You're listening to Strictly Business Podcast with Lindsay Williams.
Welcome, and today we are in conversation with Clyde Rousseau, Portfolio Manager for
the 91 Global
Franchise Fund.
It's been nearly four months of 2025 now, Clyde, and it's given us everything,
volatile markets mainly to the downside,
although showing some signs of stability.
It's had relationships that have been well-worn over the years, sort of breaking
away, notably the US.
treasuries and equity market performances.
There's been geopolitics simmering in the background,
and there's a new one with a standoff between China and the United States when
it comes to tariffs.
So you've had everything.
How was the fund positioned during these difficult times, and how's it been holding
up?
Let's just take a step back quickly, Lindsay.
Thank you.
Remember 2008, 2003, and 2024 were very strong markets for for global equities,
particularly US equities,
and particularly the MAG7 stocks.
And they almost look bulletproof.
Looks like nothing could change.
And then when Trump took over, I mean, there were three promises that were made.
The first one was deregulation.
The second one was the onshoring of US business, which is kind of the flip side
of the tariff equation, which we'll talk about now.
And the third one is the tax cuts.
Now, obviously, with that sort of hand, trying to balance that, it was never going
to be a smooth ride.
Initially, the markets loved Trump.
And as you said, the first four months of this year, we've seen a different uh,
movie unfold.
And, and clearly the tariff issue is a big issue because, because it is definitely
upended, uh, two,
two things.
The first one is the idea around whether the U S bull market can continue because
this is kind of self-harm in many respects.
It's not like someone's forced that upon the U S U S kind of forced it upon
himself.
And the second one is, you know, what, what uncertainty and what prognosis does
that leave us with in terms of,
in terms of economic growth and particularly the idea of slow growth and
high inflation, which is not
not really a great cocktail for financial markets in general.
So from our perspective, we were worried about the persistence of trending markets
where everything was just too good to be true.
And what we've seen in the last couple of months is that that little fairy tale has
actually disappeared.
So I think for us, we've been waiting for it.
It's just frustrating in a way that's taken so long to actually happen.
Yeah, well, the volatility and the shift of drivers.
of return has, I think, helped you, helped your performance.
And you've been able to stay in positive territory, which is always a very good
thing, of course.
Let's have a sort of magnifying glass on your portfolio now.
What kinds of businesses are you leaning towards?
And are you leaning towards them because of the near four months of 2025?
Or were you already, had you already bought into them?
I think there are two big things which are busy unraveling.
The first one is the sort of peak hype around AI.
Now, I'm not saying that AI is going to go away.
I mean, it'll be with us, and it's going to intensify, and there'll be a lot of
real world applications, and we'll all have to find different ways of doing
things.
But the hype around the investment part is definitely gone, and we've seen that peak.
And that is probably a good thing, because it means that markets will be broader.
And the second one is we're worried about the economic slowdown.
So to your point around what kind of businesses you want to own, if you're
going to go into a reversal of those two big trends.
then Mag7 and hyperscale are not you don't want to be in a narrow set of stocks.
And secondly, you don't want to be in stocks that have earnings risk because
tariffs clearly are
going to massively impact on supply chain, availability, pricing, margins,
and ultimately the leakage to government.
Because what do tariffs do?
Tariffs essentially take profits from companies and give them to governments.
So that's generally not a good thing for equity markets.
So when you look at our...
portfolio.
I mean, we're obviously looking for things like pricing power.
And I know everyone says that, but really, I mean, if you're Ferrari and you face the
high tariffs, you can actually put prices up.
Or if you're ASML and you're selling lithography machines,
you can put prices up because your customer needs your high-tech demand or
needs your high-tech tools in order to
continue to function.
So those are the kind of businesses you want to own.
And as you lean into the rest of this year, where we're all going to figure out
how businesses are impacted.
I mean, those things are very valuable.
And maybe you're right.
Maybe we are always positioned that way.
But it's really, you know, if you've got a good business that's growing well in good
times, you'll do fine.
But your good business will really stand out when suddenly funding markets become
less attractive, balance sheets matter,
annuity revenues are important rather than trying to sell products.
All of those things become relevant during times of distress.
I saw this interview with a mega donor for the Republican Party.
He's the head of a giant global financial institution.
And he's still a Trump supporter, this fellow.
But he said, America is not just a great economy.
It's not just a great country.
It's a brand.
And Donald Trump is damaging the brand.
And that brings me to US exceptionalism.
because that was a well-worn phrase, almost overused, and suddenly it's a
throwaway phrase.
In other words, people are literally throwing it away.
But can the US become exceptional again?
Well, look, that's a good question.
I mean, I think when you talk about US exceptionalism,
let's differentiate between stock market outperformance and the biggest
multi-trillion dollar
companies that exist, of which there's a big concentration in the US,
versus the performance of the US economy and the inequality that exists within that
society.
Now, there are three levels to this exceptionalism part.
I think the only one way I would say I do think that the US has got a chance is
depending on how it plays its cards.
is you should still be able to secure good businesses that are well run,
that are guided and founded on principles that actually support a profit motive.
If that is still the case, and therefore capitalism survives, then I think the US
is the best version of that.
The other parts are very debatable.
It's very debatable whether or not there'll be any success whatsoever around
reshoring manufacturing jobs.
a very stark example.
I mean, are textile workers that are assembling high-performance shoes in
Vietnam really going to relocate to the US?
Is that really an industry that's going to be cultivated?
I don't know.
I think you do, but you won't say because you're too polite.
But anyway, you mentioned earlier about the risk to growth and inflation and maybe
the impact
on global equity markets.
And that sort of leads into my next question nicely.
Have you made any meaningful changes.
during this time?
Have you trimmed positions?
Have you added new ones?
Are there new members to the fund's family?
And if you have done, why?
So, look, I mean, if we look at our performance, I mean, obviously, we've been
watching very carefully the way in which shares have traded.
We are long-term investors, but the message and signaling from the markets is
very important.
And obviously, as you go through these periods where we're all waking up and
trying to digest headlines, which are often contradictory,
and there's been no shortage of contradictory headlines.
in the last four months, often from the same policymaker.
So it is a difficult environment to try and interpret.
And the first important thing that you've got to bear in mind is that if you have an
irrational statement and you make a rational conclusion
based on irrational policy, that could be seen as rational.
But if it's unwound, then your behavior is irrational.
So that's the first thing we are guarding against is doing those sort of stupid
things when there's a lot of irrationality or potentially
contradictory.
information out there.
So we've come through this quite well.
We've had portfolios that have outperformed.
We've obviously clawed back quite a lot of the underperformance from 2024.
We went ahead of the market to be positive in terms of performance here today.
So all those things are good things.
So we don't believe we've got the wrong portfolio for the current environment.
The big question that we're obviously debating now is having had a lot of
defense, stocks that have held up quite well,
there's opportunity to move some of that defense into
something which is maybe slightly more growthy or something that can capture more
of economic upside
if there is some degree of normality that returns to the marketplace.
And those are the decisions we are making at the margin, but I would stress at the
margin.
So a few changes to the portfolio, but more to try and move from the defense into
things that are maybe slightly more
balanced in terms of capturing upside from current levels.
My final question, I'm just looking at it and I've looked at it over the last couple
of days and thought, maybe I should rephrase this.
Is this question relevant?
Because I really sort of know the answer myself, but you can shoot me down, of
course.
It goes like this.
Why do you think quality companies, those durable companies,
those resilient compounders are the right place to be in this environment?
Because to my mind, they're the right place to be in any environment.
But does this environment lean towards them even more and makes them even more
relevant, Clyde?
You know, look, obviously, what stocks you own and the actual individual
idiosyncratic opportunity of
the company is probably more important than just purely chasing a thematic.
Because if you invest purely on the back of cold, hard income statement and balance
sheet numbers,
you're probably going to miss quite a lot in your investment thesis.
So for us, I mean, we're obviously looking to try and understand why businesses have
got the
right to win and why they produce the metrics.
And that's far more important than sort of… chasing metrics, if you like.
And I think a lot of investors out there that have chased metrics, they've chased
indices, they've chased style,
they've chased stuff because it's easy to throw into an algorithm and produce a
portfolio on that basis.
I think it's very important that people do the work, understand the drivers,
understand the companies, understand the management,
understand the thinking.
And that's harder work than just producing the stuff.
So answer our question.
I think there is a version of quality which will do better.
And it's all about making sure you have the correct stocks with the correct
drivers.
And we're trying to make investments easier rather than harder.
So if you pick the right tailwinds, hopefully you can end up with better
investment success.
Clyde, thank you so much for your time, your analysis.
Clyde Rousseau is Portfolio Manager for the 91 Global Franchise Fund.
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