the last year. Given 40% of the Russell 2000 are loss-making and small caps have higher gearing at higher rates, what is your outlook for small caps via the S&P 500 or the Mag 7 over the next 12 months?"

Why don't I -- I'll take a crack at it, and then Catriona, you can add anything you like. I guess, just because I was just talking about the difference in the valuations between the small and the large cap end of town, it really is remarkable. So this is the biggest discount, smalls have been at since before the GFC. So actually, all the way back to the dot-com period. However, the really big caveat with small cap companies is they're not all created equal. I think the question was great because it highlighted the fact that some small cap companies have questionable balance sheets, some aren't as profitable as you like or they don't have the strong industry positions that you would necessarily look for. What we think that does is it can create a situation where it's difficult to just buy small caps as a group. However, what we're doing is we're very active managers, and we're making sure that when we invest in a company, it's a company that hits our process. So that would be situations. Well, they are advantaged businesses versus their peers, where they are run by managers that we think are fantastic. And they have that clear line of sight to really impressive earnings growth over coming years. All that small cap underperformance does is it means you get to buy them at much more attractive prices. I think the question asked what my outlook was for small caps. I'm very positive on them. However, if the question is when exactly does the small cap discount close, that can be tough to answer. The only thing I would say is historically speaking, coming out of these times of uncertainty like the GFC, like the dot-com period, the small cap discount always does close, and small caps tend to perform very well coming out of those periods. So yes, it's a combination of certainly selectivity and picking the right types of small caps, but we're actually very optimistic based upon the valuations that we're seeing. Catriona, Will, anything you would add?

No, I think that was very comprehensive. And -- but your point is right. Like it's interesting, like we're about 8% behind for small wins versus large for this year. So it's absolutely right. And even to start a fund there, it's about 5% a year headwind from small mids. So we have over 55% of the fund in small mids. So it definitely is a headwind. But we do think that, that sets up like, as Nick said, over time, they do tend to outperform large. So we think that sets up for great returns going forward.

This next question is coming from Alex. He asks, "How much of WAM Global's portfolio underperformance compared to the MSCI World Index over the past year do you attribute to not holding a large weight in the Magnificent 7? And are you reconsidering your exposure to them?"

Yes. Thanks for the question. So actually, until last month, we've been -- all year, we've been outperforming the index. So we've been able to overcome the Mag 7 massive headwind. Last month, with the portfolio, a small mids did get whacked. So -- and we -- it's interesting, we did -- so we've lost a couple precepts -- performance last month. But before that, as I said, we had actually been outperforming. The Mag 7 definitely has been a massive headwind. Last month, what was interesting is that semis really rocketed and NVIDIA in particular. So that was a massive headwind in the last month. If that hadn't been the case, we would have certainly kept up. We're not -- as in the only Mag 7 stock that we have is Google, which we bought on -- because we thought it was oversold on the risk that they totally missed AI. We did -- we have owned Microsoft in the past, but don't now just on valuation. But I think that some of the Mag 7, some of them are wonderful businesses. And it's just, for us, a matter of valuation, coupled with the quality of business that is the decision we make when deciding to invest and whether we think we have any edge in terms of view versus consensus.

This next question is from Nigel. He says he holds WAM Global shares. However, he thinks there's a chance of the USD devaluing. If this was the case, what effect would this have on WAM Global. He says he knows you're all over it, but he just wanted to check.

Yes. So the portfolio as -- so we run -- the portfolio is unhedged, which means the impact of currency. So when we buy U.S. stocks, we translate the NTA back into Aussie dollars. So as the U.S. dollar goes down when we translate that into NTA, it affects the portfolio. But we kind of -- we run the -- in terms of the exposures of currencies relative to the index, so we should -- in terms of, over time, our view with hedging has been at extremes, we could hedge the portfolio. But generally, our investors and shareholders have all -- tend to have a majority of their assets in Aussie dollars. And so investing in a global fund is as much about getting money outside Australian dollars as wanting to buy international shares. So we do tend to run the portfolio unhedged. And so yes, as the U.S. dollar goes up, we benefit from the value of our investments there. As it goes down, it goes -- the portfolio translates into Aussie dollars at that point.

Thanks, Trin. This next question is from Tom. He says, competitors argue and I think we've touched on this a little bit. But he says, competitors argue some jobs and companies will be destroyed by the efficiencies of AI. Which companies are you investing in that stand out that are AI proofing their business or using it for growth?

I'm happy to...

Nick, do you want to...

Yes, absolutely. I'm happy to kick off with that one. Yes. I guess in terms of how we see AI affecting the world, it probably affects it in terms of the cost side of the business as well as the revenue side of the business. So we've had a lot of interactions with some of our companies who are knowledge worker type businesses, A.J. Gallagher comes to mind. They're an insurance broker who uses people to win work, to provide insurance for companies, connecting them with insurance carriers. So they don't actually write the insurance. They stand in the middle. It's been fascinating talking to Gallagher over the past year or 2 because they are finding real opportunities within their business to take out some of the more mundane rote tasks that their employees were doing. And that would unlock the business' ability to kind of take cost out but keep people employed, keep people doing the core of the work, but really just remove that less interesting stuff. Interestingly, at ICON's Investor Day last week, they called out that they had automated millions of hours of work, and they had a goal of, I think, doubling or tripling the amount of automation of work they would unlock over the coming years. So I think on -- I think in terms of AI, pretty much every business should be thinking about this. There are certainly businesses across the world that do a number of -- the employees do a number of things which are quite easily disrupted by AI. Now the beautiful thing with these 2 businesses is this isn't going to impact their business model, this isn't core to what they do. It really will just improve the margins over time, give them more investment dollars to put back into the core operations and really strengthen them. From our perspective, it's great that our holdings are thinking about these things. So that's -- I mean I think the question was really around the cost side of AI and the ability to take employees out of businesses. We're seeing it. Usually, it's a net good for businesses as long as the core thing they are doing is not being disrupted. So yes.

Thanks, Nick. This next question is from Eden that say, "What is your exposure to India? And what is your view on that market? "

Yes. I'll kick this one off as well, Eden. Thank you for the question. So we've had a look at the Indian market quite closely over the last few years because we certainly take the view that the Indian economy is very attractive. India has some great demographic tailwinds behind it. It could very easily be classed as like the next China in terms of the source of global economic growth. So we think the starting point is a lot of optimism and excitement on our -- from our perspective. Now when we look at the actual businesses in the Indian Exchange, they unfortunately tend to trade at valuations that we find quite unpalatable. So roughly speaking, they're probably at a multiple or a valuation that's 2x what we would expect us to pay for that type of business. And we are just extremely valuation disciplined. So even if we think India is great, we won't necessarily go chasing India if the valuations don't stack up. That's kept us away from investing directly into India. However, I think it's worth calling out. So we hold TransUnion, which is 1 of the 3 credit bureaus. It's a great industry, oligopoly space. TransUnion were really foresighted. They have -- because they entered the market many years ago, they have easily the strongest credit bureau in India. Civil. It's approaching 10% of TransUnion's revenues, but it's growing at 20%, 30% a year. Absolutely fantastically positioned business, growing really well. Now we don't think that's priced in at all. So we see that as clear incremental upside to TransUnion over time. We're getting it at a valuation that does not price it in. And that's how we like to take advantage of opportunities is find undiscovered ways to invest in those. But net-net, we are very positive on India, I think, over coming years. And look, if the Indian market ever came down to earth, we would certainly, I think -- well, we continue to run the rule, but I think we would very possibly have investments directly in India at a lower valuation.

Thanks, Nick. This next question is from Robert. He said, "Given continuous disclosure requirements, how can WAM Global talk to management about sensitive topics? "

So in terms of what we talk to management teams about, it's -- they're not giving us market -- if any information that they aren't telling to the market. It's just we ask them questions that, for us, confirm a thesis on why we want to own that business. We have a view on what we think earnings can grow. We ask questions that we think -- that for us confirm the trajectory for where the opportunities are for them. And for us, it's as much about confirming our view on where earnings will be as getting to know the management teams and to having that trust factor that they will deliver on what they say. So many times, over the last 20 years, I've sat in front of management teams that aren't on top of operating their businesses or don't have visibility and so forth. So for us, it's do we trust the management team? Do we think they're prudent in their forecasting? We watch them over time. We get to know them. We develop relationships so that we can -- if we have a question, we can call them and ask them. As random things that come up or -- whether it was when Russia, Ukraine, blew up, the war started, we needed to know quickly. It wasn't a question you commonly asked your management teams how much exposure do you have, but we needed to know immediately. If you have the relationships with these management teams, you can ask that question, understand the risk because things come up that you weren't expecting, and you want to have the relationships to be able to engage with the management teams you're invested in. So one, it's about confirming the opportunity and what the earnings trajectory looks like given the total addressable markets of these businesses. But secondly, it's about the relationships and the ability to have our questions answered, whether it's a risk or an opportunity.

Thanks, Trin. The next one is coming from Maxwell. He says, "Would you please take over the fat profits global contrarian fund?" He says, "This investment has been a disaster these days. They seem to spend their money on share buybacks rather than real investments, and they have even stopped paying dividends. Do you have a view?"

Well, we certainly look at all the other LICs in the market, in particular, Geoff through the war vehicle. I know I think Australia had something like a 23% discount. So we do know it isn't a big discount. But yes, no guarantees on us taking it over, but it is certainly -- we do look particularly in the war fund for discount to NTA plays, but you've got to consider what are all the opportunities out there, what's the liquidity, et cetera, with any of these things. But take your point.

Thanks, Trin. This next question is from Steve. It's on fees. He says, "Can you please show performance before and after fees, not just before fees? And if you can't, why not?"

So yes, we do. We provide very detailed breakdown of the fees in both the half yearly report and the annual report. So we look at it in terms of investment portfolio performance, the NTA, including all the fees and then total shareholder return. So we have the 3 metrics we provide a lot of detail on each of those and including all the costs and expenses. So that's very detailed in both the half year report and the full year annual report.

Okay. This next question is from Philip. It's quite a long one. He says, "He's curious to know how WAM Global can claim positive results when the company's objectives are to provide franked dividends, provide capital growth over the medium to long term and preserve capital. He says, "WAM Global's current share price of $2.24 is at -- or $0.04 is at a 1.89% premium to its original offer price of $2.20 in 2018? Additionally, for some time, he says, "The shares have traded below the 2018 issue price, when many global markets have reached and continue to trade around all-time highs." He asks if there's something he's missing or if we can explain?

Sure. So in terms of the returns, absolutely in terms of the share price, we are a little above the issue price of $2.20. But we have to include the dividends paid, so we have paid considerable dividends over the life of the fund that need to be added back into the returns. So that's $0.475 in dividends or $0.679 grossed up. So yes, I would say in terms of return that's got to be added into the returns of the funds generate. But I take your point in terms of when you -- if you don't add that back in, it looks like we're not very much above the issue price. But I would factor in the dividends, too. And in terms of that closing out the discount, absolutely, we, again, take your point. We've done that, as I said at the outset. We do have an enormous campaign on to really close the discount, and it has come in from that 18.7% to 6%. We will continue to work extremely hard in terms of engaging with shareholders and communicating what we're trying to achieve with the fund. And we have got a very strong profit reserve now accumulated over 5 years of dividend. So we think some of the aspects in terms of a very strong yield and strong outlook on that in coming years and the significant campaign, we do have to engage with shareholders and close that discount will help on that path to getting us closer to that $2.40 NTA. So yes, but take your point.

Thanks, Trin. This next question is from Colin. He says, "In your view, is Booz Allen Hamilton a better investment than NVIDIA?"

Well, I'll take that one, Colin. Thank you for the question. I think it's quite an interesting question because it's -- I wouldn't class them as better or worse than each other. They're probably just different. I think what we like about Booz is advantage to peers. Now I think NVIDIA is the same way. They're a very strong business. Certainly, NVIDIA has a great management team, as does Booz. Now with regards to Booz, I have extremely high levels of confidence that they have a clear earnings driver behind them over coming years. Now it's not going to be like NVIDIA, which, in a year, 3 to 4x their profits. Booz is more of a steady compounder that we see winning steadily through time, outperforming the market and driving good results. However, there's a clear valuation difference between Booz and NVIDIA. And I think there's a clear difference in the confidence one can have around the future earnings. NVIDIA, I think, is a debate stock just because there are a lot of people that have been rushing to buy their H100s, H200s, the Blackwell chips. So there's a lot of people trying to stock up on these chips at the moment. Some of this stocking up is going to be absolutely genuine real-world use cases that prove out a good return on investment and justify additional spend. But AI is changing extremely quickly. So absolutely, there are going to be businesses that are investing in NVIDIA chips that don't have a credible business model that can't earn a return on the investment into the chips. There's so much hype and excitement in the market right now that it is very -- it's extremely hard to quantify, but certainly, a portion of the demand they're seeing is this noneconomic hype-type purchasing. Now that doesn't, in any way, mean NVIDIA is not going to be a winner in AI. It's just that confidence one can have around the forward earnings combined with the valuation difference means that, for us, Booz is a really fantastic holding in the fund. Yes. So I hope that helps. And I think it kind of gives a bit of an insight into how we think about the different lenses through which you can look at investing.

Thanks, Nick. We'll stay with you. Would you consider investing in Microsoft?

Yes. Okay. So Microsoft is another interesting one. Again, a lot of respect for the quality of the business, the quality of the management team. So Satya Nadella, fantastic CEO. Microsoft is actually close to potentially being an investment for us. It's just a little bit too high on the valuation side relative to some of the other opportunities we see, particularly given the small to mid-cap discount to large cap stocks means there is a lot of opportunities out there. I think in a nutshell, absolutely, we would consider investing in Microsoft. It just has to be the best incremental opportunity for the fund. Today, it isn't, but that could change relatively quickly.

Thanks, Nick. This next question is from Jeffrey. He's wondering if the WAM Global team could share their thesis, any thesis-altering surprises. He asks, "Has the company -- has the research that you guys have been undertaking resulted in any investment decisions or any change in investment decisions?"

Yes. Thanks, Jeffrey. I can take that question. And maybe it's prudent to give an example. So we own Expedia. We've owned it at very different weights throughout that journey. So our thesis with Expedia was that they were undervalued. Management took a hard strategic decision to replatform their technology into a single layer so they can come out the other side and compete more effectively with its peers, such as Airbnb and Booking. That thesis largely paid out. We start buying stock at $90. The stock reached highs of $100 and where we trend. Since then, our thesis has changed slightly. We still own the position. However, we're starting to see a little bit more risk in terms of market share dynamics in alternative accommodations. And while we still believe they're in a position to gain market share, that's come on board a little bit slower than expected. So we've reduced the weight to reflect those risks. As an example of our thesis is playing out, we take profits when the catalyst has played out, valuation has reached appropriate levels. And then we will continue to revisit that weighting depending on the insight that we get from meeting with management, from the competitive dynamics within the landscape. And that's probably a good example to illustrate our investment process and how we think about it.

And I'd say another one is, so one of the areas that we've had exposure actually over the life of the fund is in picks and travel investment in the health care sector. And so Thermo Fisher Scientific has been a core holding since the start of the fund. We've also owned Avantor. About 18 months ago, we got a little concerned in terms of inventories that was -- had -- were getting stocked up at their customers. And so we reduced our weighting in particular in Thermo Fisher Scientific because love the business, think it's super, super high-quality management team, but we're just a little worried on that inventory. And then what we've seen subsequently is we are starting to work through those inventories. And this way, seeing Avantor has certainly confirmed that thinking. And so that's in terms of the Thermo Fisher position, we have started to add back into it. And so we will move around our position sizes depending on, as Will said, with Expedia, depending on where the valuation is, whether we have new information that we've received from these conversations with various players across an industry. It's not even necessarily the company itself. It might be their competitor. It might be their customer that gives us some insights into what's happening. And we don't necessarily fully sell. We might just reduce the waiting because we love the business, and we think, over time, it will be a consistent deliverer of earnings growth, but we're just a little more concerned on the near term.

This next question is from Richard. He says, "What is the status of Cyber Capital? Is WAM Global -- is the company still invested in WAM Global?"

Yes. So we believe they are. I think they've got about a couple of percent, but may have been selling some. But we -- as I think Geoff highlighted on our last webinar in March, we've engaged with them and went to see buyers in New York here. Had a great meeting with them and look forward to continuing the dialogue with them.

I think we'll stay with you. Next question is from Kent. He asked, what is the franking credit balance in cents per share at this date?

So we've used the majority of the franking balance. So we continue -- so basically how we -- what we do is we continue -- as we pay company tax, we accumulate franking credits and franking to be able to pay the -- to be able to fully frank the dividend. And so what we realized profits that we paid in more recently enabled us to confirm that $0.06 final dividend will be fully franked. So it's really, as we pay tax, we accumulate the franking and why we're not necessarily paying even more dividends because we don't have the franking yet generated from paying company tax. So yes, we have used the majority of the franking credits, but that will be paid with this -- paid out with this next dividend. And then we will continue to pay company tax over time which will help us be able to frank dividends going forward, but it is completely dependent on our ability to keep generating the franking from paying company tax in Australia.

Thanks, Trin. This next question is from Gordon. He says, "Given you have been investing in some companies for a while, how do you manage what to keep and what to sell?"

Yes. I'm happy to start that one off. Thank you, Gordon, for the question. So I think for me, in terms of investing in a company, the most important thing is that you have a thesis going into holding the business, and then you're engaging with the management team, you're checking the results. If they have Investor Days, you're following those. You're making sure that you're on top of the results of the business through time. Now the most important thing is that if there is a situation where the thesis isn't evolving the way you expected it to, it's usually more prudent to consider reducing or exiting the exposure and being quite clinical about that. The stocks that you can hold for a decent period of time are those where you have a clear thesis. When they bring a result, it's what you expected it to be. You talked to the management team, and you are getting confirmation that they are driving towards this goal. Now obviously, there are exceptions to that. There are situations where companies are underpriced because they're in a turnaround mode, and those can be quite attractive. But in terms of those core holdings, as Catriona mentioned earlier, we certainly take the view that earnings drive stocks. So just making sure that the earnings are performing the way you want them to. I think just as an example, and there was the question before of when do you choose to exit the business. And Will and Catriona both gave examples. One from my end was, we took a start up position in a company called O'Reilly Automotive, who are admitted -- they're a fantastic company. They're in the auto parts space in the U.S. I think they're the best at what they do or one of the top players and just a clear market share gainer over time. Now with the investment, they had an earnings result that was a little bit less strong than we expected it to be, engaged with the management team, walked through the issues, had another result that was additionally less impressive than expected, and unfortunately had expectations for the future that didn't look quite conservative enough to us. That was a situation where it was a bit of awash. The stock was fine. It hadn't gone significantly up or down versus our entry point. But it's just when things start going a little bit off the path you had expected, that's usually a pretty good time to really strongly reconsider our investment thesis. So that would be how kind of I approach the journey of a stock -- of holding a stock through time.

Thanks, Nick. This next question is from George who says, "What is your view on the Japanese market? And are you looking to add Japanese exposure?"

Sure. So in terms of the Japanese market, I mean it is a market that we've spent a lot of time looking at and have had various investments in over the life of the fund. Of late, we have reduced some of our investments. The market has had a very good run. We do think there's still some incredibly interesting companies there. Often there's a bifurcation where the quality companies, very high-quality companies, their valuations aren't as attractive, but the balance sheet often of the Japanese companies are extremely compelling. You just have to hope that they're going to return the capital to you. Corporate governance in Japan, in general, is improving. So from that perspective, it's an interesting market. We are seeing, particularly amongst the larger companies, a willingness to give money back, to run down the cash on their balance sheets and allocate capital more effectively. But like as of late, we have reduced some of our investments in Japan just given the run the market's had and a bit of our concerns with some of the investments on how they were handling inflation because the cost base -- it's a market where a lot of the companies aren't used to dealing with inflation. And so their ability to push price on the other side of it, of cost inflation was checkered in some cases. So yes, it's still definitely a market that we continue to hunt for ideas and think you can find outstanding investments over time. But as of late, given the run of the market and some of those concerns, we had reduced some of our exposure there. It has -- and as I said, the markets had a fantastic run, but the U.S. market's actually still outperformed it. So we are happy with our investments that we've had in the U.S. as an alternative.

Thanks, Trin. This next question is from Peter. He says, "You don't seem to be finding many stocks at low to small mid-cap valuations. Can you explain why?"

I'm happy to take that question. So I guess with small and mid caps, often they appear outside the top 20 positions that we publish every month. So we do have quite a bit of exposure to small and mid-caps. And I'm happy to provide a couple of examples. Tradeweb is a name that's in the top 20. It's a mid-cap company. When we bought the stock, it was at a $15 billion market cap at roughly around $60. It since compounded at a very attractive rate and rerated as well. Expedia is another name I touched on. It's still quite a small market cap. It's trading on a single-digit PE with high single-digit revenue growth. It's got a buyback of $5 billion, which is roughly 1/3 of its market cap. And we see that as extremely compelling valuation. It's a growth company and has got catalysts to unlock its value. We also had a company called Applus. It sat just outside the top 20. It was actually acquired, again, as competitively bid by Apollo and another private equity consortium. So we are seeing value in the small to mid-cap space. Often, it doesn't show up in the top 20, but we go hunting around Europe, the U.S. and where we're finding some really compelling ideas, and we're happy to talk share of those going forward as well.

Yes, definitely. And as we said earlier, we have about 55% of the portfolio in small mid companies. So it is a significant weighting and has been higher over the life of the fund. But as those companies -- the larger companies in the U.S. have certainly outperformed, so where we've had exposure to companies like Visa, [ ICE ] and CME et cetera, these companies have grown faster. And so they've become a bigger percentage of the portfolio because the smalls have lagged. And that has been, as we said earlier, a headwind to performance. And over the last -- at 5% -- over 5% drag a year and 8% small mids are behind right now.

And I guess just one thing I'd add to help answer Peter's question is, I think when I talked about the small cap side of the market, there are companies that just aren't high enough quality, high enough growth, the management teams aren't good enough to hit our process. So we are finding very attractive opportunities in the small to mid-cap space, but we're not going to break our process in terms of undervalued growth with the catalyst simply to buy a stock because it's on an optically cheap valuation. So we do maintain a lot of discipline around that quality and that growth and that industry structure and so forth. So yes, that would certainly be a part of how we think about investing.

Thanks, Nick. This next question is for Mark. He says, "U.S. public debt is around 120% of GDP, and there has been low demand for long-term government bonds. Does this suggest the U.S. dollar valuation may be brittle, especially with the prospect of a second Trump term?"

Okay. Well, I'm happy to take this one. I think in terms of the U.S. government debt and the question marks around the U.S. currency, I think for me, it's always interesting in terms of currencies to make sure that you're comparing the U.S. to the other opportunities or offers in terms of currency. Now I wouldn't necessarily say that government balance sheets are fantastic around the world. I think plenty of European companies and U.K. companies, Japan certainly has a very levered government balance sheet. So the thing with currencies is always to make sure that you're thinking relatively because you have to trade from one currency to another. So I suppose on that front, I wouldn't necessarily say the U.S. is significantly worse than others. Obviously, the direction of travel of public finances has been a bit of concern over the past few years. Trump has made it clear that he would be quite happy to reduce taxes and be quite spendthrift as well. So that would be a policy decision, which would likely continue to drive up the U.S. debt to GDP at the government level. So it's certainly something we would be monitoring. I think the thing I'd keep in mind is other countries have issues as well. So the idea that the U.S. currency will lose its reserve status in the short term, from my personal take, I've been hearing that for quite a while, and I don't necessarily see that as something we would take a bet on. I don't think that would be a high conviction view I'd have in the shorter term.

Thanks, Nick. This next question is from John. He says, "Do you have a view on Intel Corp? The company is now moving into the next generation chip technology, and they have a chance to leapfrog the technology used by NVIDIA."

I'm happy to answer that question. So Intel has been left behind in this arms race. So if you look at where the leading-edge providers of semiconductors are, there's really 2 companies which come to mind, which is TSMC and Samsung. So Intel, they've had to play a large game of catch-up, and they've been reliant on government subsidies, government contracts in an effort to try and catch up. From what we know, if you look at NVIDIA, if you look at the leading customers of these foundries, they still prefer to work with TSMC and Samsung. Intel is spending a lot of capital. They probably do have in place of government support. However, we're not confident on the returns on the invested capital that they're applying and some of the facilities that they are building within the U.S. and this onshoring initiatives. This talk of big delays, not having the right labor capacity. So we do see some risk there. So we monitor the semi place -- space quite closely. Intel is not hitting our sort of evaluation process right now. So it's not a position we hold in the portfolio.

Thanks, Will. This next question is from Len. He says, "What is the benefit to shareholders of retaining 5 years of dividends as a profits reserve to cover future dividends? It seems that it allows management to show positive performance in the down year. Can you please explain?"

Yes. So for us, paying the dividend out is that balance between capital end and dividends. And that -- we want to pay consistent dividends over time and be able to steadily increase them. And so I mean, we have had the problem in WAM Capital of having basically a too high dividend. So it's an enormous headwind to overcome in terms of -- for the capital portion of the portfolio. So it is -- you don't -- you can't have your cake and eat it, too. So we tend to like the balance of trying to consistently slowly increase the dividend. The dividend still is extremely high yield versus global markets and the U.S. stock market. So average 2% for the market, and we're paying 5.3% plus franking, which is 7.6% grossed up. So it's a very strong dividend yield. And we think it's a nice combination of not taking away from the capital growth portion that the portfolio can have because, as I said, you can end up in a point of -- at a point where the -- you have to overcome such a large performance headwind in terms of capital growth to even stand still for the NTA.

Thanks, Trin. And we have one final question come through. It's from Rod. He says, "Are the WAM Global team shareholders in the WAM Global portfolio?"

Definitely. Yes, we all are. I mean for me, it's the biggest investment outside of my house and yes, continue to add. We all invest in the fund and add to our shareholdings each year, but yes.

Yes, same. It's the biggest personal investment outside of house. And then it's also -- it's a -- like we're very well aligned with our shareholders, and we're going to continue to stick to our investment process. We're going to find quality companies and our savings and our wealth is at risk as well. So I completely aligned with shareholders.

Thanks, team. I'll pass back to Trin for any closing remarks.

Great. So I want to thank all of you for joining the webinar today. As we said at the outset, this is your company. So I'm pleased to answer your questions. Super excited about the portfolio of companies that we own and their prospects for earnings growth over the long term and look forward to updating you again soon at our full year results. And yes, as I said, thank you to Nick, Will, Zoe, for joining me on the webinar, but most of all to our shareholders. Appreciate your support, and look forward to continuing to update you.