00:00 Speaker A
Joining me now is Mike Smith, offspring Global Investment senior portfolio manager and head of growth equity. So Mike, let's start there. You described the three Ds, debt demographics and disruption, as the biggest structural forces since the Industrial Revolution. Can you walk us through how these themes are reshaping the investment landscape right now?
00:22 Mike Smith
Absolutely. So, it's a really interesting setup because when you focus on the first of the two Ds, the debt and the demographics, uh those are both a major structural drag on the growth of our country. Um, you know, we've accumulated now an enormous amount of debt, over 120% of our GDP. Uh we have over 70 million baby boomers in our country, uh that are about to turn 80 starting next year. Um, and those two forces are a drag on our growth rate and a drag on the potential for future growth. And what's interesting about that is when growth is low in the economy, growth stocks do well. Uh that relates to the scarcity value of being a company that can grow in a low growth economy. At the exact same time, uh because of the adoption of new technologies like AI, the pace of disruption is accelerating and those disruptive forces are creating winners and losers in every industry each day. And so when you think about how that puzzle uh comes together and how to invest in a way to be successful, uh you want to own growth stocks because those outperform and you want to hire managers who can be active and who can take advantage uh of going long the winners and avoiding the losers who are getting run over by disruption.
03:03 Speaker A
Let's talk about some of those winners and losers. The large cap growth fund that you manage has heavy names in it, like Microsoft, Amazon, Nvidia. How do those positions align with that 3D thesis? And are they still attractive despite a lot of these elevated valuations?
03:31 Mike Smith
They're the platform companies that provide the infrastructure for that third D. And because of that, these are very sticky businesses with uh wide and deep modes, uh great revenues, great margins, great cash flows. They're here to stay. I I think they went through a period of time over the last 10 years of very special performance and the stocks obviously did very well. I think coming into this year, our view is it's time to look elsewhere for alpha. And we see the market starting to broaden out, we see an opportunity uh to move down cap and to move into some underfollowed companies. So while we maintain our exposure to some of those businesses, uh we think the real special performance is going to be downstream from those companies.
04:45 Speaker A
And let's drill into that first D, debt. Is there a company that you think is the most debt resilient out there?
04:57 Mike Smith
Resilience is the key word and I think the lens you want to look through is who's providing something essential. Uh and right now, uh for a lot of reasons, electricity is about the most essential uh good or service that uh any company can provide. It's the bottleneck as we build out AI infrastructure. It's oxygen to a very digitized and digital world. Uh and so we're very interested in investing companies that address that bottleneck. Uh Quanta Services is a company that we're uh very bullish on. Uh they've got uh incredible visibility because of the backlog of projects that they've built up, uh and they're very specialized in the engineering and construction services that they provide to utilities. And um their projects are funded by debt, but they earn a very positive return because of the regulated nature of the utility industry.
06:22 Speaker A
How about uh stock picks on the demographic side, because we're seeing this shift in demand as the older population ages out, right?
06:35 Mike Smith
Exactly. And and as baby boomers enter their 80s, their consumption of health care uh effectively doubles. And unfortunately, uh that's the period in their life where they really deal with some serious conditions. And so uh we're excited to invest in companies that bring life-saving technology to to that demographic. Uh Boston Scientific is a really good example of that. Uh they specialize in in medical devices that treat cardiovascular diseases uh to prevent heart attacks and strokes. Uh they also have a very large pain business. And so uh we think that's a company that's firmly positioned on the right side of change and is winning because of the innovation that they're bringing to those patients.
07:41 Speaker A
And finally, disruption, which you say drives creative destruction. What kind of companies are best positioned within that environment?
07:54 Mike Smith
Yeah, there's lots of different uh companies to choose from in that realm and it's very dynamic and exciting. Uh again, we we like to think uh first principles, what's the most essential thing? Uh and I think uh security is uh a huge priority for uh every enterprise these days, uh for obvious reasons. And the most interesting thing about what AI introduces to uh the challenges of of protecting data and protecting users is it exponentially increases uh the surface area of threats. And so uh CyberArk is a company that uh helps companies uh address that challenge and and provides the the leading platform for uh protecting identities and endpoints and and we've been very bullish and and uh maintained a a core position in that company.
09:13 Speaker A
All right, Mike, the 3Ds to give you that W in investing. Thank you so much. Appreciate it.
09:21 Mike Smith
You bet. Thank you.
