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About this podcast

Habib Subjally, Senior Portfolio Manager and Head of Global Equities, RBC Global Asset Management (UK) Limited, joins Dave for a deep dive into how he and his team have managed portfolios throughout the current crisis, and what they are focusing on into recovery. He explains that his approach centers on a balance between navigating companies’ short-term survival today, and positioning for long-term prosperity in the future. (Recorded June 4, 2020)

Transcript

Hello and welcome to the Download. I’m your host, Dave Richardson, and I am really pleased to be joined today by Habib Subjally, who runs the global team at RBC Global Asset Management, and is part of a team that has a really interesting investment philosophy and approach. He’s appeared on the podcast before, but this is the first time he’s been on our short-form podcast and certainly the first time that we’ve talked to him in this new normal that we’re living in as a result of the Covid-19 crisis. Habib, thank you for joining us today.

Thanks for having me. It’s a pleasure to be here with you Dave.

So we’ve seen markets rebound significantly since their lows in March. And the big winners have been those who have invested in technology, health care, specialty retailers who are getting the advantage of online purchases. When we look at the way you’re managing your portfolios, how have you and the team navigated the current crisis?

I don’t think anyone anticipated this crisis, right? So the portfolio you went into this was the portfolio you had. We’ve had such extreme volatility. It’s been really hard, especially in stage one of the crisis, to do anything with the portfolio. And this is where I think risk management becomes so important. Don’t forget, in January, February, we were in a bull market and it would have been very easy to have gone in with a very cyclical portfolio, because what has really done well have been these very resilient business models. And I think our portfolio construction and risk management have been very disciplined. So we’ve had a number of investments in the online retail, healthcare, diagnostics, logistics, online payments, which have clearly benefited from this crisis. But I think we’ve also had, on the other side, some lodging, some hotels, cosmetics and beauty products, chemical stocks that have been negatively impacted by it, and some in the technology space that have been neither positive nor negative. So I think we went into it with a very balanced portfolio, which was very helpful. But then as the crisis of the pandemic started, we focused on two things. One is, you want to make sure that all the businesses you invested in come out of this pandemic in a stronger competitive position today than they went into, because this pandemic and the ensuing recession are going to damage a lot of competitors. So you want to be with those who are the winners. And we did a deep review of the portfolio and we were very satisfied with all the businesses that we had. The second test that we conducted was to make sure, if this pandemic goes on for longer than we expected and the recession is somehow deeper, that these businesses survive to the other side. And that’s balance sheet, that’s cash flow, that’s business model, that’s diversification. And again, we did a deep dive in the portfolio. But very tough on ourselves. There was one investment where we felt slightly nervous about, and that actually went. And because we had a balanced portfolio, we’ve done sort of reasonably well, relatively, in the decline. And we’ve also done quite well in the recovery. So I think it’s difficult, it’s very hard to see where we go from here.

So do you view this — and I think it’s a really good question for investors who are listening in — do you think this is a time where you want to be more aggressive or more defensive as an investment manager?

Look, we have to be focused on the long term, because in the short term — we have to be honest —, we could get a second wave. Two very different scenarios: you get a second wave, another set of lockdown, the recession is deeper, worse. On the other hand, you get a treatment or you get a vaccine, and suddenly it’s back to normal. But the key for us, our challenge, is to preserve wealth in the short term, but to be aggressive in the long term. We want to be with those winners, those businesses that are going to accumulate wealth, generate wealth. Those businesses that are going to be really more, much more valuable in three, five, ten years time than they are today. And that’s key. It’s getting that balance right, between short term, — can you survive this really acute depression, recession without cutting into muscle? That’s key. This is a time where really strong businesses can build a reputation, build their customer bases, build customer loyalty, and then turn that into profits in the future.

Well it is really amazing to watch what’s happened through this crisis, where in many ways the strong have gotten stronger. And that seems to be a bit of a core element of your approach. We’re going to have your colleague, Jeremy Richardson, in the near future, and we’re going to focus on another, I think, real key differentiator in your team’s investment approach, which is a focus on ESG (environmental, social and governance issues) and somewhat purposeful investment. So Habib, thanks for joining us from London. It’s nice to have the technology working across the ocean. And we’ll look forward to getting you on the podcast again in the future. It’s always a pleasure to have you as a guest.

Great. Thank you very much. A real pleasure.

Disclosure

Recorded June 4, 2020

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