Beyond the U.S.: Global Growth Trends – Ep. 306

Welcome to the Accumulating Wealth podcast. I’m Judson Crawford. And I’m Hunter Satterfield. We are CPAs, wealth advisors, and partners at CWA, a financial services firm here to help you navigate the decisions you face every day. And today we’re going to focus on the international markets, how they performed over the last few years, and what shifts we see may be signaling.  

And joining us for this conversation, along with Brad Sanders, as always, Story Time with Brad, all the way from London is Robert Lanecastle with J O Hambro. He will share a deeper perspective on the space and identify where investors may want to pay closer attention. All right, let’s get into it. 

All right, listeners, this is going to be a fun one. We’re recording on Monday morning. If you hear my voice, I was footballing, cheering for footballing this weekend, so I’m a little bit down on the count. Monday morning, September 14th. We won’t be necessarily referencing a ton in, like, international performance for the year, but at least, Judson, that timestamps us a bit.  

Absolutely. And we’ve got a special guest with us. So, Hunter, you want to tell us a little bit about that individual who’s sitting five feet from you. It’s going to be a blast, y’all. You’re going to love the accent today since we’re Texans and Americans. Robert Lancastle is actually based out of London, England. Flew in this morning? No, yesterday. Yes, just last night. Watched the fourth quarter of the game. Heck yeah. Let’s go. Sorry you guys didn’t win but the next one you’re going to take it. We’re sorry you caught that. Yeah. We’ve come to expect this.  

London, England. Actually, though, lives an amazing place about two hours west of London. He’s a senior fund manager with J O Hambro Capital Management. Prior to joining J O Hambro in 2012, he worked for Orbis Investment Advisory as an equity analyst focused on retail, media, tech, oil and gas, and insurance. It seems like a lot. He holds his bachelor’s and master’s in engineering, hmm, that’s funny, for a finance guy, from Cambridge University, if you’ve heard of that before, and is a CFA charterholder just like our very own Brad Sanders. Interesting fact, he even worked as a math and physics teacher at Wellington College. 

Welcome, Rob. Great to be here. Thanks for having me. Well, and we’ve got to get into a lot… Actually, for those that were at Annual Meeting, you probably met Rob. And we got to talk a little bit about how engineering led to finance, which is pretty fascinating, actually. 

But before we start, though, I have to know, you got here yesterday. You’re only going to be here for a handful of days. What are your, like, two or three favorite foods to get while you’re in the States? Ooh. Barbecue. You have to do that over here. Always. Amen. And Texas is very good at it. Yeah. But I’m flying out in three hours, so it’s going to have to be an express barbecue lunch is what I’m going to do. They serve it at the airport here. Yeah, they do have it at the airport. 

I like Mexican as well or Tex-Mex. Amen. And then something spicy. Okay. Always. That’s always good. We get the fish and chips and the Sunday roast at home, so we do that very well at home. You guys do the big flavors, so let’s go for them when we’re here. Absolutely. You guys get the spice through your Indian food. Yeah. We do, yeah.  

And then last question because I know everybody will care, who do you cheer for in the EPL? Many won’t have heard this team unless they’re really into their football. So, I support a team called Ipswich Town, which makes me a Tractor Boy. It’s the rural farming area of the UK. I grew up there. These guys were brilliant when I was born, in the late 1970s, early 1980s, and they’ve been on a long journey to get back up to the Premier League ever since. They’ve got two wins from four. Okay. We’ll take it. Yeah. Not bad. I love it. 

Maybe we’ll see when we go over there soon, we’ll see Ipswich play. I like the underdog. Yeah. Always. And you said “Tractor Boy.” Is that, like, their mascot or something? No, that’s what they get called because East Anglia is like the farming patch of the UK. Got it. It’s flat and they do all the growing there. So that’s why they’re called tractor boys. Everyone drives a tractor, not a car. 

It’s kind of like my Red Raiders. Indeed. Well, for those that are wondering what Rob’s doing here, other than the fact that we just announced where he’s from or just talked about that, he is one of our investment managers. We’re not going to talk specifics about returns or performance or anything like that. Really the goal of today is just to get some broader performance. We’ve talked at length, Judson, about international investing over the past two years, so we’re going to get a little bit of color commentary from Rob on what’s going on there. 

And we talked about just having an allocation to it broadly in your portfolio. So, I think a great place to start though is to maybe steel man the argument a little bit on why we should have international, because Rob, if I just run through some numbers very quickly, for the last 15 years up through 2 end of GFC or right in the middle of GFC through 2024, the S&P 500 during that 15-year run performed at 789% cumulative compared to international, which is only 184%. If you’re wondering, listeners, on an annualized basis, that’s about 15% for the S&P, only about 7% for international. Only four of 15 years was there any outperformance in the international market. 

So, Rob, I’d love to just kind of serve one up to you here and ask the question, like we talk on here about how we should be allocated international. Maybe some of our readers have read that too, but yet we see this performance for the last 15 years. Why? 

Yeah, the performance delta makes sense when you think about it. The U.S. is a very large country with a very strong economy historically and has some of the historically best growing businesses. 

The reason that delta is so large is because we’ve had a 15 to 20 year period of effectively offshoring a lot of things from the U.S. and scaling these business models in a very capital-light way. If you think about some of your largest companies here, they used to do a lot in the U.S. They used to have manufacturing facilities, they used to have large R&D facilities, et cetera, et cetera. 

And they came across a variety of things, whether that’s social media, software development, chip design. And over that 15, 20 years, you got someone else to do it for you. They did the investing, and you creamed off the benefits of that. It’s called a platform business. So, we had 15 years of offshoring from the U.S. making businesses more capital light, and they were worth paying more and more because of that, and that’s been the great journey the U.S. market’s been on. 

A little bit like an elastic band, though, that can get to a point where that’s too extreme that you lose control of your own destiny and you start finding other countries are making all the bleeding edge semiconductor chips in Taiwan, or you work out that you’ve hollowed out your own labor force in certain sectors like manufacturing. 

So that globalization thing was very powerful for the U.S. market, and it doesn’t mean we’re at the end of it, but we’re certainly moving into an era where people are thinking about more resilience in the supply chain. Think of Covid alone. We worked out that the world was too reliant on China for manufacturing. We’re going through this now. 

The world’s quite reliant on the Middle East and Russia for energy. And you can go down the list and what that means is we’re starting to invest more back at home. It means there is more growth in a broader sense, and those opportunities for areas of the world, companies around the world that haven’t seen that growth historically for the last 20 years is the opportunity. It doesn’t mean the U.S. can’t keep growing, but I would hasten to conjecture that the gap will narrow because of those factors. 

That’s awesome. We’ll talk a little bit about that. But listeners, in case you’re wondering, I quoted 2009 through 2024, but to Rob’s point, which we’ll get to in a second, 2025 through year-to-date 2026, Judson, we’re talking 44% cumulative for the international markets, only about 28%, 27% for the U.S. 

So, it is something we’ve talked about at length on here. We’ve brought Brad on to talk about it as well. I guess a question, Brad, before we get a little bit deeper into the international markets, as we look at this, I mean, whether it’s, hey, we’ve got 15 years of outperformance, or now we’ve got the international markets, from Tectonic’s perspective, it’s still just an allocation in our portfolio. It’s not like we’re going to overweight in a given period, right? It’s still just, hey, this needs to be a part of the, the portfolio allocation in general. 

Yeah. It’s always been a pretty decent percentage of our equity allocation, and it will remain that. I mean, it could be something that grows over time particularly some of the things like Rob’s talking about play out. Like, we can let it just grow and kind of eclipse some of our U.S. business. 

But Tectonic, we’re value managers at heart, and over this past 15 years, which I’m sure you’re going to talk about, the value disparity between businesses overseas and the U.S. has gotten quite stark. And so, when we look around and we always try to decide where the best place is from a valuation standpoint to invest, and international’s been screaming at us for years. And we were a little early but that’s okay because it’s a diversifier. 

Well, I think one of the things when you’re talking about an allocation to international stocks, and you noted earlier just how different the performance has been in the two over the last 15 years, I think that, Brad, you talk about how we obviously have made sure that we’ve stayed invested in international stocks. 

But what we’ve seen, if you’re a listener out there that may not have an advisor, maybe doing your own investments, we’ve talked a lot about maybe over time how you’ve become over-allocated into some areas, technology, large cap growth, things like that. A lot of people are finding that they may be under-allocated to international because of these very reasons. And I think that if nothing else, this conversation gives you a reason to look and say, “Okay, what do I need to do?” 

Yeah. I think international has been something over the last 18 months I think most investors, particularly in the U.S., have missed because it’s been out of favor for so long. They haven’t been invested there. Kind of the same thing with small caps here. Like, the longer trends go on, people start treating it more as like a tactical thing, “I’m going to jump in.” Well, you miss the bulk of the move when you do that, because by the time you realize it, all the froth has been scraped off and then you’re jumping in late. 

We try not to treat things as tactical and be like, one day this is going to help our portfolios and we want to be able to continue to invest and just stay invested and not have to be tactical about everything we do. 

Well, so on that very note, can I ask you a question? We looked at it and we go, “Well, the S&P 500 has significantly outperformed. International has only outperformed four of the last 15 years.” And we’re saying that, “Hey, look over the last year, 18 months,” and then we’re talking about allocating to it. So, what’s the case that maybe that will continue? Is it that there’s particular value there right now, or is this just another flash in the pan? 

So, the value case has been there for all of those 15, 20 years. That isn’t new news. It was probably there at the start of the 15 years. What’s happened is it’s grown, for good reason, because of what I mentioned, the growth algorithm. 

Not that I invest in a catalyst-type manner, but you do need something that will change the psyche of the market towards why there should be such a delta between the valuations, and that’s kicking in and has kicked in probably for three, four years now in reality. But the market started recognizing it in the last 18 to 24 months 

What’s happening is there is more growth emerging from a variety of geographies outside of the U.S. now. It’s not about comparing them to the U.S., it’s about arguing that what you were paying for companies that are based in Germany or Japan or parts of Asia were too low now given the forward-looking growth opportunity. And let’s just take a kind of small little microcosm of that, and there are many of these now, which is the power of why you want to invest internationally. 

I could probably spend an hour with you on five or six of these easily. Let’s just take EU defense budgets. Europe has been protected by the U.S. since certainly the Second World War and has not needed to spend as much on defense capabilities. Partly that was written post the Second World War in legislation for certainly Germany and Italy. 

And the U.S. was spending 4% of GDP on defense capabilities to look after itself, but also much of the rest of the world. As time has passed, Europe started trending from 3% to 2% to 1%. So, we’ve got to an extreme situation that there’s a big gap between what’s being invested and again, that elastic band gets pulled too far. 

That’s before even Donald Trump comes in, but he’s obviously accelerated that process, I think quite rightly. He says, “Hey, I’m spending all this money. You committed to spending at least 2% through NATO, and you really should probably catch up what you haven’t spent for 30 years.” So, EU defense didn’t grow for 30 years. 

Now it’s looking to triple its budget. That doesn’t happen overnight. That’s a 10-year investment horizon that they’ll grow double digits to get to where they need to. And you can imagine a war only encourages that. So, we’ve gone from a no-growth sector that was probably worth 10 times PE to now a double-digit growing sector, quite capital light, that is now worth a lot more than it used to be worth. And that’s an example of a catalyst that is happening in the marketplace. 

Yeah. And I think that just to put some numbers to that, listeners, I mean, you’re looking at the S&P 500, again, kind of as a proxy for the U.S. markets. The trailing PE for the S&P 500 is about 26 times. Internationally, it’s only 18. Or another example would be the CAPE ratio here domestically, 41 times compared to 22 internationally, and again, that’s ex-U.S. and Canada. 

So, you’re talking about almost two times the value put on the domestic markets. I guess the question, Rob, is some of the value that could be captured in the international markets is just like mean reversion back to a higher number or is it always going to be the case that, hey, international companies are just going to be valued a little bit less than U.S. because of sort of the innovative culture here comparatively? Kind of which is it? Or I guess it could be six here, half dozen the other as well. 

Yeah, I think there’s going to be certain areas of the international market that are just mean reversion, and we would argue a number of those areas have actually mean reverted in the stats that you’ve talked about. They have mean reverted very quickly. They’re typically not long-term growth markets. There are no long-term tailwinds, but they got too cheap. Let’s say they’re on half times book and they’re now worth a book price or they’re priced off on earnings that’s not sustainable, and we can unpack that more in detail. 

But I think there is part of the international market where we’ve had that trade. Maybe you could use things like banks as an example that they’ve done largely pretty well. Semiconductor chips might be another topic we could have that. 

There are other areas that are longer cycles. They’re structurally more supported, things like German infrastructure investment. You’ve had a little similar here. We’ve under-invested in real world assets for a long time in the West particularly, and in parts of the emerging markets, and the plan to get them back to what’s suitable, if you think about the investment you need in energy grids, we are consuming more energy now. 

Those grids haven’t been touched for a long time. Let’s use Germany alone. Germany has huge wind farms in the north, and it can’t get that energy down to the south of that country at all, where it wants to build data centers and where its manufacturing footprint is. So again, it’s going to need to invest in that network. 

So, you’ve got a number of these longer-term things, but that’s where selectivity is key. The kind of classic value mean reversion opportunity has largely passed, we think. That was the quick money to make, and the opportunity is being selective in what’s maybe the 10-year stories that we’re two years in, and they still have growth even if they don’t re-rate in their kind of back pocket. 

Yeah, it’s a fascinating topic, especially when you consider the investable universe of international stocks and then of course what J O Hambro owns, which we’ll get to in a second, because it’s much more tactical in that way. But I want to kind of just go back very quickly and maybe give the listeners just sort of some high-level thoughts on what makes international investing so unique compared to the U.S. 

Because Judson, I think here in the U.S., so many folks are like, “Oh, you can just buy the S&P and you can just own that and kind of just rip with it.” But one thing to think about listeners is that here in the United States, we are all more or less, no matter what state you live in, we’re all more or less controlled by one sort of governing body, which is the SEC. 

But Rob, internationally, you’ve got 20, I mean, at least 20 that are out there, which it has to be one of the things that makes it so difficult in the international space because each governing body is obviously going to look at things a little bit differently. You’ve got different banks and what they’re willing to fund, obviously, and issue from Treasury standpoint. But maybe give our listeners, I don’t know, maybe the top three things that make international investing so unique compared to the U.S. 

You’re right. I mean, there’s loads of markets out there, and this is partly the inefficiency that particularly Europe’s faced for a number of years. They call it the EU, but they eat different foods, they speak different languages, they behave sometimes like brothers and sisters to each other, and other times they fight. 

So, this has been part of what’s caused the low growth environment because of this kind of treacle that you have to walk through. And this again is where our job is to do the thorough due diligence bottom-up. We’re not trying to look at every market and every company. We’re trying to pick our fights where we think there is a fair tailwind to the opportunity to find an underappreciated company. 

So again, there are certain sectors and certain markets that we think they are getting their act together. They can move forward within their country, and maybe that’s not been seen by the outside markets because it’s, as you say, easy to buy an ETF in the U.S. It’s a very scalable market when you come up with a winning concept. 

That’s less obvious in Europe, and that’s before we talk about Japan. So we have to pick our fights. Things like Japan, areas like Germany are areas that haven’t been touched for ages, and we have the skill set. We are your ears and your eyes on the ground meeting these companies, finding early Christmas presents, as we would say. 

Companies that no one in America’s looking at and really isn’t on top of properly, partly by distance, partly by psyche, and that’s the skill set we offer you to find those 25 to 40 companies that are underappreciated and can drive a great return in the future. 

So would an example of just high level, you might say, “Oh, there’s opportunity in German banking, but there’s not in Italian banking.” And I’m not saying, “Hey, make that statement.” Or there’s an opportunity in defense in Germany, but Portugal’s actually done a pretty good job of that, so we’re not going to go over there. Whereas in the U.S., it’s just like, oh, there’s opportunity in banking or there’s opportunity in defense. Am I thinking about that correctly? 

Yeah, the matrix is different. You’re not filling out a whole line or a whole column or a whole row, and you just say, “I own all this because it’s homogeneously the same.” It’s the opposite. You’re looking at the one in 10. You’re saying, “I wouldn’t own banks in all of these markets.” 

Say there’s 200 banks. We would say five of them are investible internationally. So that selectivity point, it’s the same in retail, it’s the same in insurance. There are whole swathes of things that we just don’t look at because they don’t pass our quality tests, and once we have the quality underpinned, we can go searching hard for value because we’ve got conviction there’s a flaw to what the intrinsic value is. 

And it’s the same even if we’re looking in underappreciated markets like Germany and Japan. We’re not just buying the whole market. We’re not buying an ETF there. We’re picking let’s say two or three things that were exposed to investment even in AI. We were buying companies that were on a third of the multiples we’re talking over here, who were equally competitive and equally growing, but because they were part of a bigger benchmark that had less of the concentration of those types of names, people just don’t buy that benchmark at all, and that’s our opportunity for you. 

Listeners, don’t miss that. If you look in your investment portfolio and when you look at what you have in international, you have just selected an international ETF, go back and rewind and listen to the last five minutes of Robert talking. He’s just made the exact case as to why we have him managing our international assets, and we don’t just allocate to a ETF. 

Yeah, I mean, Brad, coming over to you, I mean, this is, as we’ve talked at length during our story time sessions or whatever else, that’s kind of one of the reasons why international you do need to be a little bit tactical, right? It’s not, “just buy an ETF and let it roll.” And we’re not going to quote performance for J O Hambro, but we do see an opportunity, and we see historical performance that does outperform because of that tactical nature, right? 

Yeah, their markets are very… He’s more eloquently outlined it than I would. But in my view, you need to be active overseas. We’ve used ETFs on a tactical basis, like whenever we’ve had some big event and we’ve been like, “We just need data here because it’s just been blown up and we want to ride it back up,” or something like that. 

But in general, our international allocations have always been active, and it’s for all the reasons you just outlined. Like their markets are much more fragmented. You buy a benchmark and you’re going to own a lot of stuff that any rational investor, if you pick through every company, you’d be like, “I don’t want to own 40% of this, but it’s just in my portfolio.” And they don’t have the concentration issues in their indexes as we do here. 

Also, you’ve had things happen like where MSCI just one day put China in like all their indexes. So, like you can be invested there, and then all of a sudden, oh, we have 20% in China. Do we want that? We really like having a human being making those decisions for us. 

Okay. So maybe give us one more, Rob. So, we’ve talked about a little bit of the sort of fragmentation and things like that that make the international markets unique. What other things make it more difficult than just the U.S. markets? 

So, the conglomerate structure of international businesses is more prevalent typically. Back to that scalability, back to that kind of corporate governance point. The U.S. is a vast market, and when you come onto a winning formula, you tend to go for that quite early. And even quite successful conglomerates in the U.S. have broken up. You can think of a number in the industrial land, very large names that – household names in the U.S., they have fragmented. 

The international market’s done less of that. But again, if selective, if patient, if with the right management team and the right tailwinds, then what you can do is you can actually find that you can prey on two factors. And we’ve got a couple of names in our portfolio, particularly in Japan, exposed to this, where you harness on not just one tailwind like AI. You might get some exposure there, but you might get some other exposure. 

So, let’s bring in an area like energy infrastructure. And the discount that’s put on a conglomerate then can turn into a premium in time. There’s a power to a conglomerate, if run well and you have, let’s say, a tailwind in at least one area, because you can recycle capital from one place when it’s going well, and you can reinvest in the lull somewhere else to build power. 

And then when things change, that power then gets recognized, but maybe not straight away. So, there’s a power to a conglomerate if run well. Japan historically has not run its conglomerates that well, but our job is to find a couple of them and those tailwinds that are coming through. 

Now, why is energy infrastructure, not just AI or EU defense, an interesting area at the moment? Well, in simple parlance, when the Ukraine war kicked off, it was ultimately a big tax on Europe, cost of its energy. It went up significantly, and it was an absolute windfall for Asia in particular. They were buying Russian oil at half the price they were previously buying. So, they were like, “Brilliant. Let’s go for this. Let’s keep this coming. This is amazing.” 

This recent war changes all of that. This recent war has increased their price of energy quite significantly, and they are importers, so there’s a worry wall that they’re climbing quite literally today, thinking, “We need to change what we’re doing. We need to invest more locally. We need to change how diversified our partners are. We’re going to need to spend on EVs and renewables and local production of energy, maybe nuclear,” et cetera, et cetera. And that changes the whole board game. 

And so, places that haven’t invested in local infrastructure for 30 years because they were reliant on the Middle East and Russia, they’re changing that. And again, if we can start finding underappreciated conglomerates exposed to this that have been investing for 20 years but just haven’t had the volume that then gets turned on, that’s how we create huge value for you in a low-risk way. 

Yeah. And just to tie some dots together, listeners, if you remember back what Judson and I were talking about almost two years ago about the shift from this unipolar world where the United States kept broadly peace with the major players to now a multipolar world where you kind of have this de-globalization that Rob was talking about earlier. That’s exactly what you’re talking about. It used to be just, “Oh, yeah, we can all just share in resources and wherever it’s cheapest for raw materials or labor,” and now that’s not happening again. You have these places that have to all of a sudden stand up much of their own infrastructure in order to deal with the coming world that we see on the horizon. 

And maybe that’s a good segue, Rob, to talk a little bit about some of the just crazy markets that we’ve seen over the last couple of years. I mean, a place like South Korea, 250% returns in the last two years. Taiwan, especially around semiconductors. You want to talk about maybe what some of those markets… and again, a lot of that might already have been grabbed, and that just was out there for those investors that were willing to, and there’s going to be more like that. But what is it about the last two years for some of those markets that have just caused them to rip so heavily? 

So that market was already reasonably concentrated in its construction. It had two or three quite large stocks. But they were kind of dormant stocks, certainly two of them, and everyone thought they were never going to grow their earnings again. It was all about GPUs and fast things and the training phase of AI, and it wasn’t relevant to kind of thinking that when you put that and implement that into the real world, that you might need some of the chips those guys are making. 

So, what we had was we had a supply-demand pinch. The demand for those more basic CPU chips started going through the roof, and it aligns with all this conversation. There were two suppliers. If we wind the clock back 30 years, there were 30-plus suppliers of those chips, and that consolidated because they were tough markets, and ultimately two players, three players control those kinds of CPU chips globally. 

And when demand goes up, a market that’s never been able to increase price of chips, if anything, they’ve been deflating over the last 20, 30 years, they then can start putting the price up. So, they put the price up six times, I think was the maths, and they more than doubled the price of those chips, and it cost them no more to make those chips. 

So, guess what? All of that was just 100% drop through, and earnings just completely changed, more than doubled and more. You’ve got a company over here that went through an even more extreme version of that. And that is what drove not only those share prices up because they’re big parts of the index and people using leveraged ETFs, then that really does push. Again, the supply and demand volume isn’t just in the companies selling chips, it’s in the supply and demand of the paper and the shares in those markets. And three months ago, that got to kind of its peak of excitement and people chasing ultimately. 

The big question really, which is very hard to answer cause it’s a sort of second derivative of AI spending in its own right, is will they all stay disciplined on putting new supply on and will we see prices hold or will they fall? 

If we keep seeing volume come in and we have constrained supply, those prices will hold, and these share prices don’t look particularly rich. But if either they put volume on or the demand required softens, then that price will change quickly and the exact reverse, it’ll be 100% drop out, and their earnings will half and more again. And that’s a very unpredictable thing. 

We call it a wide envelope situation, and certain investors are very good at wide envelope situations. You can make fivefold and it can go bankrupt. That’s called deep value investing. We do not invest like that. We invest thinking about risk and reward. We call it Value 2.0. 

It’s about making sure we don’t lose you very much money if it goes wrong, maybe 10%, 20%, and ideally making you 50%, 100% when it goes right. So, it’s a risk-reward approach called Value 2.0 rather than a deep value approach, which is a different skill set. Both are valuable. Globally, internationally, if you find a good manager, keep hold of them, and then the skill is to find best of breed and blend them. They do different things on the sports pitch, if that makes sense. 

Yeah, absolutely. We can even- That’s a good analogy for the United States, too. We just don’t call it a pitch. We should. We could. Sounds so much better. It does. 

Okay so, earlier you mentioned that typically you’re holding somewhere between 25 to 40 stocks. But there’s 3,800 companies out there in the developed countries. How do you guys approach that? How do you select? And can you talk a little bit about what markets you’re in now and how often that changes? 

So, we don’t believe the whole universe is investable. So that’s a very large number, as you say. That’s a great opportunity set. Who wouldn’t want to start with that as their opportunity set? 

But we fundamentally think only about 25%, 20%, say, of that is investable. Why? Back to what I previously said. We think about risk and reward. What we want to be able to do is when share prices are falling, we want to think that we’re getting something on a bigger discount. 

So, we need that quality underpin. We need to believe that when things are getting tough, the share price is falling, we think, “Great, this is a business that can survive and thrive through thick and thin.” So instantly, that reduces our available opportunity, although we’re still talking about several hundred stocks, to be clear. 

We are also searching for value. We are trying to create investment returns because we find things on discounts with margin of safety, and that does two things: lowers the risk, increases the opportunity. So, once we start filtering through a quality lens, and then we’re searching for value, and quite literally we talk about whether it’s a green, an amber or a red, you will start oscillating how many stocks you have to pick from. Sometimes you’ll find lots of quality, but not much value, and other times the quality may be diminishing, which is another conversation maybe about software, consumer staples, and healthcare. 

If I think back to when the fund launched coming up for 10 years ago, the first three years of the fund, there was quite a lot of quality on offer, but very little value. We were down at the 25 stocks. Most of the stocks we owned didn’t really grow very much. They kind of yielded a dividend, and we had meaningful cash in this fund because the risk reward wasn’t compelling, because there was kind of a rising tide lifting all boats with zero interest rates between 2017, frankly, and 2021. That will change post-2020, 2021 for kind of the discussions we’re having about de-globalization, more growth coming through, et cetera. 

When we’re thinking about sectors and countries, it can change quite quickly. There are phases where you see policy change or the opportunity within a sector changing. We could start talking about either German infrastructure or the cement industry. But we have been set pretty fair in what we would say our strategy is for probably the best part of three and a half, four years now. There was a big change in the market psyche in 2021 and 2022 that grew this opportunity set back to this multipolar world kicking in more inflation, higher interest rates, et cetera. 

So since then, really strategically we’ve been set, but we can still tactically increase and reduce as valuations either get less attractive as you get phases or more attractive. So, we love volatility. We live in the world that we like blood on the streets because we’ve done our homework upfront, and we can come down and harvest that value. 

Most investors don’t operate like that. They run for the hills at that point, and that’s our strength, that we work and train hard upfront. We set the standard of what quality we need and what we’re willing to pay, and then we wait patiently to get that. And when it’s an offer, we’ll fill our boots for you guys. 

Actually, we’re kind of moved away from 25 stocks and kind of 10%, 15% of cash. We’ve been close to 38, 40 in a broader set, virtually no cash in the fund, which shows you the opportunity set and how broad that is out there. And the markets we’ve kind of mentioned but they can change. Things can get expensive, and new things can arise, and that’s our job. Two ears, one mouth. We listen a lot to the market, and then we say what we think should happen and put that in action. 

Yeah, I was actually going to mention that because Brad when we looked at J O and bringing them on, it was very much like a, hey, they own 25 to 40, and right now they are sitting in 38 positions, which again, does show the opportunity that’s out there. 

And so maybe before we wrap with Rob very quickly, Brad, you just want to talk a little bit about like from Tectonics’ perspective, what’s next for international? He said hey, maybe we’re in the second inning or whatever else. So, we don’t know obviously, but maybe we are. From your perspective, like where are you guys seeing what’s next for international? 

Yeah, I think the last two years have kind of woken that mindset back up in domestic investors anyway where it wasn’t something anybody was even thinking of, and it had shrunk down to low single digit probably allocations in most people’s investment portfolios. And now that that’s outperformed us for the last couple years, I think that’s going to continue. I think that’s a longer cycle. 

And there’s just lots of capital, to Rob’s point, that needs to be invested overseas. We’re hearing a lot of the same things from our private market investors that are over there where they’re like there’s lots of capital investment into industries. They just haven’t had that for the best part of 20 years. 

So, I think that’s a long tailwind. I don’t think that’s a short one. So I think it’ll be a focus of ours to continue to have those allocations and probably let them run a little bit in our portfolios. And that’ll be here to stay. But I think that’s a long-term story, not a short-term one. 

Well, as we wrap, I do have to ask Rob, I asked you this when we saw you earlier this year in Nashville at our annual meeting. But engineering at Cambridge to running billions of dollars as an asset manager, how do we get there? 

I get a lot of people asking that. The simple answer is being passionate about your work and having a belief, and I guess this is kind of the thing that chimes with both engineering but certainly teaching, like there’s a mix of technical skills to what we do, but most of it’s behavioral. And the behavior of being patient and disciplined is kind of either in you or isn’t in you. 

And ultimately, the discipline of studying engineering for four years and getting a master’s in it or teaching high school kids that are 13 to 18 or investing in a value 2.0 way, they all require a behavioral trait which says, “Don’t follow the herd, don’t listen too much to what the market tells you, but have a framework and a process that’s repeatable, which means you can see progress. You can understand how to improve and learn.” 

And I’m 47, 48 in a couple of months, like I’ve done this a while now, but I’ve got a hell of a lot of runway to keep improving, and that was kind of the skill set that I’ve taken through all of them. And our whole team’s like that. We behaviorally are structured in a way that can think independently, but we also think about how we can make money at low risk for you guys. And that framework, that process, that repeatability is what we’re very strong at. And over a 20, 30-year career, we think that’ll add up to make a difference. 

Well, it’s crazy, Judson, because that’s basically w- like who we are. That’s our investment process, which shows you listeners that we’re looking for partners in these, in this space, not just that do perform well, but have a very similar investment philosophy. 

And I would just encourage you folks, like if you are interested, like this is the beauty of the Annual Meeting, right? You get to hang out with guys like Rob and ask questions and listen to him sort of wax poetic on what’s out there in the market. So, if you can, come join us in Scottsdale. Folks just like Rob, and of course Brad and the Tectonic team as well, always a blast. 

Hey, man, thanks for being here. Good luck in the rest of the – what, St. Louis and then Seattle and all the fun that you got ahead of you, so. It’s been a pleasure. Thanks for all your support, and we hope we do a good job for you guys. 

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Now to wrap us up really after this episode, I’m a Hufflepuff. I feel sure that Hunter’s a Slytherin. What about you guys? Gryffindor Are you a Harry Potter guy? I’m quite happy just to be Harry.