Equity markets have had a great run over the last decade and have provided investors with very strong returns. But now risk globally has risen due to the tragedy of events unfolding in Ukraine, increased Western countries' tensions with China, and the recent spike in inflation. In this episode of the podcast, Jeff Mueller, a former US Marine, and a co-portfolio manager of the Global Growth Fund at Polen Capital, shares how a concentrated portfolio of high-quality global companies can be a risk management tool and hedge against inflation. Discover the filters and “guardrails” that all investors should consider when shaping a portfolio capable of significant growth even within inflationary and unstable environments.

 

Transcript

Paul O'Connor (POC):

Welcome to the Netwealth Portfolio Construction Podcast series. My name is Paul O'Connor and I'm the head of investment, management and research. Today, we welcome Jeff Mueller from Polen Capital, who is a co-portfolio manager of the Global Growth Fund and is based in Florida in the US. Good morning, Jeff, and welcome to the podcast.

 

Jeff Mueller (JM):

Good morning, Paul. It's a real pleasure to be here. Thank you.

 

POC:

Polen is a global equities fund manager with a focus on concentrated growth strategies. The business is headquartered in Florida and was founded in 1979. And as at the end of January 2021, Polen managed approximately 58 billion US firm wide. The business is 71% owned by staff, with the balance held passively by the Polen family trust and IM global partners. Polen also has offices in Boston and London, and employs 116 staff, including 21 investment professionals. The global growth fund that Jeff focuses on is a benchmark unaware growth oriented high conviction portfolio of global companies with a long-term investment horizon. The strategy has a bias to mega cap stocks, and turnover is low, which aligns with a strategy that has a long-term investment horizon.

 

POC:

Polen has a preference for companies with strong balance sheets that can generate free cash flow materially in excess of the cost of capital with high returns on equity, stable to improving profit margins, and real revenue growth. This description at a high level does sound familiar to a number of other growth style equity managers, except really in my mind for that long-term investment horizon focus and low portfolio turnover as a result. So I'll be interested to hear from Jeff in today's podcast as to what actually differentiates Polen from its peer growth style managers. Polen also offers strategies covering US small companies, global, small and mid-cap stocks, and emerging markets. Jeff joined Polen in 2013, and prior to joining the business, he spent 10 years in the US Marine Corps, during which he flew over 200 combat missions in FAA teams. So, that sounds like managing equity portfolios may be a little bit more lame and laid back from your past occupation there, Jeff.

 

POC:

Jeff received his BA in communications and business administration from Trinity University in San Antonio, where he was captain of the men's tennis team, and All-American NNCAA champion. Jeff is a Tillman scholar and earned his MBA with honors and distinction from Columbia Business School, where he was a graduate of the value investing program. Jeff serves as an adjunct faculty member at Columbia Business School, where he teaches the compounders course within the value investing program. The Polen Global Growth Fund is available on the Netwealth super and IDP as investment menus, and Polen funds are distributed in Australia by Montgomery Investment Management to financial advisors and self-directed investors.

 

POC:

Equity markets have had a great run over the last decade and have provided investors with very strong returns, and the better performing active managers have typically employed a growth style similar to Polen's. But now risk globally has risen due to the tragedy of events unfolding in Ukraine, increased Western countries' tensions with China, and the recent spike in inflation. So, I'll be interested in discussing these issues with Jeff today and how he and Polen think about risk when managing a concentrated portfolio. It almost feels odd when talking about risk that I did not mention COVID, and I guess it does feel like we're starting to move on with the society to living with the disease, and I guess also due to the lower hospitalisation rates caused by the Omicron variant. Also strange that the market seems to have ignored the Russian invasion of Ukraine as evidenced last week by the S&P 500 gaining almost 1%. So maybe to start with, Jeff, I note you had mentioned earlier that you served in the US Marines prior to joining Polen. So, why did you make the career change to the asset management industry, and how did you end up working for Polen in Florida?

 

JM:

Oh, well, Paul, you point out that it's been a very circuitous path for me, but I certainly wouldn't change a moment of it. So, Trinity University, where you cited that I went to undergrad, is in Texas. So after I graduated, I was training to see if I could play on kind of the lower rungs of the professional tennis tour. And it was really just because I had a window and I thought I had to take advantage of that then. I certainly wasn't good enough to really make a dent in it. All that changed, though, when the United States was attacked on September 11th, 2001. I ended up joining the US Marines immediately following the attacks on 9/11. And because I flew, I had a contract that was very long. So I was in the Marines for almost 10 years.

 

JM:

When I was in Iraq in 2006, flying missions, someone sent my ... I call them my tent mate, but we lived in these kind of double wide trailers that we called cans in the middle of the desert. Someone sent my roommate or my tent mate, a book on Benjamin Graham. And it sounds fantastical, but there's nothing to do in Iraq but fly missions, lift weights, sleep, eat, and read. So, I devoured a lot of books. And when I got to this one, I think of it in terms of it was really my first lightning strike moment. This book resonated with me in a material way. And in my opinion, this industry and this occupation, it's one of the last Renaissance occupations and also an incredibly noble occupation if done properly. So I set my sights on going to Columbia Business School, where Ben Graham taught, who obviously was Warren Buffet's professor at the time. And it turns out that Columbia loves Marines. I had no idea about this at the time, but they let me in.

 

JM:

So, I get into Columbia as probably the biggest fan you could imagine of Ben Graham, and I spent all my time looking for deep value investments with low price to book that had good liquidation valuations, net nets, et cetera. And then I'd say my second lightning strike moment, I had a class called Mental Models. And the entire, all we did was reverse engineer. You were handed one company and you reverse engineered how this company compounded at such high rates, despite the fact that it was never valued to compound at those rates by the marketplace. And that changed my entire view on investing. And this really gets to the answer you're looking for, Paul; how did I find Polen?

 

JM:

I was looking for a firm that really hit four criteria. One, long term. So, true investors with a business owner mentality. Two, concentrated. Three, only the highest quality businesses were invested in with a real belief that earnings growth drives performance over times, or over time, excuse me. And lastly, number four, was a great culture. I didn't want to leave the Marine Corps, which was effectively a life of service, and then work somewhere where I didn't feel good about the person I was looking at in the mirror every morning. I found all four of those at Polen Capital. And lastly, Paul, just on a personal note, it's really special that I've had the opportunity now. You talked about the compounders course that I teach. It is the exact replica of the Mental Models class that had such an impact on me, but I just renamed it Compounders. So, very fortunate to be here at Polen Capital, and as you've cited, I've been here since 2013.

 

POC:

Yeah. Very interesting there, Jeff, your journey. And I guess you sort of covered something in my mind that given your background in value investing, how you ended up working with the growth manager there, but it certainly makes sense to me in the way that you look at businesses and the company that you studied back at Columbia there. But I also wonder at times, it'd be nice to sit down and have Ben Graham with us now giving his insights to the last decade and why growth investing has been so strong. But that's for another day, I think, and another discussion. But moving into the topic for today and talking more about Polen and your views on the market, I mentioned in the introduction the Polen Growth Fund employs a benchmark unaware, growth oriented, high conviction portfolio of global companies with a long-term investment horizon. So, how does this differ from other growth style global equity managers, and what do you believe then are your key competitive advantages? And I guess sitting in the back of my mind here is the comment around that long-term investment horizon.

 

JM:

Absolutely. If I can back up briefly at a 30,000 foot view, I want to reference just once our Focus Growth strategy at Polen Capital. It's our US-only strategy, okay? And I only reference this because there's a 33 year old track record. So, Focus Growth has generated outsized returns for our client while taking less risk for over three decades by strictly adhering to the exact same philosophy and process throughout that entire time period. And the reason I bring that up is because global growth is underpinned by the exact same philosophy and process. So, there's significant lineage in the way that we invest, or to put it more simply, we've been executing this teachable and repeatable process successfully for over three decades.

 

JM:

So, our overarching goal for global growth is really this. It's to construct a portfolio of roughly 25 of the best, most competitively advantaged businesses in the world that in aggregate, so the aggregation of the whole portfolio, can compound underlying earnings per share at about a 15% or mid-teens rate with the belief that as long as we don't overpay for these businesses, and to your point, if we hold them for long period periods of time, then the stock appreciation should match the earnings growth of each respective business. So over time, the client return should mirror the earnings growth of the portfolio. And this isn't an academic exercise. This is exactly what's happened with our US-only strategy for 33 years, and it's exactly what's happened with global growth since inception, January of 2015. So in terms of competitive advantages, one is just lineage. We've been doing this for a very long time.

 

JM:

Also when I said high quality, this is not a subjective term to us. You listed some of our guardrails, this is what we call them, in the intro, which I appreciate. So our very initial filter, which again, we call our guardrails, is return on equity of 20% or greater, strong balance sheets. And people don't think of strong balance sheets as a competitive advantage until you need them. So during the first quarter of 2020, when COVID really emerged as a global pandemic, we slept very well at night and we didn't have to worry about any of our businesses running out of cash. Abundant levels of free cash flow, stable to improving margins, and then lastly, but certainly not least, real organic revenue growth. We've never been invested in a business that derives all of its growth from an M&A or a roll-up strategy. And then to your point on the long term, we definitely believe in time arbitrage, and we think that is an additional competitive advantage that we wield. Our average holding period is over five years, so we think and act like real investors, allowing the earnings growth of these compounding machines to drive stock performance over time.

 

POC:

Yeah. So it did strike me, Jeff, in doing some preparation for the podcast today, I was very struck by your low turnover and your long holding period. And I guess given a lot of the short-term nature of markets, I do see that as a potential opportunity for the right manager, if it's implemented correctly in the strategy there. So I guess that really stuck out. And I guess your comments around quality also resonate in my mind because a lot of managers talk about quality, but I guess it can be varying to a significant degree in how they actually see and view a company as quality. But I guess your comments around balance sheet and growing earnings, it all really makes rational sense to me. Given your portfolio does have this bias to quality growth companies, what are you seeing in the market during the current volatility and how have quality stocks performed over the last week with the rising geopolitical tensions?

 

JM:

So, our portfolio tends to hold up very well in times of stress. So, a week is a short amount of time, particularly for us, but particularly or historically, our portfolio has done very, very well over time. So I'll just cite a couple statistics for you. In 2015, the benchmark was negative almost 2%, and we were up about 10%. And then this happened again in 2018. The benchmark was down almost 10% and we were up about 3%. And then the same thing happened as COVID unfolded, which I referenced during the first quarter of 2020. So historically, our portfolios, specifically global growth, but also our other portfolios, offer significant downside protection in times of stress. And it really just goes back to the level of the quality that we invest in and also the earnings growth.

 

JM:

So, our earnings growth has always come through at least double digits through times of stress, really always over long time periods. And if you think about just the math of stocks moving up and down, they basically go up or down because of one or two reasons; the multiple expands or contracts, or the earnings grow or decline. And if you get both of those going in the wrong direction, you get this multiplicative effect that can lead to owning stocks down 60, 70, 80%. So the earnings growth for us has really created a floor over time. You can picture it like a flight of stairs that just continue to step by step by step, close to about mid-teens since 2015. So it's all connected is what I'm getting at, Paul.

 

POC:

I'd like to now move on to your thoughts on valuations. And I guess what I've noted, I made the comment earlier of the outperformance of growth stocks over value stocks over the last decade. And not surprisingly, many global equity managers products offered in Australia have an employer growth style. So, what are your views on valuations, and are price multiples near all time highs like we can hear a lot of commentary in the market? And I guess I have observed a number of growth stocks with PA multiples well north of 50 times, which I guess compared to the long term market average of PA of say 15 to 17 times, does appear to make them expensive. And hence they clearly need to grow their earnings at higher rates to be able to justify that multiple.

 

JM:

So, you mentioned that the definition of quality can vary widely. I'd say the definition of growth investor can also vary widely.

 

JM:

So, I'm glad you asked this. This is a critical component of how we invest, and this component is certainly related to your question and the answer. We demand earnings and free cash flow growth from our businesses over the long term, period, full stop. So you're right to say there are a number of tech businesses today that were and really are still darlings of the pandemic. And many of those do not have earning and do not have profitability. So it goes back to the floor. When the multiple starts coming down, there's no floor to buoy that multiple when you start thinking about the stock price if there are no earnings. So I want to be clear that we do not invest in those and we have not ever invested in those.

 

JM:

So our weighted average price of our portfolio today is roughly 26 times. And we think that that is a very fair price considering what we're getting in return. We're getting companies with higher returns on equity, much better balance sheets than the index, faster earnings growth, faster earnings growth which is about 10 percentage points higher. So, we project about 16% annualised earnings growth over the next five years, and the index will typically deliver about 6%, and much higher levels of profitability. So, I appreciate your question and it really gives me an opportunity to talk about where I believe we're differentiated. And it really goes back to how we look at valuation as a whole. So, our value proposition is that we aim to deliver double digit returns while taking less risk. So with each business that we're looking at, we want to feel comfortable that over the next five years, that the stock can grow or appreciate at least a double digit rate over the next five years. We're always thinking five years out. If that is not going to happen because the earnings are declining, or we think that the stock might be a little rich in valuation, then that will trigger a conversation to trim, sell, or potentially not buy the business that we're looking at.

 

POC:

Yeah. I guess the key point you made there that resonates with me, Jeff, is the portfolio PA being about 26 times. So, as you make the comment there that I guess the definition of growth stocks can vary significantly, there are a lot of growth stocks that are not making an earning at the moment and are on eye watering multiples. So I guess it does resonate back that you guys are actually holding a portfolio of companies that have a good, sound earnings base that's growing strongly. Maybe moving on to the different gig sectors, I guess there are numerous gig sectors that do not offer the growth potential compared to others, such as obviously the technology sector. So, I presume your portfolio has a bias to these growth gig sectors. So, can you provide the listeners with some insights into what gig sectors offer the higher, long-term growth potential, and which sectors do you think have lower growth potential over the long term?

 

JM:

Sure. I'll start with where you're typically not going to find us invested, and it goes back to our process. And again, our process goes all the way back to 1989. So, there's roughly 3000 stocks in the universe, and these have a minimum market cap of about $10 billion. That's not a razor for us, but that's typically where we start. That's primarily because we have a strong bias for globally dominant, globally scaled businesses. And it's just frankly, Paul, very difficult to reach that level and achieve the types of competitive advantages that we're looking for that can protect that earnings growth going forward as a business that's smaller than about 10 billion. So, 3000 stocks. We put these through the guardrails, which I spoke through, and then you listed out in the introduction. And just like that, we're down to about 350 businesses. And from there, you have to imagine if you're doing the filter, using our guardrails, a lot of extremely cyclical businesses will squeeze through that filter, so to speak, because you're going to catch some of these businesses at peak profitability, peak revenue growth. So we'll go through and take anything that we determine is either unsustainable because of a fad

or fashion impact or is overly cyclical, and we'll get rid of that.

 

JM:

So from here, we've never been invested ... You're not going to typically see us invested in the following areas. Materials. They don't grow fast enough. Excuse me, they're very cyclical. Utilities don't grow fast enough. Telecom businesses. They can be wonderfully competitively advantaged, but they're capital intensive, and that capital intensity creates a lot of cyclicality. Energy. We've never been invested in an energy business. Energy is beholden to the economic concept of derived demand and also tends to be very cyclical. Banks don't pass our debt limits, and REITs. So once we get rid of these in our process, that goes from 3000 stocks, go through the guardrails, you're at 350. And then once you remove these types of businesses, you get down to our entire coverage universe of about 150 businesses. So, we don't have anything against the industries that I listed earlier; utilities, telecom, energy. But it's just not where we typically find businesses that can persistently and consistently compound earnings growth through cycle over time. So if you invert that, you'll typically find our portfolio made up, as you rightfully pointed out, information technology. We also own a good number of healthcare businesses, communication services, and consumer discretionary. And that, by the way, is congruent with the way our portfolios have looked since 1989.

 

POC:

Yes. Interesting there, and I guess it does resonate there, Jeff, that those types of sectors are more price makers as opposed to price takers. They're not as commoditized, and hence they do have opportunities there to grow their earnings significantly. So, no, I appreciate the comments there. I note your benchmark as the MSCI all country world index in Australian dollars. So, assume you can invest in emerging markets listed shares, given the increased risks in emerging markets, do you need a higher return hurdle when considering to invest in an emerging market listed company?

 

JM:

Yes. I mentioned earlier that we have a very strong bias for globally dominant, globally scaled businesses. So first and foremost, it's really difficult to find businesses like that that meet that hurdle domiciled in emerging markets. So, we currently have zero exposure to businesses domiciled in emerging markets, but about 30% of the revenue from our portfolio comes from emerging markets. And we find that's a more prudent way to gain access to these fast growing markets. But when we have invested in emerging markets, and we did in China, we sold last fall, but we owned Alibaba and Tencent, we weren't making a call on the RMB. We're not macro investors, but we wanted at least mid-teens US dollar denominated earnings growth from these businesses. So without having to make a call, again, this was just based on humility, we wanted at least five percentage points higher in terms of RMB denominated earnings growth. So to specifically answer your question, we do need a higher return hurdle specifically on the earnings growth when considering investing in a business that earns the majority of its revenues either outside of a broad basket of currencies or a currency that is frankly the US dollar or the Euro.

 

POC:

So if you've invested directly into China in shares, how do you incorporate geopolitical considerations? How does Polen think about that when looking at a company?

 

JM:

So we invested through ADRs, Alibaba and Tencent. And the geopolitical considerations, if we go back to that process that I spoke through, going from 3000 to 150 businesses, this is not a quick process. We are not built for efficiency. We're built for effectiveness, and that process for a single company, it could easily take a year and a half to two years. So, our geopolitical considerations come during the due diligence process, through a lot of discussion and ensuring that if we're going to own a business, that we have a very good handle of the risks in place. So we actually implement an exercise that we took from the discipline of social psychology. It's called the pre-mortem. It was invented by this brilliant man named Gary Klein.

 

JM:

So the pre-mortem, instead of saying, "Hey, Paul, what are the risks to this business?" If you and I are sitting around a table, the question is phrased as, "Okay, we're going to invest in this business, and in five years time, it's the worst investment in the history of our firm. This is an alternate reality that we have to accept." And then you and I would sit around and reverse engineer how this alternate reality occurred. So, one, it's proven to put people in just a less defensive posture when they're having these discussions. And secondly, we have learned that the more and more you have to really push your imagination to come up with a pre-mortem scenario, the more you realise that you probably have something really special on your hands.

 

POC:

So, your portfolio's fairly concentrated for a global equity strategy, holding around 30 stocks. So, how do you think about and manage risk from a portfolio perspective, Jeff?

 

JM:

We view risk as permanent loss of capital. And you know, one of the answers to this question is actually embedded in your question. It's through concentration. So even though in the '80s and '90s, and to a lesser extent, but still to a certain degree today, academia espouses diversification. We believe that a concentrated portfolio is a risk management tool. And the reason I say that is if your goal is to own 25 of the highest quality businesses on the planet, but you broaden your portfolio out to 80, 100, 150 businesses, your 80th business is going to be a less quality or a lower quality business than your 25th idea, or it would've been in the top 25 to begin with. So we believe that by expanding the portfolio out well beyond what it currently is, which is roughly 25 businesses, you're actually introducing lower quality and thus a greater level of risk.

 

JM:

Other areas are the long due diligence process, the team environment. We have a fantastic team of 11 people. Our portfolio structure, and then also our bias for globally scaled and dominant businesses. And really, as I think about it too, it does return to the guardrails. It starts there, and that's why we called them the guardrails. That is the very first filter, and it filters out without really much work on our part, a lot of extremely low quality businesses so that we can then apply our focus, our time and our effort to the higher quality businesses that we're more interested in.

 

POC:

That's extremely interesting there, Jeff. I think your comments around the larger a portfolio, the lower the quality businesses you will be purchasing, and also may not sort of fit within your guardrails as you've described earlier, whereas ... And also, I think the fact that you think about risk in terms of a permanent loss of capital. I mean, a lot of managers will buy additional stocks to just try and tone some volatility in the shorter term. So, it may not be anything to do with their conviction there. So, no, it's very interesting the way Polen think about that management of money there. Maybe just moving on to ESG, which is obviously a topic that's very prevalent. I note that Polen incorporate environmental social and the governance overlay in your investment process when analyzing stocks. So, can you provide just maybe some high level comments on Polen's ESG process?

 

JM:

Absolutely. I would argue, Paul, that Polen has been investing in accordance with ESG before ESG was ESG. And what I mean by that is we've spent three decades searching for financially sustainable businesses over very long periods of time. And we knew this and we learned even more so over the years, it is very challenging to be financially sustainable for a business over the long term when you aren't treating all of your stakeholders well. So for example, if you're stepping on the necks of your employees, you're likely to have a poor culture and churn. And if you're gouging your customers, you'll eventually lose them. Or if you're pillaging the earth, it eventually catches up. So we look how all stakeholders are being treated, and it's integrated into our process very much so because we are looking for sustainable businesses over very long periods of time. So as you hear me talk through this, if we had a six-month holding period, this wouldn't be relevant, if that were the way certain people wanted to invest. But we've had to embrace it, and it's the right thing to do for over three decades, because it doesn't work if you have a long-term holding period and you don't fully integrate it in. That said, we're integrating it into our process more and more as we move forward.

 

POC:

Yeah. It's interesting, your comments there. I tend to agree that a number of fund managers I've come across over the years have really lived and breathed ESG before it even existed as a term. And I do recall the manager, you may know, of Generation, and visiting Generation in London. And they just had the view around 20 years ago that a company must be a good corporate citizen, and to be a good corporate citizen, it needs to pick up on societal standards and changes. And that's what makes the good longevity of a business model. And that really resonated there. So I think some of your comments there also sound in my mind similar to that business' view on a company being a good corporate citizen. Can you talk me through a couple of your current portfolio holdings and where you're seeing a compelling risk return proposition?

 

JM:

Sure, absolutely. And as I think through this, I think it'd be fair to not only talk you through a couple portfolio holdings, but two of our largest. So, one is Alphabet. This is about a 9% position for us. We think Alphabet has a very compelling investment proposition for shareholders going forward. So, some brief remarks. Search is roughly 60% of the total business. It continues to compound at either mid-teens to 20%, depending on the quarter or the year, and once you smooth all this out, I mean, this is through the pandemic. This is a highly profitable cash generative business that is competitively advantaged with a strong value proposition. So, on the value proposition side, humans have always sought information. And once then Google emerged, humans can now get the right answers near instantaneously. I mean, if you think about it in that context, that has almost never existed before.

 

JM:

And that's just search. If search were a standalone business, we'd be happy owners. But because of Alphabet's culture, they have given entrepreneurs a long runway to develop businesses. They've not had their hands tied to quarterly ROIs, and they bought YouTube for $1.6 billion. And standalone, I think YouTube, if it was to be pulled out, I think it would be worth a little over $500 billion as a standalone business today. And at its growth rate today, it should be a trillion dollar business within Alphabet we think by the end of 2023. And then there's also Google Cloud Platform. So, Google Cloud Platform has firmly established itself as one of the three hyperscalers along with AWS and Azure. And we think of it almost in terms of railroads and the United States in the early 1800s to around the 1830s.

 

JM:

The reason I say that is the CapEx spend is so high for these cloud providers, AWS, Azure, and GCP, that new insurance, one, can't afford it. And two, can't justify the ROE. So there's basically three and that's probably going to be it for quite some time. And this is in the face of, and this has been completely amplified by COVID, this digitization and this drive for businesses to realise the strategic advantage of switching from on premise to cloud technologies. So YouTube and GCP, even though they're a smaller percentage of total revenue, they're now contributing over 50% of Alphabet's growth. And keep in mind that search continues to compound at healthy rates going forward. So, we've owned Alphabet since inception of the portfolio. As I mentioned, it's a 9% position for us today, and it's trading for 22 times.

 

POC:

Finally, Jeff, I can't let you escape without asking the question on many investors' minds at present, which is what's your views on inflation and how, I guess, the unwinding of QE and the normalisation of monetary policy may impact on stock valuations?

 

JM:

Sure. First of all, rates rising. I mean, interest rates represent opportunity cost. And typically when rates go up because of the opportunity cost, you'll see multiples come down for equities. Now, that said, it's been well telegraphed that rates are likely to go up and then up and then up from there. And you could argue that that is now priced into equities. But let's talk about inflation. The best hedge or one of the best hedges for inflation. You know, it's often said in the industry that gold or real estate are excellent hedges of inflation. I would argue that equities is one of the best hedges, if not the best hedges. And I would cite Charlie Munger, Warren Buffet's lifelong partner at Berkshire Hathaway who's been talking about this since the 1950s as a quote as far back as I've seen. But not just any equity, because not all equities are created equal, but companies with capital light business models with pricing power.

 

JM:

For equities that are either seeing that their revenue is driven by commodities or very capital intensive, and as inflation continues to increase, the capital intensity increases, for both of those types of companies, they will likely see margin decline and in turn earnings growth decline. So, the earnings growth that they have today is not going to be the earnings growth they will likely have tomorrow. For our portfolio, and this is the overwhelming majority of our portfolio, we are invested in capital light business models with pricing power that should be able to pass that inflation on to the end customer and thus compound their earnings through the inflation, and goes all the way back to the first thing that I said; we think be very strong places to allocate money to during an inflationary environment.

 

POC:

Jeff, thank you very much for joining us this morning on the Netwealth portfolio construction podcast. It's been a really enjoyable discussion, and I found it very insightful. And I guess some of the comments you've made around Polen and the way you think about managing money, it's a little different to most other strategies that I'm aware of in Australia. So, I wish you all the best for the portfolio and for the distribution of the fund in Australia, and all the best for the year ahead. I wish you ... thanking you again for joining us. To the listener, thanks for joining us, of course. And I hope you guys have a fantastic 2022 and it's a bit more positive than the last couple of years, and I look forward to you joining us on the next instalment of the Netwealth Portfolio Construction Podcast series.