EP. 206 - Investing Expert: 4 “Unloved” Investments That Could Quietly Beat the S&P 500 in 2026 ft. Mark Preskett

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There's always risk and uncertainty in financial markets and economics.

So next year, feels just as uncertain as any other year. I think, in a way, uncertainty breeds opportunity. And when you look at the data, are you actually seeing money starting to move into some of the regions that you've spoken about? Yes. If you look at the flows in America, it's really interesting. Very significant outflows from the USA. Into EFA, they call EFA, anything outside the US.

They're in the world, which you say is currently looking like a bargain to you and what investors misunderstanding about like these opportunities outside the US. Welcome back to another episode of the podcast, I'm your host, Ato. We have a special guest. Today we have Mark, who's from Morningstar. Mark spends his time looking at what's really going on in global markets. Cutting through the noise to help investors understand where risk and opportunities are actually building.

“If it ever wondered what matters and what doesn't when it comes to investing, this conversation is for you.”

Mark, how are you doing today? Very well. Thanks. Great to be here. Thanks for having me. I'm glad to have you back on because actually we spoke when I was at the event. So if people watch that a box pop that I did, they'll remember your face from there. So it's great to have this conversation a bit of a long-awaited conversation with you today.

Especially as so much it's happening. So much has happened since that time that we've spoken in August. So it's going to be good to really distill 2026 when people are going to be listening to this. But before we get into this, we hear a lot about when was an early experience even before finance that taught you the value of resilience? Yeah, no. Thanks for having me and looking forward to the chat today.

So for me, my career has been with large organisations. So my personal experience with resilience, I think of two things. Firstly, the patience you need when you join a company, you're often right at the bottom. You know nothing, you know no systems, you've got no friends or connections.

And I've always found moving to a new company quite stressful.

And I've always tried to be patient, get my head down, work hard, learn the systems, learn the new skills.

“And you know, you have to be a little bit resilient because you're often given quite menial tasks even when you're relatively experienced.”

So when I thought about resilience, I thought about those early years and a company in just sort of growing and backing yourself with your hard work in your skills. And from an investor standpoint, often the best money you can earn, the best returns you can earn are when you're thinking against the crowd. And it's very rare where you make a decision that actually works on day one. And so that resilience to just sort of hold the fall, hold your nerve and I was thinking of one of our best return drivers in the last five years have been energy back in 2022.

If you remember, the world was in lockdown energy equities were incredibly cheap as cheap as they'd ever been for the last sort of 50 years. But we had, you know, it didn't work for months as the likes as lockdown stocks, likes of Zoom and as an everyone was sitting at home. Not moving and just buying things online. So that resilience to just sort of stay the course is also something that resonated with me. What made you stay the course during that time because it's so I feel like especially we've like now we've got so much information coming out.

Yeah, I think once you take a sort of step back and look at the world, ultimately we were in a world where there were freedom of movement was suppressed.

Is that a permanent situation probably not, highly likely not to be people still want to go on holiday, people still drive their cars, people still want to travel and energy. Basically oil and gas are the main drivers of that and you marry that sort of long term view that we will come out of this with the idea that these, the equities that you're buying are incredibly cheap. It was actually really, you had to be resilient but it was relatively easy and we kept adding to that our weakness. We were digging into it and then eventually those stocks sort of doubled in value and you make fantastic return for your clients.

So it's about like having, obviously you have your faces, you have your idea but sticking to it because you know even despite the noise in the world as on fire is actually like no, like if we logically think about this over the long term in the world. So over this we are going to return back to which is true, we all need to travel, not all of us need to travel but we all need to be about places.

“Okay, that makes sense, yeah, I think that's a good lesson for people to hear about. And then what's the belief about investing you hold early in your career that you no longer agree with today?”

Yeah, it's a similar one but so when I first started in investing I was an analyst and I was looking at the fund universe particularly and I used to screen the world and look for the best funds.

And in my opinion the best funds were the ones that have performed, you know, shown the strongest returns, the lowest risk. Then you go and meet the manager and they're often very confident. They're at the top of their top of the tree and we make a buy recommendation and we'd often do the opposite. If they were struggling and underperforming the manager maybe showing less confidence we'd look to sell that position.

“As I've matured and grown more experience, often it's, you know, you should actually do the opposite.”

Okay, other things being equal, often that they're outperforming manager owns stocks that are very overvalued, his style, his or her style is very in favor. And so I'm not saying that you should screen for losers and buy those, but it, this idea that the winner's state, there's a permanence around the winners is, is, is often not true. So now a days are much more willing to look at sectors, stocks, managers that have underperformed as a way to outperform in the future. Okay, I understand, yes, so you're looking for, you know, competent funds that are maybe not in favor, maybe they're some hidden gems in there.

And actually, we're going to talk about some hidden gems, especially in the era where, like, I feel like AI, everybody's talking about AI from, you know, from the practical applications, to even from like an investment point of view. So it's going to be interesting to deep dive into that.

“So when you look ahead to 2026, how do you see the global investment landscape shaping up, and what feels different about this period compared to the last few years?”

Yeah, I mean, I was going to use a phrase, please, I'm in shows, it's like a French phrase, but basically, you know, things, things change, but things stay the same.

There's always risk and uncertainty in financial markets and economics. And so next year, feels just as uncertain as any other year as I go into it, you know, is it.

But if you take a step back, what's been impacting markets and most is the war in Ukraine and Russia still has ripple effects there on things like energy and food inflation. And we move to the tariffs, which happens sort of only sort of eight months ago, and that's impacting the ability of companies to import and export goods into the largest economy in the world. And there's inflation repression building in the U.S. We would argue, and then finally, AI, and we'll probably touch on that later, that it's been a huge dynamic in the way that the largest and most profitable companies are spending their cash flows.

And it's driven markets up to a very high level. So when I'm sort of looking at markets today, those are the sort of the three main aspects that we're sort of really honing in on and doing a lot of research. Yeah, it's funny that you say uncertain, because it's true. The 236 does feel uncertain. And I'm thinking, is there a year for you that you think, where it felt a bit more calm and a bit more certain, or is it always felt like uncertain? It's always like this. This is, you know, the press sort of talk about, you know, big up the uncertainty, but there's always that two years ago, when we saw inflation spike, 90% of economists were forecasting recession in the next 12 months.

Often say, equity markets climb the wall of worry. You know, there's clearly periods where uncertainty is heightened, and I would look at global recession, the global financial crisis, where you're seeing waves of unemployment and companies shedding, shedding staff, etc. But, you know, clearly there is always uncertain. Next year may prove to be a highly volatile year, but we don't actually know. And, and what keeps us feeling relatively positive is that we're in the sort of second or third innings of an interest rate cutting cycle, and typically when central banks cut rates, it's actually a positive for markets. So there's always worry out there. I mean, I would suggest.

“I was thinking about this, like, because you said it's uncertain, how have you managed to deal with this like year in year out like every year being very different for yourself personally?”

So, you know, I think the way I've handled is to, you know, keep reading, try to understand everything that's going on.

I try to attach a probability to everything rather than a certainty. So think about the world in probabilities. And so, and maybe dig past the headlines a little bit and look at the company fundamentals of the economic fundamentals. But I think, in a way, uncertainty breeds opportunity for an investor, which is, you know, ultimately I'm a multi asset investor. I'm there to manage client money and often the best of the best returns come after the biggest period of uncertainty. Yeah, it's true. Yeah, it's true. It's crazy, right? Because that's when everybody's like people are selling, because they're scared of getting out of the market. So that's when things become undervalued.

Exactly. Yeah.

Or pockets become extremely undervalued. You know, that uncertainty is actually a gift for investors.

Yeah.

“It's going to be good to ask you like, how do you hold your nerve? Because, you know, I think one of the things for especially people that when they just start investing is when the markets go down or a drop, let's say we've,”

actually, I don't actually check properly, but I've got a message just to, you know, there was a bit of a text a lot of it.

And stuff like that is what gets people to start panicking or liking it to, you know, early a stock market crashes and then they jump out where actually that's not the time to be jumping out.

Yeah, that is, that comes, I mean, I did the same, you know, my started investing in the dot com and I remember feeling very, very nervous when I saw. You know, a sea of red on my statements, you know, at the same in the GFC, and I think that it comes with experience and we definitely look to perhaps get some financial advice. You know, the financial advisor or a good skilled financial advisor, they can help with everything tax planning estate inheritance pensions, but they can all, there's also behavioral coaching element to their role, helping you stay the course,

giving you that confidence that staying in, in the market is a right thing, and other things being equal, and the market sells off 20, 30% is the time to sort of be adding capital to the market rather than taking it out. But it, it is very difficult, and, you know, one of the reasons for multi asset investing and having sort of, maybe more diversified portfolio use your sort of smoothing out those ups and downs. It may be not capturing all the upside, but you definitely protect on the downside, and that helps you, helps people make better decisions when the volatile markets comes.

And there will be in the next five years, almost certainly there will be a period where stocks are down 20, 30% and that's where you, you find out how risk versus you are. Is true, and that for it, that's where you're like, "Oh, can I really start, and it's maybe I need to, you know, go sort of something with that, that's less volatile." And more talk a bit about more asset investing, because I think it's going to be great to talk about your experience there.

“So one of the key themes for 20, 20, six, so in a morning start outlook is what they're calling fragmentation, what should people understand about that, and why does it matter looking ahead?”

So, yeah, I mean, I think when we think about, you know, it's all about diversification, ultimately when you, and what do we mean by diversification is trying to find, build a portfolio around different drivers of returns.

And the uncertainties around, you know, different, the geopolitical risk between China and US, et cetera, there's definitely a breakdown in certain sort of systems that we've come grown used to. So we just, we're really trying to focus on diversification, looking for different drivers. I think a very simple heristic is to think about the world, not just in country, but in sectors. So there's nine sectors out there, healthcare, energy, tech, and they're much more homogenous in the way they act, and they react to the market cycle in different ways.

If that makes sense, so I always try to look at our portfolios from a sector lens, where are we most exposed, where are we under exposed?

And you can start thinking about how defensive your portfolio is, how aggressive it is, how exposed you are to the all price on one side, the tech sector on the other side.

“That's why healthcare, if you're really nervous about, you want to stay in the stock market, consumer staples, which are companies that feed us and provide essential goods and services.”

So that's, you know, how we would advice a client. Okay, that makes sense. That makes sense here. And following on from that, and I think it might be a similar answer. In a world that's becoming, you know, more divided and less connected, how should investors think about protecting their portfolio, not only for 2026, but like, you did mention diverse. Yeah, I mean, so I think, you know, we're getting a little bit nervous around valuations in the tech world. So we're thinking about diversification and spreading our risks really, and it's quite, it's quite obvious, it's quite, it feel, but it, and it's relatively easy to do.

There's so much product out there now in terms of different ETFs and funds. So we're just looking at it from a lens of sector diversification, asset class diversification. There are some funds out there, strategies where they're trying to deliver returns through the cycle above cash using shorting or trend following, so what we call liquid oats.

So that helps that diversification element of the portfolio, but ultimately it's sort of spreading your spreading your risks across multiple bets that you feel a, you know, have a reasonable payoff.

Okay, cool.

“You mentioned something that I don't think we've ever talked about in the podcast, liquid oats, what is that?”

Liquid oats. So liquid alternatives. Yeah.

So there are, from, there are small but growing part of the investment universe today.

They're actively actively managed strategies and a lot of hedge funds, they're coming from the hedge fund world. Okay. And more and more, in more and more cases they're unitizing them and creating them into a fund, a retail investor can buy. Okay.

“So a similar strategy may be not using quite so much leverage, so they use leverage, they're often, for example, long short equity.”

So a manager will, you know, go long a basket of stocks, but also short a basket of stocks. And the aim is to deliver a cash plus to return. Then you've got trend following strategies where they're literally using derivatives to try and catch trends on commodity like the AI trend or more on more on it. So like gold. Yeah, gold.

So they'll do sort of four buckets, commodities, equities, bonds. Okay. And just try to find trends within those sort of, that ecosystem, those sort of asset classes. Market neutral and global macro managers, where they're doing similar, similar roles to what I do, but then they can also short short asset classes. And they're diversified from typically equities and bonds, make up the, the bedrock of a most multi asset portfolio.

They're more diversified and they just deliver a reasonable outcome if you, if you do your research. So I think investors are becoming increasingly, you know, we, at the morning start, we're sort of adding more to more capital to these to just add some diversification to our portfolio.

Interesting.

Just a few terms, just for the audience, I know what they mean.

“Just in case, so you said long right, what does long mean and what does short mean?”

Yes. Sorry about that. So, I mean, yeah, long and short, so long we are, when you're long a stock, you just own it, you know, you, you gain when that that stock goes up. So it's very simple on an equity. You can go long, Tesco, short, same's, but it's not, but that's just an example.

So it, the long position you benefit if Tesco goes up, the short position is you benefit if it's a stock falls. Thank you.

So thank you. They're, thanks so much for accessing it. I just always like, um, courses because I understand it, but then I'm like, you know what?

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“So we all talk in actually about the US and the Mac 7, right?”

So morning starts to 2026 outlook says the air age isn't really about chat box like chat GPT, but about a huge global building boom happening behind the scenes. What's actually being built and why does it matter for investors? So yeah, it's an interesting what's happening. The US universe, the tech space around AI, the spend of what we call the hyperscalers. There's a handful of companies, most of them listed and so Amazon met her alphabet, the biggest companies in the world are investing huge amounts of money into building out the AI infrastructure.

And what does that mean? It's warehouses, huge warehouses in the middle of the desert, for example, or in small sort of rural areas of America, for example. And inside that are racks and racks of GPU chips with wires connecting cables and then energy to power them. So they're often having to build out the energy infrastructure as well as buying, well, trillions of dollars of Nvidia chips and broadcom chips. And it's so the power play is also being quite interesting.

So certain US utilities of double-trabbled in value alongside these companies. And it's got to the state, you know, and this money is real. The money is being spent. And then the companies that are spending the money are, are sort of open AI, which is private list in plus a handful of hyperscalers, which names that we know. And the beneficiaries are actually the chips and shovels, the companies that are making these. So it's broadcom is a company that probably most people haven't heard of it. Now the ninth largest company in the world by market capitalization. And it makes a chip, a graphic GPU that's not quite as good as Nvidia's, but reasonably good and a little bit cheaper.

And it just shows you how much the appreciation of the stocks that have enabled this build out. The uncertainty is A will it continue, and B will the companies that have invested the money have a payoff.

Will they be more profitable? Will they be more productive? The hope is that there will be more productive, but will they get a return on the investment?

“I'm spending a lot of money on this. So it's uncertain, but when we think about investments, we're looking for low, low hurdles to jump across.”

And at the moment, a lot of good news is priced in. And that's the thing. You know when you're saying that on short, that's where the concern comes from me as well, because it's like, don't they, are they not thinking about it? I think sometimes like the excitement of AI and AI is great, but sometimes I was like, did they just overlook actually what's the actual benefits for me? How's it going to actually drive businesses like, oh, we're not really sure, but we're going to, yeah, cloud into it. I mean, yeah, I feel that in the companies are saying themselves that they're almost being forced into sort of invest in this, you know, not forced into, but they want to keep up.

And these are companies that historically have been very profitable, one of them, there've been natural monopolies disrupting other businesses, look at metters, metters being disrupting the traditional media industry with social media. And Amazon has been disrupting sort of retail massively. And so they've been very profitable and growing very fast and they're very mature businesses with huge, you know, coffers of money. So they're looking to invest to sort of maintain that growth and that hope of profitability.

“But there's an uncertain outcome, I think you're starting to see it now, investors are sort of saying, hang about, are we actually going to get a return for, are you as a company going to return for that investment?”

I don't think anybody really knows, I don't know. Yeah, so, and they're in lies and up and when you're paying a very high multiple to own these companies, I think there's a risk there. Okay, cool. So there's a huge build out happening. And so like you said, it's like mostly, mostly the big ones like Amazon, Meta, Microsoft, I think Oracle was an Oracle is done. Yeah, that they've used debt rather than whilst those guys are, you know, the Mag sever, they've got, you know, a load of money to spend Oracle have used debt to and their share price has been a lot more volatile.

And I actually honestly don't think until these big warehouses, about like Meta's, you know, these building out these huge infrastructure at builds and they're not going to be finished for two, three years. We won't actually know, I don't think we can really, when people talk about an AI bubble, I don't know if we really know it's a bubble for a for a while until the payout, but there's definitely some, you know, you can fill the uncertainty building around these names. Yeah, what, from your experience, what normally happens when expectation doesn't meet reality, because sometimes I feel like I don't know what people's expectations are of AI like I work in technology, but I don't know what people think will happen in three or four years.

“But you know, like what normally happens, especially in regards to like as an investor, somebody who might be looking at AI and thinking, okay, with, you know, these big companies are now building warehouses, which they had never had to do there.”

They're history, like, you know, like the Meta's, these guys are like, I said, like Amazon, okay, maybe not, but like the tradition was like a mess of all asset like, but now they're like companies that are now owning huge warehouses, you know.

Well, history shows that they crash.

Yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah. Pretty badly. So dot com, there was build out for tech telecoms build out and, you know, people have been liking it's the railroad build out of, you know, 100 years ago in America and 150 years ago. So, where they were just building out the infrastructure to transport goods across America and, you know, there's a lot of investment that was sort of a bit of a bubble and then it just burst. And so I think the difference this time is that there's not so far it's been, they've just started to borrow in the capital market. So leverage is the risk.

If these are the majority of these companies are very profitable, because they're using their own money, but they have started to tap into the debt markets for the first time this year. So they are starting to change the make up of the corporate bond market. Because they're, you know, big companies triple a rating and I know a lot of bond managers have been buying them. So that's that's the risk. But, you know, but, you know, history suggests if it doesn't pay out the way that they're their share prices will come under pressure.

It was not loved. It was not loved. Apple is, you know, being an unloved stock as well. They've all had their periods. So yeah, it could happen. Yeah, I wonder in as well. This is, this is an interesting question. Why does this, even though we all know historically, like, oh, we've had crashes. Why do we get so excited? Why can't we be a little bit more evil? Okay. Yeah. Yeah, it's been built out. Nice. Okay. Let's see how it goes. And then we, why is there always excitement that tends tapping where like that we have this gap, like I'm saying, between expectation and reality.

Because sometimes I feel like the expectation becomes become so big that you can never really ever meet in reality, because maybe in the future you think, you know, okay,

self-driving cars are going to be here in the years. And I don't know, a human is not going to be flying my plane. And it's just all these crazy things that we get into our entire heads. Yeah, I mean, there's, you know, people have paid a lot to sort of predict the future.

“Yeah, it's exciting to talk about. I think there's just fear of missing out.”

Yeah, it's really investors. People want to grab trends. I think today, you know, there's a cohort of investors using leverage, using options via, you know, training platforms, especially in the U.S.

and countries like Korea, you know, where they're, you know, starting to influence markets as well. So that would retail behavior. But typically, you know, the crashes crash happens when people want to get their money out and aren't able to. And so, yeah, it, but it's, it's typically human behavior ultimately and people want, you know, people seeing those gains and saying, I want a piece of that similar to my very first comment about when I used to screen for the winners, you know, people are doing that.

“Looking for stocks that have gone up 100% and jumping on it because I think that that's, you know, that's going to be the hunt they're going to do. I think it's there's always an element of human nature and investing.”

Yeah, so interesting because because I like you, I do the office, I do the look for the ones that I do. Well, I'm like, let me look for the ones that nobody has found or there might be a bit of an edge rather than the ones that if it's like, I'm like, for me, I'm scared of that because I'm like, what's if this goes down in the next? There's a higher chance that it's going to go down. So I mean, Rolls Royce is a great example close to home. Rolls, I mean, it's a, it was on the verge of bankruptcy, you know, industrial defense and the powering planes and it was on the verge of bankruptcy.

And it's now up in the top five for the footsie stocks. It's, it's rallied so hard and some of the farm managers made a lot of money by taking a, making a call on the turn around of that company.

“But you need, the, the, when the stock is cheap, the, you need to do your research, you know, there's more, there's risks there, you know, and so so it's, it's, it's still a, it's a tricky way to invest.”

So when people hear that so much of the US stock market is driven by just a few huge tech companies, namely we mentioned some of them. It sounds risky for someone heavily invested in the S&P 500 or US heavy global funds. What's one thing they should be thinking about in 2026. And we, we would suggest, you know, looking closely at your overall exposure to tech and to the US and it's grown up to a large part of a global tracker and we, you know, the US itself is the largest economy in the world. It's dynamic, a great place to raise capital. And, you know, we've just had the big beautiful bill, it's, you know, very powerful and, you know, quite a raft of tax cuts basically and corporate friendly,

so there is a scenario where growth in the US next year is, is okay, and better than Europe, and we, so we're looking, we're trying to maintain our US exposure, but looking beyond the mag seven, so we're quite like small caps in the US, so trying to sort of harvest that size premium, where small caps tend to outperform over the long term, they've lagged the large caps quite significantly more sensitive to rate rate. To rate rate rate cutting cycle, so it's just trying to sort of think beyond that mag seven and maybe dig into some undervalued sex, but small caps is it is it will be a great way to maintain your exposure to the US economy, but look beyond those sort of overvalued tech names.

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Yeah, so in our portfolios, we're overweight emerging markets and sort of targeted some areas, so particularly Asian markets like career and China, and then we've taken positions in Latin American stocks as well. So, you know, these are each has a different dynamic, but ultimately you're being paid with the Asian complex, so career in China, you're being played paid, you know, you're paying much lower multiples to own the stocks. And especially with career, you're gaining quite strong linkages to the AI theme in the SK Heinix and to a lesser extent Samsung make HBM ships, there's sort of two of the three main companies that make HBM, these are memory chips that are critical and integral components in a GPU graphics card.

And actually, it was reading this morning and video is talking about cutting production on some of its lower margin GPU chips, because they just don't have enough of the memory chips.

Yeah, okay. And only three companies make them ones listed in the US to a listed in career. And these are, you know, profitable high margin products that are, and we can pay sort of T mid teen multiples, I, you know, much lower valuation stocks to sort of touch that AI, AI touch points.

“You know, there's a, there's a school of thought that the AI build out is there to stay, and I think there's definitely some truth in that they haven't got enough of the graphics cards to, to satisfy demand.”

They've pre-sold all their products. Yeah, so yeah, it's, it's, so that's the sort of areas we're looking at, it's sort of, and then we've also sort of quite controversially quite like the UK as well. Maybe talk about the country. But if you take a step back, it's actually, you know, you can, you can gauge our economy relative to the G7 other markets in the world.

“We've got our, of growth rate is forecast to be the second or third largest of the G7 really.”

Yeah, and our debt to G, our debt level, so huge focuses on debt levels is actually the second best of the of the G7.

So, on the debt side, Germany's a little bit better on the growth side, Canada and the US are a little bit better. But, you know, we're, we're, we're, we're going to have grow Europe and forecast to have grow Europe and Japan in over the next three years. So, that sort of macro is okay, and then if you look at what our stock market is, it's pretty cheap.

So, we're actually more, more exposed to sort of emerging markets, the US, and it's a very global basket of stocks and some, some, some, some industry leaders like Unilever.

So, you know, HHSBC Bank has been performing fantastically well, it's footprint in Asia, BP and Shell, you get your oil and gas, so it's actually quite a few large multinationals. So, and much less linked to the fate of the UK calling plus, you know, if we start to get tax interest rate cuts, our interest rates are actually one of the highest in the developed world.

“So, we start, you know, inflation is easing, finally, I think we're going to start to see interest rate cuts, that should be really beneficial for our property sector, for the mid caps and the small caps, which are lagged a little bit.”

So, you know, that's by contrarian call, and for one of our contrarian calls for 20 to 26. And everyone thinks UK's doing the project, we've actually outperform the US market by 15% this year. Oh really? That's a lot. Yeah, so, so, in sterling terms, the S&P's done around nine, I'm recalling this a couple, you know, week before Christmas. So, basically, in 2025, footsy's done about 25, and the US market's done nine. That's exceptional. So, 25%. I think when we get to the end of the year, they're going to write about it, but, you know, when we say when is it going out before we've already outperform, quite significantly, and it's been a real boon to the portfolio.

Funny when we talk to clients now, and they're always asking us about the AI bubble, what's your exposure to tech, you know, we've diversified away, but then we talk about our UK, we've got some quite a large weight in the UK, and they've felt they're like, okay, that makes me feel better. It's the first time that's been told to me for a while, because it's because, you know, if you look at the company, you're buying the, you know, large multi-national, you know, footprints out their successful companies on a reasonable multiple paying nice dividends, okay, they don't have that tech exposure, but that tech exposure now is run up very, very hard, and so it's what was a, what was a sort of headwind in terms of the lack of tech may turn into a tailwind in the next couple of years.

That makes sense, yeah, and I think this is, is a good, I think this is a good lesson for people to, like, you know, watching and listening to this about, like, investing. Sometimes it's not always just about the trendy areas, there are other things in terms of the value and what we find valuables, as humans, like you say, you need, you need labour produces so many products that always probably always going to be needed.

It's required, even, like, during COVID, right, like, so send, you know, washing up and all of that kind of stuff was always going to just be coming out of the door, right?

“So I think it's just important for people to remember, it's not just only technology, you know, that is relevant in this world, and yeah, thank you for talking about that.”

And when you look at the data, are you actually seeing money starting to move into some of the regions that you've spoken about? So it's funny, not in the UK, so there's definitely still outflows for you, for you care, equity funds. I think that people are taking money out. But I think a lot of that is to do with pension funds, not needing to take so much risk and sort of, it's more institutional money. But if you look at the flows in America, it's really interesting.

There's been seven, we'll see what happens in December, but very significant outflows from US equities.

Seven months of, so this is US domicile funds, this is reflecting US investors behavior, which ultimately they've got the most money and, you know, they're driving markets more.

So you at seven, eight months of outflows and into EFA, what they call EFA, which is anything outside the US. Wow. So that US investors are taking money outside of US themselves at the last time. Wow. Month on month, morning star data shows, adding it to the, you know, global XUS funds or emerging markets.

You can see that with a flows on emerging market equities. It's just a drip drip. It's clear that the US investor is diversifying and changing.

“And I think that's one of the reasons why we've seen that shot divergence.”

US UK is outperformed by 15%, but so-to is emerging markets. So people are diversifying less than themselves out. The dollar investors are selling US treasuries and buying gold, central banks. There's been a general trend this year, linked to perhaps a tariffs and the policies adopted by President Trump.

Okay, okay, wow. So outside of you, is there any way else that you see money flows in particular? So EEM is is okay. Oh, yeah, merge markers is it was another so. Yeah, that's that's the main one. Let's actually stick on EMA actually emerging market. Sorry for what she doesn't listen to we said yeah, imagine what so South Africa and parts of Latin America don't usually get much attention from investors. Why do you think they're now starting to look interesting?

“So yeah, I mean it's it's it's it's been an interesting one where I think investors haven't needed to take risk in emerging markets because you're getting they were getting such strong returns from U.S. tech.”

And ultimately investors want to return on their on their investment and so there are risks and a lot of the risks are around, you know, the debt levels of these countries and the other currencies currency's weakening inflation risk geopolitical risk. So you want, you know, they're always a little bit more in emerging markets. So but we've got a situation now where. You've got got weak currencies. So I'm take Brazil for example, which is one of our sort of best ideas and our portfolios now we're taking dedicated positions is the the interest rate in Brazil if I went to the bank in Brazil and put my money. I was a local investor. I get about sort of 1415 percent.

Well, the inflation is around six at the center of the moment. Okay. So my real return is nine. Yeah. And what's what's that that that that has an impact on local investor behavior. So if I was they've been selling equities and just putting their money into their bank account because they're getting a 9% real return.

“You know, it's very and you can see it with local fund flows. The international investor has been out for years. There's you know, very little foreign money invested in in in in Brazil.”

And so but why is that rate so high is because they're trying to control inflation and bring that down their target is 3 to 5% it's starting to happen and we think that those interest rates will come down. Making it less and less attractive for people to just deposit their money into cash and they can start buying the equity was starting to see the currency appreciate as well. So it's a it's a sort of capital flow argument.

“You're getting a nice dividend some some commodity good commodity companies there and then there's a sort of rising middle class the banking sector looks reasonable value as well. So we're we're quite excited about that.”

And I think that's one of our best ideas going forward. Yeah, and South Africa as well South Africa is a little bit of a different one. Yeah, and they've in terms of that the index and they've got the similar dynamics a nice real positive real yield rates higher than inflation.

You know, a weak currency that's strengthening plus they have an index full of commodities. So a lot of miners they've been really benefiting from the the run up in gold.

So they go the gold equity. So that's not a position we have directly but I'll let our portfolios run in South Africa of benefited from that. Okay, amazing. Thank you. So another I loved assets or should I say another I love sector is health care. So I know that there's in our look there was talk about you know a health care recently been speaking about healthcare recently because it offers growth at a reasonable price. Why is the market knowing this sector and what do you see that, you know, or what does one is I see that obviously. Yeah, healthcare is an interesting interesting sector. So we like it has structural growth elements to it.

So that we have a sort of a we've penciled in around a 5% sort of trend growth for that sector. We think that sector will in general grow why will it grow and that's faster than the economy or grow faster than the global global economy. Why people are using people are consuming more drugs.

And rely you know partly through you know rising middle class in emerging markets, etc. People are living longer and requiring more sort of after after retirement care.

And when I talk about people you know the rise of GLP ones is a great example, you know, these sort of and weight loss drugs these expensive be so the risk is that. You know Donald Trump was talking it was only six months ago was talking about 110% trap tariffs on healthcare stocks healthcare companies make most of their money in the US drug prices in the US are more expensive than the rest of the world.

The big drug companies are cutting deals with Medicare and Medicaid which aren't as generous as they are to the NHS. So he really honed in on that was talking about tariffs was talk about and they sold off they sold off since that time. He's you know one by one companies have gone in and cut a deal with directly with a government so Pfizer have been in an offering drugs to fire a sort of direct consumer platform that Trump is sponsoring.

Eli Lilly has been in and that that threat of 110% tariffs has received it is now done a deal for about 25% which is much more palatable.

So those risks have gone and they're thus your left with a relatively cheap sector that also is quite resilient it's much less cyclical generally it does you know that that that you know people still have headaches during during. I mean somebody very simply so that and that you know people still need care in care homes etc people still living longer so though it's it does perform better in recession so if markets do get a little bit tricky we expect to the whole lot well so all of that makes it a.

But you know reasonable position and put in the inflados okay thank you yeah and you know you described it that way it shows it gives people an understanding of how.

This can happen to sector like how a sector could sell off and in almost sometimes people can become a bit distracted sells off people forget about it and then they just chasing the hottest thing AI forgetting about oh actually the things that was said about the sector to make a sell off it actually wasn't as bad. But nobody's actually going to revisit it and it's is great that you explained it that way because it really gives people an understanding of how the dynamics of you know investing sometimes works and also it just highlights human psychology a lot in a lot of the behavior in doing this and how it drives it so.

If an investor wanted to all if every day person should say wanted it exposure to like you know someone imagine market regions that we were I'm talking about what's the sensible way to do it about taking unnecessary risk so I think.

These just ways to look at the ETF universe so I'm by the index rather than a particular stock and there's a lot of ETFs out there that that you know reasonably priced.

“And give you broad access to that market so that to me would be the the senseless way to get in and it's how I do it with my own money when I want to when I want to invest and tap into that's how we're doing it with our institutional money.”

So we're typically just buying ETF okay so so normally if it's like a set I'll let's say we'll talk about health care. Well as you know we said emergency market let's say it was a South African as a merger market is more better to look at like the ETF for South Africa than try to find individual companies as that's quite quite difficult. Yeah I mean it could work with that individual stock pick but you know the volatility will be a lot higher the uncertainty will be there and I think just you know your.

“I think it's it's just cleaner and and simpler to just buy the ETF and then you this your swings won't be quite so so why but you still capture the upside so you know careers up 70% year to date.”

I mean SK Heinix which is that memory chip maker that I mentioned before is up 220. Well so if I'd have bought SK Heinix brilliant but it's. You still get a reasonable return it's still a decent part of the index bad things about it's over 10% of the index. But you you've got that broad story as well so yeah amazing enjoying this conversation drop a comment with your favorite moment give this video a like and hit subscribe so you don't miss future episodes. We've been part of journey we've got plenty more valuable conversations coming your way so looking beyond individual countries is there one asset class you think is particularly.

“I mean so I've touched on a few of the other markets like Brazil I think Brazil is our sort of best idea from a return perspective and that will surprise people but the UK could surprise.”

On the upside both from an economic perspective and from a market market return perspective for the reasons I've discussed but you know outside of that I think are all sort of top pick is Brazil.

Outside of sort of equities we like emerging market debt so. So yeah it's local currency emerging market debt so. So this is the bonds of emerging market countries denominated in their own currency so you're getting a lot of Brazil South Africa but you're buying those bonds that are yielding 10 15%

“So the yield to maturity so just the yield you're getting off an emerging market debt fund today is around nine nine nine and a half.”

Yeah in aggregate yeah fire an active manager so there we'll go active and active manager and that is quite an exciting opportunity that we've got in our lower risk portfolios and it's been delivering really nicely so we're seeing inflation coming down the risk of but for bonds the crypto night for bonds is inflation.

And we're seeing inflation generally easing in a lot of these countries and allowing central banks to cut rates which will.

The boosts returns are those bonds and the currencies of stabilizing it to dollar so you know that's are outside of the traditional world that's where we're looking. That's quite high though. That's a very high no percent.

“Yeah, it's a great yeah so they've it's been the best performing fixed income return year to date of all the stuff that we've been buying so yeah it is.”

The currency is a risk it's a little bit more volatile than your traditional bottom investment but yeah it's a nice nice year old yeah.

So we did say that we'll talk about money asset investing so money asset investments often called boring but effective. What do people misunderstand about it about how it actually protects and grows well.

Yeah I mean so the stocks investing directly in stocks is you know you get more bang for your buck in terms of the upside potential but also the downside potential and so.

We would always you know look at multi asset and ultimately multi asset investing and it's and it's crux is equities and bonds so using bonds as a diversifier to equity risk and then you know for a lot of investors adding in some liquid alternatives. So that's a bit but and it's it's equities versus bonds and it's that ability to smooth your journey and not we find with you know our main client basis financial advisors we distribute our portfolios via financial advisors and it's a very handy way for their to manage behavioral biases they're often.

Mess experience investors older investors who maybe don't want the full volatility of equities and so plus there's a diversification benefit there as well so. I would recommend that to to any starting investors to look at a multi asset fund as that first entry point and so you're you know if you if you have a six the 60 40 portfolio is a classic 60% equities 40% bonds you see read a lot about it in the press and it gets a lot of of a bad rap. And currently when bonding the yields on the 40 the bonds at 40% is a sort of around four five percent you're getting your equities which on average over the long term deliver to a 10 so your return is night decent and you're just your your smoothing out your returns so for us it's what I do and I'm never going to you know it's in our DNA but it's you know ultimately.

“I believe that's that's it's it's a far more secure way of generating wealth for the long term yeah and how do people get access to like money asset like you know portfolios and.”

There's different ways so if you go for our financial advisor they'll they'll often tie up with a and either do it themselves or tie it up with a with a professional sort of multi asset manager like like ourselves you can buy a fund on a platform. I mean just go straight out there and pick a fund and you know morning star will rate funds gold silver and bronze they've got the star ratings which is often a rubber stamp you know all of quality. There's also model portfolios out there so where they've just listed a five or six funds with a prescribed weights so AJ Bell do that I interact to invest to do that in the UK.

Asset manager will have a multi asset suite it's in the DNA of all all all of the managers out there okay great great because so it's yeah so it sounds like it's really accessible and it's as people can look for it but it's just.

“Pay attention to whenever you do look at a fund just make sure that is more than just one asset so it's not just like investing in stocks is looking at bonds maybe it's also looking at commodities and that's how you'll know that it's.”

A multi asset in the way right is different types of assets and thank you as well for sharing in terms of you know it being a good start up because I think.

I do talk a lot about global you know funds we talk about S&P 500 S&P 500 is very popular but even those might be to volatile for people you know. So actually he's taken a step back and maybe there's a level before that which sounds like the morning asset funds first get a bit more comfortable day and if you want to take more risk then you go 100% yeah invest in it so you know exactly so I mean you can get multi asset fund which are fully fully invested in equities but then you know that this is you're often just getting a similar return to a global equity fund so.

“Ultimately you know what drives there's many rules of thumbs of what you're I mean it's out of what your equity wage should be is is the most important thing and you can do your age age you know 100 minus your age is one.”

So that's what you think as what your equity can be but then it's also what your goals are whether they're short and a long time etc but yeah amazing so you did mention little bit about bonds whether did want to ask you this question so for years income investors had very few options now that rates are higher.

How should people think about how should people think differently about generating income from their investments.

So you know looking at 2026 bond yields are higher what does that mean means that the the the yield you're getting from from your bond investments are and they're very secure but you know sort of four five percent sort of nine ten percent for emerging markets this you know these are palatable levels you can also get income from dividends as well and so we're quite constructive when we look at. We look at the outlook for our multi asset universe on our income strategies they've been kind of unloved so if you go back five years interest rates reserve or near zero before before the sort of the inflation spikes that we had and today we're in a much healthier position from an income perspective so.

“We're investor for a more conservative investor just getting that yield in every month that's coming from your from the underlying investments is is a very useful very palatable.”

So we're you know it's income is back in our opinion and having been pretty in the doldrums for many years. What would you say is a single biggest mistake you see investors making right now in anticipation of 2026. So I'm seeing a lot of fear out there I'm seeing a lot of fear a lot of.

AI bubble fears and and reluctance to invest just more generally and you know I always say it's time in the market not timing the market so.

You know that to me is is I also I'm very a little bit concerned with using leverage to invest so using these some of these platforms to to use leverage to investor I think in the right hands it can work but it also is is a quickest way to losing all your money. You know those are the two I would call out okay cool so leverage and people scared to invest because of a of a bubble yeah I think that is the thing like at any day you never know and there's no point of trying to believe like you are crystal ball to figure out when it's going to happen so like you say it's more about the mindset of like being consistent and in consistency over the long term and trying to time okay I'm going to buy right when it drops because even let's say you're going to buy.

You know you want to invest in when it starts dropping when at what point drop drops happens over multiple days you know when the bottom is going to be right and what if it rebounds you don't know when it rebound so is then you're just like getting yourself into situation just a right way it's just a wrong way I think to approach it. And that way and then leverages is interesting too because I think that comes from a place of people be greedy I wanted to get rich fast and and then they burn themselves which is which is unfortunate.

Yeah I mean I think. Stay the course. Remember the equities are linked to earnings so you know they're not I think people think the equities.

Which is you know the best way to deliver a return above inflation you know you go around eight times they're linked to earnings and earnings grow so stocks should go up over the long term and so and then regularly save is another one just keep dripping in. If you've got a 50 quid every month 100 quid every even if it's 20 quid every month it just keeps nudging into the market and you get that compounding effect and try to ignore the noise I mean. The media is there to create drama and headlines and so it's they will write about they will write about falls but won't write about gains until it's until it's got up a hundred percent.

Yeah it's true until it's like crazy and it's already happened as well or this is so you let you're right actually and I think that's a great lesson for people to understand that the media's what's the media's role in all of this like you say the media's role in all of this is to get clicks drive drama and that's what it's about for them is not about

“educating you on investment and stock market or helping you get returns that's not what they're trying to do. So if you understand that's what their goal is and that's what their purpose is then you understand okay this how I navigate it.”

Right because if you understand what the what's it called yeah the purpose like I'll say and then yeah then you know how to how it's an investor how to like you say ignore the noise or switch it off okay if I get a stop getting used to learn so delete the news that yeah unless it's something like you know all you get alerted on certain things you know I think so it's about knowing yourself knowing who you are I think.

I think so much this thing is so much much this conversation has been very insightful I definitely learned a lot from you in terms of you know just what's going up happening in the world.

And also what potentially could be happening in 2020 six like you say it's on certain and not very sure but there are definitely some themes that we're in in 2025 wave that we could potentially see in 2020 six where could people find you if they want to connect to you. Yeah I'm a I'm only 10 is my main sort of the only sort of social presence I have it from a work perspective I'm you know managing money that's. For Morningstar Morningstar investment management we run multi asset portfolios and mainly available for financial advisors.

Okay, but and I'm you know writing lots of bits and bobs out there.

“Yeah so yeah please do make sure to check out my stuff as you can tell he really knows these stuff so like yeah if you are also wondering to I think that outlook.”

I can't remember how can I get access to that outlook 2020 six outlook is in order to read more about what we've some so yeah our outlook is on dot Morningstar.com. Okay cool so yeah the website is a is a fantastic resource I often write articles on there you can get information are fun ratings on our funds and stocks etc and loads of news on there as well.

Okay amazing yeah please do go and check out that outlook because it's very very interesting I think the most interesting thing for me was definitely the what we talked about the AI build out.

I think I think it was something like something like something like it was about energy there was is it that it's been a more energy than the.

“So their capex is like three to four years what an energy yes this yeah the the spend is unprecedented yes the.”

I was blowing in from hundreds of millions of dollars yeah that was it every year yeah for the next two three years. Yeah it's a level that we haven't seen the numbers are you know. More than the market cap of a lot of stocks yeah that was very interesting that oh my god that is crazy so yeah please do check out that that outlook from Morningstar and do you have any final words for which is in listeners. Just you know stay the course be brave you know equity investing especially can deliver some fantastic returns and rewards especially in this high inflation high cost of living environment.

You know it's get that it helps you know engage with it and then keep reading. Thank you so much really appreciate your fishing podcast. Thank you for tuning into this week's episode. See you next week's episode. If you enjoyed this episode share your favorite part in the comments tap the like button and subscribe to the channel. Your support is really appreciate it will keep working hard to bring you more valuable conversations.

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