December 8, 2025 • 32 mins
Host John Stepek speaks with Helen Jewell, International CIO of Fundamental Equities at BlackRock, about an unexpectedly strong year for global equity markets — one in which most regions outside the US outperformed. Jewell explains why widespread diversification, renewed strength in European banks, and accelerating demand for energy infrastructure—driven largely by AI—are shaping her outlook for 2026. She also highlights key risks, including investor complacency, and argues that selective opportunities in European quality growth and UK small caps remain compelling despite recent volatility.
This interview was taped at the Edelman Smithfield Investor Summit at the London Stock Exchange on Dec. 4, 2025.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:17):
Welcome to Mern Talks Money, the podcast in which people
who know the markets explain the markets. I'm join Stebecks,
senior reporter of Bloomberg and authoring the Money Distilled newsletter.
Today I'll be covering from MERN for this special episode
of the show, recorded live from the Edelmand Smithfield Investors
Summit at the London Stock Exchange. With me, it is
Helen Jewel, International Chief Investment Officer of Fundamental Equities for
(00:40):
emir at Blackrock. Helen is over twenty years of experience
in financial services, starting her career as an investment banker,
following a training route into equity research at Goldman Sachs
and then moving to Blackrock in twenty fifteen. Now we're
speaking at the start of December, and it's been a
fascinating year for equity markets in general. AI in US
(01:03):
tech stocks have still hogged the headlines, but when you
look at major global market performance in the year to date,
he'd actually, in most cases have been better off invested
in anywhere but the US. So I wanted to grab
a chat with Helen to get a sense of what's
caught Harraie this year and where she thinks the best
opportunities might be for twenty twenty six. Helen, Welcome to
me Earned Talks Money.
Speaker 3 (01:22):
Thanks for having me.
Speaker 2 (01:23):
It's very nice to have you. So, yeah, as I
was just saying there, it's been I mean I was
actually looking at the figures and it's actually really been
a spectacular year for markets. I really don't think that's,
you know, over exaggerating. I think the Footsie one hundred
is seen its best performance, and I mean I know
that's not saying much for the foots of one hundred.
It's done its best since two thousand and nine. So
(01:44):
what's kind of stood out most to you so far
this year?
Speaker 4 (01:47):
I'm glad you said that, actually, John, because often the
first question people ask me is this year it's all
been about us and AI again, and I have to
remind them that actually over eighty percent of major indices
have reatten turned double digit returns this year, including as
you say, the foot Sea, which is or the foot
Sea one hundred close to twenty percent, which is incredible.
(02:08):
I mean that is really really strong returns. And so
the thing that has been really incredible this year is
firstly the diversification of those returns, both across markets, but
also across sectors as well. Again, I think most people
think that the tech sector is the one that has
performed the best, and it has performed very well, but
(02:29):
you've also seen utilities perform well. In fact, you've seen
pretty much every major sector post very strong returns, and
again that has been a key detail for the market
this year. The second thing I think is worth mentioning though,
is that we have seen quite a number of quite
significant pullbacks. If we go back to the start of
(02:50):
this year, in January, we had what was termed the
deep Seek moment, when suddenly people thought that maybe AI
wasn't the only story in town, and there was a
realization we had to be really thoughtful about what that meant.
We then, of course had Liberation Date in April. We
then saw pullbacks in the summer, which was a painful
summer for many of us, and then even November saw
(03:11):
a bit of a degrossing and a rotation. So the
second thing that has been remarkable in the markets is
the number of quite significant pullbacks that you've had, but
they've always been followed with a by the dip moment,
and that is not something I have remembered for a
long long time, if ever in my career.
Speaker 2 (03:28):
Just on that point, I mean, you're absolutely right, because
I mean I suppose one of the reasons a voice
surprised when God was looking at the figures is you
do have this abiden memory, particularly of April and Liberation Day.
I guess everyone thought at that point that, well, that's
we're going to get a bit of market now. It
finally looked as if you know what, the EI story
was kind of dead in the water. It's very interesting
(03:49):
it's come back. Have you got any thoughts about what
is driving that kind of by the Depp mentality. Is
it just been hammled inty investors heads that it's been
the right thing to do for a boott in years now?
Speaker 4 (04:01):
Yeah. I mean the most important thing with the buy
the dip is it is being supported by actual fundamentals.
And this is why when we think about AI, and
a very common question I get asked is is there
an AI bubble? These are real earnings of real companies
with real cash behind them. And I think that is
the key reason that people are staying invested in this
(04:21):
market is that they actually see true returns from companies
that have got the capital to invest, and the AI
story is going to be a multi year story. I mean,
we're really really just at the beginning of it. The
amount of capital that's currently being deployed is half a
trillion dollars. That is an incredible amount of capital, about
half percent I think of global GDP and again being
(04:42):
supported by companies with real cash behind it.
Speaker 3 (04:45):
So we're just at the start of that.
Speaker 4 (04:47):
I think there is a second reason though, and let's
be honest, there's a little bit of whether you want
to call it fomo in the market or players in
the market, whether it's retail investors of course, indexer investors,
you've got the podshat who have capital that is invested
based on momentum, et cetera. And these participants also are
participants that support the market and the construct of the market,
(05:10):
and I think it's important that we recognize the influence
those participants have, particularly after you've seen multi period returns.
So if I've made twenty percent and then twenty percent
again and another twenty percent, if the market pulls back
by five percent, I'm not as bothered as if I'm
starting from point zero. So the amount of capital that
is in investors' pockets is also that little bit higher.
Speaker 2 (05:32):
That's that's quit a big, almost psychological flow beneath the market.
I'm not just a money.
Speaker 4 (05:38):
Flow exactly, and I don't think that it's very difficult
for us as investors to really put a number on
what that means. I mean, ultimately, John, the market is
two things. It is the earnings that a company is
going to make, and it is the multiple that people
are willing to pay for that earnings going forward. The
first of those, it's our job as fundamental investors to
try and figure it out. I mean, that's what I've
(05:59):
spent twenty five years of my career trying to understand.
The second, though, at the end of the day, is
what people are willing to pay. And this is the
question for the S and P five hundred. When it
was at twenty two times, we thought is it too high?
Then it goes to twenty three, Well, what is the
right number for that multiple if it continues to deliver
(06:19):
for investors?
Speaker 2 (06:21):
Yeah, I mean that's that's a good point. I mean,
I must have spent a lot of my my owing
career looking at the cape ratio and kind of more
recently stressing about who he is in the US, but
that doesn't seem to have certainly not a timing too.
But one thing I would say, which I think, again
going back to what we started with, this has kind
(06:43):
of been the year where we've seen the rest of
the world catch up with the US. And I'm just
wondered on what you think is driven that, as in
way have we seen that switch and do you think
that's going to continue or do you think those sectors
are perhaps getting too expense of themselves, Like the defense
story is an interest and one to me because that's
(07:04):
kind of rocketed, but that is also a saense to
know that maybe Germany is not going to be able
to deliver. Maybe, so I'll let you take that.
Speaker 4 (07:12):
Yeah, So why is it caught up? First off, I
think really goes back to that deep seek moment. That
the deep seek moment was the moment that we realized
that the US was not the only story in town.
Twelve months ago I was here. I think we were
talking about US exceptionalism all the time, and it's because
the US had delivered and nothing else had. And I
think what happened with the deep seek moment is it
(07:34):
was this realization of oh goodness, maybe when it comes
to AI, it's not just about the US, and maybe
in my portfolios I should have a bit more diversity
other than the US. The best thing you could have
done at the start of the year would have been
underweight US and overweight China Tech for that.
Speaker 3 (07:49):
Month of January.
Speaker 4 (07:51):
So that realization has meant that people have looked elsewhere
and you've been in again this unusual situation where you
have so many markets into double digits. So the starting
point has been investors looking for other opportunities outside of
just that US AI bubble. And where have they looked, Well,
they've looked at generally two things, which is what investors
(08:13):
look at. They look at firstly, where do they think
that the earnings growth is going to come from? And
that's the defense story, right, the investors saying, we believe
that there's going to be this flow of capital and
from the German government from Europe into defense that is
going to support the earnings, so I am going to
buy there. And the second area they look at is
(08:34):
areas they think valuations look really interesting, so they go, okay,
what looks relatively interesting, And in Europe, the banks has
been the key area that that has been true for
They look relative to their history pretty cheap. We think
these are really strong, good companies that restructured post the
financial crisis. They're going to return capital to shareholders. Let
(08:54):
me go there, And it's just what you would do
if you're buying a house, right, if you're buying a
house from an investment perspective, you either want to go
somewhere that looks pretty cheap and really good value, or
somewhere where you think is really up and coming and
there's going to be future earnings. It's the same mentality.
So then that goes for where next, where it's the
same mentality still, where do we think the earnings are
going to be and where it still looks good value
(09:17):
now earnings wise, the defense maybe has a bit further
to go, but it's probably not the dominant story to me.
The dominant story in twenty six is going to be,
you know, the energy solution providers, and that's where Europe
can actually be really, really good.
Speaker 2 (09:30):
That's interesting so because obviously you know, looking at we
ad highs like this year, energy does come up, although
I'm assuming that that is mostly the force or fuel said,
because I think clean energy's done reasonably well this year,
so weird as it you think the money's going to
be cheasing next year.
Speaker 4 (09:49):
Yeah, So three things, And actually, interestingly, the energy stocks
have not done badly this year.
Speaker 3 (09:55):
The oil price.
Speaker 4 (09:56):
You've seen a separation between the oil price and energy stocks,
which is pretty interesting. Part of that is geopolitics, but
part of that is also the recognition that actually demand
is going to be more resilient than people thought for
the fossil fuels. So fossil fuels have done okay. Clean
energy has already started to do well, but definitely has
got better. But let's put it into three camps. If
(10:16):
you need energy, and you need energy.
Speaker 3 (10:19):
A lot of it is driven by AI.
Speaker 4 (10:20):
So so much from the AI perspective is AI need
energy to work. There's also things like air conditioning, but
AI seems to be the only thing we talk about
that is the dominant, dominant driver.
Speaker 3 (10:32):
So what do you need?
Speaker 4 (10:33):
You need companies that can provide the energy, and it
doesn't matter where that energy.
Speaker 3 (10:37):
Really comes from.
Speaker 4 (10:37):
It can be fossil fuels, it can be clean energy,
but you need energy. Number two, you need that energy
to be efficient. So companies that are supporters of energy efficiency.
And thirdly, you need the energy to get to where
it needs to go, so network companies. So that's three
buckets which are all kind of part of the energy infrastructure.
(10:57):
Anyone who provides the nuts and botds for wind turbines,
anybody who provides solutions for energy efficiency, and anybody who
provides the network for actually getting the energy to where
it needs to be. And of course the data centers
for storing the energy where it needs to be. They
are going to be the real winners energy. I think
John is going to be the real constrainer for AI
(11:19):
in twenty six.
Speaker 2 (11:20):
Yeah, I mean, yeah, that makes an awful lot of sense.
There's a limit to him in the specific company. But
what's a good example of a company or an area,
like an example rather than rather than a TEP as
it will.
Speaker 4 (11:34):
Yeah, So a good example is in the German industrial space.
So the German industrial names have got some really interesting
names within their semens energy for example this one, and
it's done very well. So again these are not these
are kind of about having more. Again from a network perspective,
you've got names like Ebadrola in Spain, SSEC here in
the UK recently did a capital race. These are really
(11:57):
interesting names and interesting companies because they are providing a
solution to something that the world needs right now and
ultimately bringing it back to one oh one. And as
you said at the start, I spent a couple of
years in training, and in training, what you were kind
of telling people is, look, this isn't This is about
looking at companies that have earnings. Earnings is revenue less costs.
(12:18):
Revenue is driven by providing things that people need, Things
that people need or want, is solutions, solutions that solve
things that people are looking for. And right now we
have got a need for more energy, driven by AI,
driven by air conditioning, driven by just the way we're
living our lives.
Speaker 3 (12:36):
At the moment, we're.
Speaker 2 (12:54):
Going back to the EI because and talking about the
capital spend. And I radther very interesting piece from calf
Cal a couple of weeks ago, and it kind of
made a point I must have I hadn't really thought
about because everyone kind of lazily compares this to the
dot com bubble. And one thing that this chat was
making the point was that, well, I say the dot
com bubble, once these companies were established, the marginal you know,
(13:19):
cost of sales was basically free and so everything went
to pure profit, whereas AI seems to have this ongoing
capital intensity where you know, you're trying to keep up
with your rivals, you need to buy the next hot
in the video chip, that sort of thing. Is there
a point where we kind of run out of road
slightly and you know, it's good, We're building out all
(13:40):
this infrastructure, but then everyone goes, oh wait, I'm where's
the actual money coming from to pay for all this.
I'm just curious what your take has on that element.
Speaker 4 (13:49):
I mean, that is something that people worry about. But
the reason I think we shouldn't worry is that. And
I think it's as you say, where AI is is
a little bit different to dot com. AI is transmission
across many different things. It's not just about the consumer.
It is about defense, for example, it is about government security.
So when it comes to AI, there is the two things.
There's the one that you touched on, which is that
(14:10):
circularity of the more chips you need, or the more
chips you have, the more AI can do. The more
AI can do, the more chips you need. So you've
got that circularity of growth in the chips, which is important.
The second thing is this is bigger than just being
able to buy things on your phone. This is about
needing this for security from a geopolitical perspective as well.
(14:34):
And that's probably the thing that we don't talk about
quite enough. If and it's a very big it's hugely unlikely,
but the hyperscede has ever decided actually tomorrow this is done.
We're not spending I am confident that governments would step
in that they need to, that they can't not be
part of this story because this is so important. It's
going to be part of defense, it's going to be
(14:55):
part of national security as well. The AI story is
much much better, bigger than just being able to do
the Christmas quiz via chat GPT absolutely answer.
Speaker 2 (15:05):
So I see your business in there's a kind of
tax payer put under the sector to a certain extent,
that's what that's interesting.
Speaker 3 (15:12):
But you're already seeing it, right.
Speaker 4 (15:13):
You go over to different countries and you know, we're
already starting to see it here in the UK. You
go in and it's face recognition at passport control, it's
those things. If you're not investing in those things, and
those things are all kind of the part of AI.
I mean, these are all AI constructs. If you don't
do that as you're going to be left behind. So
(15:34):
it's not just about the companies, although the companies obviously
are the drivers and the nuts and bolts of all
of this. Again, the companies are the solution providers and
and understanding who are providing the solution that people and
by people. It's consumers, it's governments, it's everybody need that.
That is That is our job and that's why I
love it, John, That's why it's so interesting to me
(15:55):
every single day because it's thinking who is going to
be providing the solution going forward?
Speaker 2 (15:59):
Okay, and so in terms of the best play on
AI next year, I get the film and you're basically
saying the energy is a good point because it's semi
decent valuations and it's definitely going to be needed. That
makes a lot of sense in terms of because going back.
Speaker 4 (16:14):
To that in Europe, John's a little bit biased, if
you don't mind me saying that. You know, I love
anything that has a much bigger European tilt to it.
So you know, there's some really interesting European companies in
that space.
Speaker 2 (16:24):
That's forgivable. Giving your job title actually on that point.
So obviously the other one that has kind of rocketed
because I was looking at the Spain for example, and
one thing that caught my high a couple of weeks
ago when I was writing about it, and obviously the
Spanish market is not one to pay a lot of
attention to, but I was looking at it was going,
my goodness, that is an awful lot this year. And
(16:45):
then you can look at it and it's like what
was basically the banking sector that's driving that. And it's
the same way the Italian market has gone up a
lot because the banks have rocketed. And even in the UK,
I mean Lloyd's is up a lot this year. I
think that West was up a lot kind of last year.
Are the banks still or not all? Do you think
what is that sort of like kind of rapen And.
Speaker 4 (17:06):
No, we still think the banks are on a roll
and we remain overweight HSBC and again in the UK
and are the big performer this year. So why are
we so positive on them? Even when they've gone up?
The valuations although they are higher than they were a
year and two years ago, they are still not particularly
excessive versus history. So that is number one. Number two,
(17:29):
they are a set of companies that have resilience in
their earnings. And people think so much just about the
interest rate, And of course the interest rate might come
down a little bit, but it was only going to
come down a little and we're still in the kind
of a good spot for banks. More importantly, for banks,
it's about the loan growth. And what you're seeing is
you're seeing corporate balance sheets in strong place. You're seeing
(17:51):
consumers in a strong place, and that is really supportive
for the banks. And the third thing I would say,
and I don't think European banks are given enough credit
for this post the finalancial crisis, they did really think
about how they were capitalized and how they were structured,
and as a result of that, we think in the
next three years that they're able to return up to
twenty five percent of their current market cap to shareholders
(18:13):
in either dividends or share buybacks. So that's a pretty
nice space, right You buy something feeling confident that you
get to get twenty five percent back even if nothing
else happens, and the likely it is something else is
going to happen. So European banks remain a key part
of our portfolios at the moment.
Speaker 2 (18:32):
I mean it's interesting because I would say, and I
don't know what your thoughts are, but one thing that
did stand doing to me about the budget recently, and
I guess a positive sense, was that the Chancellor minds
to resist all pressure put another tax on the banks.
And also, you know, the consumer of car lawing kind
(18:53):
of issue. Seems they have been downplayed in the way
that the PPI kind of scandal war isn't. I think
it almost feels as if and I don't know if
you agree that the banks have kind of come off
the naughty step in the last twelve months, certainly in
the UK and also seems to be happening in Europe
as well. So I guess maybe we've not got that
same post financial crisis can anger at them to an extent.
Speaker 4 (19:17):
Yeah, No, I think it's certainly eased. And I think
when you look at the returns that these companies have had,
they're so relatively mundane versus some of the other companies.
I mean, the question actually bringing it back to that
AI story and kind of it's got so far that
we need to get to. I was listening on the
way into the radio and obviously in Australia. You're starting
(19:39):
to see changes being made there as children can't use
social media et cetera. That is going to be the
interesting next step. I think it's not going to be
about the banks again, that's quite I think it's more
likely to be about for AI. What does that mean
from a social perspective. It's going to be really interesting,
But that I think is going to be much more
(20:00):
the focus than the banks.
Speaker 2 (20:02):
That is interesting because yeah, because one thing we have
been talking about for a long time is when is
the backlash against the big tech company is going to
come about? And I know that's an idea that's been
bubbling under for several years. But that's really interesting you
raise that then, because it almost feels as if that
has starting to happened. People are getting more and more
(20:22):
concerned about what social media is perceived at least to
have done to you know, the children's brains and things
like that. So I okay, that's so that's a kind
of possible risk for the tech sector next year.
Speaker 4 (20:34):
Perhaps it is, but again our job is to think
about how do you turn that into something more tangible.
Backlash can be words, but a backlash can be actions
and at the moment until you know more about actions.
Speaker 3 (20:44):
I think it's yeah, I'd.
Speaker 4 (20:47):
Love over a beer to chat more about it. But
from it from an investment perspective, you're just guessing.
Speaker 2 (20:52):
And in terms of sectors for next year that you're
perhaps less keen on are ones you would just not
be as in through yas to go about any standout
as being either the two expensive or there's just nothing
going to happen there or anything you would basically avoid.
Speaker 3 (21:10):
Yeah.
Speaker 4 (21:10):
The one area that unfortunately still struggles is the auto
sector in Europe. It is under a huge structural pressure
obviously where you've seen tariffs coming in and that has
put it under pressure both directly and obviously indirectly through
other countries now having cheaper vehicles that they can export
it to Europe. So it pays me to say it,
(21:33):
but the European auto sextor is one that we remain underweight.
It feels a little bit of a value trap at
the moment.
Speaker 2 (21:39):
And in terms of the individual countries, are there any
fever over others or is that not really how you
think about the European market.
Speaker 4 (21:47):
It's a bit like you say, when you get too
much in the European market. You're really looking at companies.
So Spain is great, but Spain is great because it's
got fantastic banks and utilities.
Speaker 3 (21:55):
I would say, as I mentioned with.
Speaker 4 (21:56):
Ebidroler earlier, the one area as we are sitting here
in pattern not to square that this worth is mentioning
is the UK small cap. So the UK small cap
has been unloved and undervalued for a period of time now,
and you know, the budget last week perhaps provides a
little bit more stability. Obviously one of the things the
chance he's trying to do is get people investing more
(22:18):
in the UK and if people invest, they tend to invest.
Speaker 3 (22:22):
In their home country.
Speaker 4 (22:23):
We've got great small cap companies in this country and
the valuations of some of them are incredibly interesting. So
we remain long term positive whilst recognizing that structurally it's
been a very difficult place over the last couple of years.
Speaker 2 (22:38):
I mean, that is interesting you to bring that up,
because I perfectly think about valuation without worrying too much
about catalysts. But obviously small caps in the UK have
been struggling for a long time. Is that anything you
see that may actually make that kind of start to
go awi in twenty twenty six, because obviously even the
footy two fifty has had by compartison a buy eleven
(23:01):
percent would not be a pretty decent year. So I'm
just cursed to see what you're thinking that.
Speaker 4 (23:06):
Yeah, I don't think there's a one clear catalyst, which
is a real shame because if there was, I would
be absolutely pivoting all in. I think maybe what we
are going to see is again this understanding that you
need to broaden out portfolios exactly what we've seen this year.
Speaker 1 (23:20):
Now.
Speaker 4 (23:20):
At the start of the year, that felt easy in
inverted commas because you had these pockets that had not
performed well. Now of course it's more difficult because you
have more pockets that have performed well. So maybe what
that forces is it forces investors to go further afield
to find those pockets that still look relatively cheap and
relatively interesting. That's the hope that I have, But maybe
(23:42):
that's my hope in a slightly biased opinion, but it
would be lovely if they did. And I think what
you will see, because the equidity is relatively low, you
do start to see these virtuous cycles.
Speaker 3 (23:53):
Once it happens, people think I've missed out here and
we go.
Speaker 4 (23:56):
So I would love love to see that happen and
hope right it could be a hope for twenty twenty six.
Speaker 2 (24:03):
Hope I like that. I mean honestly, I think people
were were great to be disappointed with the budget that said,
do you think that the three year stamp duty holiday
may bring a couple of big get apos here that
we're looking elsewhere and perhaps now you think, oh, I
sually maybe we can choose London or at least dual
(24:25):
less than London or something like that. Is it going
to move the needle at all?
Speaker 4 (24:30):
I think what it shows is a real try, a
support you know, a kind of desire of a government
to say we want to help make this happen. And
I think that is important. But let's be honest, the
thing that is the most important thing of all is
the valuation level. So actually what is more likely to
be supportive is again that foot sea starting to move up,
and the foot sea and people thinking if I list here,
(24:51):
my opportunity for re terms is just as great as
if it was elsewhere. That is the big deal mover.
But having a supportive government it can't help in terms
of a government. That's basically indicating to the world market,
we want to make it easier for you to list
in the UK.
Speaker 2 (25:05):
Yeah, what's the biggest risk you see for twenty twenty six,
Because obviously this year there was tartiffs, there was the
you know, bind market was going to blow up at
any point, and neither of those things have actually really
done the damage that perhaps people were worried that we're
going to do. What do you think the potential kind
of thing you keep an eye on ers for next year.
Speaker 4 (25:26):
I think the biggest risk is actually complacency driven by
those couple of things that you've seen. And although the
macro does look okay and decent, you know, we are
starting to see a little bit of softening of job
data in the US. At the moment, we're still in
that bad news is good news because then the FED
is more likely to cut. But if we get too
complacent and we don't think about, you know, the impact
(25:50):
of maybe stickier inflation on jobs, on stick of inflation
on consumer confidence, that is the big biggest concern that
I would have that actually what you see is this
kind of creep of things not getting terrible, but kind
of just getting a little bit worse and a little
bit worse, and again all of this comes back to
(26:12):
the market is driven to a certain extent by the
multiple that people are willing to pay, which is driven
a lot by the confidence they have in the underlying economies.
So my biggest concern, and it's not a big bang answer,
I don't think, you know, there will be certain things
that we haven't even thought about yet. I mean, twelve
months ago, I didn't know, you know, deep Seek was
a thing that was going to kind of blow up
(26:32):
in January. But that kind of creep of nervousness that
that is something that I am keeping a real eye
on because I worry that we've become complacent John, you know,
the concerns we have went away. Everyone just kept buying
the dip, and therefore we end up in a situation
where we just almost don't even look at things that
we should as investors be continually looking at.
Speaker 2 (26:55):
And there on the glass half we'll say, there's an
anthing you see as being a big poison to surprise
that could happen, something that may engender more confidence that
we're not really thinking about.
Speaker 4 (27:07):
That's a really good question, I think, because we've all
been so positive. We probably are thinking about all of
the good things that might be likely to happen. But
I think maybe one of the things is the element
of Again, I don't want to sound boring always bringing
back to this energy story, but the ability of the
(27:29):
human being to continually solve the issues that are coming
up in the world. It's not necessarily a big bang surprise,
but I think the resilience of us as humans. Again,
if you think about the market, if you think about
Liberation Day, Liberation Day was such a big day in
the markets, but actually very quickly companies adapted, government's adapted,
(27:50):
people adapted, And I think giving ourselves a little bit
of a pat on the back for that and recognizing
the ability of humans to respond well is a good thing.
And then you know, maybe obviously from a other perspective,
that there's a lot of geopolitical issues that continue. Seeing
those move through and resolution of some of those is
always obviously helpful for markets, if more importantly helpful for humans.
Speaker 2 (28:15):
Yes, quit so was saying by energy, stick with the banks,
avoid cars. Anything else was loxuredly sick. That's the one
other You.
Speaker 4 (28:29):
Saw my finger come up if we were being recorded
and buy energy. To be very clear, let's let's kind
of scope that out everything energy, because I think people
when they think about that, they just think about the
oils in one segment, all energy solution providers by banks,
and then actually for luxury, I'd actually broughten it out
to quality growth in Europe. Quality growth in Europe, and
(28:49):
by that I mean they're really good European companies that
again have resilient earnings, they have strength in their balance sheets.
These companies have not actually had a great year. And
the reason I've not had a great year in Europe
is a weakening dollar and the tariffs, and most of
them are exporters. Those two things combined have really put
pressure and nervousness on those companies. So they include names
(29:11):
in the luxury good space like LVMH, names in the
semiconductor space, names in the data providers a space, and
the solutions space software space, which often have just been
kind of actually downgraded quite significantly in investor minds. Those
as a group of companies have not had a great
(29:32):
year in Europe. But when we see more stabilization in
terms of currency, when we see obviously the tariff resolutions
starting to come through, I think they're a really interesting
group of companies. Perhaps being selective though always good for
me to throw in a recommendation for active investing in
that space to really understand the winners versus the losers.
Speaker 2 (29:51):
So you have to be pecky. So we can't just
buy a track I find is that they hate it,
not a.
Speaker 4 (29:55):
Track of fund for quality growth. Quality growth is exactly
the kind of area that you want to play selective
and active.
Speaker 2 (30:01):
Very good, Well, listen, that's been really helpful here, and
I think we've got a good all review of what
we need to be looking at for next year. I'm
going to ask a usual end question, but before I
do that, is it anything else specific that you wanted
to bring up that you feel that havn't covered, that
we haven't covered.
Speaker 4 (30:20):
The one thing I perhaps is is and ask that
all the listeners. AI and ai Us is such an
interesting story that, as we say, we could talk about
entirely just about that. But just because that's the story
that is dominating the headlines, don't forget that there is
still really interesting returns happening in many other parts of
the market. So diversifying portfolios is not just about moving
(30:43):
away from a dominant risk in portfolios and feeling you've
got to give up returns to do so. It's absolutely
not the case. You can diversify portfolios in a really
sensible way and also.
Speaker 3 (30:55):
Maintain those returns.
Speaker 4 (30:56):
So don't let the headlines grab how you allocate portfolio one.
Speaker 2 (31:00):
Listen to the headlines? Can you trust journalists? Terrible? So
for Christmas, which book have you read this year that
you would see with make an excellent gift?
Speaker 4 (31:13):
Oh well, it's a great question, and I'm going to
say the one that's best for a gift because it's
a brilliant book. It's a fiction book Frederick Backman called
My Friends. I love that author, and it's a really
really good, really enjoyable, really heartwarming, readable book.
Speaker 3 (31:27):
So as a gift, definitely do that.
Speaker 4 (31:30):
The second one, if I can have two, which is
probably less good as a gift, but it's really really interesting.
It's called Being Mortal by A Gandhi, and this is
really about how we think about death and dying. So
probably not the best thing to give us a gift,
but certainly one that I would recommend reading it. It
really gets you thinking, which is all that you can
ask for from a book. So one that's heartwarming, one
(31:53):
that gets you thinking, one that is a gift, one
that's a by yourself.
Speaker 2 (31:57):
It was a good choice.
Speaker 3 (31:57):
Diversification everywhere you see.
Speaker 2 (32:01):
Well look. Thanks very much, Helen, really appreciate your time.
Speaker 3 (32:04):
Thanks John, great to be Hey, Thanks for having me.
Speaker 2 (32:17):
Thanks for listening to this week's Merton Talks Money. If
you like a show, rate the view and subscribe wherever
you listen to podcasts, and keep sending questions or comments
to Merron Money at Bloomberg dot net. This episode was
hosted by me Join step Beck. You can also follow
me on Twitter or x I am at Join Underscore
step Beck and Meron is at Merton sw This episode
was produced by some of Sadie and Wasis and Am
(32:39):
sound designed by Blake Maples and special thanks to Helen,
Joel Edelman, Smithfield and the London Stock Exchange
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:17):
Welcome to Mern Talks Money, the podcast in which people
who know the markets explain the markets. I'm join Stebecks,
senior reporter of Bloomberg and authoring the Money Distilled newsletter.
Today I'll be covering from MERN for this special episode
of the show, recorded live from the Edelmand Smithfield Investors
Summit at the London Stock Exchange. With me, it is
Helen Jewel, International Chief Investment Officer of Fundamental Equities for
(00:40):
emir at Blackrock. Helen is over twenty years of experience
in financial services, starting her career as an investment banker,
following a training route into equity research at Goldman Sachs
and then moving to Blackrock in twenty fifteen. Now we're
speaking at the start of December, and it's been a
fascinating year for equity markets in general. AI in US
(01:03):
tech stocks have still hogged the headlines, but when you
look at major global market performance in the year to date,
he'd actually, in most cases have been better off invested
in anywhere but the US. So I wanted to grab
a chat with Helen to get a sense of what's
caught Harraie this year and where she thinks the best
opportunities might be for twenty twenty six. Helen, Welcome to
me Earned Talks Money.
Speaker 3 (01:22):
Thanks for having me.
Speaker 2 (01:23):
It's very nice to have you. So, yeah, as I
was just saying there, it's been I mean I was
actually looking at the figures and it's actually really been
a spectacular year for markets. I really don't think that's,
you know, over exaggerating. I think the Footsie one hundred
is seen its best performance, and I mean I know
that's not saying much for the foots of one hundred.
It's done its best since two thousand and nine. So
(01:44):
what's kind of stood out most to you so far
this year?
Speaker 4 (01:47):
I'm glad you said that, actually, John, because often the
first question people ask me is this year it's all
been about us and AI again, and I have to
remind them that actually over eighty percent of major indices
have reatten turned double digit returns this year, including as
you say, the foot Sea, which is or the foot
Sea one hundred close to twenty percent, which is incredible.
(02:08):
I mean that is really really strong returns. And so
the thing that has been really incredible this year is
firstly the diversification of those returns, both across markets, but
also across sectors as well. Again, I think most people
think that the tech sector is the one that has
performed the best, and it has performed very well, but
(02:29):
you've also seen utilities perform well. In fact, you've seen
pretty much every major sector post very strong returns, and
again that has been a key detail for the market
this year. The second thing I think is worth mentioning though,
is that we have seen quite a number of quite
significant pullbacks. If we go back to the start of
(02:50):
this year, in January, we had what was termed the
deep Seek moment, when suddenly people thought that maybe AI
wasn't the only story in town, and there was a
realization we had to be really thoughtful about what that meant.
We then, of course had Liberation Date in April. We
then saw pullbacks in the summer, which was a painful
summer for many of us, and then even November saw
(03:11):
a bit of a degrossing and a rotation. So the
second thing that has been remarkable in the markets is
the number of quite significant pullbacks that you've had, but
they've always been followed with a by the dip moment,
and that is not something I have remembered for a
long long time, if ever in my career.
Speaker 2 (03:28):
Just on that point, I mean, you're absolutely right, because
I mean I suppose one of the reasons a voice
surprised when God was looking at the figures is you
do have this abiden memory, particularly of April and Liberation Day.
I guess everyone thought at that point that, well, that's
we're going to get a bit of market now. It
finally looked as if you know what, the EI story
was kind of dead in the water. It's very interesting
(03:49):
it's come back. Have you got any thoughts about what
is driving that kind of by the Depp mentality. Is
it just been hammled inty investors heads that it's been
the right thing to do for a boott in years now?
Speaker 4 (04:01):
Yeah. I mean the most important thing with the buy
the dip is it is being supported by actual fundamentals.
And this is why when we think about AI, and
a very common question I get asked is is there
an AI bubble? These are real earnings of real companies
with real cash behind them. And I think that is
the key reason that people are staying invested in this
(04:21):
market is that they actually see true returns from companies
that have got the capital to invest, and the AI
story is going to be a multi year story. I mean,
we're really really just at the beginning of it. The
amount of capital that's currently being deployed is half a
trillion dollars. That is an incredible amount of capital, about
half percent I think of global GDP and again being
(04:42):
supported by companies with real cash behind it.
Speaker 3 (04:45):
So we're just at the start of that.
Speaker 4 (04:47):
I think there is a second reason though, and let's
be honest, there's a little bit of whether you want
to call it fomo in the market or players in
the market, whether it's retail investors of course, indexer investors,
you've got the podshat who have capital that is invested
based on momentum, et cetera. And these participants also are
participants that support the market and the construct of the market,
(05:10):
and I think it's important that we recognize the influence
those participants have, particularly after you've seen multi period returns.
So if I've made twenty percent and then twenty percent
again and another twenty percent, if the market pulls back
by five percent, I'm not as bothered as if I'm
starting from point zero. So the amount of capital that
is in investors' pockets is also that little bit higher.
Speaker 2 (05:32):
That's that's quit a big, almost psychological flow beneath the market.
I'm not just a money.
Speaker 4 (05:38):
Flow exactly, and I don't think that it's very difficult
for us as investors to really put a number on
what that means. I mean, ultimately, John, the market is
two things. It is the earnings that a company is
going to make, and it is the multiple that people
are willing to pay for that earnings going forward. The
first of those, it's our job as fundamental investors to
try and figure it out. I mean, that's what I've
(05:59):
spent twenty five years of my career trying to understand.
The second, though, at the end of the day, is
what people are willing to pay. And this is the
question for the S and P five hundred. When it
was at twenty two times, we thought is it too high?
Then it goes to twenty three, Well, what is the
right number for that multiple if it continues to deliver
(06:19):
for investors?
Speaker 2 (06:21):
Yeah, I mean that's that's a good point. I mean,
I must have spent a lot of my my owing
career looking at the cape ratio and kind of more
recently stressing about who he is in the US, but
that doesn't seem to have certainly not a timing too.
But one thing I would say, which I think, again
going back to what we started with, this has kind
(06:43):
of been the year where we've seen the rest of
the world catch up with the US. And I'm just
wondered on what you think is driven that, as in
way have we seen that switch and do you think
that's going to continue or do you think those sectors
are perhaps getting too expense of themselves, Like the defense
story is an interest and one to me because that's
(07:04):
kind of rocketed, but that is also a saense to
know that maybe Germany is not going to be able
to deliver. Maybe, so I'll let you take that.
Speaker 4 (07:12):
Yeah, So why is it caught up? First off, I
think really goes back to that deep seek moment. That
the deep seek moment was the moment that we realized
that the US was not the only story in town.
Twelve months ago I was here. I think we were
talking about US exceptionalism all the time, and it's because
the US had delivered and nothing else had. And I
think what happened with the deep seek moment is it
(07:34):
was this realization of oh goodness, maybe when it comes
to AI, it's not just about the US, and maybe
in my portfolios I should have a bit more diversity
other than the US. The best thing you could have
done at the start of the year would have been
underweight US and overweight China Tech for that.
Speaker 3 (07:49):
Month of January.
Speaker 4 (07:51):
So that realization has meant that people have looked elsewhere
and you've been in again this unusual situation where you
have so many markets into double digits. So the starting
point has been investors looking for other opportunities outside of
just that US AI bubble. And where have they looked, Well,
they've looked at generally two things, which is what investors
(08:13):
look at. They look at firstly, where do they think
that the earnings growth is going to come from? And
that's the defense story, right, the investors saying, we believe
that there's going to be this flow of capital and
from the German government from Europe into defense that is
going to support the earnings, so I am going to
buy there. And the second area they look at is
(08:34):
areas they think valuations look really interesting, so they go, okay,
what looks relatively interesting, And in Europe, the banks has
been the key area that that has been true for
They look relative to their history pretty cheap. We think
these are really strong, good companies that restructured post the
financial crisis. They're going to return capital to shareholders. Let
(08:54):
me go there, And it's just what you would do
if you're buying a house, right, if you're buying a
house from an investment perspective, you either want to go
somewhere that looks pretty cheap and really good value, or
somewhere where you think is really up and coming and
there's going to be future earnings. It's the same mentality.
So then that goes for where next, where it's the
same mentality still, where do we think the earnings are
going to be and where it still looks good value
(09:17):
now earnings wise, the defense maybe has a bit further
to go, but it's probably not the dominant story to me.
The dominant story in twenty six is going to be,
you know, the energy solution providers, and that's where Europe
can actually be really, really good.
Speaker 2 (09:30):
That's interesting so because obviously you know, looking at we
ad highs like this year, energy does come up, although
I'm assuming that that is mostly the force or fuel said,
because I think clean energy's done reasonably well this year,
so weird as it you think the money's going to
be cheasing next year.
Speaker 4 (09:49):
Yeah, So three things, And actually, interestingly, the energy stocks
have not done badly this year.
Speaker 3 (09:55):
The oil price.
Speaker 4 (09:56):
You've seen a separation between the oil price and energy stocks,
which is pretty interesting. Part of that is geopolitics, but
part of that is also the recognition that actually demand
is going to be more resilient than people thought for
the fossil fuels. So fossil fuels have done okay. Clean
energy has already started to do well, but definitely has
got better. But let's put it into three camps. If
(10:16):
you need energy, and you need energy.
Speaker 3 (10:19):
A lot of it is driven by AI.
Speaker 4 (10:20):
So so much from the AI perspective is AI need
energy to work. There's also things like air conditioning, but
AI seems to be the only thing we talk about
that is the dominant, dominant driver.
Speaker 3 (10:32):
So what do you need?
Speaker 4 (10:33):
You need companies that can provide the energy, and it
doesn't matter where that energy.
Speaker 3 (10:37):
Really comes from.
Speaker 4 (10:37):
It can be fossil fuels, it can be clean energy,
but you need energy. Number two, you need that energy
to be efficient. So companies that are supporters of energy efficiency.
And thirdly, you need the energy to get to where
it needs to go, so network companies. So that's three
buckets which are all kind of part of the energy infrastructure.
(10:57):
Anyone who provides the nuts and botds for wind turbines,
anybody who provides solutions for energy efficiency, and anybody who
provides the network for actually getting the energy to where
it needs to be. And of course the data centers
for storing the energy where it needs to be. They
are going to be the real winners energy. I think
John is going to be the real constrainer for AI
(11:19):
in twenty six.
Speaker 2 (11:20):
Yeah, I mean, yeah, that makes an awful lot of sense.
There's a limit to him in the specific company. But
what's a good example of a company or an area,
like an example rather than rather than a TEP as
it will.
Speaker 4 (11:34):
Yeah, So a good example is in the German industrial space.
So the German industrial names have got some really interesting
names within their semens energy for example this one, and
it's done very well. So again these are not these
are kind of about having more. Again from a network perspective,
you've got names like Ebadrola in Spain, SSEC here in
the UK recently did a capital race. These are really
(11:57):
interesting names and interesting companies because they are providing a
solution to something that the world needs right now and
ultimately bringing it back to one oh one. And as
you said at the start, I spent a couple of
years in training, and in training, what you were kind
of telling people is, look, this isn't This is about
looking at companies that have earnings. Earnings is revenue less costs.
(12:18):
Revenue is driven by providing things that people need, Things
that people need or want, is solutions, solutions that solve
things that people are looking for. And right now we
have got a need for more energy, driven by AI,
driven by air conditioning, driven by just the way we're
living our lives.
Speaker 3 (12:36):
At the moment, we're.
Speaker 2 (12:54):
Going back to the EI because and talking about the
capital spend. And I radther very interesting piece from calf
Cal a couple of weeks ago, and it kind of
made a point I must have I hadn't really thought
about because everyone kind of lazily compares this to the
dot com bubble. And one thing that this chat was
making the point was that, well, I say the dot
com bubble, once these companies were established, the marginal you know,
(13:19):
cost of sales was basically free and so everything went
to pure profit, whereas AI seems to have this ongoing
capital intensity where you know, you're trying to keep up
with your rivals, you need to buy the next hot
in the video chip, that sort of thing. Is there
a point where we kind of run out of road
slightly and you know, it's good, We're building out all
(13:40):
this infrastructure, but then everyone goes, oh wait, I'm where's
the actual money coming from to pay for all this.
I'm just curious what your take has on that element.
Speaker 4 (13:49):
I mean, that is something that people worry about. But
the reason I think we shouldn't worry is that. And
I think it's as you say, where AI is is
a little bit different to dot com. AI is transmission
across many different things. It's not just about the consumer.
It is about defense, for example, it is about government security.
So when it comes to AI, there is the two things.
There's the one that you touched on, which is that
(14:10):
circularity of the more chips you need, or the more
chips you have, the more AI can do. The more
AI can do, the more chips you need. So you've
got that circularity of growth in the chips, which is important.
The second thing is this is bigger than just being
able to buy things on your phone. This is about
needing this for security from a geopolitical perspective as well.
(14:34):
And that's probably the thing that we don't talk about
quite enough. If and it's a very big it's hugely unlikely,
but the hyperscede has ever decided actually tomorrow this is done.
We're not spending I am confident that governments would step
in that they need to, that they can't not be
part of this story because this is so important. It's
going to be part of defense, it's going to be
(14:55):
part of national security as well. The AI story is
much much better, bigger than just being able to do
the Christmas quiz via chat GPT absolutely answer.
Speaker 2 (15:05):
So I see your business in there's a kind of
tax payer put under the sector to a certain extent,
that's what that's interesting.
Speaker 3 (15:12):
But you're already seeing it, right.
Speaker 4 (15:13):
You go over to different countries and you know, we're
already starting to see it here in the UK. You
go in and it's face recognition at passport control, it's
those things. If you're not investing in those things, and
those things are all kind of the part of AI.
I mean, these are all AI constructs. If you don't
do that as you're going to be left behind. So
(15:34):
it's not just about the companies, although the companies obviously
are the drivers and the nuts and bolts of all
of this. Again, the companies are the solution providers and
and understanding who are providing the solution that people and
by people. It's consumers, it's governments, it's everybody need that.
That is That is our job and that's why I
love it, John, That's why it's so interesting to me
(15:55):
every single day because it's thinking who is going to
be providing the solution going forward?
Speaker 2 (15:59):
Okay, and so in terms of the best play on
AI next year, I get the film and you're basically
saying the energy is a good point because it's semi
decent valuations and it's definitely going to be needed. That
makes a lot of sense in terms of because going back.
Speaker 4 (16:14):
To that in Europe, John's a little bit biased, if
you don't mind me saying that. You know, I love
anything that has a much bigger European tilt to it.
So you know, there's some really interesting European companies in
that space.
Speaker 2 (16:24):
That's forgivable. Giving your job title actually on that point.
So obviously the other one that has kind of rocketed
because I was looking at the Spain for example, and
one thing that caught my high a couple of weeks
ago when I was writing about it, and obviously the
Spanish market is not one to pay a lot of
attention to, but I was looking at it was going,
my goodness, that is an awful lot this year. And
(16:45):
then you can look at it and it's like what
was basically the banking sector that's driving that. And it's
the same way the Italian market has gone up a
lot because the banks have rocketed. And even in the UK,
I mean Lloyd's is up a lot this year. I
think that West was up a lot kind of last year.
Are the banks still or not all? Do you think
what is that sort of like kind of rapen And.
Speaker 4 (17:06):
No, we still think the banks are on a roll
and we remain overweight HSBC and again in the UK
and are the big performer this year. So why are
we so positive on them? Even when they've gone up?
The valuations although they are higher than they were a
year and two years ago, they are still not particularly
excessive versus history. So that is number one. Number two,
(17:29):
they are a set of companies that have resilience in
their earnings. And people think so much just about the
interest rate, And of course the interest rate might come
down a little bit, but it was only going to
come down a little and we're still in the kind
of a good spot for banks. More importantly, for banks,
it's about the loan growth. And what you're seeing is
you're seeing corporate balance sheets in strong place. You're seeing
(17:51):
consumers in a strong place, and that is really supportive
for the banks. And the third thing I would say,
and I don't think European banks are given enough credit
for this post the finalancial crisis, they did really think
about how they were capitalized and how they were structured,
and as a result of that, we think in the
next three years that they're able to return up to
twenty five percent of their current market cap to shareholders
(18:13):
in either dividends or share buybacks. So that's a pretty
nice space, right You buy something feeling confident that you
get to get twenty five percent back even if nothing
else happens, and the likely it is something else is
going to happen. So European banks remain a key part
of our portfolios at the moment.
Speaker 2 (18:32):
I mean it's interesting because I would say, and I
don't know what your thoughts are, but one thing that
did stand doing to me about the budget recently, and
I guess a positive sense, was that the Chancellor minds
to resist all pressure put another tax on the banks.
And also, you know, the consumer of car lawing kind
(18:53):
of issue. Seems they have been downplayed in the way
that the PPI kind of scandal war isn't. I think
it almost feels as if and I don't know if
you agree that the banks have kind of come off
the naughty step in the last twelve months, certainly in
the UK and also seems to be happening in Europe
as well. So I guess maybe we've not got that
same post financial crisis can anger at them to an extent.
Speaker 4 (19:17):
Yeah, No, I think it's certainly eased. And I think
when you look at the returns that these companies have had,
they're so relatively mundane versus some of the other companies.
I mean, the question actually bringing it back to that
AI story and kind of it's got so far that
we need to get to. I was listening on the
way into the radio and obviously in Australia. You're starting
(19:39):
to see changes being made there as children can't use
social media et cetera. That is going to be the
interesting next step. I think it's not going to be
about the banks again, that's quite I think it's more
likely to be about for AI. What does that mean
from a social perspective. It's going to be really interesting,
But that I think is going to be much more
(20:00):
the focus than the banks.
Speaker 2 (20:02):
That is interesting because yeah, because one thing we have
been talking about for a long time is when is
the backlash against the big tech company is going to
come about? And I know that's an idea that's been
bubbling under for several years. But that's really interesting you
raise that then, because it almost feels as if that
has starting to happened. People are getting more and more
(20:22):
concerned about what social media is perceived at least to
have done to you know, the children's brains and things
like that. So I okay, that's so that's a kind
of possible risk for the tech sector next year.
Speaker 4 (20:34):
Perhaps it is, but again our job is to think
about how do you turn that into something more tangible.
Backlash can be words, but a backlash can be actions
and at the moment until you know more about actions.
Speaker 3 (20:44):
I think it's yeah, I'd.
Speaker 4 (20:47):
Love over a beer to chat more about it. But
from it from an investment perspective, you're just guessing.
Speaker 2 (20:52):
And in terms of sectors for next year that you're
perhaps less keen on are ones you would just not
be as in through yas to go about any standout
as being either the two expensive or there's just nothing
going to happen there or anything you would basically avoid.
Speaker 3 (21:10):
Yeah.
Speaker 4 (21:10):
The one area that unfortunately still struggles is the auto
sector in Europe. It is under a huge structural pressure
obviously where you've seen tariffs coming in and that has
put it under pressure both directly and obviously indirectly through
other countries now having cheaper vehicles that they can export
it to Europe. So it pays me to say it,
(21:33):
but the European auto sextor is one that we remain underweight.
It feels a little bit of a value trap at
the moment.
Speaker 2 (21:39):
And in terms of the individual countries, are there any
fever over others or is that not really how you
think about the European market.
Speaker 4 (21:47):
It's a bit like you say, when you get too
much in the European market. You're really looking at companies.
So Spain is great, but Spain is great because it's
got fantastic banks and utilities.
Speaker 3 (21:55):
I would say, as I mentioned with.
Speaker 4 (21:56):
Ebidroler earlier, the one area as we are sitting here
in pattern not to square that this worth is mentioning
is the UK small cap. So the UK small cap
has been unloved and undervalued for a period of time now,
and you know, the budget last week perhaps provides a
little bit more stability. Obviously one of the things the
chance he's trying to do is get people investing more
(22:18):
in the UK and if people invest, they tend to invest.
Speaker 3 (22:22):
In their home country.
Speaker 4 (22:23):
We've got great small cap companies in this country and
the valuations of some of them are incredibly interesting. So
we remain long term positive whilst recognizing that structurally it's
been a very difficult place over the last couple of years.
Speaker 2 (22:38):
I mean, that is interesting you to bring that up,
because I perfectly think about valuation without worrying too much
about catalysts. But obviously small caps in the UK have
been struggling for a long time. Is that anything you
see that may actually make that kind of start to
go awi in twenty twenty six, because obviously even the
footy two fifty has had by compartison a buy eleven
(23:01):
percent would not be a pretty decent year. So I'm
just cursed to see what you're thinking that.
Speaker 4 (23:06):
Yeah, I don't think there's a one clear catalyst, which
is a real shame because if there was, I would
be absolutely pivoting all in. I think maybe what we
are going to see is again this understanding that you
need to broaden out portfolios exactly what we've seen this year.
Speaker 1 (23:20):
Now.
Speaker 4 (23:20):
At the start of the year, that felt easy in
inverted commas because you had these pockets that had not
performed well. Now of course it's more difficult because you
have more pockets that have performed well. So maybe what
that forces is it forces investors to go further afield
to find those pockets that still look relatively cheap and
relatively interesting. That's the hope that I have, But maybe
(23:42):
that's my hope in a slightly biased opinion, but it
would be lovely if they did. And I think what
you will see, because the equidity is relatively low, you
do start to see these virtuous cycles.
Speaker 3 (23:53):
Once it happens, people think I've missed out here and
we go.
Speaker 4 (23:56):
So I would love love to see that happen and
hope right it could be a hope for twenty twenty six.
Speaker 2 (24:03):
Hope I like that. I mean honestly, I think people
were were great to be disappointed with the budget that said,
do you think that the three year stamp duty holiday
may bring a couple of big get apos here that
we're looking elsewhere and perhaps now you think, oh, I
sually maybe we can choose London or at least dual
(24:25):
less than London or something like that. Is it going
to move the needle at all?
Speaker 4 (24:30):
I think what it shows is a real try, a
support you know, a kind of desire of a government
to say we want to help make this happen. And
I think that is important. But let's be honest, the
thing that is the most important thing of all is
the valuation level. So actually what is more likely to
be supportive is again that foot sea starting to move up,
and the foot sea and people thinking if I list here,
(24:51):
my opportunity for re terms is just as great as
if it was elsewhere. That is the big deal mover.
But having a supportive government it can't help in terms
of a government. That's basically indicating to the world market,
we want to make it easier for you to list
in the UK.
Speaker 2 (25:05):
Yeah, what's the biggest risk you see for twenty twenty six,
Because obviously this year there was tartiffs, there was the
you know, bind market was going to blow up at
any point, and neither of those things have actually really
done the damage that perhaps people were worried that we're
going to do. What do you think the potential kind
of thing you keep an eye on ers for next year.
Speaker 4 (25:26):
I think the biggest risk is actually complacency driven by
those couple of things that you've seen. And although the
macro does look okay and decent, you know, we are
starting to see a little bit of softening of job
data in the US. At the moment, we're still in
that bad news is good news because then the FED
is more likely to cut. But if we get too
complacent and we don't think about, you know, the impact
(25:50):
of maybe stickier inflation on jobs, on stick of inflation
on consumer confidence, that is the big biggest concern that
I would have that actually what you see is this
kind of creep of things not getting terrible, but kind
of just getting a little bit worse and a little
bit worse, and again all of this comes back to
(26:12):
the market is driven to a certain extent by the
multiple that people are willing to pay, which is driven
a lot by the confidence they have in the underlying economies.
So my biggest concern, and it's not a big bang answer,
I don't think, you know, there will be certain things
that we haven't even thought about yet. I mean, twelve
months ago, I didn't know, you know, deep Seek was
a thing that was going to kind of blow up
(26:32):
in January. But that kind of creep of nervousness that
that is something that I am keeping a real eye
on because I worry that we've become complacent John, you know,
the concerns we have went away. Everyone just kept buying
the dip, and therefore we end up in a situation
where we just almost don't even look at things that
we should as investors be continually looking at.
Speaker 2 (26:55):
And there on the glass half we'll say, there's an
anthing you see as being a big poison to surprise
that could happen, something that may engender more confidence that
we're not really thinking about.
Speaker 4 (27:07):
That's a really good question, I think, because we've all
been so positive. We probably are thinking about all of
the good things that might be likely to happen. But
I think maybe one of the things is the element
of Again, I don't want to sound boring always bringing
back to this energy story, but the ability of the
(27:29):
human being to continually solve the issues that are coming
up in the world. It's not necessarily a big bang surprise,
but I think the resilience of us as humans. Again,
if you think about the market, if you think about
Liberation Day, Liberation Day was such a big day in
the markets, but actually very quickly companies adapted, government's adapted,
(27:50):
people adapted, And I think giving ourselves a little bit
of a pat on the back for that and recognizing
the ability of humans to respond well is a good thing.
And then you know, maybe obviously from a other perspective,
that there's a lot of geopolitical issues that continue. Seeing
those move through and resolution of some of those is
always obviously helpful for markets, if more importantly helpful for humans.
Speaker 2 (28:15):
Yes, quit so was saying by energy, stick with the banks,
avoid cars. Anything else was loxuredly sick. That's the one
other You.
Speaker 4 (28:29):
Saw my finger come up if we were being recorded
and buy energy. To be very clear, let's let's kind
of scope that out everything energy, because I think people
when they think about that, they just think about the
oils in one segment, all energy solution providers by banks,
and then actually for luxury, I'd actually broughten it out
to quality growth in Europe. Quality growth in Europe, and
(28:49):
by that I mean they're really good European companies that
again have resilient earnings, they have strength in their balance sheets.
These companies have not actually had a great year. And
the reason I've not had a great year in Europe
is a weakening dollar and the tariffs, and most of
them are exporters. Those two things combined have really put
pressure and nervousness on those companies. So they include names
(29:11):
in the luxury good space like LVMH, names in the
semiconductor space, names in the data providers a space, and
the solutions space software space, which often have just been
kind of actually downgraded quite significantly in investor minds. Those
as a group of companies have not had a great
(29:32):
year in Europe. But when we see more stabilization in
terms of currency, when we see obviously the tariff resolutions
starting to come through, I think they're a really interesting
group of companies. Perhaps being selective though always good for
me to throw in a recommendation for active investing in
that space to really understand the winners versus the losers.
Speaker 2 (29:51):
So you have to be pecky. So we can't just
buy a track I find is that they hate it,
not a.
Speaker 4 (29:55):
Track of fund for quality growth. Quality growth is exactly
the kind of area that you want to play selective
and active.
Speaker 2 (30:01):
Very good, Well, listen, that's been really helpful here, and
I think we've got a good all review of what
we need to be looking at for next year. I'm
going to ask a usual end question, but before I
do that, is it anything else specific that you wanted
to bring up that you feel that havn't covered, that
we haven't covered.
Speaker 4 (30:20):
The one thing I perhaps is is and ask that
all the listeners. AI and ai Us is such an
interesting story that, as we say, we could talk about
entirely just about that. But just because that's the story
that is dominating the headlines, don't forget that there is
still really interesting returns happening in many other parts of
the market. So diversifying portfolios is not just about moving
(30:43):
away from a dominant risk in portfolios and feeling you've
got to give up returns to do so. It's absolutely
not the case. You can diversify portfolios in a really
sensible way and also.
Speaker 3 (30:55):
Maintain those returns.
Speaker 4 (30:56):
So don't let the headlines grab how you allocate portfolio one.
Speaker 2 (31:00):
Listen to the headlines? Can you trust journalists? Terrible? So
for Christmas, which book have you read this year that
you would see with make an excellent gift?
Speaker 4 (31:13):
Oh well, it's a great question, and I'm going to
say the one that's best for a gift because it's
a brilliant book. It's a fiction book Frederick Backman called
My Friends. I love that author, and it's a really
really good, really enjoyable, really heartwarming, readable book.
Speaker 3 (31:27):
So as a gift, definitely do that.
Speaker 4 (31:30):
The second one, if I can have two, which is
probably less good as a gift, but it's really really interesting.
It's called Being Mortal by A Gandhi, and this is
really about how we think about death and dying. So
probably not the best thing to give us a gift,
but certainly one that I would recommend reading it. It
really gets you thinking, which is all that you can
ask for from a book. So one that's heartwarming, one
(31:53):
that gets you thinking, one that is a gift, one
that's a by yourself.
Speaker 2 (31:57):
It was a good choice.
Speaker 3 (31:57):
Diversification everywhere you see.
Speaker 2 (32:01):
Well look. Thanks very much, Helen, really appreciate your time.
Speaker 3 (32:04):
Thanks John, great to be Hey, Thanks for having me.
Speaker 2 (32:17):
Thanks for listening to this week's Merton Talks Money. If
you like a show, rate the view and subscribe wherever
you listen to podcasts, and keep sending questions or comments
to Merron Money at Bloomberg dot net. This episode was
hosted by me Join step Beck. You can also follow
me on Twitter or x I am at Join Underscore
step Beck and Meron is at Merton sw This episode
was produced by some of Sadie and Wasis and Am
(32:39):
sound designed by Blake Maples and special thanks to Helen,
Joel Edelman, Smithfield and the London Stock Exchange
Host
Merryn Somerset Webb
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