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<p><strong>Glenn Freeman: </strong>I'm Glenn Freeman for Morningstar. And in this edition of "How We Invest Your Money" I'm speaking with Jonathan Koh, who is the co-portfolio manager with Greencape Capital.</p>
<p> Jonathan, thank you very much for your time today.</p>
<p> <strong>Jonathan Koh:</strong> No worries, Glenn. Pleased to be here.</p>
<p> <strong>Freeman: </strong>Jonathan, you head up the Greencape High Conviction Fund which is one of our Gold-medal-rated funds here at Morningstar. But just to kick off though, I wanted to ask you how hard is your job right now given the uncertainty that's out there and we keep hearing that stocks have all the risk priced in, but is that actually the case right now?</p>
<p> <strong>Koh: </strong>It's a fair question to ask. And the volatility that we've seen, particularly through the back end of March, was massive and I don't think anyone has seen that before, even compared to the GFC. I mean, the correction we had through the GFC went through multiple months and it was financial markets related first which then obviously extended into the broader economy. Australia wasn't hit in that regard really. But what we've seen with the COVID-19 impact is the pretty much immediate downturn in demand and a whole bunch of unemployment rise to the top. And so, it's been a really difficult point of time for a lot of companies to navigate and you've seen that by the fact that a lot of guidance statements have been withdrawn. There's very few companies that have held on to guidance and there's a few companies that have managed to do a little bit better than that arguably in this environment. But by and large, we've seen a lot of companies struggle with trying to find where their revenues are going to be on a sort of 6 to 12-month view.</p>
<p> And so, our job is difficult in that regard. But we have really good line of sight with respect to management teams. So, we continue to talk with them on a constant basis. And what we're doing with our portfolio reflects our bottom-up convictions in our stock names. We have made some changes which reflect the times. And heading into March and the sell-off we were already flattening our portfolio. We were sort of coming into the office, sort of, November-December-January and in effect probably selling more than buying, selling the names that we favored because markets had run too hard. So, we entered the correction with a bit more cash than we normally would. And through the downturn we've pivoted in a certain way towards a few more essential services type names, names which sort of hold up in this sort of environment.</p>
<p><strong>Freeman: </strong>What types of companies are appealing to you right now in terms of – you are a growth manager, but given the big sell-off of some of the value names we've seen, have you sort of moved into that territory a little bit more than you had previously?</p>
<p><strong>Koh: </strong>Selectively. And really, there are names such as Sydney Airport, which we've really liked the management team for a while now, but we struggled with valuation. It was an underweight in our portfolio. But through this whole sort of crisis and through the sell-off we can sort of paint a picture where there is some normalization and the balance sheet was taken off the equation, sort of the table. So, we are liking something like a Sydney Airport and Auckland Airport as well where they've been more directly hit by the coronavirus impact. But through the cycle the other side we can certainly see value.</p>
<p><strong>Freeman: </strong>Are income stocks in more demand now than they might have been previously? </p>
<p><strong>Koh: </strong>Yeah, definitely, I think. I think we'll see that play out going forward as well to an extent because the well-publicized cutting of bank dividends I think will play through the market. And so, for us we've been underweight banks for a little while and we stayed underweight banks with a view that both the loan loss cycle is going to be an extended one and that is playing out, and the other issue is the risk-weighted asset migration that occurs which eats into bank capital. So, again, some of that plays out over time. So, that's why we've been underweight. And we were expecting dividends to be cut in order to build capital buffers notwithstanding the fact that APRA have allowed banks to go into their unquestionably strong buffers. So, stocks like Amcor is something which we really like on a strong yield and is a business which we think actually exits this environment in a really good place where its balance sheet is in a good position and its competitive set is probably weaker than prior to the crisis. So, Amcor is one which we do like in that regard.</p>
<p><strong>Freeman: </strong>Energy stocks sold off hugely. What's your feeling on oil companies at the moment? </p>
<p><strong>Koh: </strong>Yeah, it's a difficult balancing act, oil at the moment. We're not out on our limb oil. We continue to sort of selectively stock pick and within that we like Santos. But the difficultly with oil at the moment is that you've got both a supply issue and a demand issue. So, we want to see that demand side start to look a bit better before we move with anymore overweight in oil.</p>
<p><strong>Freeman: </strong>Jonathan, you can hold up to around 10% in international companies within the portfolio. Where do you stand now in that proportion?</p>
<p><strong>Koh: </strong>Yeah, that's a good question. We've been as high as sort of 9% in international names. But what we found through this period is we've really sort of hand that back, and the reason being is that we do think that the U.S. along with other countries, particularly in the Northern Hemisphere, are on a different cycle with respect to the virus response. Some of those international names will be a bit more impacted from that. So, we've reduced our weight there early on with the view that the U.S. would have a longer time to play out as it relates to COVID-19.</p>

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