The adaptability advantage

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Transcript

Hello and welcome to The Download. I’m your host, Dave Richardson, and I am really pleased to be joined today once again by the head of Global Equities at RBC Global Asset Management, Habib Subjally. Habib, welcome. How are things in London today?

We’re day one of lockdown! So greetings from a very quiet city.

And that’s what we wanted to touch on with you today; the second wave of COVID-19 having a direct impact, as you mentioned, across Europe and in the U.K. right now. And we’re taping this on the morning of November 5th. So we have the U.S. election not determined as yet. And lots of legal wrangling going on. I’m just watching the TV in the background here in the studio, and the Trump lawyers are all ready to go in Philadelphia. So for you and your team, how do you think about, first, COVID and the impact it has on managing your portfolios, and then we’ll get to the election? So let’s just start with COVID, Habib.

Ok. So COVID has been a fascinating experience, right? It did two things. It’s shrunk the size of the economy. So we’re having an awful recession. The second thing it has done is change the shape of the economy. How people consume? What they consume on? Their preferences? That has changed dramatically. This, of course, creates winners and losers amongst businesses. We know who the winners are: the dot com guys, the Internet, e-commerce people, the health care and food retail and that kind of stuff. And then, of course, the big losers: airlines, cruise lines, hotels, restaurants, that kind of stuff. There’s a bunch of stuff in the middle. But we also know that at some stage, the virus is going to end. We don’t know when and we don’t know how deep the recession is going to be, but it will end and things will change again. But will they go back to where they were or will it go back to a different place? This is what we need to really think about. Of course, we have some businesses that have done very well out of this pandemic and they’ve benefited. But we also want to think for the long term. Who’s going to do well once this virus is over? What is that world going to look like? How are consumer preferences and industrial preferences going to change? Which business is well managed, can be nimble enough, can adapt to that new environment? Who’s investing now to build a platform to take advantage of the new environment? In times like this, this is where trust and reputation is built and trust and reputation is also destroyed. So this is a really interesting learning experience to put businesses and companies under the spotlight and identify those that we think are going to be really successful over the long term.

And this is an important lesson for all investors. Particularly given the success that you and your team have had over extended periods of time. So I’m going to ask you a question, but I know the answer. But I think it’s important for the listeners to hear it. The U.S. election and the uncertainty around the U.S. election. How do you manage through that with your investment philosophy?

Well, it’s very entertaining, isn’t it? I mean, it’s compelling viewing. But, look, from an investment perspective, if you’re investing for the long term, presidents come, presidents go. They say things. Some things happen. Some things don’t happen. There’s lots of checks and balances in the system. They want to do stuff that they can’t do and so on. So for us, we’ve never really incorporated those political outcomes into our investment process. I think there’s lots of people who talk about it. Very few people can actually get this thing right. So we try and actually insulate ourselves from that. But the key thing is: a good, well-run business is going to be able to adapt to whoever is in the White House, whatever happens with the Senate, and Congress. Those sort of changes are going to happen, and when you have changes in laws, regulations, taxes, whatever, those impacts are the same for all the competitors in an industry. And a really well-managed business that’s agile and adaptable is going to be able to adjust faster than its competitors. Even though it might not feel it at the time, it’s actually an opportunity to win market share, to win customers, to innovate and to grow, to create value. So that’s much more what we focus on, rather than trying to predict the outcome of any election or which part of that policy, in manifest, is actually going to come into reality.

And again, such a critically important message for investors. That’s what this podcast is designed to service: our investors. Not gamblers or speculators, but true investors. And when you invest, you’re trying to find great businesses, as you say, that can go through challenging periods and adapt. They’re agile. They treat their employees well. They are laser focused on their customers and they continuously drive success through any environment.

Our job, in theory, is really simple: identify those great businesses that generate wealth. That’s what great businesses do, generate wealth over time. Not in one quarter, one week or even one year. This is over a decade. So identify these great wealth-creating businesses and transmit that wealth creation to our investors. Investors also have a long-time horizon. So that’s really our job: create a portfolio of great wealth creative businesses and let that wealth creation flow over time as it comes through to our investors. It’s a bit harder to do in practice on a day-to-day level. But the concept is very simple.

Yes, and you and the team do it so well. And one of my favourite things, which people can’t see on a podcast, is that you do it with a smile and a sense of optimism that is truly refreshing. If you want more depth and detail on Habib, his investment philosophy, the team, the approach they use, go to the very first podcast in this series all the way back in Apple podcasts. There’s a 45-minute podcast where we get into a lot of the details on Habib’s investment philosophy. I really encourage you to go back and listen to that. He was still smiling back then. Habib, thank you for your time and good luck to everyone in the UK and health and safety to you, your family, your colleagues and everyone over there.

Thank you Dave. It’s a real pleasure. And the same to all of you. Stay safe, stay healthy, and soon we’ll do this in person.

Excellent. Thanks Habib.

My pleasure.

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