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Welcome to Maren Took to Money, the podcast in which people who know the markets explain the markets. I'm Maren sumsep Web. This week I am speaking with Ben Whitmore about his new value equity fund boutique, Brickwood Asset Management. Ben is one of the UK's most renowned value investors. Before he launched Brickwood, he was a star at Jupiter Asset Management, where he handled around a fifth of Jupiter's assets.
In fact, news of his exits sent the shares down nearly fifteen percent in a single day in January, so needless to say, Ben's investment strategy has really worth paying attention to, and in our conversation we talk about the funds he has launched, why he launched you in the first place, and what he expects to happen next. Ben, thank you so much for coming in today. We hugely appreciate it's nice to have you with us. Thank you
very much for having me right now. We have to start with why you've done this in the first place. Why would you leave a giant, comfortable company where you're running billions and billions of pounds Presumably making an excellent living, everything going very well, great reputation. Why would you leave all that to set up on your own?
Oh? Okay, I think it's a great question. It's not just me, the four of us, and we just felt that there was an opportunity to create a value boutique really well known for value investing, and that we by concentrating on that, we could design the systems and technology we wanted, we could have the clients service that we wanted, and that by really focusing on it, we hope that in the end that would lead to better outcomes for the clients by that sort of real focus of the
whole organization. And we felt that there was an opportunity.
To do it.
Value had been pretty scarred over the last ten plus years, especially globally, and we felt that there was an opportunity that might occur over the next five ten years, some form of mean reversion, and we felt that there hadn't really been any value boutiques out there recently launched, and we thought that was just an opportunity. We all liked and trusted each other and felt that the team of us we could give it a shot.
It's interesting, though, isn't he You're right, there are very very few real value players left out there after all these years of value not working. There aren't very many value boutiques, and there weren't really that many value teams sitting inside any of the bigger companies.
Yeah.
Absolutely, And I think that's just a natural process. If you've started in fund management in the last five, ten, fifteen years, value investing has not been a growing area. It's been shrinking, or people have retired or given up or and so naturally you've gone into the other areas that have been increasing their headcount.
Let's just go back even one more step and say, we're going to talk a lot about value investing. But what does that mean to you when you say value, what are you talking about?
Yeah?
I think it's a very good question because at one extreme, some people think it's Ben Graham buying heavily discounted companies trading it below the cash on the balance sheet, and at the other end of the spectrum it's Ben Graham's most famous student, Warren Buffett, who who's more about buying,
you know, very good quality companies at resonall prices. I think for us, the key thing is that the starting point is the valuation, So we are looking for low valuation, but just as importantly, just as if you're in a supermarket doing all weekly shop, value is a trade off between price and quality. So we're very keenly aware that starting valuation is extremely important, but you need to be
cognizant of the quality of the company. One of the great things about value investing is there's a lot of books on it you can read and read and read. And one of the sort of key guiding points for our investment process is the cyclically adjusted price earnings ratio.
And now what is that that is? Rather than take a snapshot of the earnings, because you don't know where you are in a company's life cycle or economic cycle, Graham and Odd suggested you take an average over a business cycle, and they said seven is better than five, tens better than seven, So ten as an approximation at business cycle, and if you like, we're looking at companies that look lowly valued on their average earnings power over a ten year cycle, and that.
Way you get much more of.
A feel for where true low valuation lies, rather than if you like, accidentally picking a cyclical company at its highs or conversely avoiding it when it's at its lows, and that for us is one of our absolutely key valuation metrics. And the other reason why we believe in it so much is we're very evidence based and the evidence over long periods of time shows that that's a
very powerful indicator of subsequent returns. And if you look on sort of online resources for this, Professor Schiller has a whole series of this stuff around the Shiller pee, which he called which is the same thing that cyclically adjusted.
Pews for timing.
Isn't it very poor for timing, but it does point to you like a.
In the right direction, and that has a tendency to revert to the mean.
Yes.
And again, one of the conversations that I've had with a lot of growth managers over the last decade or so is the idea that reversion to the mean is dead because the very fast growing technology company is destroy the idea that any sector or marker as a whole would revert to any kind of mean.
Yeah, and they're absolutely right to a degree. But what I think is also very important aboun mind is that innovation, industrialization, technological change has been happening for the last hundred plus years, and so it's not a new phenomena. It's been happening
for the last hundred years. So if you we don't need to talk about all the things that have occurred in the last one hundred years which have surprised and shocked people, but that rate of innovation and change and new products, new ways of housing, formation or shopping, or transport or ways of living have been in place for the last one hundred plus years, and the evidence stretches back over nearly one hundred and fifty years. So I
absolutely acknowledge that. But I think where I differ would be that's been in place for the last one hundred and thirty years. Imagine going back to I don't know the data tends to start in eighteen seventy one, but if you went back then and imagined what life was like in nineteen ten or nineteen thirty, or nineteen fifteen, nineteen seventy nine, you would think that there's been the most incredible amount of change.
Now. I do think it's.
Right that it's probably more exacerbated now perhaps than say would have been in maybe a decade of the eighties, but that change is always something that's been around in the world economy, and so I don't think that this particular period means that everything that has worked in investing is now discounted.
You have launched value funds really at rather a good time. Your timing, whether purfle or not, have been fairly impeccable. We're just seeing the US market coming off, seeing significant falls in the NATICT this year, etc. And we're seeing the much cheaper European markets begin to pick up. So there is look slightly is the beginning of a great rotation out of expensive US markets into cheaper global markets. Timing is impeccable.
I guess it's a bit how you need to say. Time will tell, but I think all you can say, leaving aside the sort of very short term, is that rest of the world versus America, or small versus large, or value versus growth, that there are at quite big extremes when look globally. So when if you're like the rubber band is pulled so tight, it doesn't take much
to change that narrative. Now, I don't know whether it's going to be caused by everything that's going on at the moment, but we do very much believe that at some point there will be some if you're like mean reversion or change in the very low valuation applied to quite a few assets in UK, Europe, Japan, Latin America.
Yes, well, why don't we start my looking at the UK because that's the first fund you launched, the UK Value Fund. You just mentioned that there is this big gap between large and smaller, and smaller companies have massively unperformed and if you're really looking for extreme value in the UK, you might go small. But you haven't done that, right. It's a large cap fund.
Yes, it's a large medium sized company fund. I co manage that fund with my colleague Kevin Murphy. That's where we've spent our last combined fifty years.
And Kevin came from the Value Team. It showed us, yes.
Exactly, that's why we spent our fifty years concentrating. So we don't want to do anything different from what we have been doing. But yes, you can find a lot of very lowly valued shares in that whole space.
GE's been phenomenally unpopular for a long time, and we've talked a lot on this podcast over the last couple of years about the UK it's so cheap. Get him while you still can. If you don't buy these, other people will et cetera, et cetera. And of course everyone has completely ignored us, and we've seen ongoing outflows from the UK market over and over and over. It's been very, very depressing. So you know, you're really very optimistic here.
I think it just depends on your timeframe. As you say, the out flows have carried on. But I think you know, flows tend to follow performance, and if you did see the UK stop market showing some good performance, I think you would see the flows change.
I think in good performance in the UK, and even small caps aren't performing at the moment quite as badly as you might expect given global upset.
Yeah, you know, I am optimistic because the starting valuation is solow. I definitely can't predict, and they think around flows or timing. But I am very optimistic because just the starting valuation solow and history shows that very low starting valuations are good. Now, your point, which you make is very valued. But what about the timing of it,
and that I can't help on or can't predict. But what I do know is that that very low starting point is a good sign for if you like the medium to long term investor.
Okay, well, I was reading the fact cheek for this UK fund earlier. One of the things you say is that your hope is to outperform the index on a rolling five year basis after fees. I hope you won't mind me saying that that's remarkably unambitious.
Well, I think it's better to not try and set a very very high hurdle. If you look back historically at the long run data in say the IA UK or company sector, historically, if you have had compounded at two percent pranum neta fees ahead of the index over ten to fifteen years, you're comfortably in the top decile.
So why not say that you would like to achieve two percent? Well, I think more than the index over a rolling fabily period.
As soon as you start getting very precise, it might not be that helpful. But I also think that you don't want to try and make very big promises either. I think you're much better to get on and run the fund and try and deliver that good performance.
Here okay, and we can see your history of good performance so well, you might not be promising yet we can make a guess or what you might be hopeful for.
And I think also that financial service is more broadly sometimes gets a bad reputation for sort of being a bit too aggressive on the marketing and such like. And I think you're much better to be cautious on promises and concentrate much more on actual delivery.
It fair enough. We spend a lot of time criticizing fun management companies for being more marketing companies and money management companies and asset gatherers rather than activists or us to. So fair enough, Okay, let's talk about the fund then forty six holdings, so not that concentrated.
No, not that concentrated. There's a lot of academic and experienced evidence around how much you need for diversification, but also there's a sort of balance here. Probably twenty to thirty would get you sufficient diversification on a sort of theoretical basis, But there are also quite a lot of loading value stocks at the moment. So if you increase the number of holdings whilst at the same time being able to keep the valuation the same, you're getting a
bit more diversification. So I do think that is sensible, I really do.
Okay, Well, should we talk about some of the stocks in that UK portfolio, because I think we do have quite a lot of listeners who do buy individual stocks and are interested in these big, cheap, high yielding stocked in the UK, and I'm interested. I am looking at
facts each and maybe slightly out of date. The dividend yield on it is four point seven percent, and just for the sake of interest, the p ratio forward p ratio average across the portfolio is eight point eight times, so remarkably cheap.
Actually it is a lowly valued fund. Just to highlight a couple of companies, two very different companies. We've got an investment in Travis Perkins that's building merchant operating predominantly in the UK. It's actually trading below tangible book value. Its book value is predominantly some property and working capital. So when companies trade below tangible book value, the stock
market is saying something very pessimistic. They've got a new chair and they did have a new CEO who Sally, due to ill health, has recently had to step down. But they've got pretty strong market positions. The business hasn't been that well run, hence the opportunity to buy it
at below tangible book value. Difficult economic environment but I think if we can find our whole series of investments training at that low valuation, with established franchises, but where there have been some problems but not even like permanent problems, that's exactly what we're trying to do.
Doesn't look like you're looking for particular catalysts, so there could be some value traps in here.
Yeah.
Well, I think catalysts, by their nature are surprises. I think it would be quite difficult to say that we know what the surprises are going to be. You know, surprises to markets are genuine surprises. I think, though, what the evidence shows is that what we're trying to do is that low valuation helps to protect you from negative surprises, but at the same time you're much more exposed to
positive surprises. And so we don't know the catalyst. But what we think is that more broadly, catalysts tend to be either fears recede or profits recover, and some in that area is how we think we'll get the valuation change to reflect the value of the business.
All right, I interrupted you were telling us a stock story.
Carry I think the other one at the other sort of extreme in terms of business, but not in terms of valuation would be Burbery, that is reasonably well known luxury goods company concentrating on outerwear, scarves and other fashion where that's had a very difficult time, partly due to a downturn in luxury spending in China, but also due to some self inflicted wounds. They changed the chief executive last summer as well, and their merchandising and pricing strategy
went wrong. The new chief executive is returning the business to if you're like the real core check, if you're like what it stands for, and you're able to pick that up on investing that on a if you're like a cape yield of about fifteen sixteen percent, which is very very low in relation to absolute valuations, whereby the stock market is feeling very pessimistic about the ability to
recover the lost profits which have happened. And so if we can find, as you say, forty to fifty ideas like that, we're very very happy.
Have you been watching the TikTok of luxury goods being made in China?
No? I haven't.
It's worth it. It's worth it. If you go go and look on tikto, you're probably not on TikTok. So I'm not on TikTok either. I'd rely on my kids with this. But there are lots of videos doing the rounds of luxury goods factories in China, showing how things are made and when they're made in China, when you think they're not made in China, etc. They're fascinating and I wonder if if that kind of thing will have an impact on luxury goods spending.
So these are copies, is that right?
No? Well, supposedly not. I'm watching TikTok here.
Yeah, okay.
So one of the things that Berbera spent a lot of time on is the supply chain. So obviously it's very well known for its UK heritage demand factoring in the UK, so I think clearly that is a concern for companies more broadly, but I would I'd feel pretty confident that that wouldn't apply to Berbera.
Is there an ESG overlay of any kind on the fund? I see, and will come to global one in a minute. But I see you have got ahead of stewardship kind of compulsory?
Is it? Right?
Now?
How do you approach all that? I mean, obviously it's not classic ESG because in your top ten you've got British American tobacco, et cetera shell BP, So it's not your standard ESG overlay. But how do you approach that?
Yes, so Andrew Mortimer, as are at a stewardship and those the S energy are very important because they can be fundamental to permanent loss of capital if you don't take them seriously enough. Now, historically people have always thought about the G the governance. You know, you've had poor governance that can lead to permanent loss of capital via
poor management of the business capital allocation. But the E and the S, the environmental and like the social side, those are important when you're thinking about if you're like the sustainability of the franchise and so for us, they're all part of thinking about investment risk or it's the risk that we're going to lose our client's capital and anyone investment. So yes, we do absolutely want to take all of those into consideration when making an investment decision.
Okay, can we talk about BP a bit. That's been in the news a lot and I'm sure a lot of our listeners are interested in it as a standalone to DOC.
Yes, so, BP has been in the news. Well, I guess a lot recently, but when I think about since I started in the city in nineteen ninety four, it's been in the news a lot. And you're absolutely right, it's currently in the news because the previous CEO tried to to deploy more capital into low carbon or renewable assets. The returns on those have not been very good. He was also looking to shrink the oil and gas portfolio quite aggressively as the world transitioned away from if you like carbon.
Assets, except that is not really doing that, is it.
But the pace of changes is not as fast as was anticipated, And so the new CEO, who was the finance director, is really running the company I think more in line with how society is changing now. That might come into for some criticism that they're not going faster, but I think he's basically adopting a more pragmatic approach. What really needs to happen, I think at VP, and it's what they've said, is that oil and gas companies
are very capital intensive. They need to concentrate on the returns from deploying that capital rather than if you're like talking about the strategy talking about a deploying thing and what the returns may or may not be. They need to concentrate on what they're The new change of strategies around is the actual returns from the capital deployed, rather than having a strategy what it might be.
Do you think that that is happening now? I mean, this has been one of the most of the many disappointing stocks in the UK that BP is consistently disappointed at Shoholders, hasn't it.
You can see it in the stock market has expressed by the valuation. There's a sense of deep distrust in the company, and so I think you get a very low starting valuation, a sort of a very big discount to European and American super majors. Clearly it's not a super major really, it's shrunk quite a lot over the last ten twenty years, especially following mccondo. So I think that big discount can't really only be closed by them
demonstrating operational performance. And I think that's that is definitely what it seems that the stock market in investors want.
Let's talk about the second fund, because you've moved pretty quickly here. Lawn's UK one pretty small and you've gone straight into launch a global value fund, also still pretty small at the moment. What was the thinking behind that? Because you can have your UK fund, you can have twenty percent of the assets in non UK companies, right, yes you can? Ye, yeah, so you can. You can put a little global in there if you feel like it. But nonetheless you've still vote launched a devoted global fund.
So I'm managing that with my co manager, Dormat Murphy, who I've spent the last ten years working with, and we ran global funds together.
Brother's going to get along? Okay, do you think?
Yes?
I do, Yes, I could work with one of my siblings.
Yeah. So I've worked with them both throughout my.
Career, separately, never together.
They never together.
But from all I can see is there they get on very very well together. There's a big age grap between them, which may well help, but they they're both very passionate value investors. The three of us are sort of joined by that like that, by that great passion and interest. But why did we do a global fund? I think they're very different, and so here this is about accessing opportunities all across the globe, and I think it's important to keep them pretty distinct.
There are some cross shareholdings, right, yes, BAT being.
Yep, there are some BAT or BP. There are definitely some cross shareholdings. But we've got, you know, exposure across Europe, Japan, Hong Kong, Latin America, America.
There's a huge.
Range of low valuation stocks to try and capture. And yes, they're they're very distinct portfolios.
Yeah, you've got the resource to cover the whole world like that, you're in Japan, etc.
You're absolutely right if you said, oh, go and find these companies. But if you didn't have a process, I completely agree with you. But we've got a very distinct process. So we have two screens. One is if you like the cyclically adjusted pe which we talked about. The second one is a green that screen named after Joel green Blatt, famous American investor. So we run those screens and we use the screens. They're not magic formulas, but they're very
good at pointing you in the right direction. We use these screens to push our work into a very narrow field. When you think about global markets and so lets say maybe ten ten thousand investible securities, and it pushes you into those areas and concentrate your looking and you're modeling on those.
Okay, So you can use technologies make sure the universe the universal stocks you choose from is it as you've very small.
So not only can you use technology to help you look for where the stocks are, but and this has really been led by Kevin, you can also use technology to help you with all your modeling. So we like to model balance sheet, cash flow, profit loss account looking backwards for all the companies. You can use technologies now to do that for you rather than thumbing through the
born accounts and manulm putting the numbers. You can then integrate all of that with your audit management system in an integrated data platform, so you can do an enormous amount of work to present the ideas in the format with the financial history that you want, so that you can spend much more time on considering the reasons why the shares lowly valued, thinking about the issues and forming an investment rationale and do.
You visit them down the companies.
We meet a lot of companies, but it's not a prerequisite. Some of our Japanese holdings we have a met but we tend to meet most of them.
Yes, tell us about your favorite Japanese holding.
So I'm not very good on favorite holding. So I think it's everyone has.
All fund managers say that, I bet you have favorite stock.
I think everyone has favorite stock. I think it's like children. You don't have a favorite child. But if I gave, I mean the amazing thing in Japan is how you can bar good businesses with good franchises trading below the cash on their balance sheet, the cash and investments. And so we've got a arrange there. Whether it's and I'll if you've got any listeners who speak Japanese, they might be horrified by my pronunciation, but I'll try my best.
Whether that's Cato Sangyo, a food distributor, whether it's ts Tech that makes car seats, whether that's Metapal that distributes pharmaceuticals. These are all very lowly valued businesses, but where there are strong businesses underlying them. It's just that, for whatever reason it is the history of the Japanese stock market, they're trading it exceptionally low valuations.
It just goes on and on and on, doesn't it. Every time you think the Japanese marketers come back, like you might have said, for example, last year, year before. Then suddenly something goes wrong, and the Japanese market has always hit harder than any other market. It's incredibly frustrating market to be in.
I mean, I think there have been some quite concrete changes happen in corporate governance in Japan, and the evidence shows that when you look at things like share buybacks, dividend in greases, that whilst there still is issues around corporate governance and independence of directors, there is actual tangible change taking place.
I agree. I agree. Well, we talked about that a lot on this podcast as well. We're big on Japan as well and often slightly disappointed. Are there any other really interesting stocks in that global portfolio that we could talk about we would like to talk about, not a favorite, just the most interesting.
I mean, there's a huge spread whether you're talking about say a Latin American brewer net cash on the balance sheet, very low valuation, whether you're talking about European satellite company or a ten percent cash dividend yield where there's now a view that maybe European governments don't want to rely on starling. There are lots of interesting things which are very lowly valued. The other small area of the portfolio, which is very lowly valued, has anything to do with dentistry.
If this is a first, This is a first. No one has ever mentioned dentistry on this podcast before.
So dentistry is probably we all know it is very stable. So your and your checkup is very very stable. But what is cyclical is the sort of high end teeth work which has become.
In visual lines and that kind of thing.
Yeah, well, just more sort of complete makeovers of your teeth. It's proven to be a bit cyclical. And at the same time, the companies that supply implants or aligners also supply the equipment for the screening and diagnostic tools for the dentists. And if the dentist have got less high end work, then they're less inclined to replace the screening tools or the diagnostic tools. So there is a bit more.
The market was surprised by the cyclicality that when interest rates went up, and so what that has is that we've got two investments in dentistry.
One is called en Vista, that's the American one, and one is.
Called It's ticket is x Ray, but it's a dentist splice Aarona, And both of those are very very lowly valued because people have seen what's happened in the last few years and have become very, very concerned about the dental both equipment and implant market. But we think over the medium term dentistry it's quite a concentrated market in
terms of companies operating in there. Will revert back to mean people will save up and do more of that high end work in time, but the valuations you can fly them at are very low, and these are some strong businesses. There's quite a lot of IP and technology in dentistry.
Okay. One of the things that we talk about a lot on the board and that has obviously been the massive our performer of the year and actually the decade is gold. Any exposure to gold in the portfolios? Would you have a hold of gold miner?
So we're long only equities, so we can't use any of the normal things that protect from downturns in markets like director. We don't use any of that which is long anly equities. But we do think about insurance, and by that I mean shares that would do something different if the market is felt. We do have a holding in a gold miner. We also have a holding in a company called float traders. That benefits from sharp rises in volatility which tend to occur with like deep draw
downs and stock markets. So we do tend to think about insurance as well.
Okay, interesting, that's how we as look at gold as being portfolio insurance. You really hope it doesn't go up, but when it does, it glad had it.
So we do. We do definitely think about that.
Yes, so prisumanly that means you you hold some exposure to bitcoin in portfolio as well.
So we don't have any exposure to bitcoin. No, But when I did read the last statement from flow traders, they make markets in ETFs and there are quite a lot of crypto ETFs, so I mean there is, like, so there is, Yeah, that would be quite small.
Interesting. Thank you brilliant. Thank you very much for joining us.
Thank you very much.
Thanks for listening to this week's Maren Dalg's Money. If you like our show, rate review and subscribe wherever you listen to the podcasts and keep sending questions or comments to Merorn Money at Bloomberg dot net. You can also follow me and John on Twitter or x. I'm at marinsw and John is John Underscore Steppeic. This episode was hosted by me Marren Sunset Web. It was produced by Sersadi and Moses and sound designed by Blake Naples and special thanks of course to Ben Whittemore