13 Questions for Evenlode’s Elliott and Knoedler

Which
Sector
Shows
the
Biggest
Promise
in
2024?

At
Evenlode
our
portfolio
is
built
bottom
up,
so
our
focus
is
on
individual
cash
generative
companies
with
pricing
power.
This
means
that
we
don’t
participate
in
certain
asset-intensive
sectors,
such
as
energy
or
mining.
Our
exposure
to
remaining
sectors
is
entirely
dictated
by
company
level
opportunities.
That
being
said,
the
prospective
moderation
of
input
cost
inflation
looks
positive
for
consumer
staples
and
medical
technology
companies,
who
have
just
been
through
three
very
grueling
years.

What’s
the
Biggest
Economic
Risk
Today?

We
don’t
take
a
house
‘macro’
view,
so
we
don’t
have
a
straightforward
answer
to
this
question!
The
nature
of
macroeconomic
events
is
that
they
are
often
difficult
to
predict.
Few
people
expected
a
global
pandemic
or
the
reemergence
of
war
in
Europe,
yet
both
events
have
had
material
impacts
on
markets
in
the
last
few
years.
Similarly,
movements
in
interest
rates
and
inflation
are
uncertain
in
timing,
scale
and
even
direction.
Instead
of
trying
to
guess
at
these
events,
we
seek
to
insulate
the
portfolio
from
a
wide
range
of
economic
scenarios.
Cash
generative
companies
with
low
levels
of
leverage
are
well
placed
to
reinvest
and
grow
in
most
macro
environments.

Describe
Your
Investment
Strategy

We
buy
and
hold
companies
with
resilient
pricing
power
based
on
a
hard-to-duplicate
competitive
advantage,
typically
a
brand,
a
switching
cost,
or
a
network
effect,
and
seek
to
pay
sensible
prices
for
them.
We
believe
that
these
companies
are
best
placed
to
compound
cash
flows
over
time
and
generate
higher
returns
to
shareholders.

Which
Investor(s)
Do
You
Admire?

Stan
Druckenmiller
for
his
dispassionate
willingness
to
change
his
mind
when
the
facts
change.

Name
Your
Favourite
‘Forever
Stock’

Our
process
is
set
up
to
avoid
managers
falling
in
love
with
‘forever
stocks’
–
as
the
old
saying
goes,
the
stock
doesn’t
know
you
own
it.
Our
valuation
system
assumes
all
competitive
advantages
decay
with
time.
Phil
Fisher
said
the
right
time
to
sell
a
quality
compounder
was
‘almost
never’
–
he
did
not
say
‘never’.
The
largest
position
in
our
portfolio
is
Mastercard,
the
card
payments
network,
and
we
have
held
the
position
since
the
fund
was
founded.
However,
even
with
a
persistent
network
effect,
this
company
has
a
“right
price”
for
sale.

What
Would
You
Never
Invest
In? 

Any
company
which
lacks
pricing
power.
Those
businesses
that
produce
commoditised
products,
such
as
a
barrel
of
oil,
have
their
prices
determined
by
the
market.
This
lack
of
control
increases
their
cyclicality
and
places
a
constraint
on
reinvestment
levels.

Growth
or
Value?

This
question
poses
a
false
dichotomy.
Any
professional
fund
manager
should
seek
to
participate
in
‘value’
as
our
job
is
to
buy
stocks
which
we
think
are
intrinsically
worth
more
than
their
market
price.
We
think
that
it
is
hard
for
a
stock
to
provide
long
term
‘value’
unless
it
is
capable
of
growing
revenue
at
least
at
the
same
pace
as
the
wider
economy;
absent
real
sales
growth,
we
can’t
see
sustainable
value
creation
as
the
levers
of
margin
improvement,
improved
asset
efficiency,
and
share
repurchase
via
leveraging
all
have
limited
runways.

House
or
Pension?

Pension.
We
prefer
pensions
of
financial
assets,
and
preferably
equities,
to
houses,
which
are
illiquid,
undiversifiable,
and
largely
depend
on
pure
pricing
to
drive
returns
for
their
owners
(as
opposed
to
volume
growth
–
it’s
very
hard
to
turn
a
three
bed
into
a
nine
bed
without
risking
prosecution
for
being
a
slum
landlord
–
or
mix
growth
through
innovation
–
there
is
very
little
innovation
in
housing).

Crypto:
Brilliant
or
Bad?

Bad.
BIS
research
suggests
that
a
majority
(on
their
crude
estimates,
75-80%)
of
retail

investors
have
lost
money
on
crypto.
‘Whales’
appear
to
have
harvested
substantial
value
from
information
asymmetries.
In
contrast,
equities
offer
highly
regulated
disclosure
and
increasingly
modest
prices
to
participate;
not
to
mention
ownership
stakes
in
often
highly
attractive
real
economic
entities
buttressed
by
robust
legal
structures.
Crypto
is
a
market
with
asymmetrical
information
and
the
asset
lacks
value
in
the
absence
of
liquidity.

What
Can
be
Done
to
Improve
Diversity
in
Fund
Management?

Fund
management
has
been
formalised
as
an
industry
which
paradoxically
has
arguably
reduced
diversity
in
all
forms.
More
mid-career
hires
and
a
different,
less
IBD-influenced
work
culture
would
be
good
steps.
It’s
also
important
that
firms
are
willing
to
take
calculated
risks
when
hiring
as
opposed
to
sticking
to
‘name
brand’
CVs
and
backgrounds.

Have
You
Ever
Engaged
With
a
Company
and
Been
Particularly
Proud
(or
Disappointed)
in
the
Outcome?

We
independently
vote
all
of
our
proxies
as
an
important
duty
to
clients
and
frequently
engage
on
topics
such
as
remuneration,
climate
reporting
and
governance.
We
believe
that
this
can
add
significant
value
to
investors
over
time.
As
a
direct
result
of
engagement
with
Nestle,
we
have
been
invited
to
the
chairman’s
round
table
and
had
significant
input
into
their
ongoing
improvements.
This
helps
us
better
understand
the
company
from
an
investment
standpoint
and
allows
us
to
discuss
potential
risks
directly.

What’s
The
Best
Bit
of
Advice
You’ve
Ever
Been
Given?

You
aren’t
learning
anything
when
you’re
talking.

What
Would
You
Be
if
You
Weren’t
a
Fund
Manager?

James
Knoedler:
I
have
absolutely
no
idea.
I
thought
I
was
going
to
be
an
academic,
which
I
certainly
would
not
want
to
be
now.

Chris
Elliott:
I
worked
as
a
software
engineer
prior
to
entering
finance.
I
still
code
occasionally
(though
very
badly!)
and
am
fascinated
by
both
the
new
AI
libraries
being
released
and
the
potential
for
quantum
computing.
I
would
probably
want
to
work
in
technology
or
run
my
own
software
business. 

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