WAM Global Limited (WGB) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us today for the WAM Global FY 2026 results webinar. This is your company, and we'll be pleased to answer your questions in the latter part of today's webinar. I'm April Lowis from the Investor Relations team, and I'm joined by Catriona Burns, the Lead Portfolio Manager of WAM Global. Nick Healy is also with us dialing in from London and who's the portfolio manager. And we also have portfolio manager William Liu joining us from New York. Today, the team will talk through the full year results and provide an overview of the investment portfolio. Before we begin, a disclaimer is displayed for you on screen for you to read. And what we discuss today is general in nature and is not financial advice. I'll now hand over to Catriona.

Thanks so much, April. And as April said, thank you to all of you for joining us today. Why don't I kick off with going through the FY 2026 financial results. We'll also go into an extended amount of detail in terms of what drove portfolio performance over the year. Recent feedback from company meetings. And as April said, Will is over in New York. Nick is in London. I've just come back from San Francisco last week. So we've got a reasonable amount of feedback from those trips, before we talk about more broadly how the portfolio is positioned going forward. and what we're excited about as we look ahead. So with that, in terms of the FY 2026 result, the performance for the portfolio, the portfolio had a tough year. We were down 4% for the year, and that compared to the MSCI World Index, which was up 14.8%. Over the life of the fund, we've generated 8.2% returns per annum. And over the life of the fund, we've paid over $1.10 in dividends since inception. Pleasingly, because of prior profits generated over the life of the fund, we were able to slightly increase the dividend for the year, in total paying $0.132 and the final dividend was $0.066 per share. Now this equates to a 6.7% dividend yield or grossed up 9.6%. As I said, the performance over prior years has generated a significant amount of profit reserve. We have $0.683 in the profit reserve, which equates to over 5 years in dividend coverage. And as I said, have paid $1.10 in dividends over the life of the fund. With that, why don't I turn to what was the dynamics more broadly of the market over the 2026 financial year? It was an unusual year. There was extreme levels of concentration in terms of market returns. And as you can see from the chart on the far top right, we can see where the returns for the index were generated from and can see that 80% of returns came from just 4 sectors, and that was the semiconductor industry, hardware, cap goods and banks. With 80% of returns generated from such a narrow set of companies for a diversified portfolio like WAM Global, that does set up for a tough backdrop. When we look at market concentration right now, it is at particularly extreme levels. In terms of the chart here on the bottom left, you can see that we haven't had this level of concentration in markets, except if you go back to the NIFTY 50 period in 1964, where we got to 39% of returns being generated from the top -- those top 50 stocks and the top 10 being particularly concentrated. And then the second time where this has happened before was in Japan in the '80s, where market -- the concentration of markets was at a similar level. Now 5 years ago, I was saying how markets were extremely concentrated when we had the top 10 stocks at about 30% of the S&P 500, we've now got to 40%. And that level of concentration is really, as I said, unprecedented. For us, that is 1 thing to have an index made up of a very concentrated number of stocks. But as a portfolio, we want to have a much more diversified base of companies and be much more diversified even if that presents a near-term headwind to performance. You can see from the chart on the bottom right, where market returns were being generated. And right now, there's an interesting dynamic going on in that over the past year, quality stocks, which is where we love hunting for investment ideas, have actually hugely underperformed momentum stocks. So the momentum stocks and that buckets in things like unprofitable tech mean stocks or retail favorite stocks they've done, as you can see from the chart extremely well, whereas defensive or low beta stocks, quality stocks have really underperformed. So with that backdrop, why don't we go into some of the detail around some of the names that actually detracted from portfolio performance for the year and then explain to you why we're so excited about them as we look forward. I'll hand over to Will and Nick to run through these.

Thanks, Catriona. As we mentioned earlier, full year financial year '26 was a difficult year for us in terms of portfolio performance. As you can see on the slide, 2 sectors that were significant detractors to our portfolio performance were Software as a Service and exchanges and data. Despite resilient underlying earnings growth for the names that we earned, the valuations came under significant pressure as the market perceive them to be at risk of generative artificial intelligence. Together, these 2 sectors accounted for approximately 75% of the relative underperformance of the portfolio. So as a team, we are thoroughly reviewed and re-underwritten the case for each of these names that we own. Our view is that generative AI will present a positive impact on these companies. However, we acknowledge the industry environment is highly dynamic and is changing rapidly. Our strategy is to remain nimble, be selective in investing in the winners and also avoiding the losers. So if we move to the following slide, I'll start with Software as a Service as a sector. Investors moved away from SaaS to the semiconductor and hardware names as we saw new applications in artificial intelligence and the build-out of the data center infrastructure trade continued to grow. At the same time, the overall sentiment of these software names was incredibly weak as the market was believing that software and code was going to be easier to replicate. This will result in competitive pressure on some of these names. But despite this, we're thinking the opposite. We think applications are where the AI will live, and we believe that investing in companies that are positioned to leverage AI to increase its value proposition to its customers is a highly attractive space right now, particularly at the current valuation levels. We can see for the next -- on the slide for the next financial year for full year 2027. SAP, Intuit, Procore and Smoutes are poised to compound earnings per share at least in the mid-teens, and we think these numbers are conservative. At the same time, during financial year '26, we saw the pay multiples of these names derate aggressively, significantly between 30% to 72%. Effectively, the market is telling you that these companies are worth for less despite having a resilient earnings stream. And we think that's an extremely attractive set up going forward. You're getting a high-quality businesses with attractive earnings resiliency, trading at very low valuations, and we think that's great mix for attractive prospective returns. Looking at our individual holdings and why we believe earnings remain durable even in the world of Agentic AI. SAP, it's a name we ran the fund for a few years. It's the world's largest enterprise resource application software business and around mission-critical processes for the world's largest organizations. We believe SAP's position as a system of record is a powerful competitive position and allows them to have unique access to customer data, business process context and integration of workflows that AI agents will be reliant on to automate business processes and workflows. They're going to be at the center of AI rather than being disintermediated. Another name that we own is Intuit. Intuit a leading small business and consumer company running payroll, accounting, payments and tax filings for small businesses and consumers. It owns the legal, the bank ledger, bank feed, tax, rails and AI raises the value of the data sits on its platform rather than replacing it. Procore, that's the leading cloud platform for construction project management, connecting owners, general contractors, subcontractors on a single system of documents and payments. Procore's competitive advantage is not in its interface that it runs on. It's the network. It holds the data, drawings, orders, a contractual order trail that every party on the jobsite relies on, and that is mission critical in this process, AI will only enhance the value of that. Finally, Synopsys. Synopsys is the world's leading electronic design automation company, providing the software, intellectual property and verification tools to design essentially every advanced semiconductor the market is worried about AI potentially automating chip design. We think this is valid, but Synopsys is 1 of the very few companies that has actually has the capability to do it. And AI agent must use Synopsys' decade old libraries of physic accurate models, foundry certified flows and then mission-critical in giving customers comfort in the tape-out and ramp-up of customer chips. They're integral to the workflow and highly unlikely to be replaced. So I hope that gives you a bit of an overview of some of the SaaS names that we have owned. The underlying message is that the earnings have remained resilient despite the being having derated. And we understand there is a narrative out there that AI agent is creating for competitive pressures. However, we believe we're investing in companies where they will leverage AI to increase their value proposition and we believe they will have sustainable earnings growth going forward. And with that, I'll pass to Nick to go through the exchanges and data space.

Great. Thanks, Will. So let me continue with the second area, which Will mentioned was a clear headwind to the funds in the year, which was data and exchanges business. Now just as a reminder, the 4 companies I will run through and the 4 that we'll run through represent over 75% of the headwind to performance during the year. Now the 4 companies on this slide, Tradeweb and MarketAxess, which dominate financial fixed income trading. TransUnion, which is 1 of 3 credit bureaus with a wealth of proprietary data and ICE, which I'll go into detail on great businesses that all grew earnings during the year and yet saw significant price declines. Now we continue to hold the view on the funds that earnings will drive stocks over time. And let me go into some detail on ICE just to illustrate this. So ICE is a leading futures exchange offering energy fixed interest, commodities and FX trading, and they have a leading mortgage business. Futures exchanges, including ICE, are great companies when they have the most scale in the industry. They have great moats that allow them to earn high margins and returns. The reason for this is that the leading futures exchange in a given market will tend to have the most liquidity, which will drive the incremental trader to that exchange which will increase their liquidity, creating a flywheel behind the business. Additionally, ICE benefits from uncertainty, so particularly in energy and interest rates. If we think of the year we just had, we had a lot of uncertainty in energy with the closure of the Strait of Hormuz and in inflation and interest rates. So ICE is a great business with clear current tailwinds behind the company. It's being operated exceptionally well, which you can see in the beating of all 4 earnings across the financial year. So given these dynamics, normally, we'd be discussing ICE as a contributor to the fund, but this was the opposite of the case here for the reasons that Catriona and Will mentioned, specifically because ICE is not seen as an artificial intelligence winner, the stock was down over 30% during the year. Now we talk to management quite often, we follow results. And so we just thoroughly disagree with this. We actually took the opportunity with the stock being down so much to add to the position in July. If we turn to the next slide. Now given our view that earnings drive stocks, we do pay a lot of attention to both the individual earnings growth for individual company but also to the earnings growth of the portfolio as a whole. It gives us a lot of confidence that the portfolio as a whole grew earnings over 18% in the financial year. We didn't see much of this because of the sentiment headwinds that we've discussed with some of these businesses trading down materially on the view that they were artificial intelligence losers, but we thoroughly disagree as Will discussed. So this earnings growth creates a lot of opportunity for the fund into future years. If we turn to the last slide I'll run through, which is that's backwards-looking approach to how earnings growth was for the fund as a whole for the financial 2026. This slide simply shows the earnings growth for the coming years. And it's the same situation where we expect 17% to 18% earnings growth at very high margins for a collection of great businesses. So again, we hold the view that earnings drive stock. So given the strong earnings growth to be expected, that does give us a lot of confidence in the future opportunities for the fund. Now when there is a gap between earnings and price, there's often a catalyst that can come along to unlock value. Let me pass to Will to take you through that.

Thanks. Thanks, Nick. As we said, the last financial year, the market was extremely narrow and the focus was clearly on artificial intelligence. However, despite that myopic view of the market. We have had some wins in the small and mid-cap space across health care and the financial sector. On the screen, you can see Massimo, JTC and Allfunds Group. It's clear to us when we made these investments that the share prices were disconnected to the fundamental earnings power, and we believe that they have really attractive prospective returns. It's nice to see that validated over the past year where we saw both private equity and strategic buyers step into the space at healthy premiums, as you can see. We continue to hold a number of really interesting more to make up opportunities with similar characteristics, companies which are compounding earnings growth, delivering to our investment thesis. However, are getting cheaper because they're not in the crosshairs of AI. We believe these are really attractive, and I think they will reward the portfolio in due course. And with that, I'll turn back to Catriona.

Great. Thank you, Will, and thanks, Nick, for that run through. So in terms of what we kind of anchor ourselves in always, that is our investment process, as we've been ad nauseam to tell you over the years, we don't change how we invest. We look for undervalued growth companies with a catalyst and continue to see a huge amount of opportunities. The bifurcation and concentration of markets has made a lot of the companies that we've invested even more attractive and undervalued. So we're excited about the setup for returns when we look to the year ahead. In terms of what is core to our process as well is getting in front of management teams. We see over 700 companies a year. As Nick said, he's over in London at the moment, traveling around Europe, seeing over 50 companies in the next couple of weeks. Will is in New York. There's been numerous conferences owned in recent weeks. And I was over in San Francisco and traveling around Silicon Valley last week to figure out what's the latest in tech land. And these insights really emphasize what's going on. We talk to the management teams of the companies we invest in, suppliers, employees, et cetera, to really gauge what is happening on the ground. Last week, I was able to see the management teams of Intuit, ICE, Procore. These are TSMC and various other holdings, both in the portfolio and prospective investments for the fund. In terms of insights, there's no doubt that the AI infrastructure rollout continues at pace. You're seeing that filter across the entire U.S. economy, whether that be the cement companies billing and helping build the data centers, the infrastructure players that are maintaining and upgrading electrical grids to facilitate that. There's a number of bottlenecks in the system at the moment, both in terms of that build-out, but also in terms of ability to get the skilled labor that these companies need. Every company is thinking about AI. And if they're not, they -- they're going to get left behind. So it doesn't matter if you're a software company or right at the front of the AI infrastructure ecosystem, you are thinking about AI and realizing and recognizing that you need to integrate it within your workflows. And lots of companies, even -- yes, as I said, even in that software space, are recognizing that if they integrate AI, they can actually drive efficiency. Everyone is still trying to figure out exactly how to monetize the AI opportunity, but they're certainly recognizing that they can increase customer stickiness by integrating it within their products. Then they -- you remove the need for the customer to bring those capabilities in-house. So absolutely, we're all building agents. We're all realizing new skills that we can implement into making our own lives efficient. But so are the companies at the same time. So I think there's -- whilst there was a lot of doom and gloom last year around particular sectors and particular companies, it is much more nuanced under the surface, and we are yet to see which companies can actually monetize and benefit from AI across the entire economy. When we see companies like Quanta and Dicom, et cetera, I mean, there is no doubt that huge investment needs to be done in electrical grids across the country. Energy is a really very much a bottleneck and needs to be sorted before any of these data centers can get up and operational. But we do think there is longevity in terms of the build-out cycle for AI infrastructure. But at the same time, there's huge opportunities from companies that have been deemed losers that are actually growing earnings exceptionally well and potentially actually will accelerate earnings growth in the years ahead. With that, why don't I turn to Will to tell us about what's happening on the ground in New York.

Thanks, Catriona. So over the last week, there was 2 major conferences in New York. One was a technology 1 and the other 1 was an industrials conference. So on the technology side, some of the key takeaways was, I would echo Catriona's sentiment that the AI infrastructure build-out is well intact. However, that's a little bit more well known now, like everyone is talking about it. You see it in the press. That's happening across the board. However, there's still selective parts within the semiconductor supply chain that are really interesting. In markets such as optical, power and materials are certain areas within that supply chain that remain attractive to us, where we still seek strong compound earnings growth going forward. One of the highlights of the meetings in the technology sector was with Amphenol, which is a top 20 position name that we own. It is the leading interconnect business worldwide and think of it as essentially the cables connecting chips, GPUs, server racks and the pace of innovation there within optics and copper, is amazing. Like there is so much optical networking that needs to be done around the data center trade, and that's going to be really attractive for Amphenol because they're the leading player. They have the best relationships with the and they have a really interesting decentralized business model where they're getting close to the customer. One of the interesting tidbits from my conversation with the CEO was that they've had better visibility today than what they had 3 to 4 years ago because the uplift in the scale of the hyperscaler CapEx that's coming through the industry, the supply chain really needs to work closely with the hyperscalers to understand their needs so that there isn't double ordering. They've got great visibility into the future. They're compounding at incredibly attractive earnings spread, however still trading at a reasonably modest valuation. It's example of a name that we own in the AI data structure trade that meets our investment criteria, and we think it has attractive prospective returns. On the other side, from the industrial perspective, overall demand remains strong. We are seeing activity related to infrastructure spending bills. We're also seeing reshoring and the build-out of data center is driving strong demand signals across the U.S. economy. This is somewhat tempered by some volatility that we've seen with the Middle East tensions as a result of energy and freight costs being slightly elevated, which we're monitoring very closely across our portfolio. But generally, the companies feel good about passing through those costs, the competitive position and ultimately, the demand signals are very strong and we're happy to -- we're confident with the names that we're invested in here. And with that, I'll pass to Nick in London to go through some of his takeaways.

Absolutely. And thank you, Will. So as Catriona mentioned, I'm in London at the moment, over a little over 2 weeks, I'm visiting over 50 companies in this region. And the team is talking hundreds of companies across the world. Now we like to talk to companies we hold, potential new investments, competitors and suppliers, just to make sure we're getting a very good understanding of the conditions that a company is operating in. This really does help us build confidence in what we hold and find new potential ideas. So before I delve into some highlights, why don't I start with a high-level overview of Europe. Now at the high level, I heard this across multiple meetings. But when I'm talking to industrial businesses or consumer businesses with operations in Asia, the U.S. or the Americas and Europe, it's consistently the case that the ranking order puts Europe at the bottom. Europe is the weakest kind of macroeconomic major region of those big 3, and I did just hear this consistently. Now this is no surprise to us. Energy prices have gone up a lot in Europe with the Ukraine situation years ago and the Middle East situation more recently. Inflation is running high. And there's a lot of political uncertainty in France, where I heard from an expert on the situation in Germany, in the U.K. So there's a lot of reasons that Europe is facing a broader economic malaise, but there are bright spots. So the Nordics is a region which is seeing return to economic growth. It's quite strong. I visited that last week. And there's also some industry bright spots. So in particular, everyone is very optimistic and upbeat and this is supported by the results from defense, aerospace, government-supported infrastructure and, of course, artificial intelligence. That is a worldwide phenomenon. So what -- even though that's the case, you can still find fantastic businesses that are domiciled in Europe. You often get them for a cheaper valuation because people often look in the U.S. So let me give you a couple from my meetings over the past week. So I met with ASML, who are holding in the funds, in brief, ASML hold a complete monopoly over the machines, the lithography machines required to produce artificial intelligence semiconductors. Very upbeat meeting with management, and this is being supported by the results that ASML are producing. Now they tend to be less boastful than certain other companies potentially some of the companies Catriona saw last week in San Francisco, but the results speak for themselves with earnings growing over 50% this year. The key standout for me from my meeting with ASML was the news that they won next-generation orders for their lithography machines from TSMC and Samsung. There were some questions in the market if this would happen this quickly. There were certainly some doubts. But when I talked to the management team, they've been consistent with me throughout. They talk to their customers extremely frequently. They have very close relationships. And these orders didn't come as any surprise to them. So very strong performance. We think these orders will continue to drive earnings over the coming years as well as just being a clear beneficiary of the artificial intelligence build-out. Another company I met with last week was Safran, which we hold in the funds. They produce aerospace propulsion engines, parts and equipment for both aerospace and defense, which are 2 of the areas that are just clearly seeing the most significant tailwinds in Europe. Now we've held this for a few years. It's performed very well. It continues to provide very good results. They're very clear that the visibility they have into coming years is actually extraordinarily strong just because of the industry conditions being so favorable. The start of the conversation that stood out to me the most from this meeting was that when you combine their installed base and their backlog of the next-generation engines, this is a 2-player industry, but they have over 70% market share. So that leaves the other competitor, Pratt & Whitney with under 30%. Now management was super clear with me. They don't actually want more market share. That's such a high level that they're willing to be extremely disciplined around pricing. There's a lot of strong growth in this industry and we think the combination of pricing and growth will drive Safran really well over the coming years. So that's just a couple of anecdotes and updates from companies I met with. With that, let me pass back to Catriona.

Thanks so much, Nick and Will. So in terms of rounding out in terms of when we put it all together, is, as I said earlier, the key for us is that we want to maintain a very well-diversified portfolio. And we think that's the prudent way to manage shareholders' capital. It is, as we've been at pains to say a very concentrated market with very narrow number of companies driving returns. But for us, being prudent about managing your money as our shareholders is about keeping diversification and exposure to a wider range of sectors and countries. As you can see from the chart at the top right, we do continue to maintain about 60% of the portfolio invested in small mid-cap companies. We have about 37% in large-cap companies. And when we look at the market of the companies that are over $1 trillion, we have about 11% there relative to the market, which has about 28%. We've got about 4% in cash at this point. Geographically diversified, having the largest weighting in America where we are seeing the strongest growth, and we do continue to find undervalued names when we look across sector, as I said, well diversified. The better way potentially to look though through the sectors and thematics that we're exposed to is on the next chart, where we think about positioning and thematics that the portfolio is exposed to. And as I said, in terms of the AI infrastructure, trade and the fact that over the last 12 months, the market has really been driven by AI infrastructure. We do have holdings in that space, including ASML, TSMC Amphenol, which Will talked about. But we are diversified across a number of thematics and those include digital enterprise where advanced proprietary data is increasingly being recognized as just core and crucial in an AI world. Innovative Health and other core driver, aging demographics continue. You've got increasing health care spend as a percentage of GDP. And then you have innovative technologies being brought about by the use of AI within the health care system. And there's some really exciting opportunities there. Critical assets. We have a number of holdings in this space, Siemens Energy, Safran, which Nick talked to and Dicom and Amrize, which are very much benefiting from multiple themes, including that build-out of data centers, but also reshoring and increasing focus on national sovereignty. And then lastly, data and marketplaces. So we've got a number of businesses such as ICE, which Nick talked about at Tradeweb, MSCI, TransUnion. These are incredible businesses with huge network effects. And whilst they might have been out of favor in the last year, there's absolutely no doubt in their market dominance. And we continue to see really strong earnings growth being delivered by these businesses. So we think we've got a diversified portfolio of fantastic businesses, high-quality businesses, undervalued. And for that reason, we're really excited about the portfolio as we look ahead. With that, why don't I hand to April to facilitate Q&A.

Nick, Will and Train, thank you very much for your insights. So thanks to everyone for submitting questions. Catriona, we'll start with you for the first question, which comes from Robert. When an investment thesis takes longer than expected to play out, how does the investment team determine whether to remain patient, reduce the position or exit the investment?

Great question, Rob. And I'll start off and then maybe Nick and William, you might want to put in some thoughts as well. I mean with an investment thesis, obviously, whenever we're investing in a business. We kind of -- we lay out why we're investing. We actually pre-mortem what we think what could go wrong, and then the whole thesis is about we've identified the catalyst that we think will play out. And then as companies deliver results, we're always going back to our thesis and saying, has that company met what we expected? Has it missed? Is the thesis broken? And reassessing whether the company is delivering on what we thought it would deliver. And sometimes, like we absolutely make mistakes. Companies don't deliver on what they say sometimes or things occur in the world that mean that what they thought was going to play out doesn't. So we -- if the investment thesis is broken, we'll sell a company. I mean, a good example of that with last year was Adobe, for example, where we actually had concerns around the long-term terminal value of that company in an AI world, we've got a lot of software names that we've gone through this year on this webinar that we think actually are delivering very strong earnings. But in that case, we were nervous around the long-term terminal value, so we did exit. But generally, it's about going back continuously to what we laid out as the thesis for investing is the company delivering are the catalysts still there to drive earnings over the coming period. Nick, did you want to add anything?

No, I think that's spot on pretty much. We just have to stay very close to the companies we hold. We don't get them all right. So it is about exiting them, as Katrina mentioned. I guess 1 additional thought is, we are increasingly -- I think we're seeing more and more opportunity where it feels like the market will adopt a narrative around the company. It will start trading the company as if the narrative is 100% true and we'll do it in record time. So we've had some holdings in the past like Alphabet or entry position into ASML, those were both situations where the market was convinced alphabet the core business with decay exceptionally quickly. And for ASML, the lithography wouldn't be the most important part going forward. I do think, as Catriona mentioned, sticking to the fundamentals, sticking to the earnings growth is really important. And then the more the market is willing to get quite narrative driven, the more there are these opportunities where misunderstandings exist.

Will Liu, Karen asked a question for you. What's it like on the ground in the U.S. at the moment? And how is the political landscape affecting markets?

Yes, it's a great question. Like underground, the economy is doing really well, like the data center trade, AI is well and alive, but the mix is kind of shifting in the sense where historically, white collar workers, software engineers, we're quite excited about their prospects for the future. And now with AI, it's kind of flipped where blue collar workers potentially plumbing, electricians, going into the data center. They're the ones getting rewarded by some of this AI spending. But overall, consumer is incredibly healthy. We've -- like in New York, we've just had the pay for World Cup. We've seen travel continue to do really well. So really across the board, consumer strength is quite prevalent, and you can see that in Visa's results, which is the name that we hold. On the low end, there is a little bit more of a struggle there. There is a bit of a C-shaped economy in the sense if you're wealthy and you have assets, then high interest rates isn't necessarily bad for you. If you have some cash in the bank, you only high interest rates, asset values have generally gone up. So there is a little bit of divergence between the high-end consumer and the low-end consumer. As I mentioned earlier, the industrial economy is generally firing, but they're dealing with a little bit of inflationary concerns with the Middle East tensions, what's happening with freight. And then from a regulatory standpoint, there is this narrative that the states and the data center trade might take a little bit of a pause because people don't want data centers in their backyard. I don't think the technology sector has done a very good job of lobbying and giving the right the bull case for having data centers and the benefits of AI in the sense, I think the communication has been quite poor with, hey, data centers coming into your backyard. We don't know what the benefits are, and it potentially takes your job down the road. So there's a lot of uncertainty going to the midterm elections, and we tend to see that in prior market cycles as well. So I'll characterize the overall U.S. economy is healthy, resilient. There's a lot of innovation and excitement happening here. There is a little bit of, I guess, uncertainty into the midterm elections, and we'll wait and see how that plays out. But overall, I'd say it's quite strong in the U.S.

Ellen has asked U.K. markets and its economy have lagged the U.S. for many years now. Will and Nick, what are you currently seeing? And are there still some key differences between the 2 countries? Maybe, Nick, to kick us off?

Yes. Happy to. Will, feel free to add anything you like. But no, yes. So I think I kind of mentioned it, I guess when I was doing my -- around the grounds in Europe the U.K., although I should not have bundled it with Europe because I guess it considers itself separate. The U.K. is absolutely going through the same conditions that Europe is going through. And in fact, there's actually -- the coming U.K. budget is likely to be an additional increase in taxes and this kind of not necessarily pro business activities. So it doesn't leave 1 with the most upbeat stance on the U.K. The thing I think to keep in mind is, so just even today, I was talking to a company that's U.K. listed, but 60% of their revenues are in the U.S. It's the fact that these businesses kind of don't necessarily -- where they're domiciled and where they generate their profits aren't always in perfect alignment. And it's like I mentioned with ASML and Safran, you can find wonderful businesses that sometimes because they're in these geographies that are a little less strong, you can get very attractive valuations and entry points. So I think that would be a few thoughts on the U.K. I think -- Will, feel free, but Will mentioned that the U.S. is going very well at the moment.

Yes. I just to add on what Nick has said like I race is really between Asia and U.S. right now, and Europe has been a little bit left behind in the sense. U.S. is rapidly building out data centers. It's looking at bench capital money into AI, and there's a lot of innovation happening. Asia has been benefiting in a multiple different ways in the sense a lot of the semiconductor supply chain is in Asia. And as Catriona mentioned, you've seen memory names in Korea do extremely well last financial year. And then you've seen all across the semi supply chain, whether it's copper, whether it's packaging, a lot of those businesses that weren't really anywhere a few years ago are picking up this uplift in AI infrastructure spending. So we like Europe. We have some positions here, but we're really looking for like all of these names like is an example of a name where the global leader. They have a lot of business in the U.S. and Asia, despite being listed in Germany, we think they're going to be a great winner in time and be able to leverage AI into its product I think the divergence is really a function of capital markets, depth and breadth and also innovation and the earnings growth that's on offer across those markets.

Catriona, Mill has asked the movement in the Australian dollar was a headwind during the year. Can you explain how currency movements affect WAM Global's performance and how the portfolio manages currency exposure?

Yes, absolutely. So the currency, the Aussie dollar was a -- the currencies in the portfolio were -- had a headwind from their movements against the Aussie dollar last year. So it was -- as Nick showed in his chart, was about headwind when you looked across the year. And we do -- so we keep the portfolio is unhedged. I mean when we started the fund, the feedback from shareholders was that they had most of their assets in Aussie dollars. So they did want to diversify both across the stocks that they were invested in globally and currencies. So when the Aussie dollar goes up, that is a headwind to the portfolio performance, what you've seen particularly say in the U.S., you've had a situation where the Australian RBA was raising rates, whereas the U.S. was on hold. What's say overnight, there is a lot of speculation that the Fed will raise rates in the U.S. this week and so the U.S. dollar has been strengthening on the back of that.

Thank you. Greg has asked, have you considered pivoting from Europe to Asia with new investments, it could be a much more fertile market? And I think this was covered off a little bit, but maybe just to clarify.

Yes, it's a good question. We do have some investments in Asia. I think we have to take Asia with a different lens than potentially U.S. and Europe in the sense where extra cautious on corporate governance, extra cautious on meeting with the management teams, double checking the financials and making sure that they do have unique intellectual property and the right to win. In Asia, generally, it's in a bit of an attractive space for us because valuations are generally lower, and you do get some market-leading companies, TSMC is a great example of 1 of the biggest companies in the world, listed domicile in Taiwan that's been able to make a peak big footprint on the world, particularly in the world where semis hardware, Asia has a lot of the supply chain has to move towards that region. So it is a region where there is opportunities, and we're being selective there.

Patrick and Garth have asked about performance. In FY '25, the fund had a great year. It was up 19.4%, but FY '26 was tough, down 4.2%, while the broader market kept moving up. The NTA has also recently declined. What other lessons the investment team have learned and what concrete steps are you making over the next 12 months to improve relative returns? Maybe Catriona we'll start with you.

Yes, sure. Look, that is absolutely fair. I mean in the 3 years before this year, we've had over 19% and over 15%, then over 19%, so 3 consecutive years of 19%, 15% and then 19% returns. And then last year, we were down 4%. And whilst the down 4% is absolutely disappointing in a market that went up. In terms of what would we change? I mean, I wouldn't change that we have a diversified portfolio. And unfortunately, that was not the way to invest last year. if we'd have gone all in on the AI infrastructure trade and had the whole portfolio in those stocks, we would have absolutely kept up with the market. So that was a mistake in hindsight. But what would it -- would that have been prudent managing of shareholder capital? I don't think it would be. So absolutely, it was a mistake. We're disappointed with the -- from the perspective of what the performance looks like, but from the bank stewards, from the viewpoint of being stewards of shareholders' capital and our desire to maintain diversification to manage risk in that way for shareholders. I wouldn't change that. I mean we are -- we have had -- as we talked about here, there were certainly stocks last year. We got a lot wrong in terms of the as we went into the year, we wouldn't have necessarily thought that every software stock would be thrown out as 1 and the same. And we did differentiate, in our mind, we think it's far more nuanced in terms of which companies will, when we look back in 10 years actually have survived and thrived versus, say, the Adobe example, where we're not sure, and so we did choose to exit. So look, there were lots of learnings and there's a lot been huge amount of reflection, as you can tell from us going through all the detractors to portfolio performance. But we -- a big part of that is re-underwriting. Do we think that the investment thesis is stack up? Are the earnings delivering on what we expected? So I would say heaps of self-reflection and assessment of where things are at and re-underwriting where we think the investment thesis is stack up. And we do think that a lot of companies that were thrown out as potential AI losers have enormous upside as we look ahead because actually, their businesses are still firing.

Thanks, Catriona. And Rodney and David have asked about the share price as well, so the WAM Global share price. Can you explain the approximate 20% fall in the share price over the last 12 months? And could you please provide some commentary surrounding the prospects of recovery in the price or initiatives that might be available to support a recovery?

Yes, sure. So I think it's -- look, it's multifaceted in terms of the share price. We had gone from a situation where a few years ago, we were trading at an 18% discount to the asset value. We then had some very strong performance and went to trading at NTA. We have more recently gone to a slight discount to NTA. And that's been at the same time as obviously we've had a year where the portfolio was down 4%. So there's -- some of it is a performance element. Some is the premium discount movement. And then lastly, it's because of payment of the dividends. They do come out of the dividends are for free. They -- we have a very high yield on the fund. And whilst we have a huge amount of sustainability in terms of the profit reserve that we have over 5 years coverage, the dividends do need to be reduced of the.

Thanks, Catriona. Michael has asked would it be possible to run through the life cycle of a given investment? Could I suggest Quanta Services?

Yes, sure. I can do Quanta. So Quanta, we invest. It's a stock I've known for probably. And we invested in Quanta as part of the WAM Global Fund in June 2020, which was in the heart of COVID, we were at that point looking for businesses that were able to still operate in a cover lockdown environment. And so upgrade the transmission and electrical grids across the U.S. So hugely important at that point in time when we were all moving to doing Teams calls and Zoom calls, et cetera, the quarter being able to operate all businesses was that the like electricity and telecom and transmission grids across the U.S. were still operational. And at the time, knowing the company very well, I reached out to them, and we -- they were saying, look, we are absolutely out on the like hour, we are able to still do our work, et cetera, because we're so crucial to making the country work. And so we took a position in June 2020. The stock was trading about $37 at the time. And look, it's been a wonderful investment the stock hit over $780. So it went up more than 20x over the life of our holding in the stock. We have over the years that we've invested reduced it. Sadly, I mean, in some ways, we did from a portfolio risk perspective. But the company has continued -- like we've increasingly over the life of the investment, found more and more catalysts. So we had the thesis around their ability to hit earnings and beat earnings because they were able to operate in a covert environment. That was the initial thinking. And then there were just multiple thesis and multiple catalysts that kept getting added to our thesis. So you had the dynamic around reshoring that was happening in the U.S. And as every manufacturing plant goes back into the U.S. That means that transmission and electricity needs to be hooked up to those manufacturing sites. You've had data centers get rolled out across the U.S. And so you've had a huge amount of investment going into manufacturing. You've had, for the first time, electricity demand after many years of being in decline, actually going up. And so Quanta are just crucial to being able to facilitate that growth for both the data centers and bring manufacturing onshore. So the company has just very consistently meet and beat earnings over multiple years. And this is a super high-quality management team that we've known for a very long time. I mean due cost in that runs it is very, very good at articulating what the story is at meeting and beating expectations for earnings. And they've just done a fantastic job in terms of execution. It is a sector that when you look at other -- like they're the leading player doing this in the U.S. And when you look at other players, they have been a lot more messy in terms of ability to deliver on the project work that they've been doing. But Quanta is now so large and so dominant that -- and their projects are actually broken up into much smaller components. So they've been able to just very consistently deliver. The thing for us and why we've continued to edge it down as a position in the portfolio is that the valuation went from being, say, a 12x multiple to at its height, getting to over 50x in terms of multiples. So for us, that just got too expensive, so we would sell when the valuation was high and add back if it fell again. So we've traded at around that core position, but gradually just continue to bring it down over time. And it -- and then actually, as we've brought it down as a position in the portfolio. One that we've added on the other side is Dicom, which is a similar story, but has is at almost half the valuation. And so we've added to the Dicom position as we bought Quanta down. But it's been a great holding for the fund and a big contributor.

Tony has asked about AI. Do you think AI is a bubble and could the funds or financing that it is utilizing lead to a credit squeeze and recession?

Thanks, Tony. I'm happy to kick off on this one. This is actually a fantastic question that we internally talk about a lot. Now I think -- I've been saying for probably a few years, and this is not my original thought, but if you have a look at any prior technological exceptionally important innovation like the Internet or the railroads. The way the system tends to work is that you do eventually get to a point where capacity has been built that's in excess of what you need. So you do eventually get to a point where there has to be a correction. That's kind of table stakes to how the system works. I think in thinking through how they're approaching it, we've certainly -- so Catriona mentioned, we've certainly taken the view that we do want to have a diversification -- diversified approach to the fund. We don't want to put too much into AI or any 1 area. However -- so Catriona was in San Francisco, Will's in the U.S. We're all talking to these companies, the strength of the upgrade cycle, the strength of the earnings in this space is phenomenal. And we are taking a very selective approach to artificial intelligence. So Will mentioned Siemens Energy. We like Siemens Energy because every turbine they install comes with decades of revenues that come along with it. So there is, to an extent, a degree of protection in that if they aren't building up the installed base, they get a lot of revenues over the years. TSMC trades at under 20x earnings. It's a phenomenal business, and we're being very valuation disciplined there and across the approach to investing. And maybe the last thought on this, and Will, Catriona jump in, if you like. This -- we're extremely early innings. So a couple of the companies I met with on this trip. I love talking to CFOs about how they're thinking about their budgets, how they're thinking about token spends, software replacements, and 2 companies, Deutsche [indiscernible] and LSEG, discuss with me how much AI they use per employee per year this year. And how much they intend to use next year. And this year, the number is just a very, very small amount, well under EUR 1,000 per employee or pounds in the U.S. -- in the U.K. But then both said next year, that number significantly increases. So you do have a situation where enterprise adoption is still very early earnings, which is the primary force that's likely to come through and support this over coming years. So I think if I wrap together what I said, I think it's nice to keep a very disciplined approach to have a lot of historical awareness to be very valuation disciplined. But there's a lot of strength here. And frankly, there's a lot of enterprise adoption to come over the coming years. So it's kind of a balance of those thoughts.

Thanks, Nick. And Will, we've got a question from Jen about the U.S. What is your thinking about the possibility and consequences of the U.S.A. not being able to extricate itself from this war? Would it be better to have more of the portfolio outside of the U.S.?

Yes, it's a good question. Yes, it's hard to find a solution like say, see a clear pathway on how they get out of the Middle East and what's happened there right now. I think we're going to be hold into a world where like there will be a deal, there won't be a deal. It's unclear how they exit amicably outside of that region right now. I think for the U.S. in itself, it is not as energy reliant on the Middle East, like they can self-produce. Clearly, energy prices is negative for consumers, industrials, et cetera, and it can cause some inflationary concerns, which we're keeping an eye on. But I think where energy prices are now around $100 a barrel, like we saw earlier this year, got up to $120 a barrel. The market tended to look through it. We're seeing new ways of power, whether it's renewables, whether it's other forms of powerful electricity as well. So I think it's -- I agree, it's really hard to see like a really clear path on how they get out of that region. I think from what I can see, the earnings from the earnings and quarterly results that we've seen, a lot of the companies have generally done quite well despite some of these cost pressures. So right now, I think the demand signal is outweighing what's happening on the supply side. But I do think we get used to higher energy prices for the future at least.

Thank you. And Catriona, we've got some questions on the WAM Global dividend. So James and Rob have asked whether the dividend is sustainable and including the payout ratio that's based around yield a target or an earnings or a capital sales he mentioned target?

Yes, sure. So in terms of the dividend, we do have -- the way listed investment companies, obviously, work as you're well aware, is that over time as you create unrealized or realized gains, you allocate that a portion to the profit reserve, which you can bet in future years pay out dividends from. And we do have $0.68 in that profit reserve, which is over 5 years of dividends at the current level. So we do have a high level of sustainability in terms of the ability to continue to pay dividends. The question of where the yield should run at is 1 we discuss. As I mentioned, we are at a slight discount, so the yield has gone up, but it is a very healthy yield. So we are always balancing capital growth versus income growth. And there's some dynamics at play at the moment around say -- with the changes to CGT where it does incentivize capital growth, that kind of that inflation level, 3% and then the rest of your returns being generated in income. So it is a balance. We wouldn't want to significantly increase the dividend yield necessarily on a permanent basis because it does then you are trying to generate those investment returns. We did pay a special when we had outsized returns. So which kind of keeps that underlying dividend very high, but allows you to pay out excess returns to shareholders when they are available. But overall, as I said, we do have 5 years of dividend coverage at the current level of dividends.

We have another question on the dividend from Nick. So we do not see a similar outcome to what happened with WAM Capital. What is the threshold for portfolio underperformance before you would proactively manage WAM Global's dividend trajectory?

Look, the dividend, because of that profit reserve structure, the dividend can continue to be paid regardless of the investment portfolio performance. But you're absolutely right. If the investment portfolio goes backwards, the NTA is going backwards in which case, you're paying more out of a sport smaller capital base. And so that then means that the actual underlying NTA is continuing to get smaller and smaller. So we absolutely -- the Board considers that. And does make dividend decisions looking at all of those factors, but it is ultimately a board decision on the dividend.

We also have a question on franking. Alan has asked the franking balance -- franking account balance is down to $9.676 million, even with the large profit reserve, offset by the even larger accumulated losses, are we heading to partially franked dividends the amount invested now a $134 million less than last year or is it time to reduce dividends?

Look, it's a good -- in terms of the franking, the franking is not like a profit reserve in that you only generate franking on realized gains and as you pay tax on those realized gains. So it's kind of this annual topping up that you do with the franking account. So as the year ends, we'll pay tax to the ATO and generate franking credits with the domestic portfolios like WAM leaders, et cetera, they also get the benefit of pass-through from the dividends that Australian companies pay. They get the franking there, which we don't get. So -- but the franking balance won't ever fully match, say, the profit reserve, et cetera, because it is this ongoing payment annually to the tax office to generate franking credits. Right now, we have enough franking. We have about $0.128 of franking in the account, which covers this fully covers the dividend that we've announced and the next 1. And then the job is to continue to generate realized gains that can then create franking to be able to continue to fully frank the dividends. But absolutely, it is reliant on us continuing to be able to generate franking credits. But we do have this 1 and the next 1 fully covered.