Hello and welcome to The Download. I'm your host Dave Richardson, and it is tech day and biotech day too. We've got Rob Cavallo and Marcello Montanari with us today. And before we get into talking about what's going on in your investment portfolios— because I know that's what a lot of people are interested in— but I think even more people are interested in the World Cup. And you guys have to be just stoked at how great Italy's doing so far. Those first 2 matches… Who were they playing again? I missed the Italian games when it was on TV.

They're in the alternate World Cup. They're doing very well so far. They're 2-0.

Okay, all right, that's good to hear. But it's always great to have you guys on. And I'm going to go back to the first time I had you on, it was 6 years ago. And after having a chuckle on your expense, we'll have one on mine because I sat and started off that very first podcast that you were on. And oh, here's old guy Dave. I wasn't quite as old back then, but I had lived through the 1999-2000 tech bubble burst. And I think it was somewhere in late 2021, early 2022, you were on. And I said, wow, this feels a whole lot like that period back then. And that sends shivers up my spine when I think to that period as a young investor and thinking about where a lot of young investors are playing around today. And we'll get into that topic as well. We were just chatting before we started recording, Rob, and you said, history rhymes. And I was seeing that potential rhyme there, but here we are in the middle of 2026 and really just things have continued to charge forward as you suggested they would. And now I say it's feeling even more that. And is it still different? Are there things that you would say to someone who's investing in this market that now is heavily overweight technology— just the S&P 500 or even the TSX for the technology exposure it has— you still see differences that are significant enough to continue to be confident that this sector will continue to deliver for investors? Not 100% a year, but a reasonable rate of growth and an important part of diversification in a portfolio.

Yeah, maybe I'll start with that. I will just refer back to that original podcast and say I think the arguments would be the same. Everyone keeps hearkening back to the tech bubble. That was just such a unique period in terms of how everything was valuation-multiple-driven, where animal spirits just got carried away and we started pricing things that in a lot of cases were pre-revenue. So we started pricing them on all sorts of crazy metrics, whether it was price to engineer, price to eyeball, because it was all about how many people were going to different websites. And obviously there were some real companies like Cisco— and their sales were just going parabolic at the time— and in those cases, we had P/E ratios going up to 100. So we have not seen that, not in '21 and again, today we're not seeing that for the most part. And back in the bubble, it was market-led. It was finance-led. The market was getting hotter and it was financing everything under the sun. In this particular case, the underpinning of all this is there's a real technological revolution. It's underpinned by real spending, by real companies. The biggest companies on the planet that have just enormous amounts of free cash flow and they're basically spending to put in the infrastructure. And we're still in the infrastructure stage. We would've thought by now that you'd see a little bit more of it bleeding into the deployment phase, but we're still firmly in the infrastructure phase. Real companies with real cash flows. The multiples and the valuations are not crazy. You can make rational arguments to justify all of them without getting carried away. And we're not getting into la-la land of pricing dreams and things. With some possible exceptions. And maybe I said that back in '21 as well. Where it does feel a little frothy is that along the edge of things, what tends to happen again, when excitement builds, you start to bring in peripheral companies that might not have as strong a position or a strong business case. You start to bring it into the narrative and assign higher and higher valuation multiples to some of those names. So you're starting to see that. And I don't want to name names, but there's been very large IPOs that a very large part of the valuation is being attributed to something that has to do with Mars. And putting a lot of stuff in space that has not been proven out yet. We'll see if that turns out to work out. But you start to see a little bit of animal spirits on the edge there. I don't know if Rob wants to add anything.

I just want to pop in and say I did know a fairly well-known portfolio manager in Canada who once suggested that the Martians were hoarding gold on Mars, and that was one of the reasons that the gold price would go higher. I'm not sure where he's working right now, but Rob, sorry to interrupt. You've got something more important to say.

Did he work with us?

I'm not going to say.

A little older?

I think I know who you're talking about.

The only thing I would add is one of the big differences is in '99, 2000, it was «build it and they will come». So we're building towards a future of adoption of online websites, e-commerce, whatever, the fact that was still many years away. What we're seeing today is you can't build enough capacity to meet the demand yet. So you're actually underbuilding relative to where demand is today. Now, I could speak of the other side of my mouth and say that there's questions around the durability of that demand and whatnot, but we're building to actual demand as opposed to just laying dark fiber that may or may not be used at some point in the very distant future. So, I think that's an important difference as people try to draw analogies to the 2000 bubble and starting to draw analogies around circular financing and all of that stuff. The demand today feels much more real and much more near-term than it did in '99, 2000.

And you guys were around back then too. So, this is not a distant memory.

I was.

Or it's a distant memory, but you lived through it and experienced it. When you spend time with portfolio managers, you realize they remember everything. Every experience is— I wouldn't say a scar. The bad ones are— you'd never forget it. So you're not just talking out of the side of your mouth, as you say. You're talking from real experience of having lived through that.

Yeah, by way of an example— and this I think is a great example— Anthropic launched Opus, I think it was 4.8 at the end of November, which basically gave these incredible capabilities to the coding community. And basically the coders went hog wild with this and that has really changed the game in terms of how coders work, how much work they're getting done. And just by way of an example, when a coder writes a line of code or changes something, basically they tend to save it in GitHub, which is a Microsoft product now. It was separate, but they acquired it years ago. They save it into GitHub, and that's what you call a commit. In all of 2025, according to Microsoft, there was 1 billion commits to GitHub. As of April, the run rate is running at 14 billion. So that's the demand we're seeing. That's how the models have basically improved the lives of coder. And over time, that's going to filter through to different professions, and we'll see how that plays out. Obviously not to the same degree. Coding is very specific. The taxonomy is very specific. The rules are very specific. So the LLMs have really lent themselves to that. But it just goes to show that there's real use cases and it's having an impact today. And I would say that that has helped fuel the renewed excitement around AI that we've seen in the last number of months.

Yeah, well, just to put the perspective in real life terms in my business, we’ve got a young guy that's on our team— the guy's brilliant— and there was this project, this data analysis piece that I wanted for our business and that I'd been asking for our folks in accounting and analytics to put together for 5 years. And he got on the new AI that we have available to us. And basically he did it in 5 minutes. And it's better than anything I would've thought up. I was just around the edges of what it could do using AI. So these are unbelievably powerful tools that just create efficiency, productivity, and in the hands of people that are still just learning how to use it. Like you say, the programmers and the coders, they know that that's their world and they understand that world coming in. But just really good business managers, businesspeople, strategists in a big business can use these tools to do amazing things already. And just before we move on through the discussion, one of the things that people might have noticed when you talk about circular financing and talk about the cash flow that's generated in these large businesses, but Google just came forward with a pretty big bond issuance. And SpaceX immediately after the IPO, they went out to market. I think Google was $85 billion and SpaceX is $25 billion, somewhere in that range.

75.

75. So yeah, there you go. So that's big money.

And to throw on top of that, there's rumors that Meta might do some potential equity issue as well in the coming months. Really, Google set the bar, and it gave license to all these others to come out and tap the markets while they can. And we're thinking about it, what's it going to mean? Is there enough liquidity? Are we going to see pressure in other mega-cap or other parts of tech and other parts of the market to support these deals? Especially you start talking about maybe Anthropic in the fall as an IPO candidate, OpenAI potentially the next 6 to 12 months. It's a lot of money. And the first two, SpaceX and Google, went down without a real hitch. But yeah, it remains to be seen. It's a risk that we're thinking about. But for now, we feel comfortable about the ability to absorb that liquidity. The Google was split in two, so there's a trailing $40 billion that will come over time. But, yeah, definitely, we’re thinking about second half risks, what is it going to mean if more of these companies come and where is that money going to flow from? And we're trying to really stress test our portfolios to see where there could be some risk.

Just to add to the Meta thought, yesterday the president of AWS, which is Amazon's cloud computing platform, was making comments to a group about how they're talking to their clients. Their clients are saying they're finally seeing ROI on AI. And he was basically speculating that, because there's now a positive ROI, it behooves him to spend more on CapEx. So we might actually see Amazon ramp up even more now. So we'll see. Anyway.

For the novice that's watching all this, these huge numbers and huge companies, what would be the difference between what we saw back in '99, 2000 with circular financing where I'm just pre-selling my product and I'm not charging the customer— I'm essentially lending out the product to them and they may not repay me or ever take the product— going out with an $85 billion financing program with the idea of building out and having bondholders hold that credit?

Well, I'd say, just the level of cash flow that the core businesses are generating is much different, and the ability to recycle that being the biggest primary driver of the required CapEx dollars. But secondarily, I think an important difference, from what we've seen, is that there's no funny accounting happening. It's all above board. The market knows what's happening, and it's up to us to judge whether we feel that there's any undue balance sheet risk that could be presented in the near future. But we think that just that level of disclosure is a little bit different than what it would have been in some cases, at the very least, in '99, 2000. But still, as much as the market is focusing on the external equity and debt financing that's happening, most of the financing is still being done through the cash flow that they're generating from their businesses, which again is different than 99-2000. And look, we're not going to be naive about it. We're trying to make sure we're not missing anything in how these things are getting done but we just feel the disclosure and the general health of the business, and the fact that we're earning real return on the money that's going out the door already, is a big difference versus 99-2000 and gives us more comfort than if we had been sitting here 25 years ago.

And we can point to the results that we're seeing at the leading-edge companies. Microsoft's cloud computing platform Azure in the last quarter had 40%— 39% constant currency growth, 40% return reported. Google was in the 60%. We're not talking about $100 growing to $160. We're talking about tens of billions of dollars of revenues for each of these companies. So we've never seen companies of this scale and this scale of revenues growing at this rate.

And in your Google example, they also expanded their margins several hundred beeps. So it's not that they're just giving revenue or taking on no margin revenue. They're generating real margin, real return on that spectacular growth.

All out in the open. If I'm going to raise $85 billion in capital markets, it has to go through a whole regulatory regime, and it's all out in the open. Everyone knows it's happening. It's disclosed in advance versus stuff that's going on behind the scenes that you don't know about, and it surprises you. What you're doing as professional investors, portfolio managers, is you're looking for those things and you're watching for those things. But again, it's hard to do. This is right out in the open. The way the World Cup's falling right now, Portugal could end up being the last Toronto round of 32 game. The tickets are going to be about $5,000 Canadian. I could just sneak around the back door and pay $5,000 for that ticket to go and see the game without telling my wife. Or I could go to her and say, hey, I'm going to go to the game and it's going to be $5,000. Is that OK? And she gives me the thumbs up. She joins because she's actually the one who's Portuguese. And we go to the game. Above board versus under the table. And that's a little bit of the difference. Because, as much as history rhymes, those who forget history are doomed to repeat it. And we have learned some lessons, right, in this space?

Yes, we have. Even following '21 and '22. '23 was not a good year. So clearly there was some imbalances that had occurred because of COVID. But anyway.

So, in terms of where we are with AI, we always do a check-in with you guys, and we're still early on in what this is ultimately going to be.

It just seems to change every day. Every day, it seems something new has come along. Anyone who sits here and predicts what's going to happen in 6 months is going to be probably proven wrong. It's very fluid. It's very dynamic. We're now moving from a point where everyone's talking about how the value is going to accrue to the frontier models to the point where it's not just the frontier models that are important, but it's everything that goes around it. And that's what was part of the secret of Anthropic 4.8. The coding model. All the tooling they call the scaffolding and the harnesses and all that stuff, the way the model is able to basically plug into other programs and other features to bring different capabilities together and then check itself at the same time. So it was all these added things brought in together that just changed the whole narrative there as well. Maybe the luminaries in the space saw that coming, but most people didn't see that coming to that degree. And as a result, the entire narrative of who's winning— is it Anthropic? is it Gemini? is it OpenAI? — just completely flipped. Originally it was ChatGPT that was in the lead, then Gemini came up out of nowhere, even though they'd been working on their model since 2015. And then Anthropic just took the lead, really starting in the middle of December. So it's changing all the time, is what I'd say.

Yeah, and that's what you're seeing. And Rob, particularly in healthcare, which is one of the areas you'd expect AI to really take some of the leadership— you've talked about it on previous appearances— are you actually seeing that come to fruition in some of these biotech companies and other companies you're looking at?

Yes and no. I mean, it's still very early. Have we seen a breakthrough in drug discovery? Not yet. I still think it's a little bit early, but what we have seen is all the large biopharmas, for the most part, partner with a lab and are building dedicated models for their early-stage discovery. You're seeing hospitals and insurance companies develop their own AI toolkits to manage populations and do all sorts of other things. So we're in the early days. Are we seeing tangible earnings contributions yet? Not really. I still think that's a bit early, but definitely every quarter, as we speak to companies, you're getting more and more refined outlooks of how they're seeing and how they're deploying AI versus 12 or 18 months ago where it's just like, we don't know. We know we want to use it. We're just throwing everything at the wall. You're starting to see a bit more of a refined strategy, but it's the bottom of the first, and healthcare might be an area where it's more advanced than many other parts of the economy.

Yeah. So you guys, your primary portfolio is a combination of life science and technology. You see what's happening in both areas. When I think about AI beyond healthcare, any areas where you're seeing particular success and take-up at this point where you're actually seeing it deliver tangible results? I was giving you an example in my space, the small world that I live in, but anywhere else that you're seeing some actual gains or is it still too early in healthcare?

You're seeing it in particular in digital advertising. The results that Google and Meta are putting up are spectacular. Again, we're talking about at massive scale, the numbers are just going higher. They both had an acceleration in their advertising revenues. And that's because they're using AI and machine learning to basically improve targeting, improve ad delivery, basically putting the right ad in front of the right person at the right time to basically get a higher conversion rate. And when you put all those things together, basically it generates a sale. And once it generates a sale, the advertiser says, I just generated a sale, let's repeat this. Budgets for advertising are like an accordion. There's no fixed budget for a lot of advertisers because if they get a high return on something, they immediately plow that back into the campaign itself. So the campaign expands. So that's one area where we see it clearly. Even Shopify has basically said that. So, they’re rejigging the way. We're moving from search engine optimization to what they call answer engines. And so things are moving towards, instead of buying search words, you're buying descriptions and things like that. The taxonomy is all changing around that. And Google working with Shopify, they've created a new standard on how things are going to be searched. And it's going to move more increasingly towards being a meritocracy. And Shopify, even though this is relatively new, I think they said that they saw 13-fold increase in conversion when they were applying these new methods and tricks to the process.

Anecdotally, I met with the CEO of one of the largest retailers globally yesterday, and they talked about this AI tool that they have on their website. It's fairly new, within the last year or so, but they're already seeing a 3x or so improvement in conversion. For people that are using their AI tool, how they're measured. I forget the exact measurement that they're basing it against, but they're already seeing a real conversion rate if using some of their tools that they're developing.

And that is ultimately what we're going to need to see. We're going to actually have to see what's being built, being used and generating positive results. And then as you say, that just continues to fulfill the need and continues to keep that demand high to build out all of this infrastructure. One of the things that I'd really like to get your perspective on. My daughters are 22 and 19, and they're largely home for the summer. They're in and out quite a bit because they're young folks and they've got lots of friends. And so we got the pool in the backyard, so the kids come over, and particularly the guys, but some of the girlfriends as well, and my daughters, they're playing around, they're looking at what's going on in the market, and they go, Dad, you were kind of boring when you were a kid. You went to the bank and you opened up an account, and then you maybe got an RRSP, and you did this stuff, and it was boring, and you might have had a GIC, and maybe you bought a Canadian or US equity fund, or a balanced fund, and it was all boring. You waited 30 years, and it grew at 6% a year and now we're swimming in this pool, in this beautiful house that was built by what you invested in. But that's boring. We can make money. I went and bought a share of SpaceX yesterday and I'm going to make a billion dollars. Maybe you did— I know I did, as I was saying earlier, when I was younger, a little bit of— it's not even investing, it's not even speculating, it's almost gambling. I did a little bit of that, and it helped me learn about markets. But I see this happening at a larger scale with a larger group of investors, and what they're doing is very different from what you're doing. And it is the difference between investing and gambling. You probably have young people in your lives as well, and you see what they're doing, and it's great that people get interested in investing early— but we want to get interested in investing, not gambling.

Yeah, for sure. I mean, it's a double-edged sword. The way that you've seen these new products come about, you're democratizing investing and making it accessible for everyone. But it does get a little bit scary when you see these single-stock-levered ETFs going to the moon on any particular day. And eventually what I would try to tell young people is that there are cycles. Maybe you haven't lived through a real cycle yet and you need to be prepared. And that's where professional money management comes in and having diversified set of stocks in a portfolio across different equity classes because it's not realistic to think 30%, 50%, 70% returns a year are sustainable. And what the commercials don't tell you and some of these online brokers don't tell you is that to generate those types of returns, you need to take on a certain risk level, and you need to understand what that risk is that you're walking into. And what we try to do and the way we think about investing is very different. You need to have some of that in a portfolio because you need to have some risk profile, especially when you're thinking about tech and healthcare where we spend a lot of time. But it's also important to think about companies and stocks that have long duration and long ability to contribute over more than just a 1- or 3-month period because timing the market is impossible. And if you could do that, great for you. I'd say 99.9% of the population cannot do that. And eventually that catches up to you. And being in a more reasonable, true investment vehicle makes sense over a longer period of time as opposed to taking these big swings. But if it introduces people to the industry to getting interested in investing, that's a great thing, hopefully without too hard of a lesson, if and when the market fights back to the «up and to the right forever» mentality.

I'm just going to jump in because some of our friends and colleagues run discount platforms, and what they're doing is, they're offering an opportunity to come and invest. Some people are doing some different things right now because of the nature of the market, but like you say, the access to markets is fantastic, and the access to the education, just sometimes the behavior differs very much from what you're doing, particularly in this space, where you say, yes, I'm going to have some risk because I'm sometimes trying to figure out what's going to happen in the future and where things are going to evolve. What is the next thing that really is revolutionary? And we've been through internet, now AI. But you're doing it in a very disciplined and thoughtful way.

Yeah, I have nothing to add to what Rob said. I thought that was well said. The only thing I would maybe add was beware of the meme stocks. Johnny9544 at Reddit.com probably doesn't know as much as he claims he knows. So maybe you shouldn't be listening to him. The other thing I would point out is— which is where I thought you were going with this in part— was the way we've normalized gambling in society. Anyone who watched the Stanley Cup playoffs, every second ad literally is for a betting platform and prediction markets. It's like, what are we doing here, people? I don't know, I don't see it ending well. So, I just caution people to take a deep breath and be a little bit more thoughtful about things.

And if I'm a young investor, I'd compartmentalize those types of accounts in my head. I have my accounts that are real investments to provide to buy a house or retirement or long-term future where I want a solid, realistic, sustainable long-term return. And then I have some money on the side that I can have fun with and try to hit the grand slam. There's nothing wrong with that. But it's got to be very careful falling into the psychology that the market only gives because the market will take at some point, and you just need to be prepared from a risk and positioning perspective that it doesn't take everything when that happens.

Yeah, sometimes you don't give me enough credit. I was actually teeing that up because I thought you would get into the gamification and gambling aspects of the world. I've gotten to know you pretty well, Marcello. But, I agree, it is quite stunning. You say, Stanley Cup playoffs. The World Cup right now, same thing. It's just every second ad. One ad has Messi and the other ad is a gambling website. But you really see it. And again, it tends to happen when particular areas of the market get frothy and things go up— until they don't. A recent example is gold. Where the real value of gold is, we could debate it, but it's probably around $2,000 an ounce or cost of production of an ounce. And it's all of a sudden at $5,600. And it's because somebody's willing to pay $5,601— until they're not. And then all of a sudden, you're sitting at $4,100. And that's not to suggest that gold is not a legitimate asset to have in your portfolio, but not have 100% gold in your portfolio. As you say, Rob, it's portioning off. Just like if you go to a casino and you gamble, you might say, well, I'm going to take $100 and I'm going to have fun with that. And when I lose my $100, I leave. The good thing at least about investing is if I invest in good companies that are going to survive, I never leave with nothing. Right?

Can I tell a story along the same lines?

Yeah, absolutely. We love stories.

When I started at RBC, It was back in 1997, so we were basically heading into the bubble. And I started in the Montreal office with two gentlemen, Mike Fulton and JP Chevrier. And we managed part of the funds, but we also had a whole bunch of high-net-worth individuals as clients. And as we were going into the bubble, a lot of these people— these were accomplished people who'd built enormous amounts of wealth on their own— they were pounding on us, why don't you own Webvan? Why don't you own this? Why don't you own that? And Mike Fulton, to his credit, basically said, look I'm here to give you a certain result. We see what's happening in the marketplace. So here's what I propose. I'm just going to take a portion of the money that you've entrusted to us. I'm going to give it back to you and you go and you open an account at Direct Investing and you buy Webvan. And so this keys back into what Rob was saying: if you want to do some of that stuff, do it on the side. Don't put all your eggs in that basket and maybe learn some lessons from it.

And the other comparable from a historical perspective, for a year or two, they were probably beating Mike Fulton to death in terms of returns. And they’d say, gee, Mike, you're not giving me the right advice. You should be doing what I'm doing here. And then a couple years later, the bucket was empty, and Mike's portfolio was sitting just chugging along, boring but beautiful.

That's exactly what happened.

Yeah, I'm jumping over your punchline. Maybe I'm not that good a host after all.

By the way, you can edit that out if you don't like it. Or put it at the end.

No, no, I remember Mike Fulton He was a very good guy. So I'm not surprised that he had that good advice. I just think on the flip side of it though, something Jaco Van der Walt and Dan Chornous wrote about— we had Dan Chornous on the podcast last year talking about the paper that they wrote— which looked at the optimal asset mix to have in retirement. So after you retire, the worst thing to do is to just sit in cash. And the optimal was around 75% equity in your portfolio. Given where we are in the cycle, we came back in the paper, I think they finished off at about 60/40 was right. So even in retirement, to have 60% equities. So it's important that older investors or investors even in retirement, because of longevity— which may even end up being infinity by the time we're done with AI— but nevertheless, at least healthy Canadian 65-year-olds more likely than not to live to 95. So at least you need 30 years. And so you've still got to have some growth in your portfolio. We've just seen what's happened with inflation over the last several years and how that erodes your purchasing power. So you've got to have a little bit of that growth in your portfolio. And the best growth, if we take a 30-year time horizon, likely will be in technology. So again, someone like me at 60 or someone retired at 65 or 70, they want to have some of this in the portfolio, but there's a way to do that, right?

Absolutely. Diversification is key. I think first and foremost, ideally in the hands of an active manager— and I'm biased here in saying that— is that we can come at it unemotional and understand that what a 20% drawdown might mean in one stock is very different than in another stock. And we can be, like I said, unemotional in deciding where you add to those types of positions or where it's time to exit. And overall, because of our strategy and the way we manage money, we hopefully give you a longer-term more consistent approach as opposed to the volatility that you see just by single stock levered ETFs that could be up and down a big number on any given day. And it scares a lot of people out of the market, and you don't end up enjoying that long-term return if you're not diversified and in a proper risk product for what is required for your particular circumstances.

Yeah. Anything you'd add to that?

Specifically, when we manage money, we believe in diversification versus concentration. And the diversification, not only does it manage risk, but it also allows you to go out on the risk spectrum and pull in what we tend to call the optionality name. Smaller names that we think have a lot of upside. But you wouldn't want to put too much money there. Again, coming back to that original point, if we think the prospects of something small is promising— a small- or mid-cap— it's nice to be able to sprinkle some money there. And we've always said it's not just the errors of commission that hurt performance, it's the errors of omission. So we try to capture the names around the fringe that might be small today but could be much larger in the future.

You've got to be thoughtful of the overall risk of the portfolio, which allows you with that diversification to hold some of those things along with other names that offset it, and obviously some bonds and cash as well. That's the optimal way to do it. So speaking of that diversification, we talk about your mandate being life science and technology. Technology is very exciting; life science is not so much. Sometimes in periods like this, it's kind of the drag on the performance of the portfolio. But we're seeing some life in life sciences, Rob?

For sure, we have started to see some life over the past few months. To be fair, if we actually step back since really Liberation Day last year, biotech, especially small- and mid-cap biotech, has been a fairly strong sector. What we've seen more recently is some re-emergence in large-cap pharma. The health insurers, which had been a very difficult place to invest for a couple of years. This year they have rebounded and have been a very good area again. And we've started to see some life come back into the group. What's difficult is when tech is doing what it's doing, no one cares about a lot of different things, especially healthcare, because healthcare is that defensive anchor in our portfolio and in the market more broadly. So we've seen some life, we've seen M&A in the biotech space be extremely active, which has contributed to the positive performance there. But just in general, we still see the fundamental, the demographic tailwind is still very supportive, valuations at a very interesting level. Now, it's difficult to say healthcare as a sector is going to be a big outperformer, but there's lots of opportunities within the sector that add a lot of value into the fund. And just in general it's just a great diversifier away from AI and tech, which, while we're still very positive on our outlook, it's still great to have that diversification. Not only diversification defensively, but diversification, like we spoke earlier, when we see more of the deployment phase happen in AI, healthcare is going to be the area that's one of the biggest beneficiaries. So, you have a bit of offensive diversification as well from when we shift further down the value chain within AI to that deployment stage, and healthcare is going to be set to be a big beneficiary.

So, Marcello, if we're being honest, you're tired of Rob dragging you down, aren't you?

No, not at all.

You can tell me the truth, it's okay.

I have enough battle scars. So, yeah, in this business, you're not going to be right all the time. In fact, you're wrong probably, some people say 47% of the time or whatever, but I don't think I'm wrong that much. But yeah, you're always going to have some names that aren't going to be working. And that's why it's nice to have a diversified portfolio. When we first took over the funds— again, a story here— to try to figure out how we were going to manage these funds, we went through the Morningstar data and it's a really rich universe of data on all of our competitors. And something that we discovered by looking at it, they would tell you things like the number of holdings that different funds hold and things like that. And one of the key learnings from that was that the funds that are concentrated, when you're measuring performance into quartiles, the concentrated funds tend to flip back and forth from first quartile, fourth quartile, first quartile, third quartile, fourth quartile. They flip back and forth because they're concentrated in whatever might be working at a given point in time. And diversified funds, they tend to flip between 2 and 3 and 2 and 3. And hopefully if you're good at it, you're in the second quartile a lot more than you are in the third quartile. And what happens over time is that the consistency of being in second quartile over and over and over again measures out and turns into long-term-like first quartile performance. So that's what we're aiming to do. Whereas when you looked at the longer-term performance of those concentrated funds, obviously there were some that were really good, but the majority of them just was not good. Just because this flipping back and forth between first and fourth just does a lot of damage.

We like to have some fun here on the podcast, particularly with you guys, my tech bros. But Rob, there's a valid reason to have the diversification of life science with technology. As Marcello is saying, it makes a lot of sense, just the nature of that space, and it seems to mesh beautifully together, particularly for long-term investors who are investing, not speculating or gambling.

Absolutely. Don't be wrong, performance and short-term performance matters. And everyone is going to look at some parts of healthcare and say, why would you own any of these names, because they're just not working? Why not just own more Micron or more Corning today? But what happens when you have that diversification of a sector healthcare in a life sciences and tech fund is that it actually gives you more leash to buy those names because you have that diversification and offsetting bet versus just an overall AI exposure. By reducing the risk, you can actually take on more risk. I don't know if that makes sense the way I explain it, but sometimes it's not just about performance diversification, there's other factors at play that we have to think about. And by having healthcare, not only, one, do we get the defensive attributes today, but if and when there's a handoff and tech is out of favor, then naturally our inclination is that healthcare is probably in favor in that environment. And we could tactically go back and forth. There's this natural diversification both on risk and performance that you get in that type of setup versus just a strict tech fund or a strict healthcare fund or whatever the case may be.

Yeah, and don't think of Corning as just the unbreakable plates. They don't even do that really. That's been spun off. But those terrible pots that I had, the brown see-through pots. They were supposed to be nonstick. Still bitter about that. But anyways, this is where all these different companies evolve and change, and so Corning's an interesting story. It was an interesting story back in the internet era and is an internet interesting story again here. We're not recommending the stock, obviously, we're just talking about the company itself and how it's involved in the build-out of data centers.

Absolutely, there's a lot of fiber optic cabling and components and modules that is required within the data centers. And in particular, when they're training, they want the data centers to behave as one, so they need to connect them with high-speed connectivity. And the more traffic that's going into or coming out of inferencing, the more connectivity we're going to need. So they've come back into vogue again.

A lot of broken plates and pots in the garbage over the years. That was actually our main contributions to the kids' residence apartment when they needed dishes. That was the stuff we sent them.

You forgot the fiberglass.

Oh, that's true too, with the Pink Panther. Yeah, there we go. Now we're showing our age, Marcello. So actually, let's now show our young mind and how we look out into the future, the incredible future. We always ask you at the end of your appearances, what's next? What are you looking at as something that maybe not a lot of people are talking about, but that might be of interest to people who are looking for maybe future investments? Maybe not investing now, but down the road.

You want to start? If I could break it apart, over the healthcare side, one area that's been really challenging has been on equipment. There's this whole view, the utilization is coming to an end, or utilization is falling in terms of hospital demand over a period of time. They're going through a lull in product cycle as a group just broadly. But it's an area we're starting to look hard again at now. We think there's some opportunities. And if we're sitting here a year from now, we think that's an area of healthcare that might have inflected. So it's probably a bit early, but it's an area that we're thinking about there might be some opportunities to add some names and weight to the portfolio because it's gotten a little skinny there today. Beyond that, I'd say on the semiconductor side, the market is still very focused on owning the parts of the market where there's shortages. And that memory is a big component of that right now. And CPUs are starting to become in that same vogue. We're starting to think about what the environment is going to look in a year where we're closer to the end of the shortages, and where do we want to make our bets where there's more durability beyond that period of where pricing gets back to a normalized stage. And that's where we spend a lot of our time on the semiconductor side, just trying to figure out what does a normalized world look in 12 months or so.

And I would point to that, a lot of individual investors, these kids are swimming in the pool. They're not thinking about that. They're thinking about the next week or the next month, and that it can never end. And again, when you've been through some of these cycles, as you said, it's almost a commodity in a lot of ways. You've seen this happen again and again, and they say, well, this time management's going to be smarter about it because they're going to recognize down the road, blah blah blah. And but when I can get a whole lot of money versus what I was getting before for my storage, I'll take the money, and I'll produce and throw it out in the market. And that's what happens through every cycle.

From my perspective, I would maybe mention that we're moving now. We were talking about this a while ago and there was always the expectation that we'd end up here, but now it’s come to the forefront more and more, which is not everything has to go to the state-of-the-art model. Not everything has to go to Mythos or to the latest ChatGPT model. We can get the same, if not better results by having older, smaller models that have been enhanced and retrained with domain-specific data for whatever business whatever profession we're thinking about. And by doing that, it promises to drop the cost on inference and things like that. And when you do that, then you get more demand for it. So that's one thing. We were talking about a long time ago that this was probably the ultimate endgame. But now we're talking a lot more about it, let's put it that way. The other thing— at the risk of sounding a broken record— I keep spending time on robotics and embodied AI, as they're calling it. That's the technical term for it. Self-driving cars are robots. A chatbot that you're speaking to on the phone is a robot. And now we're seeing Optimus and these type of humanoid robots and a lot of stuff coming out of China. So spending some time there. There's a lot of components. There's a lot of things that go into these things. And so picking away here and there, a couple of names that we think are positioned for that.

Excellent. Well, guys, that was just outstanding. We covered a lot of ground over quite a bit of time, too. It felt we were here for 2 minutes. So I hope the listeners felt that way. But it's always great to catch up with you. You just live in such an incredibly interesting space— both sides of technology, life science and technology as well. And it's always exciting to have you here. I always learn a ton. And I know our listeners do because that's the feedback I get when I'm out traveling the country. So, thank you very much for continuing to put up with me and showing up. And we'll have you back in a couple of months to catch up again, because that's how fast things move, right?

It's always fun.

Yeah, thanks for having us.