We had to think different and get better

What changed for you in 2022 that was the catalyst for such improved performance?

Everyone remembers 2022 where everything in the market, whether it was high quality value, international, global, US, bond funds, they were all down massively. High quality bonds were down 15% in 2022^*. There was absolutely no place to hide.

We sat down as a group, you know, participating in that drawdown and we had a very serious meeting about what we need to do differently to get better. And we were very, very keen on constantly iterating the portfolios. We tried to, we always work hard. Our values are think different, get better in research. And so at that time we had to think different and get better.

So what do we do? Well, one thing we came up with, we talk a lot about owning companies with expanding moats, you know, that have positive moat trajectories versus just absolutely large competitive advantages. And at that time, we realised that some of the names in the portfolio probably didn't have as much positive trajectory in them as we thought they did.

So we kind of sat down together and said, "Okay, through 2021, growth managers around the globe have done brilliantly well. It's going to be a different game after 22. So how do we separate ourselves?" And that's when we sat down as a group and said, "We really need to work hard on putting the trajectory back in moat trajectory. We need to double down on finding businesses where we can make the case that they are getting incrementally better over the next three, five, and 10 years."

Which industries and companies drove this outperformance?

So interestingly, what that led us to is to identify companies that we perhaps wouldn't have bought before in the past. And when you think about growth managers, they tend to own technology companies, consumer names, and healthcare names. We decided to open up the playbook, use our work around mow trajectory and the importance of people and culture and look in other industries.

And what we identified was really compelling. There were industries that we found that were inflecting significantly upward in 2022. Another area of the market that we identified that was really not identifiable as, as high quality in the past would be the aerospace industry. You know, we looked at something like Rolls-Royce. We historically had been a lousy business. But what happened is, as you know, we have an aging fleet of planes and replacement parts and engine, the new engines are an essential part to keep the fleet going.

They also had, a significant change in leadership at the CEO level, he came in and completely transformed the culture of the organisation. And that's important, you know, just changing the leader oftentimes in big bureaucracies doesn't lead it to a transformation in the culture, but in this case, it really did. So you had a couple things. You had this nice tailwind behind you, and then you had a business that was likely to inflect upwards because of a significant cultural change in the organization. So we bought Rolls-Royce.

Historically, this is really interesting. The worst businesses in the world for the last 25 years have been hard drive companies. Western Digital, SeagateI remember them being just kind of racing to the bottom in terms of profitability and revenue growth. But when you looked at the world around us, we all know the bottlenecks in AI are around power and they're around storage and they're around memory.

And so, taking a fresh look at a business we typically wouldn't have looked at, we identified that in fact, memory and storage is going to be a vital part of the bottleneck and AI. We bought businesses that historically were not quality, but in the future they'd be very high quality. Those trades have played out very well.

And then the final one would be gas turbines. What growth manager buys gas turbines? Historically, we would not have because they were lousy businesses. But again, if you looked at them and you saw what was going on in the world and the bottleneck and energy with AI, obviously the bottleneck, is answered through gas turbine companies like GE Vernova and Siemens Energy.

^{* Source: WCM, Bloomberg Global Aggregate Bond Index}