Euro Trash or Treasure with Richard Bruce





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Are we ignoring the value across the pond? What sectors and themes are most interesting? Does Europe have the same index concentration issues as the U.S.? Tune in to find out with our most recent guest, Richard Bruce.

Join FEG CIO Greg Dowling and Richard Bruce, founder of Trinity Street Asset Management, as they explore the untapped potential of European markets. Discover why European equities are often overlooked compared to their U.S. counterparts, and explore diverse, undervalued sectors like tech giants ASML and ARM. Bruce discusses the impact of the "Magnificent Seven" in the U.S., the differences in regulatory environments between the U.S. and Europe, and Europe’s focus on data privacy. Also, understand how geopolitical events, such as the Russian invasion of Ukraine, shape market dynamics. And finally, Bruce explores luxury iconic brand strategies, revealing the secrets behind LVMH's success and the contrasting approaches of Louis Vuitton and Gucci.

Tune in for an analysis of European equities and discover its treasure.

Key Takeaways:

  • Although U.S. tech giants dominate headlines, European companies like ASML and ARM play crucial roles in the tech industry, particularly in AI development.
  • Bruce advocates for a selective, bottom-up approach to investing, identifying individual companies poised for long-term growth rather than relying on broad indices.
  • Countries like Switzerland, the UK, and Denmark have led the path in pharmaceutical innovation, with companies like Roche, Novartis, Glaxo, and Novo Nordisk making significant strides, particularly in developing GLP-1 obesity drugs.
  • Bruce discusses the challenges and adaptations within Europe, such as Germany’s energy transition and the automotive industry’s shift towards electric vehicles. He notes the competitive threat from Chinese manufacturers like BYD.


Episode Chapters
 0:00 Introduction
 0:29 Episode Introduction
 1:02 Richard Bruce and Trinity Street
 2:47 Europe and the Regulatory Environment
 8:27 The AI and Technology Frontier
 9:19 Economic Factors and Country-Specific Insights
 18:37 Car Opportunities and Europe's Iconic Brands
 25:25 Europe's Healthcare Innovation
 27:30 Market Acronyms and Competitive Tension
 31:16 Japan's Economic Resurgence: Real or Illusion?
 38:04 British Apparel Traditions, Hobbies, and Book Recommendations




Greg Dowling, CFA, CAIA

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Richard Bruce

Founding Partner, CEO, CIO and Portfolio Manager, Trinity Street Asset Management

Richard is the Founding Partner of Trinity Street Asset Management and has over 35 years of experience in portfolio management. Previously at GLG, he started and sole managed the GLG Performance Fund. Prior to this, he spent five years as a Japan specialist in Tokyo with Jardine Fleming, and six years as a European and EAFE specialist in London with its joint-venture partner, Rowe Price Fleming. Richard holds a degree in History from the University of Cambridge (Trinity College).


Greg Dowling (00:05):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investments, economic and philanthropic minds, to provide insight on how institutional investors can survive and even thrive in the world of markets and finance. In today's episode, Euro Trash or Treasure, we will take a deep dive into European equities with Richard Bruce, founding partner of Trinity Street. We live in a U.S.-Centric world that has been dominated by large cap U.S. equities for years. Are we ignoring the value across the pond? Learn the reasons for the differences in valuations. What sectors and themes are most interesting and does Europe have the same index concentration issues as the U.S. Don't be an ugly American. Listen now. Richard, welcome to the FEG Insight Bridge.

Richard Bruce (01:05):

Thank you very much for the opportunity to participate.

Greg Dowling (01:08):

So Richard, would you mind introducing yourself?

Richard Bruce (01:11):

Sure. I'm the founder of a firm called Trinity Street Asset Management. We're a London based equity manager, global and international equities. I started it 22 years ago, 23 years ago, and we look globally with a bottom up fundamental stock picking approach. We visit over a thousand companies a year and we basically try and deliver portfolio management in a way that the larger firms fail to, following our nose, following where we have conviction, being on bureaucratic, etc. It's something that is based on portfolio management conviction.

Greg Dowling (01:48):

Well, I should know this answer, but what is Trinity Street? Why are you called Trinity Street?

Richard Bruce (01:54):

So about 40 years ago, I graduated from a college in Cambridge called Trinity College of Cambridge. I was a historian and I had rooms in my first year in a street that ran alongside the college called Trinity Street. So there is a meaning to it. It's also a name that isn't linked to an individual, which I think is always quite healthy in so far as if something happens to that individual that's unexpected, the business can, you know, continue over an extended period and not find itself linked to some founder who for whatever reason, voluntary or involuntary is no longer there. So I think that's a sensible approach to naming a business for long term. And everything we do is kind of long term focused.

Greg Dowling (02:41):

I like it. Well, it's better than Main Street or Back Street or any of those other ones. Trinity Street is pretty good. I wanted to talk a little bit about Europe, even when I was over in London just a few weeks ago. Everything is about the U.S., everything is about the U.S. Tech sector. Are we missing something by not focusing on Europe? Europe is a lot cheaper in terms of valuations. Is that a good measure?

Richard Bruce (03:03):

Well, I think every stock market is made up from its compilation of different names, right? And these names do well at various stages in an economic cycle or various stages in a product cycle. I mean you talked about U.S. Tech, but a lot of that tech when you think about the creation of AI will be adopted, exploited, developed by European names as well. So yes, you might have that happening in the U.S. now, but the benefits will spread throughout Europe and throughout the rest of the world. And also some of the key companies that are involved in building those chips that make AI possible and make that tech revolution possible are actually from companies like ASML in Europe, which make semiconductor capital equipment and Arm, which is that UK producer of technology for things like mobile phones, which make them much more efficient and will make data centers much more efficient.

Richard Bruce (03:57):

When we look at Europe or the U.S. or wherever, we don't look at a geographic block, we look at a series of companies and so long as you are selective and you're not just saying, buying an index, in other words a bit of everything, then you have the opportunity to be very creative. But the discipline I think is identifying those businesses which are different, which are compelling and which over the long term, according to whichever model you have, we have a model based on companies going through structural change for example, but will develop good returns for clients over the longer period. So I think that that geographic boundary is often a bit of a misnomer. And you know, if you sit in the U.S. there'll be times when you might drive a BMW or use a Louis Vuitton handbag or you know, whatever it is. There's a lot of European stuff sold in the U.S. there's a lot of European stuff sold in Europe. So I wouldn't be hung up by a boundary as to finding a good portfolio.

Greg Dowling (04:55):

And you mentioned some great companies there and you know, to be fair, I mean a lot of the kind of nascent technology behind AI was developed in Europe and in the UK, but it seems like there isn't as much software maybe kind of the media stocks and that's the difference. I mean there's some pretty amazing, and you mentioned a great Dutch company that makes the machinery, that makes chips and basically has a monopoly on it, but it doesn't have the metas of the world. Is that the big difference for, if you were looking at it on index per index perspective, is that the difference in valuation?

Richard Bruce (05:30):

Yeah, I mean the magnificent seven as we know in the U.S. have been responsible for a lot of the earnings growth and the inflation of values over the last few years, which of course have come back partly because interest rates have normalized and now we're back to a world of sort of standard cost of capital rather than free money. And in a world of free money, be it technology or be it Japan, in the 1980s where I started my career, you know, you get distortions in Japan in the 1980s, the entire stock market was trading at 50 times earning. It was only this year that you got back to the same absolute level on the nicka that you had in 1989 when actually I was in Japan. It's taken a long, long time. And so you do get some significant distortions. I think one of the constraints that Europe's had, and I do think it is being addressed, is that the regulators in Europe have focused quite a lot on only the consumer winning.

Richard Bruce (06:26):

And that can mean that you never allow champions in any particular sector. You know, it could be telecom, it could be stuff that's driven the social media companies. And I think Europe has recognized that sometimes they need to be a little bit more flexible. And we've certainly seen from some of the senior regulators in Europe a more open-minded approach to that. And I think perhaps in the states you're also seeing a little bit of a pushback on what has been the case, particularly with, you know, Ms. Kang and the way that she approaches regulation. So I think there's probably a balance you need between allowing creativity and stifling competition through excess regulation. And I suppose Europe has been on one extreme, maybe the U.S. has been on the other extreme and both would probably quite healthily come towards, you know, more of a central land. Because I mean if you look at, for example, in the U.S. the debate about the regulation of social media and the damage that is done to children through getting smartphone aged five, six, seven, eight, you know, there's no doubt that since 2012 the growth in mental illness among students and you know, you measure it with things such as suicide is a really big problem.

Richard Bruce (07:39):

And that has coincided with the growth in in smartphones. And so it's important that something is done. But again, you don't want to snuffle out creativity. I mean it's interesting you look in China, they are very disciplined on social media, they're very disciplined on video gaming to the extent that, you know, you can only play them a certain number of hours per day. You can't have social media in the same way. And so they are very protective and maybe the U.S. and to some extent Europe needs to change the regulations to protect children a little bit more.

Greg Dowling (08:10):

I agree with that statement and you're right that Europe is probably a little too aggressive on, especially the data privacy issue. It feels like the only thing you hear about tech in the EU is that they're suing Google, but some of the things they're trying to accomplish aren't so bad. Again, it's trying to find that happy medium.

Richard Bruce (08:27):

Just to add to that, I mean the most obvious example of that is taking AI as created by, you know, these leading companies in the valley and in Seattle and exploiting it through businesses. For example, in the music publishing area or in the gaming area, you know, you talk to businesses that are creating games, the application of AI means that that software writing process is accelerated and as a result you get a productivity enhancement because the challenge of productivity is not only an issue in Europe, it's also a position everywhere else in the world. And if you can improve productivity through the use of AI, then that is good for global. And so I think this whole wave of technology that's coming in now will be a major spur to company earnings to efficiency, to productivity and therefore to overall economic wealth in all countries.

Greg Dowling (09:19):

I wanted to talk a little bit about Europe as a whole and I guess the point being it's not a whole, it's not homogeneous, it's heterogeneous. Germany's economies going act very differently than the Spanish economy. Maybe you can talk just a little bit and you're not a macro economist, you are a stock picker, you're a fundamental stock picker. However, you get a view, right, by knowing the companies, what areas countries are doing well right now, what are kind of flat on their back?

Richard Bruce (09:47):

Well there's no doubt that Germany in particular is being buffeted by what's happened in the last two, three years. In fact, you could go back further and say that ever since the nuclear accident in the tsunami in Japan, Fukushima, which was followed by the Germans closing down all their nuclear reactors, that the energy question facing Germany has been a big problem. And then of course on top of that, you layer the Russian invasion of the Ukraine and the decision by Europe to close off imports of oil and gas from Russia, which it's a massive influence on the cost of building stuff in Europe. You know, Germany used to get what, 40% plus of its energy from from Russia. But what is really impressive is faced with these challenges, Europe and Germany in particular has responded very quickly to alternative sources of power. Some of that is through importing things like liquid natural gas from the southern part of the U.S. Other supply has been effectively through the creation of more renewables.

Richard Bruce (10:49):

There's this wonderful story of the fact that in Germany, some of the energy companies were restricted from putting wind towers in the ocean because the fish would swim into the wind tower and hurt themselves. And so there is this question, well we can't put in a wind tower because fish are going to hurt themselves swimming into a a piece of metal. Now, you know, you would've thought the average fish is even the average fish is intelligent enough not to swim into a metal tower. But it was a real problem, has had a bit of a reality check over the last couple of years.

Greg Dowling (11:21):

And that's the answer, not in my backyard.

Richard Bruce (11:24):

Or even in the ocean, right? And so not in my backyard classically would be our wind tower in your backyard. But I guess the point is that when you are faced between the choice of Putin invading your country or putting a wind tower into the ocean and letting the fish potentially damage their noses, it's a pretty easy decision. And so you've seen a kind of wake up call to what's going on. I mean the other thing, you know in terms of creativity and change and firms like Trinity Street, like investing in business where there is change going on because it means that you are likely to get some positive supplies on earnings of the businesses that we invest in. But when you look at something like the defense sector in Europe, European nations had been benefiting from the peace dividend over an extended period. And you know, some of that criticism of the European countries for benefiting from the U.S. defense umbrella and not putting enough in from their own contribution was fair. The bottom line is that was fair and but the change is you are seeing a massive reinvestment now place like Germany is a classic example.

Richard Bruce (12:29):

You know, Germany effectively had an air force where you couldn't take off. It had tanks that couldn't move, you had soldiers that didn't have bullets. You know, it was a real problem because in an ideal world, of course you don't want to spend money on this stuff, but the problem is if you don't spend money on this stuff, you get some man coming in or woman coming in and invading your country. And so you've been through a massive change in Europe over the last 18 months. Now interestingly, some of the European investors are still very preoccupied with aspects of ESG, some aspects of ESG make a lot of sense. But to call defense as socially unacceptable I think is a really difficult call because you know, how can you say that the nuclear umbrella in Europe hasn't worked for 80 years?

Richard Bruce (13:25):

You know, there's a lot of naval gazing that's been going on. And to the credit of people like the European Union, they have changed their position, but a lot of European allocators and large asset managers still will not buy into defense companies. And so I think this is in reality are multi-decade change going on in Europe, unlike the U.S. where, you know, big defense companies have had a pretty solid amount of demand for a long period of time. That has absolutely not been the case in Europe. So there's one example, energy transition is another example. So you know, two really good examples of how things are changing in the last couple of years where again, there will be plenty of opportunities and there are lots of stock specific examples, you know, companies benefiting from that.

Greg Dowling (14:09):

You know, it's one of those things where if you're just buying an index, you hope everything goes up. But if you're trying to pick stocks and create alpha, you need dispersion. And Europe has dispersion. There are some major shifts going on one on the defense side, right? Energy transition, I mean Germany. And, and it's probably going to get through all this, but they sold a lot of components to China. China has a slowdown. They benefit from Russian gas. That went up and so you have to kind of figure it out and they're starting to figure it out, although they've probably been the weaker area for the last couple of years. But it's funny, some of the other countries who you would normally think is being fairly weak are pretty strong, right? Like you're starting to see some strength overall in Europe.

Richard Bruce (14:54):

There's a really interesting comparison between what's been going on in some of those southern European countries and what's been going on in the U.S. with the IRA. So one of the criticisms of current U.S. government policy is that inflation is a result of fiscal spending. Well, in Europe, if you look at the countries that are the big beneficiaries of the European equivalent to the IRA, places like Italy, Spain, Greece, it's the same thing. You've got very large transfers and it's pretty difficult if you send somebody a hundred billion dollars for them not to grow a little bit faster. And that essentially is what happens and has been happening. I suppose one thing that is more in their favor than for example some where like Germany is that they would've been less dependent on Russian gas. Yeah. So you know, there they have an advantage whereas Germany has a disadvantage.

Richard Bruce (15:42):

And the other thing I suppose that's notable is that Germany is front and center of the Chinese assault on its auto industry. So one of the other big changes in Europe at the moment is that the move to electric vehicles is a pretty major threat to traditional German car industry. I mean there's a very interesting statistic today, which was that if you look at March car sales of electric vehicles, which includes plugin hybrids, the big Chinese manufacturer, BYD had sales year on year up by 40% to a number that's say 250,000 vehicles in March. Volkswagen, which you know historically has been one of the world's biggest car companies sold 20,000 down 30% year on year. And that encapsulates the problem that Europe faces at the moment and one of its biggest industries, which is that China has a major competitive advantage through its batteries. Because you know, if you're thinking about the car industry, the key things to get right at the moment are batteries and software.

Richard Bruce (16:49):

Tesla has the software, China has the batteries. And so you've got this period where there's a lot of adjustment going on. Now I think over time the battery costs will come down for everybody and pretty rapidly. So maybe that advantage disappears on a five year view. But historically people like Volkswagen, but also people like General Motors have sold a lot of cars domestically in China. And there you have the opportunity today to buy really good Chinese made cars in China in the same way that you had the same revolution in Japan in the 1970s when Toyota and Nissan started producing really good cars and selling those into Europe and into the U.S. So Europe has to get its act together pretty quickly. Now there are some companies in there that will do, I think probably very well, but it's not a given that people like VW and some of the big French companies like Stellantis or Reno who are front and center in competition with the Chinese are going to survive in a way that historically they have survived.

Richard Bruce (17:58):

I mean the interesting positive I think from it all is that at the same time enforcing China to be a producer of finished goods rather than just components, then their economic interest is in selling a finished product into Europe or the U.S. for example. And it means I think that the leadership of China will recognize the economic benefit of focusing on that rather than worrying about invading Taiwan. In other words, economics hopefully will not necessarily triumph over politics, but will become a much more important part of that discussion. And so in so far as they are successful in their exports, they will not want to undermine it through being politically irresponsible.

Greg Dowling (18:48):

I hope you're right. I wanted to make a couple points. I love the few of the things you said and it reminded me of two trips, one trip last year back to China, had gone to China for a long time. Didn't go during Covid. When I would go there, there would be a lot of American cars. When I went back there, there were no American cars with the exception of a Tesla. And there were lots of BYd's and I rode in a few of them and they were amazing. And I don't think they're going to come to the U.S. anytime soon, but when I was in Europe just a few weeks ago, you walk around Mayfair, there's all these amazing car dealerships, you see the Porsche and Ferrari dealership there is a BYD dealership and it's a pretty nice little dealership that they have right next to all the Rolls Royces and everything else. So it is coming. Chinese cars are coming for Europe.

Richard Bruce (19:35):

Yeah. I think what you'd say is also really interesting Greg, because the area that I think will survive in Europe are the niches like a Ferrari. The people who are really vulnerable are the mid-market.

Greg Dowling (19:47):

The mass production. Yeah.

Richard Bruce (19:48):

The mass production. Because I don't know if you've ever had the chance to go to Vietnam recently, but you know, you go to Vietnam again, there is a Vietnamese maker of electric vehicles, which are great. I mean I was there in September and I took one of these cars, it was a hotel car, took me to the airport. It was a very nice car. If people like the Vietnamese can make small volume, comfortable electric vehicles, you know, anybody can. And I would encourage anybody if they haven't been, you know, listeners go visit if you can the Tesla factory Cupertino. Because you'll see how simple these things are to make. And a number of years ago I was in Kyoto in Japan and happened to be at one of the battery makers there. And in the entrance of the battery maker, it's company called Eusa, there is a car that was made in 1904. It's an electric vehicle. It's a simple vehicle. So that is the challenge for western car makers. It's the opportunity for the Chinese, you know, after all you have the ability of many of these companies to be creative. You know, look what Tesla's done. You've got other companies around the world who are being creative. So insofar as it drives the entrepreneurial spirit, that's got to be good for the global economy, even if it focuses somewhat on the Chinese at the moment.

Greg Dowling (21:03):

When I think of Europe, when kind of talked about a few different areas so far, we talked about defense and energy transition, I think of brands and I think of luxury brands and I felt like the trade the last year when everybody thought that there was going to be this great Chinese reopening is the south trade as you wanted to buy LVMH because the Chinese would go out and spend money and they didn't. And so talk to me a little bit about the brands because I feel Europe is a country full of great brands.

Richard Bruce (21:33):

Yes. I suppose the point is they're linked to history, aren't they? You know, it's the same thing you're trying to buy that in a little bit of history. But it's true. I mean I'll know at LVMH is the world's richest man. And his great success, his secret is never discounting. So if you think about the GFC, why did LVMH do well coming out of the GFC? Because they never discounted, which is a really tough thing for a brand owner to do. Because if you are in a world where nothing is selling, you feel, well I need to sell. You know, if I cut my prices, I might get rid of some inventory and raise some capital. But he never did that. And that means that when you go and spend $2,000 on a Louis retail handbag, you know you're never going to be able to get it cheaper.

Richard Bruce (22:14):

It doesn't mean it's value, but in so far as you know, you're never going to get cheaper, then that can create a sensation of value. Whereas if you go and get a, you know, Gucci for example, it's been under a lot of pressure in the recent period. If they decide, well you know, we need to get rid of some of our Gucci loafers, let's cut the price in half. By putting that for an outlet, it's hard for the consumer to think, well if I'm spending $300 a day, should I spend $600 tomorrow or should I wait for the next opportunity to buy $300 loafers? You know, that is the danger. And again, I remember when I was in Japan in the 1980s, you used to be able to go round and in any sort of outlet store you could buy slippers with Yves Saint Laurent written on them.

Richard Bruce (22:57):

They were never made by Yves Saint Laurent. But you know, somebody had obviously bought the brand and you just stuck them on your plastic slippers. And so that kind of thing, you know, it destroys the brand. And Arnault has always been incredibly good about buying brands and taking them up market. I mean another example would be Tag Heuer. You know, they bought Tag Heuer, which used to be able to buy a Tag Heuer watch for $300. Now you probably struggle to buy one under 2,000 dollars. t's all about what he calls elevating the brand. Very clever, all made in France, essentially almost everything made in France. It's a successful long term process that gives you a competitive advantage.

Richard Bruce (23:45):

Your consumer wants that label on the front of his car or her car. And there are also things like road holding, etc, which are important when it comes to a sports car. But one of the interesting things of course about electric vehicles is every electric vehicle is fast. Yeah. And the other thing that's interesting, if you looked at, you talked about, you know, Chinese car companies in London, you get into a new black cab, it will be made by a Chinese company. Because the maker of black cabs in London now, which is called the London Electric Vehicle Company, is actually owned by Geely, which is a Chinese company. So all those electric cabs, which are actually much nicer than the old diesel, noisy, uncomfortable polluting vehicles, those new vehicles are made by a Chinese company. The buses you see BYD on a lot of the London Electric buses. So again, and that's that point that you might not buy it if you knew it was a Chinese company, but given the fact that they all have these name names that no one's ever heard of, how do you know it's not an American company or a European company with a new brand name?

Greg Dowling (24:47):

Geely also bought Volvo at one point in time. Right.

Richard Bruce (24:49):

Exactly. They still own that.

Greg Dowling (24:50):

Again, it's going back to I think what Europe does really well are these iconic brands. Porsche, Ferrari, Gucci. There aren't a lot of those in other countries because they don't have the history. I do think that is pretty staunchly.

Richard Bruce (25:26):

But, interesting you think about they're not just brand owners. I mean it's interesting. If you ever travel around Chinese factories, yes. You see German equipment, it's amazing how often you see Italian equipment. So the northern part of Italy is a machine building mecca. They have fantastic machinery.

Greg Dowling (25:46):

The part of the country that actually works. Yeah.

Richard Bruce (25:48):

Italy is, well Italy's not that old as you know, as a country. Neither is Germany. Yeah. And northern Italy is very different from southern Italy.

Greg Dowling (25:57):

Milan is very different than Rome.

Richard Bruce (25:58):

Yeah. But they have amazing businesses in northern Italy. You know, they have the ability to be creative and deliver. I mean they make, for example, a lot of the world's steel making equipment. In other words, stuff that goes into a steel mill is made in Northern Italy.

Greg Dowling (26:13):

I didn't know that. One area we didn't talk about that I feel like has been a theme here more recently is healthcare and pharma in Europe. Could you maybe talk a little bit about that?

Richard Bruce (26:22):

Countries like Switzerland historically have had fantastic pharmaceutical businesses, be it Roche, Novartis. But as is very obvious in the last couple of years. So of other parts of Europe and the whole sort of GLP-1 obesity drugs from companies like Novo Nordisk, European countries have been very, very successful in developing, which is ultimately a form of technology. The UK also Glaxo, you know, a lot of these companies have been a source of UK technology success. And as we saw in Covid, there were European companies that were delivering on drugs that very quickly dealt with the Covid problem. There is a long history of pharmaceutical research and strength. The difference between the UK and some parts of the world is that the reimbursement in the UK is not as high as it is, particularly in the U.S. And you know, I think the U.S. consumer sometimes gets penalized for the cost of drugs which the pharmaceutical companies defend as well.

Richard Bruce (27:24):

Yes. But this helps our research, doesn't it? It's true to some extent obviously, but you get very creative businesses and the rest of the world that aren't reliant on super high drugs pricing. I mean the cynic would say yes, but the European companies are also selling product into the U.S. and getting a good fee for it. There are absolutely great technology businesses, particularly in France and the UK. I mean if you think about the strength of the pharmaceutical sector, it'll be France, UK as well as clearly now with Novo Nordisk in the northern part of Europe as well. But that's a long term source of competitive advantage for Europe and it's likely to continue to be so for a very long time.

Greg Dowling (28:01):

You're right, they've had a long history of great pharmaceutical and healthcare companies, but maybe the spotlight's been a little bit brighter more recently because of GLP-1. Yeah, it seems like that is the thing right now and it's kind of led to a little bit of index concentration in Europe, not as bad as the U.S. I think it's called. Is it G.R.A.N.O.L.A.? Is that what the acronym is called?

Richard Bruce (28:23):

Not sure what that one is. I could imagine it would be. Yeah.

Greg Dowling (28:26):

Like Glaxo would be one I think. Yeah, just like in Japan there's, I've heard there's this Samurai Seven, like there's a bit of this global phenomenon where there are just these mega cap companies that are dominating index returns. And again, U.S. leads that with the Magnificent Seven, but you still have it in Europe. Some of that is due to the healthcare industry in pharma.

Richard Bruce (28:46):

Yeah. And I think maybe often it is a sign of that particular group of companies or countries peaking out. Because if you remember when we had the B.R.I.C.K.S. And everybody was excited by Brazil, Russia, India, China,

Greg Dowling (29:00):

And kind of South Africa. Right. It was like that was, that it was kind of the other S.

Richard Bruce (29:04):

Kind of South Africa. It was not. It was, I was thinking yeah, wasn't really South Africa. But you know, you think, well two of those are now kind of either complete no no's in the form of Russia.

Greg Dowling (29:14):


Richard Bruce (29:15):

Questionable as in the form of China. So when that acronym was invented, it was kind of peak enthusiasm. So is it peak enthusiasm for Magnificent Seven maybe. It's always very dangerous to make that kind of assertion. But it is highly mass market when you start to get those acronyms and you kind of want to be in the wannabe B.R.I.C.K.S. or wannabe acronyms that are about to be acronyms because then the market capitalizations would've gone up a lot. The thing that they do highlight is you look at the impact of GLP-1's on human health. Again, you know, these things are phenomenal potentially. And again that is technology bringing massive change. There will probably be some side effects that's not all positive, but very encouraging again to see technology driving innovation. And that's probably the worry when you look at a country like China because you know, when you have entrepreneurs being attacked by the government and you only have to look at people like Jack Ma, Alibaba, ultimately, if that means those people don't have the confidence to do what historically they would've done, that's got to be bad for your economic growth over time.

Richard Bruce (30:20):

And it's why it's the ability of the U.S. car industry to reinvent itself, the European car industry to reinvent itself. That comes from the capitalist success. You know, not everything is, is always going to be rosy, but at least you create competitive tension. I mean you take a business like Trinity Street, right? Trinity Street provides competitive tension to establish players because we do something different and we only exist because we do something better. And if we cease to do something better, then we will probably cease to exist. But that's the value of capitalists. You know, you come up with a new idea, you develop it, you set it to your clients, etc, and you build a business. That is why capitalism works so well. You just got to make sure that you don't stifle it. And that the consequences of capitalism, which sometimes can be uncomfortable, are protecting those who are vulnerable.

Greg Dowling (31:11):

Creative destruction. But you're right, if you're an entrepreneur in China and you're worried that you might go missing for six months, like Jack Ma, you might think twice about this grandiose plan and taking risk. It is certainly a better environment in the U.S. and I would say in Europe and other parts of Asia right now. And so that should be good for the rest of the world and hopefully allows other countries, other companies to catch up on some of those areas where the Chinese had the current lead.

Richard Bruce (31:39):

Yeah. And also I think the other point that's very relevant is that the political noise is forcing reinvestment in places like Japan and the semiconductor industry in Europe in the U.S. and that forcing of investment in companies like TSMC or whoever will drive up the relative economic growth of those countries versus China that is going to be good for the international equity opportunity side.

Greg Dowling (32:03):

So I wanted to focus mostly on Europe, but when you talk about Europe, Europe is so global, you end up talking about everybody else. I wanted, just given your history, your background, I'd be remiss if I didn't ask you a little bit about Japan. So I wanted to ask you a couple of questions on Japan. Is it real this time? Is this a head fake? I've been doing this long enough where every handful of years people say, you know what, Japan, it's coming back. Is it coming back?

Richard Bruce (32:27):

I think it's got more gas in the tank than it has done for many decades. I still worry that the fundamental drivers of Japan's problems like a declining population ultimately lead to deflation. Deflation leads to a dull economic environment because people choose to save rather than to spend. And that is a problem now at the moment, there are a couple of things going on that are helping on the edges. One that I mentioned, which is kind of reshoring if you want to call it. The other is that Japan in some areas has got, let's be a bit more friendly to shareholder bug. The problem I have with quite a lot of that is I don't believe a lot of the managements believe in it. And they do it because other people are doing it. And I think if you do it for the wrong reasons, it's not necessarily sustainable.

Richard Bruce (33:23):

Japan without any doubt had become very, very cheap, particularly during Covid. And at the end of Covid, you know, it was the cheapest global developed market. And so there was absolutely a possibility to get some kind of re-rating. And the other thing that was going on is that when the currency, which under prime minister Abe who came to power in 2012 achieved was he took the currency, particularly the yen dollar rate from, you know, a hundred to basically 150. So you get a lot of Japanese companies that are exporters suddenly getting a lot more yen for their product. And that could be selling the product into China, it could be selling it into the U.S. or wherever. And so suddenly the P&L's look much better. The challenge is if you go to an environment where the currency stabilizes, then that one-off or even strengthens, then that one-off benefit disappears.

Richard Bruce (34:18):

And I think it's very dangerous to extrapolate earnings growth based on currency devaluation. The other thing that's going on is that there are a huge number of new investors into Japan at the moment are sort of gung-ho about this, that and the other. Perhaps without the perspective that the Japanese companies like to make forecasts based on hope rather than based on a concrete business plan. Because Japanese companies are required to make sort of three year business forecasts. And a lot of the time you can talk to a Japanese company and they'll say, well yes, we put out this forecast but we don't really think we can get there. Whereas a U.S. Company or a European company, if you put out a forecast, it's because you do think you, so there's definitely a risk that people have piled into Japan because of all these, so-called change factors and they could be disappointed.

Richard Bruce (35:08):

Now there is absolutely more change going on now than there has been for a while. But all I would say is be careful, you know, be really selective when it comes to stocks. Even funnily enough, something like the political environment. If you look back in the period since the second World War, the average Japanese prime minister was only ever in power for between 12 and 18 months. And then we went through this extended period, first of all under Mr. Izumi, who was a slightly strange looking guy, in the two thousands. And then under Abe from 2012 when he came back again as prime minister, where you've had much longer periods of political stability, well under Kishida, who's the current guy, it's all turning into a mess. Again, he's almost certain not to stay in power. The LDP, which is the leading political power party and has been since the second World War, is looking very vulnerable. So we could be back to that kind of instability. And so my point is, I suppose political Japan is as it always has been, has economic Japan really changed that much? I'd say you were looking at a glass very half full to assume we are going ahead without any problem. As an example, Buffett very successfully bought into the trading companies.

Richard Bruce (36:31):

And you know, they were valued at half book value or whatever the number was. And now they trade at 1.3, 1.4 times book value. I mean a lot of these trading companies are essentially commodity businesses. As we've had a, you know, a reasonably encouraging commodity cycle and you've had a certain amount of pressure from Buffett change within these businesses. You've had a re-rate. But is it going to from 1.3 to two times book, you know, there's investing in hope and there's investing in reality. And I think some of that stuff is investing. I mean, I would love to be able to say Japan is a country that is now completely changed in a positive way in terms of shareholder friendly, etc, etc. I mean I just don't believe that. I mean, some companies, yes, they are changing. Yes, everything was very cheap and now is less cheap. And yes, there is some reshoring which is helping, but all I'd say is don't get too carried away. And maybe more interesting is a place like South Korea, you know, a lot of that structural change, is it a much earlier stage where there is so much more that can be done and where it's much less recognized. I mean Germany went through this in the 1980s, so countries can change, you know, at this stage in Japan, I would just caution about getting too carried away.

Greg Dowling (37:42):

Yeah. I keep hearing more and more about Korea. They look up to the Japanese a little bit. Right. And maybe it's just in an envious sort of way. Like all this attention is on Japan. They did just a few little things. We can do a few little things and we can catch up. Very interesting perspective and I think a very balanced perspective from someone who has been in Japan for a long, long time. So we really appreciate that.

Richard Bruce (38:06):

And the other point maybe is that, you know, Japan changes very slowly. I was there from 1985 to 1990. It took 10 years after the bubble peaked in 1989 for the Japanese to recognize they had a problem it then took them another 10 years to do anything about it, you know, so it's a very slowly changing, I'm not saying that's a good thing or a bad thing, I'm just saying that it takes time. And so maybe now they are on the right track and everything is going to be great, which will be wonderful. But the other problem is that, you know, the number of young Japanese is declining and the number of old Japanese is increasing and they don't want much immigration. So in contrast to the U.S. where you've got quite a lot of immigration or Europe that's had quite a lot of immigration, Japan doesn't. And that is a drag on total economic performance.

Greg Dowling (38:49):

Yeah. It's a very closed society. A few final questions for you, and this is a serious one. I know you're a proper Brit and we had a conversation about this. I want our listeners to understand it. You have a real issue with Americans wearing brown shoes with blue pants. Can you explain this?

Richard Bruce (39:06):

I guess it's that point about Louis Vuitton and heritage. You know, traditionally business people in the UK will wear black shoes after six o'clock or during work times. You know, loafers are more comfortable. I think both countries can learn from each other.

Greg Dowling (39:23):

Do you not like the brown shoes with the black pants or dark suit? Blue with brown. It's a no-go for the Brits.

Richard Bruce (39:30):

There is a perception which drives tradition. And I think some people just won't take the risk of wearing brown shoes with pants. But these things change. You know, we've got work from home where you can't see whether people are wearing anything below the jacket. I mean, I could be wearing a pair of swim swimming costume. I could be wearing a swimming costume here. Right. You wouldn't know your, your listeners wouldn't know. Your viewers wouldn't know.

Greg Dowling (39:52):

I can promise you he's not wearing a bathing suit. We would not be doing this if he was wearing a bathing suit. I was just curious as an ugly American, what you know, if I needed to change.

Richard Bruce (40:02):

I think everybody can learn from everybody else.

Greg Dowling (40:04):

I gotcha. I gotcha.

Richard Bruce (40:05):

You know, maybe in 10 years time we're all wearing brown shoes and loafers and that's fine. That's good.

Greg Dowling (40:12):

What other hobbies do you have?

Richard Bruce (40:14):

I like cycling. I'm about to go on a crazy cycle journey around Japan. Actually I'm cycling from Hiroshima to Kyoto, which is 1000 kilometers or 600 miles in U.S. and UK speak with quite a lot of elevation. So 10 days, 60 miles a day, quite a lot of hills. It's always good to have stretch goals. I'm actually sensibly, well hopefully sensibly not doing it till October because Japanese summers are very hot, very humid. And the idea of cycling 60 miles in, you know, a hundred degree would be bad judgment. That's one thing I like doing. What else do I like doing? You know, some of those old traditional European habits like listening to operas and I spent five hours listening to Wagner's ring the other day.

Greg Dowling (41:01):

Oh my gosh.

Richard Bruce (41:02):

I mean that's quite hard work. Yeah. And I hadn't done that before. That was quite hard though.

Greg Dowling (41:05):

Yeah, yeah. We don't, we don't do that in the U.S.

Richard Bruce (41:07):

It was not necessarily something I would suggest. But there's a bit of tradition. You know, London is a great center to have an asset management business. You know, you have the European history and yet you have the U.S. not too far away. You have Asia not too far away. And being able to be based in one place visit globally we think is a big advantage. And you know, London has a lot that's going for it. You know, there are the challenges associated with Brexit. There are some advantages, but a lot of challenges. You know, the way I always like to look at it is if you put a customs barrier between every state in the U.S. what would that do to U.S. GDP? Well, it would probably wouldn't be a positive. Yeah, there are positives, there are negatives, but I think that's probably been a bit of a short term drag on the UK.

Richard Bruce (41:50):

But it's not to say that over time it won't bring benefits. Who knows where we'll be in 50 years time. But independent thinking, you know, is a good thing. And the EU can be criticized for bureaucratic group think, which at is extreme. The UK pushes back on and say, well we don't want anything to do with that anymore. You get other places like the Germans who just sort of ignore what the EU says if it doesn't like it. So, you've got different approaches to how you respond. But disciplining the EU from time to time is a good day. And I'm sure Brexit discipline, the EU intentionally respecting the views of the nation states a little bit more. But the reality is a lot of European nation states haven't been in existence that long. You know, you talked about tradition. France has a very long history. The UK has a very long history. Italy, Germany.

Greg Dowling (42:37):

Spain. Yeah.

Richard Bruce (42:39):

All of them. They're remarkably new countries. So poor countries like, you know, as in poor as in people who've been beaten up a lot. Countries like Poland seen their boards expand and contract as people invade them over the last centuries. It's been tough for some of these places. So there is a strength in scale. Whereas places like the UK we don't need that because we've got our own history. So the approach to the EU as to what you can get out of it is very different. But some kind of, you know, incremental trade association with probably would be a good thing. But it'll take time for the healing to occur because there was a lot of ill feeling, there was a lot of animosity, a lot of poisoned relationships, which were very unfortunate.

Greg Dowling (43:18):

Better together. Your educational background is history. I'm going to put you on the spot here. Last question. Give me your best history book recommendation.

Richard Bruce (43:28):

Can I give you two? So one is actually a Pulitzer Prize winning book about Robert Moses. Robert Moses was the park commissioner of New York who was in charge of parks in New York and the surrounding area from about the late 1930s to almost the 1960s. It's a fascinating description of how New York grew, expanded, but also why there are such infrastructure problems today with things like public transport, etc. It's an amazing story. It's long, it's a thousand pages. So you've got to be patient. So any book that can keep you interested for a thousand pages about New York infrastructure's got to be good. And to win a Pulitzer Prize is amazing. So that's one. The second one is a much shorter, but again, super interesting book by Orlando Figues, F-I-G-U-E-S, who is a historian who specialized on Russia. And his latest book, the History of Russia is very interesting because it goes back and explains why Putin today behaves the way he does and talks about Ukraine the way he does and the hangups that they have with so much of SARS history.

Richard Bruce (44:44):

And also the way in which Darwinism is sort of being resuscitated in Russia today. It's a really amazing book and it's relatively short. It's only 300 pages. He is, interestingly enough, a historian from my old college at Cambridge, so Trinity College Cambridge, and he was there when I was there. But again, an amazing book. So those two very different but both very insightful, you know, as I say for different reasons, but definitely worth reading. You'll need a long vacation in the summer to read the Robert Moses book. If you've got too many long haul business flights, it's a good one to read.

Greg Dowling (45:18):

All right, so put on some Wagner that five hour Wagner, grab the book, start reading. Thank you so much. I really enjoyed it. We covered so much and we focused on Europe, but we went all around the globe. So Richard, thank you so much for your time.

Richard Bruce (45:32):

Thank you very much for the opportunity. I hope that your listeners are interested in some of what's been discussed because you know, Europe is a fascinating place both to visit and to invest in as are so many other parts of the world outside the states.

Greg Dowling (45:45):

I agree. I agree. Thank you. If you are interested in more information on FEG, check out our And don't forget to subscribe to our communications. You don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed with the unique risk and return objectives of each client. Therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.

This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.


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