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Peter Higgins 00:17
Hello, and welcome to this Investing Matters podcast. My name is Peter Higgins, you can find me at Conkers3 on Twitter and today, I'm delighted to be speaking with Jay Younger, the Aubrey Capital European Investment Analyst and Manager of the Aubrey Capital AIM portfolio. Jay is an Investment Analyst and he joined Aubrey Capital in 2018. And is previously an Investment Analyst focusing in on European Small Cap Equities. Jay, welcome to the Investing Matters podcast mate.
Jay Younger 00:54
Hi thanks for having me on Pete, appreciate it.
Peter Higgins 00:57
No, you're welcome, sir. I'm absolutely thrilled to have you on actually because having met you at the Master Investor Show. And then you absolutely smashed it on that particular panel. I was like, yeah, let's get this on our full interview with Jay and find out a bit more about him. So thank you mate.
Jay Younger 01:13
Yeah, it was good day, not at all, appreciate the invite. Thanks for having me.
Peter Higgins 01:16
Right, we're going start this Investing Matters podcast, Jay, go all the way back to some things because I like to find out stuff about individuals that others don't know, and talk about the whole journey, because that's the most important thing that makes you unique to everybody else that's out there in the investment industry.
So I'm going to start this with initial interests, potentially, in becoming the Alan Wells of Scotland, right for the 400 metre sprint category. So you're an outstanding athlete. Yeah. And you won a prestigious sports scholarship to study sports science and chemistry. And you went to Loughborough University and regularly recognised as the best university in the world for sports related subjects.
Tell us a little bit about that episode, what happened and why that didn't go as planned? As often is the case with athletes?
Jay Younger 02:10
Yeah, so I went, as you see, I went to Loughborough University, I on a sports scholarship, my discipline was 400 metres flat, and that the time just been sponsored.
Well, if you'd like to the Commonwealth Games in 2014, and it was a really exciting time in my life, as London 2012 just happened, just had my Olympic trials as a 17 year old I don't need the Olympic team, but I knew I wasn't going to make it but it was more just for the experience to potentially make Rio 2016.
I then went to Loughborough University with high hopes, and I just fell out of love with the sport is sad to say, but I think as a spectator looking in, there's a lot of things that you don't see. And it was a quite a tough lifestyle to live.
My good mate Jake Wightman who I went down with, he became world champion just last year and Eugene. So it's really interesting. You've got two case studies of a guy going down to Loughborough from making it becoming world champion and myself, who bowed out after six months, but it was an incredible journey. And I learned a lot. And I feel like the work ethic I learned as an athlete, I try to apply that to my day to day work as well.
Peter Higgins 03:30
Brilliant. No, thank you for sharing that. I think it's very important that we learn from our challenges don't we, you know, and that's what makes us stronger and stronger.
So Jay, I want to go on now and talk about what triggered your interest in investments and finance, leading up to your initial fledgling role answering calls about pensions. And then eight months contract with Bailey Gifford, which is a bit more prestigious, I must say. Can you tell us how you then utilise that time as well to self-fund yourself in gaining your investment operations certificate and the investment management certificate as well at the same time?
Jay Younger 04:10
Yeah, so my first job in financial services I got through a recruiter when I left Loughborough, I was originally cleaning golf clubs at a golf club in Scotland.
And I got a job in financial services as a customer service representative, a pension provider Aegon, and, and my job was to answer calls about people's pensions. And a lot of the questions I was getting asked, I didn't understand. So the most frequent one I got was, why is the value of my pension changing all the time, and I didn't really understand that myself. And when I was trying to give information back as a 19 year old at the time, I wasn't giving very comprehensive answers. So I took it upon myself to actually take an interest in to why is this happening. And the more I read about it, I discovered the world of investing. And I discovered how people allocate capital to asset classes in order to grow their wealth for retirement. And then I wanted to do one better than working at Aegon where I was only paid £13,500 as my first salary.
And so I got a job with Baillie Gifford as an administrative assistant. And even though I was basically photocopying and scanning loads of papers for the trades that the fund managers had done, but I was right at the back of the office, it opened my eyes into how you actually become an Investment Analyst.
And it was during that time where I saw the graduates doing their professional qualification, so they were studying for the IOC, the Investment Operations Certificate, the Investment Management Certificate and CFA. So I just took upon myself I asked Baillie Gifford at the time I said, can you pay for my exams because I was only on a contract that was going to run out after 8 months they were like no, so I just paid for it myself. I just thought why not went for it. And then yeah, I reapplied to university to study economics and finance, Heriot-Watt so I was bit late into university I was 21 at this time and I started studying for my CFA Level One at university and then yeah, kept going.
Peter Higgins 06:21
You're not saying enough there for me Jay, let me just expand on this you still you then decided I'm going to go back to uni, you commenced your academic studies at Heriot-Watt University to study Economics and Finance at 21. And then you went on to get a First Class Honours Degree as well as doing your CFA Level One and two. That's pretty, pretty darn good to do all that. Because you're like, I now know what I want to do. Yeah. So you're back sprinting again. Now, yeah, you're doing a degree and you do the CFA is at the same time you like, I'm on it.
Jay Younger 07:00
Exactly. I mean, I was I was pretty lucky in the sense that I had a good network around me, so not sure if you know, and then Colin McLean. He founded SVM portfolio management.
So Colin, I'm very good mates with his son, him and I are very good mates just through school.
Nathan, absolute legend and Colin helped me if you like visualise where I wanted to go and help me get to my final destination.
He helped me craft the path. And when I was speaking to him about when I was at Baillie Gifford, he said, the quickest way for you to become an Investment Analyst that this is what you have to do is to return to university to study economics and finance as a chosen degree.
And then if you can do your CFA, and once I knew the formula, it was just like to see a simple case of just work hard and just like athletics, if you're telling me the time I want to run and we plan the sessions in advance, all I need to do is just run the sessions and provide a use the injury free and you keep your head down and you should get there. And that's what we did.
Peter Higgins 08:08
Brilliant advice from Colin McLean. Brilliant advice from him well done and you took the advice or the people hear that advice and not do anything about it, you know?
Jay Younger 08:16
Yeah, I was. At the time I was a my remember my first lecture in economics, I went directly into second year should I add, managed to persuade Heriot-Watt University to add me even though I didn't study level master economics at the time at school, I said, let me go directly to second year. And I remember my first lecture, I actually had to get a tutor for a whole my first semester at Heriot-Watt, because I didn't understand how to do differentiation, integration and just basic algebra, I didn't know how to do it. So I was like, Okay, this is going to be a tough learning curve, but I'm going to have to jump right in.
Peter Higgins 08:53
Well, kudos to you, mate. Very well done, you stuck it and you went out and smashed it and got a First Class Honours degree. So very well done.
So let's talk now about your first role after graduating, Kempen Capital Management as a Junior Investment Analyst, so you've got through the graduation you've got through the process, and get your first job. And you're an analyst focusing on the European Small Cap Equities. Please share with us that role as a junior and the insights you've gained from it as well?
Jay Younger 08:01
Yeah, I would say I was incredibly lucky again, that was through a recruiter how I got that job. And that was my first job, as you say in the industry. And I feel incredibly lucky to have it.
And I'm sure my ex colleagues at Kempen wouldn't mind me saying this, because they will all agree with how it ended. It taught me exactly what not to do. And I don't mean that in a bitter way.
It's just because sadly, the two funds were shut down due to poor performance.
And as an Investment Analyst, or Junior Investment Analyst at the time, it taught me exactly what not to do. And what I mean by that is, is that I think a lot of fund managers and analysts can become obsessed with financial modelling.
They can scrutinise historical annual reports, accounts, etc. To try and build a target price, when really that target price is just a function of the inputs that you've just told the model to tell you.
So this is only as good as your assumptions that you tell it.
And I think that what their job taught me was is really important to have a good grasp of valuation and not overpay for a stock.
And that's what that job taught me the most. And when sadly it went bust and I was made redundant after a year there despite finally getting a CFA after getting through all those exams. I thought I agree. I can now coast a bit but no, I lost my job. And I found myself back on the labour market after a year after graduating.
But yeah, I wouldn't trade that experience for anything because obviously it really taught me about how things can go wrong and what not to do.
Peter Higgins 11:00
Brilliant. No, that's a lifestyle journey and the lesson to be learned every step of the way. Now, there was a story behind this I want you to share it. How you gained your initial role at Aubrey Capital how that came about? Because to me, that's just like the serendipity going around here.
Jay Younger 11:19
Yeah, again, I was lucky that I… Sharon Bentley-Hamlyn is the lead fund manager of the European Strategy, Aubrey Capital Management. And as you know, our track record is phenomenal. I mean, up until 2021 the fund was the top percentile in Europe over three, five and 10 years.
And I first met Sharon at a lunch we were both just happened to be seeing a company A Dutch company, a property company called PPH. I remember it, I met Sharon. And obviously it was in the summer of when I was at Kempen.
So I didn't actually know anything. But then when I was looking, I remember thinking I met Sharon at a meeting, I really took an interest in to the questions that she was asking. It wasn't so much the Orthodox questions that I was supposedly thought were good questions are different. So I sent Sharon an email and I said, please can interview me? I think at Aubrey, you're missing the trick with sustainability and ESG.
Because I forgot to mention that Kempen I've come from a SRI background, so the funds but all the European Small Cap Equities, there was a strong focus on ESG.
So a lot of the ESG analysis that we did for the company's at Kempen, I thought Aubrey could benefit from the European side, at least. So Sharon interviewed me. And it was quite a quick turnaround process. I went through four interviews, and then got Aubrey and then yeah, November 2018. I started and five years later, I'm still here.
Peter Higgins 12:56
Absolutely phenomenal. So I want to talk now about those not even five years yet, going on to five years in November of this year, what you've done, what you've achieved, and how you've gone about it, because I'm using this theme, and people going to hear me saying this over and over again. You're on a sprint here, Jay, you know?
Jay Younger 13:18
Yeah, so that I mean, this is probably going to be a bit controversial for me to say, but when I joined Aubrey Capital Management, I was still doubtful about how efficient markets were. And I was still of the belief that really passive management will overtake or become the norm because I didn't have an experience before Kempen where I saw us actually outperforming the market consistently like yeah, sure, we might beat the market on a one month.
But then the second month, the third month, we were underperforming.
And it just seemed to me that these markets are all efficient, surely active management doesn't actually work.
And then at Aubrey Capital Management, I generally saw firsthand us outperform the market month on month. And between the years of 2019, 2020 and 2021, I couldn't believe the returns that we were generating, I mean, the first 2019, we had an absolute return of 45% 2021, it was 27%. And then 2022, it was 22%, all of which we smashed the benchmark.
And for me, and my career growing up, I realised we can actually make money here, you can actually make money with good research and a good investment philosophy. And that's what really opened my eyes at Aubrey when Sharon had taken me under her wing, and I'm hugely grateful for and, you know, last year more as a mentor than a boss, because she's actually helped me develop not just on an analytical level, but on a personal level too.
And I feel that that's what Aubrey has really taught me how to beat the market. And I think I can see you're fairly confident now I have got the recipe to do it.
Peter Higgins 14:58
Brilliant. I think it's very important to have a good mentor, and a good a good individual to look up to as a role model who's actually doing the doing not just doing the talk, you know, and she's one of the best female fund managers out there.
So you've got a fantastic coach and mentor to have mate. So well, well done. Now, I want to talk about giving me a little bit of an overview, but also what differentiates Aubrey, you've just said it a little bit there. But the ESG side of it, and looking at quality companies, how do they differentiate from the other fund management companies out there?
Jay Younger 15:27
Yeah, I’d say, I mean, other than we don't want to go too technical, just know we can we can go technical, but I think the biggest thing about Aubrey is that there's no bureaucracy in the company at all.
If we have an investment idea, or we have an investment decision to implement, we don't need to jump through X amount of committees to get that decision over the line, we can get it done literally in that minute.
So if we're managing the money, and we see a valuation opportunity after having done our research, we're straight into buy it, we don't need to console X amount of people about what we're doing. And I feel like having come from that from an investment banking side at Kempen to seeing that at Aubrey, that is a big competitive advantage I'd say that we have over the houses.
Peter Higgins 16:16
Fantastic. I didn't know that's really, really good. Now, you talked about the competitive advantage. Talk to me now about the investment strategy, which you touched on a little bit when we're at the Master Investor Show, the investment strategy for Aubrey Capital please Jay?
Jay Younger 16:29
Yes, so the investment strategy, at Aubrey Capital is based on what we like to call the 315’s and not overpaying for earnings growth.
So the 315 stands for we only invest in companies which have the ability to grow their earnings year on year at 15%.
We only invest in companies which this is probably the most important plan, that companies that can self-finance that earnings per share growth.
So what we call the cash flow, return on assets or 15% per annum.
And then finally, they have to have a return on equity of 15% per annum too, if a company can fulfil all these 315 hurdles, then the final component is the price to earnings ratio divided by the earnings per share growth.
And we won't pay anything over 1.5 times for the companies that we invest in.
And I think that why Aubrey is so good is that if you can find companies which are growing at 15% per annum and you're paying a reasonable valuation for the growth, it's almost like companies acquiring other companies and that terms of the IRR like payback is like project management.
You're getting that return on the investment. But that's what we're looking for and some, it's the ability to self-finance, the earnings per share growth is the key. I mean, the reason why 15 is the important part.
I mean, I spoke about this in the talk that we did earlier Pete, in this month, where, if you think about it, historical performance of equities have returned a real rate of return of around about 5%.
Typically, you have to then add on an adjustment factor for inflation and that can be anywhere from 3 to 5%.
So let's round up there, if you call it 8 to 10, then you have to take into account that as US active managers, in order for us to justify our existence, we need to beat the benchmark by, say 2%.
So then if you add 2%, to the range of eight to 10, you're going to get somewhere between 10 to 12%.
And then you take into the humble truth, as active managers, we don't always get our decisions, right.
So if you divide 10, or 12%, by 70%, de facto, you get around about 15%. And that's why we do it. And that's why when we invest in companies, 15% is the minimum that we're looking for, in order for us to invest.
Peter Higgins 18:59
And that's probably why across the benchmark you're beating most companies.
Jay Younger 19:03
Yeah I mean, last year, again, I'd be learning a lot.
And last year was a massive learning curve. For me, again, because 2022 was a really tough year for Aubrey, not just for Aubrey, I think it was really tough for any growth manager.
And I think given the way that the types of companies that we invest in most of those companies, because I should say we're bottom up investors.
And what that means is, is that we don't let the macro dictate where we pick our companies, we like to if we see a good company, we're agnostic to the benchmark, or we're indifferent to which sector is operating in if that company is performing well, we're going to buy the shares.
And I think last year, because we had quite a lot of exposure to the information technology sector, the de-rating that happened was a big wake up call for me and a big learning curve for me, because I'd never experienced that.
I never experienced a time where you have a company, which is growing as underlying earnings growth at 89%, which we had in the portfolio. And yet shares are off year to date and 50%, it was a very confusing and difficult time is to manage money.
Peter Higgins 20:13
Yeah, it happens. And like you say, but the beauty of it is, is that the quality of the company, and the revenues of the companies is improving.
It's the market underlying that's changed. So that's about the consistency, we're going to touch on a bit later.
I Want to touch on a little bit there about your qualifications and go back about the importance because one of the things that triggered you to contact and speak with Sharon was about the ESG angle. And that's embedded within Aubrey capital.
So please share with us the ESG criteria, and how that's integrated into investments and why it's so important for Aubrey Capital?
Jay Younger 20:48
Yeah, so at Aubrey Capital Management, we designed our own in-house ESG framework.
So we divided our ESG questionnaire into E, S, and G, each section equally weighted between the Environment, Social and Governance.
And there's 29 questions in total, which we do, where we focus our ESG analysis is on the material risks of the companies.
So for example, if we were investing in a heavy manufacturer, we're going to be more interested in their health and safety policies than we are opposed to their data and cybersecurity policies.
Or if we're investing in a company, which deals with a lot of customer data, we're going to be more interested in their data and cybersecurity policies than we are their health and safety policies, not saying that we wouldn't pay attention to health and safety policies, it's just that material pressing risk.
I think Aubrey, we take our common sense of pragmatic approach to ESG management. It's not, we don't like to attribute or discount value, like a premium or discount to the valuation of a company because we think that it has good ESG or poorly ESG.
It's more the fact that we like to have frequent dialogue with management and try and understand, okay, just because they might not published certain policies or regulatory certificates around a certain ESG topic, that doesn't necessarily mean they've got purely ESG.
It just might mean that they've not got the budget dedicated to disclosing certain policies. And that's why I'd say going back to a key competitive advantage at Aubrey, is that having the ability to speak to management is a big benefit to us that corporate access is very important.
Peter Higgins 22:27
Brilliant love that response. Now, Jay, you touched on something slightly prior to the question, when you look at some of the really good results of your portfolio holdings of late and you've been struck by the irrational reaction, or often inconsistent reaction of the share price movement. What in your view is happening in the investing arena at the moment regarding some fundamentals?
Jay Younger 22:51
Yeah, I think that at the moment where there's a lot of variables which are affecting the share prices, and it's not necessarily due to the fundamental performance of the underlying companies, rather to do with more sentiment driven.
I mean, the obvious factor is concerns around inflation and interest rate rising. If you can hold more now in the bank, if you're getting 5% risk free, then it's quite tempting to just keep your money in the bank and not invest in the stock market because the stock market, you're taking on a risk, whereas in the bank, there's no risk and you're getting 5%.
So I think that's probably one of the biggest variables. I also think that one of them was can well, not concerning, but it's more defined to just invest in nervousness around the uncertainty around this rate cycle.
I think as soon as this rate cycle starts to turn, I do expect there to be a big bounce in equities, particularly equities, which are characterised by more growth characteristics, because these have been de-rated so high, particularly in 2022, their due a re-rating. I mean, there's some companies in the portfolio, there's one I spoke about just there is underlying earnings per share growth at 89%. Year to date shares are down 50%.
I mean, to me, that's not rational. So I think we are due to see a big re-rating.
But yeah, I mean, long story short, I would just say I think there's a degree of risk aversion that's not subsided yet and I think until the rate cycle starts to either alleviate, then we should see money start to flow back into equities.
Peter Higgins 24:32
I appreciate that reply. Thank you ever so much for that Jay.
I want to touch now, he talked about interest rates. But also another factor impacting the markets are appears to be is inflation, Jay yeah?
And it seems that the markets trying its level best to move on.
From the inflation question. The debates been raging for nearly two years now, less than two years ago, notably, economists and central banks were saying rising inflation was transitory, less than six months ago, it's saying it peaked.
Now they're saying it's possibly sticky?
How do Aubrey Capital just wade through all of this noise on inflation, to pick the best quality European and UK stocks?
Jay Younger 25:17
Yeah. So with regards to the inflation, you're right, it’s so inconsistent, the narrative and the numbers are saying one thing, and the narrative is thing, the other thing, but I think when you earn a high inflation environment, it's really important to pick companies which have high gross margins, or high margins in general.
And the reason for that is because it demonstrates that the companies have a high ability to pass through any cost inflation, which they might be experiencing.
So last year, well, Q3 of last year, that was probably the peak of the margin contraction that we saw in our portfolio where a lot of the companies that were investing in, we're all seeing the same thing margin contraction.
And it was quite disheartening to see that despite that, we were investing good companies, the margins were contracting, and share prices were declining.
So I'd say now, because we have companies which have lean operations, and they have had the ability to absorb that cost inflation and pass through that pricing on to customers, we're now actually reporting a margin expansion average in our portfolio of 70 basis points of the Q1 quarterly results that we've seen.
So I’d say, it's all about well, not all about but an important variable is to invest in companies which have the ability to pass through any cost inflation, and have high margins.
Peter Higgins 26:34
Odie dokie, I’m going to be cheeky now, public disclosure to what's already out there, a European company you have found or an AIM UK company you’ve found that meet sales margin, that's the push through to the customers that's doing well?
Jay Younger 26:45
Yeah. So AB dynamics is a company that we came across in the AIM portfolio, and the European strategy side is slightly too small for European strategies just know, given our minimum market cap range of 500 million.
That's a company which has a clear competitive advantage in its products and services that it offers, particularly around simulation and break testing.
And that's an example of a company which is going to report margin expansion, as well as strong growth and earnings per share over the medium-term, at least anyway.
Peter Higgins 27:24
Okay. Thank you for that response. Now, you've just spoken about it already a little bit. You're a big advocate. And so is Aubrey for growth at a reasonable price, GARP. But please, can you expand on the importance of not overpaying for an investment?
Jay Younger 27:40
Yeah, so I think overpaying for an investment like what does that mean?
And that's one of the key questions that I actually learned to answer at Aubrey, before I joined Aubrey, as someone asked me, Is that company expensive or not? I wouldn't know how to answer it.
Whether I was looking at the P/E or just in isolation. What does an expensive company mean?
So at Aubrey, we always talk about relative valuation. So for example, if I told you a company was trading on a P/E price earnings multiples 20 times, but it had an earnings per share growth of 10%.
We consider that to be expensive, because we're looking for that PEG.
So if you did 20 divided by 10, that's a PEG of 2.
So for us that valuation threshold is in breached, it's above two times and the reason by the way we look for 1.5 times is because that if you're buying a company, which is growing its earnings at 15% per annum and you hold it for a full business cycle, which is typically seven years, you're going to see a return on investment of your 100% of your money, which is why we implement the 1.5 times PEG, anyway.
So if someone said to me, okay, you've got this another company, which is trading on 20 times P/E, but it's growing its earnings per share, say 20% all of a sudden now that to us looks attractive, because it's trading at a PEG of one.
So for us, it's all about relative valuation. So it's not about absolute P/E, although absolute P/E is important.
But it's also about what is your price to earnings against.
And typically, for us, it's always earnings growth but during the times, I mean, during the times where the markets were, we were operating in a zero-interest rate environment, I remember looking at companies, we were trying to get into loss making companies which were turning profitable the following year, so they were still growing their earnings above 50%.
On a two-year average basis. I remember sometimes we were valuing companies at a price to sales to sales growth. I mean, it was absolutely like P/E territory.
It was like private equity kind of jargon and I think that that's what I've learned in going 2022 is how quickly the environment can change.
And all of a sudden those variation variables that we were wanting to attribute it to last being companies, you would never do that no, because it's just not a favourable environment for those types of companies.
Peter Higgins 30:09
So I've seen that all the while now, with regards to the metrics for UK companies versus the UK companies. We're going to touch on a bit later on Jay, during you've touched on this at the Master Investor show as well, during times of market volatility and uncertainty, what is the best long-term investing strategy for investors?
Jay Younger 30:30
I think during times of uncertainty and volatility, it's really important to invest in companies which can self-finance their earnings per share growth.
And that’s what we do at Aubrey.
So for example, you're not going to invest in companies which have to lever their balance sheets in order to achieve that earnings per share growth, because when the music stops, and they don't have any more ability to buy finance, their earnings per share growth, you're going to run into trouble.
So I think during times of uncertainty, as long as you're investing in companies, which have a healthy balance sheet, and what I mean by that is low debt, lots of cash on the balance sheet that gives the cash aspect gives the company optionality.
So it gives the company the ability to do buybacks, dividends, acquisitions, and reinvest into company via capex, having a company which has the ability to do all that, as well as being able to self-finance the earnings per share growth, you can't go far wrong.
And if you're paying that reasonable price, despite short-term share price volatility, you should be in good stead.
Peter Higgins 31:32
Brilliant response. Now, I want to touch on something personal to yourself, Jay, I know that you are immersed and passionate about everything that Aubrey Capital does, but what do you do in your own personal investing? Do you just have all your eggs in the Aubrey basket? Or do you do a little bit of your own outside of the ISA?
Jay Younger 31:50
Yeah, no, it's an interesting question. Typically, I do have money in Aubrey funds, for sure.
But I find that I'm much more willing to take a risk when it's my own money and typically, I would, I don't know if it's a cognitive or emotional bias I have.
But sometimes I'm attracted to loss making companies and I have been burned every time.
So I think in my own personal investing, I've learned the hard way of deviate from our investment philosophy and being burned.
But I know I invest in companies, typically is technology. So I have got a large position in my SIPP with Tesla, and I've got positions in Nvidia, I have a position and kind of thing off the of top my head, other good ASML, I have got more of the semiconductors, BESI Semiconductors.
So I've got more of a exposure to those semiconductor names, I would say in my own SIPP. I wouldn't say that's necessarily the recommended approach.
But if it's your own pension, it's your money and you're willing to take the risk for I mean, for me, I don't mind.
Peter Higgins 32:59
No, that makes perfect sense to me.
I think the beauty of it is, is that it's commendable that you're saying I'm actually taking more risk and you recognise it's more risk and a strategy that you're extolling for everyone that should be taken lower risk, because you're much younger than everybody else that I know, is to go the Aubrey Capital way, you know, which has been proven as a long-term winning strategy.
Jay Younger 33:21
Yeah exactly. I think that Aubrey we have a risk management process in our portfolios where we never lead position, way above 5% of the fund.
And I think I mean, you probably remember the scandal with Wirecard.
The German payment… and I think that a lot of fund managers, some fund managers in the industry, had that position in their portfolio well above 10%.
And again, when that came crashing down, it really hurt and it was really painful experience.
I think a lot of people got burned and at Aubrey, we had that 5% which may hurt us on the upside, because a lot of the companies that we invest in, are starting to reach that 5% ceiling and we have to take profit out of them. But it's more of a risk management tool.
And I think that I don't do that in my own investments. But for anyone who does maybe that should be a risk management protocol, which they should implement.
Peter Higgins 34:22
You’ve touched on what's been happening with some of the US banks, you know, First Capital, Silicon Valley Bank, and even the mighty Credit Suisse. What's the Aubrey Capital process for triggering and selling an exiting a stock?
Jay Younger 34:39
Yeah, it comes down to two key variables of sell discipline.
Number one is valuation. So if a company's valuation is above that 1.5 times limit we're not afraid to sell.
And the second part to that is that if the company is not achieving that 15% earnings per share growth, we're out, and that allows us to keep our portfolios fresh, and to make us constantly look for good ideas.
I mean, that's the thing, Aubrey, we're not afraid to sell or take a lot of stocks out of the portfolio, because they're not performing, we will do that. And we have done it. And it means that we do keep our portfolios fresh.
And we're always looking for companies, which can grow their earnings at 15%. And if there's one this year, that's not due yet, and it might not do the next year, like for example, at a time where we invest in HelloFresh, just get rid of it. And we look to the next one. We're always constantly looking for new ideas.
Peter Higgins 35:40
Brilliant. I mean, it appears to me also that the private equity companies are also looking for fresh ideas all the time. The only time well, most of the time, I see a takeover going on at a premium, bearing in mind that private equity, we're always looking for bargains, we seem to be having a constant argument about our stocks, UK stocks being undervalued Jay, but the private equity companies are the ones that are coming by and why don't we put as much of a good valuation in our own stocks, as fund managers, economists, stakeholders in companies that are listed in the UK?
Jay Younger 36:15
Yeah, it's really interesting you say that, because you've had THG, which has been a disaster of a listing, you've also had Deliveroo, which was a disaster of a listing, you had made.com that went bust, you're right, you had all these great companies in the UK and yeah, they all seem to go bust.
And I think it comes down to generally, the UK outlook on risk and the appetite for us versus the US.
And I think in the US, investors are much more forgiving of loss-making companies are they're much more patient than they are in the UK.
I think in the UK arguably, I mean, this is just my opinion, but maybe too short-term where maybe too focused on the quarterly numbers were too focused on or you want the profits.
Now we want the breakeven point, no, we want the free cash flow coming in.
For in the US, I think they're all key to digest. Okay, we're going to have maybe two years of losses, but then the company should become self-sufficient in its earnings growth. So that would be my take on it. I'm not sure it may be just the UK investors aren't as willing to take the risk.
Peter Higgins 37:25
I agree with you. I think that is the case and often we don't allow them to grow long-term. We don't have something go from a tiny little acorn to a big tree, the acorn became Arm and what did we do? We sold it to SoftBank. And now we're still complaining about that listing here, just silly.
Jay Younger 37:45
I saw today in The Times that the UK Government is going to invest 1 billion into semiconductor chips in the UK, I mean, substantially below the US and other areas. But it's a start, right?
Peter Higgins 38:00
It's a start, we have to take the crumbs we can get mate, that's the essential 1 billion compared to 100 billion. It's just ridiculous.
Right Jay, I want to talk about the balanced side of it. The health side of it before I go to my final question, because I'm conscious of it on here for a little while.
You're a former athlete, so you enjoy your CrossFit six times a week and you also compete in competitions throughout the year.
A, what is CrossFit? And why is it important for all investors, fund managers and other people that are in this the rigours of investing, to find something else outside of investing to keep themselves balanced and healthy?
Jay Younger 38:39
Yeah, for me, CrossFit is a functional fitness sport, it is a sport because you can compete in it.
And it tests all elements of fitness.
So what I mean by that it means test your cardiovascular endurance, test your muscular endurance and tests, top end strength that test gymnastics, it tests flexibility, coordination, you have to be totally engaged and focused when you're doing CrossFit.
And the reason why I love it so much is because it's a complete distraction outside of work.
When I'm doing CrossFit. It's the only thing we're I'm totally focused on at that moment in time in the present in the CrossFit.
And if I'm doing a competition, I'm only focused on doing my best in that competition.
And I'm not thinking about balance sheets, earnings per share growth, I'm thinking purely about I'm in a lot of pain right now. Let's get to the end and hopefully I can survive.
Peter Higgins 39:38
I love that I'm after investigate it further, more about mindful meditation at the moment, you know, occasional long walks, but I'd love to look at that.
Jay Younger 39:46
I mean, everyone has their different outlets, you know, if it is meditation or for is going for a walk, then that's your way and there's no right or wrong to it. That's your way that's your way. For me my way is loud music being in a hellhole that for me.
Peter Higgins 40:46
Love that reply, thank you ever so much Jay.
Now, it's been an absolute delight to have you on here today and learn a bit more about your investing and learn about you more as a person.
But I want to end this particular interview with this question for you.
I sense you've almost answered this already, but I think this is a very important one for you to answer with regards to your investment principles, what drives your passion to become the best fund manager that you can possibly be, not only for yourself but Aubrey Capital, but also for your clients. So I get the sense of you being absolutely on it.
Jay Younger 40:40
Yeah, is a good question, I think it goes back to it goes back to athletics, I mean that where you can always surprise yourself or how good you can become.
And I remember thinking when I was first through athletics, I remember thinking, God, I'll never break 50 seconds for a 400.
And then I did it. And then I remember thinking, I started my investment journey going, God, I would love to get CFA. But don’t think I can do it.
Again, I got it.
So for me, it's always just trying to push myself to the point where I surprise myself. And sometimes I look at a task and it is challenging, and it gives me that feeling in my stomach where I go, oh, God, maybe I've bitten off more than I could chew here.
But that's what motivates me is to be able to put myself in those positions where I'm not afraid to take on responsibility, or I'm not afraid to make a decision. And if I do fall flat on my face, I hold my hands up and I'll do my best to learn but I'm always constantly trying to push myself as I say, to my own cause, always pushing the red lines pushing the red line just one further to being uncomfortable, being comfortable with being uncomfortable.
Peter Higgins 41:50
Brilliant. I absolutely love that response mate and just know you can absolutely do absolutely brilliantly going forward.
And Sharon I no doubt will be absolutely so proud of what you've done in the past five years.
You know, and, and what you're going to do in the next five as well. And the Aubrey Capital team, I speak to John quite often is absolutely so thrilled with you, you know, so kudos to you, and long may your progress continue.
Jay Younger 42:16
Means a lot, man. Appreciate it again, you know, thanks for having me on this and I hope to see you soon. No doubt I will.
Peter Higgins 42:23
I’ll be down in London soon. Okay, ladies and gentlemen, that was Jay Younger, the Investment Analyst from Aubrey Capital and Aubrey AIM Portfolio manager. Jay, thank you so much. Take care. God bless you, sir.
Jay Younger 42:38
Thanks a lot guys. Appreciate you having me on.
