'Pessimists sound smart, but optimists make money'— Richard Clode on AI, risk and finding growth

Investors' Chronicle

Richard Clode discusses his transition to Lead Manager of Bankers Trust following Alex Crooke's retirement. He outlines a strategic shift fr

Key takeaways

• Bankers Trust has concentrated its portfolio from approximately 150 stocks down to about 80 to increase conviction.
• Clode rejects geographic asset allocation, focusing instead on bottom-up stock picking based on unexpected earnings growth.

Main topics

• Bankers Trust management transition
• AI investment strategies and CapEx

Notable quotes

Pessimists sound smart, but optimists make money.

Conclusion

The episode highlights how active managers can find alpha through disc

Transcript preview

Speaker 2 (0:00) Hello, and welcome to DIC Interviews. I'm Val Cipriani, Funds Editor at the Investors Chronicle, and joining me today, I have Richard Claude, Manager of the Bankers Trust. Hi, Richard. Thank you for coming to the show. Speaker 1 (0:12) Thanks for having me on. Speaker 2 (0:14) So brief introduction to the trust, as I always do before we get started. So Bankers Trust is a global equity investment trust. It has about $1.5 billion in assets at the minute, and it targets both income and growth. So the yield is not huge at about 1.8 % at the moment, but the trust tries to grow its dividend every year above inflation levels. And we should say it's also a big time of change for the Trust because Richard, you joined last year as Co-Portfolio Manager, joining Alex Crook, who has been the Manager of the Trust for a very long time, over two decades. However, Alex has now announced that he will be retiring at the end of the year after a long career and you will be taking over as Lead Manager of the Trust. And this has coincided with quite a lot of change in terms of strategy as well, because so Richard, you came from a technology background and the trust has kind of gone a bit more in that direction. So can we maybe start by talking about, you know, this strategy change and how it's played out, let's say, in the past couple of years? Speaker 1 (1:25) Exactly. And as you referenced, it's been a journey. And I think global equities, there's been concentration of returns in certain areas, and particularly in technology. There's been this kind of, you almost have to go one of two ways of either growing growth or very much maximizing the income. And if you go to one end of those barbells, you very much constrain what you can do with the other side. And I think there was this sense from the board and from Alex, going back a few years, that we had to change the direction. that goes back to 1888. It's not lasted that long without changing direction along the way, but remaining core to its principles, but evolving over time. So there was this move from six regional sleeves down to four. There was a reduction in number of stocks from around 150 down to 100. But we'd made those changes in terms of the architecture of the portfolio, but we hadn't really changed the inputs, the PMs and the investors actually feeding into that. And that's where I think I was the last piece of the puzzle, that bringing a... more growth orientated investor into that stable, balanced it out. We're not going to suddenly become growth managers, we're not suddenly going to become Bailey Gifford, but we're going to have some balance in there. And this is kind of the latest iteration of that. And with Alex retiring, we've also unified the portfolio. So we won't have these regional sleeves anymore. We'll just have a uniform. unified portfolio playing to what we think are the most exciting kind of trends and themes out there with a kind of stock. We're down to about 80 stocks today. We could probably pull that in a little bit, but we're kind of roughly kind of done most of that sort of concentration to get that conviction up still with Junichi in Japan and Sat in Asia sort of feeding in to that, but also the wider Janus Endersons, bringing the best ideas from many of our teams, European team, China team, emerging market team, some of our sector specialists into that portfolio. So I think we're finally kind of at... of a steady state going forward as we, as you say, announced that Alex's retirement off the belt of kind of a quarter of a century of service. And we're very much nailing our mask to, yes, we want to remain a dividend hero. We want to continue to grow that dividend above CPI every year. But as you mentioned, it's not a particularly high yield and we're very much trying to deliver that capital growth over the long term. And that's where we kind of nailed our colors to the mask going forward. Speaker 2 (3:32) And that shift towards growth has, you know, very understandably coincided with having a bit more exposure to the US than the trust used to have before. However, this happened, you know, kind of in 2025, when actually there was a lot of talk about markets broadening out. And you could hear some managers going like, oh, I'm going to have a bit more Asia. I'm going to have a bit more Europe. So I wondered how you felt about going about that process in that moment of time. Was there a bit of fear being like, maybe we're doing it at the top of the market even? Speaker 1 (4:04) Sure. And you can imagine, I've been a technology-focused investor for my entire career, so almost 24 years now. Imagine the question I get asked every single year. Is this the top? Is this the wrong time? Are we going to rotate into something else? Is it finally the time for the UK or Europe again? Speaker 1 (4:21) even as a kind of a longstanding technology investor, I've never been a believer in geographic asset allocation. I just don't understand. I mean, I understand why it's a simple framework for investing. But, you know, here in the UK, you know, your FTSE 100 exposure has got very little to do with domestic UK. You know, even last year, we saw some broadening out of markets. What was the best performing market? Korea. Why? Because, you know, almost half their market is two memory stocks. Now, if half the US S &P was Mike Cronin-Sanders, you see very different results in terms of the US sort of stock market returns. You know, my belief is very much it's about bottom up stock picking. And, you know, it's just exposing us to the right trends, the right themes, the best companies. And ultimately, if we have a portfolio of stocks where they're growing earnings faster than the market expects, and that could be, you know. growing at 5 % rather than 4%, as well as 50 % instead of 40%. So it's not just a growth mindset. It's just unexpected earnings growth at both ends of that spectrum. Then ultimately, we have a portfolio that performs. But the challenge is, why do our shareholders invest in global equities? Because they think they're going to get some good returns out of that over the long term. If you want to do double-digit returns, but you don't have a portfolio that grows its earnings and cash flow double-digit, then you're constantly having to identify undervalued opportunities. And that's, you know, you're having to run pretty fast to be able to kind of keep going. And, you know, we've seen the challenge of that with some of the other trusts, global trusts out there. And while we don't want to, you know, be investing in too far flung kind of space related investments, and we can maybe touch on that later, you know, we do want to be able to provide our shareholders with exposure to growth, but framed within profits, cash flow and reasonable valuations. Speaker 2 (6:01) In terms of performance, I guess you've been very close to the index in the past, like I want to say two, three years. There was some underperformance before that, that is kind of like there if you look at the longer term figures. But the past couple of years have been very close to the index, which is arguably quite impressive because it's a tough market to beat. However, it does kind of make me wonder also, you know, looking at the top 10 in the portfolio. Do you think, like, you know, what do you feel makes you different from a trucker? Because there are some similarities there, possibly more than there used to be, you know, three years ago in the trust. Speaker 1 (6:38) Yeah. And as you say, and you kind of reference kind of technology or the US, I mean, we're at a juncture where 10 of the largest companies in the world are all tech companies. And, you know, they're not all in the US, but obviously a good chunk of them are in the US. You know, we've always said from a technology side, you know, just because they're large companies doesn't mean there's not alpha. to be had and you're positioning yourself right. I always say that anytime a stock acronym is created you can pretty much guarantee that that acronym will not uniformly outperform it going forward. The FANG acronym was crowned in 2015 and all those stocks outperformed. Find me a year after 2015 where all the FANG stocks outperformed in unison. As soon as the MAG7 was coined those stocks have gone all over the place. Ironically, the reason why many of these acronyms do sustain for some period, and we have people like Terry Smith talking about this, is the ETFs almost become self-fulfilling from that regard. But you can add alpha in the mega caps. And you've seen that even year to date, or you go back to last year where everyone was negative on Google and thought OpenAI was going to eat their lunch. And then, you know, Alphabet had a very strong second half of the year. And for years, people have been telling me NVIDIA can't keep going up. And, you know, it is still going up. So, you know, there's that path to kind of get the alpha right and the stock picking and the positioning right on that side. And then there's the other, you know, 70 % of the portfolio where you want to get some great stocks and ultimately get those companies that are going to drive the vast majority of returns. You know, we subscribe to that analysis. But in any given year in global equities, there are only 50 stocks, so 2 % of the global benchmark that's driving almost half of your total returns. So the key is to ultimately get as many of those 50 stocks in that portfolio. Now, our difference is, you know, we don't think about that geographically. We also don't think about that from a market cap point of view. Just because you're a mega cap doesn't mean you can't go up a lot. I mean, video is growing 70 % last year as they, next year as they guided. And I always remind people, you know, you go back to Apple and the iPhone, and obviously we're about to have the 20 year anniversary next year. Three years after the launch of the iPhone in 2010, I remember everyone under the sun telling me Apple's done, boring. We know about the iPhone. Apple was a 30 bagger from the end of 2010. And everyone knew about it. Everyone knew about an iPhone and app stores and they were using it. And it was a 30 bagger, best stock you could have ever owned. So, you know, again, I think there's plenty of opportunities to kind of create alpha. I would just say don't do it through the framework of geography. Don't do it through the framework of mega caps. And you referenced performance. And I think that's an important thing that, you know, the performance has got a lot better in bankers. Some of the changes from the sleeves, the number of stocks getting the conviction up, the managers that were getting involved has really changed the performance rounds. If you look over the last year, you know, beyond kind of one trust that's making a huge amount of investments on the private side, in terms of publicly listed equities, I would argue we're probably doing the best job out there. in terms of global equity trusts. Speaker 2 (9:15) Yeah, no, the performance clearly has improved a lot. Let's then talk about, you know, going after the alpha, obviously means of thinking about AI a lot, doesn't it these days, investing in tech. do you play it or how do you think about it? Because I guess you have, you know, you have obviously the people who think it's a bubble and evidently you're not one of them. You have the people on the other hand being very bullish. You have, I feel like I've heard quite a lot of managers really liking the sort of picks and shovels play because they're like, either way, this money is being spent. Even if AI doesn't work out, we are going to just take advantage of the fact that, you know, be on the side of the companies that are receiving the money rather than the... the company spending it. So, you know, where do you fall in on this huge debate? Speaker 1 (10:05) Yeah, and you referenced kind of some of the ways of framing it. I mean, I would take a little bit of umbrage or disagree with the managers who say, well, I'm just happy owning the picks and shovels. We've always said, you know, with any new technology, unless the whole ecosystem is healthy, you can't just play one part of it. You can't play the picks and shovels if the hyperskillers are never going to make a return on their capex and their customers are going to go bankrupt. Because ultimately, you know, then that capex is going to stop it at some point. So, you know, the dislocation, particularly we saw earlier this year, where, you know, you had hyperscalers getting absolutely kind of killed in terms of share price, but the semis were still going up, for us was a complete dislocation, because you just can't have one without the other. So, you know, we kind of take it, you Speaker 2 (10:45) know. Speaker 1 (10:46) a little bit of the same framework we use for the internet, which is, it's just a phasing to this. You build out infrastructure first. You think about the internet. You had to build out fiber broadband, 3G networks, 4G, 5G networks. You had to launch an iPhone, get an app store. And then we could have WhatsApp and TikTok and Uber and ride hailing and all of these new things. But obviously that took a bit of time to come through. And it's the same with AI. You've got to build training clusters. Then you've ultimately got to launch those platforms and launch some of these services and then have inferencing and us all use it. And ultimately you've got to monetize that. I think what's different this time versus... what happened in the early 2000s, is that this isn't build and they will come. This is, if you had a data center, if either of us had a data center to sell capacity for, we would probably do it during the time of this podcast. There's so much demand for it. So you can sell that capacity incredibly quickly and at very attractive rates. As we saw from the hyperscalers, their margins are actually expanding despite the heavy depreciation actually expanding. And then the end customers, what's the health of those customers? Well, as we saw from Anthropic, we go back to Alphabet. It took them 11 years to get from $10 billion of revenue to $100 billion, 11 years. Anthropic might do it in 11 months. They're not giving this technology away for free. They are monetizing it. And that gets them to being profitable and cash flow positive, not in like 10 years time, but maybe potentially in one or two years. So again, we would look at that potential IPO and say, what are they reasonably actually going to earn in profits and cash flow in the next few years? Can we justifiably justify the valuation today? And we'll make that