The Big Sell-Off Explained: How to Protect Your Money

Hi, welcome to the latest episode of the AJ Bell Money and Market's podcast.

My name is Dan Cotesworth and joining me is Danny Husson.

Hi there, Danny.

Hi, Dan.

Hi, everyone.

Watching this thing, it has been a huge week for markets.

And Dan and I are going to at least try and unpack what it means for your money.

Now, disturbing scenes in the Middle East have caused oil and gas prices to saw

and financial markets have a bit of a wobble.

So we're going to explain why these movements have happened and kind of what the implications are

for shares, for bonds, interest rates and lots more.

Chancellor Rachel Reeves was back in the news with her spring statement and a new economic

forecast from the Office for Budget Responsibility. We'll explain the key points from that event

and whether it changes the outlook for our personal finances.

Now, in amongst all these big events for a couple of interesting developments

regarding quite well-known companies in the retail and leisure sector.

So we'll be unpicking Greg's latest results and explain why

Jebrett Smith's successor on High Street isn't doing that well.

There was also some bad news for anyone who invested money into pubs and brewery group

and Dan's going to explain why crowdfunding is not the same as investing on the stock market.

Now, we were chatting about wills on the podcast of the day and there's something

important happening on this topic during March, which you might want to look out for.

So we'll talk about that in a little bit.

We've also had a lot of questions about AI and about what it means for various sectors.

With that in mind, we've got a couple of guests on the show this week to talk about different

angles to the AI's story.

And Danny's going to talk to Simon Skinner,

Orbis, about US sectors that have had an AI tailwind.

And you're also going to hear my chat with Colby Stilson from Brown Advisory.

About why big tech firms have been tapping the bond market for large sums of money

to fund their AI infrastructure work.

So we've got a whole lot of interesting stuff for you on the pod this week.

And while we do have a broad range of topics, as we always like to,

we have to start with the main talking point, which is what events in the Middle East,

mean for shares, bonds, funds and more.

And Danny, I'm going to pick up because obviously,

energy is being the main focus of a lot of people.

If you've seen any newspapers or news websites over the past couple of days,

you will undoubtedly have seen stories about the rise in oil price, gas prices,

and potentially what that means for all of us here in the UK.

And I didn't want to talk about the oil price without going straight to my screen,

to have a look at exactly what is happening now, because it is volatile to say the very least.

So just looking, yesterday, as we record this on Wednesday, the fourth, just before lunch time,

the price of a barrel of Brent crude is $82.

Now, it tipped over $85 a barrel yesterday, which is the first time that that's happened since July

2024, which, of course, then starts the drum beats that we are likely to see a rise in the petrol

price. And that is certainly something which is likely to happen. And that's important, of course,

because the petrol price has been coming down. We had Brent crude hovering around $60 a barrel

in December. So that just gives you an idea of how high it has gone, because of the expectation

that all those ships that are stuck in the strait of hormones, carrying oil and gas,

won't be able to get to their destination. We've also seen examples where some of those exports

and production have been either stopped, blocked, or otherwise impacted, which is making a lot of

worry about how much supply there is going to be. But I think for me, the gas price is the one

that really sort of caught my attention yesterday. So it's at its highest level since three years.

That was yesterday it rose above 165 pence of thumb. It is down now to just over 140 pence of

thumb. But we are still talking about the highest level since three years ago. And anyone listening

to this, thinking back to 2022, we'll start to realise what this could potentially mean for

inflation globally. And it is that which has really begun to rattle market. We now have the

expectation that, you know, interest rate cuts, certainly the Bank of England's one later this

month had pretty much been nailed on by markets. They were expecting it was a done deal. Now huge

question marks about that, huge question marks about the path of interest rates for the Federal

Reserve. And it's making a lot of investors, Dan, look at their portfolios, make adjustments in

some cases. They are selling things that have done very well for them, just in case they fall

away. But we're seeing some big movements. Yeah, I mean, so I went back and to look at

Monday, Tuesday, and we've seen a little bit, as we were recording some Wednesday, about the

sort of the patterns of what's been going on. The first 200s sort of fed better than quite a

lot of other parts of the world on Monday, because it's got really big exposure to oil companies,

to gold mining companies, and obviously the oil price goes up, the gold price goes up,

naturally these companies, you know, the earnings prospects improve for them. So that's why

the UK market didn't fall as much as others. Come Tuesday, as we said, Danny, people suddenly

sort of reach for things that are already in their portfolio that are already done well,

and we saw things like defense contractors for, which you might think is the opposite of what,

given this backdrop, people thinking, okay, well, if governments worried about security,

they want to spend more money on defense, for example, then surely the earnings prospects improve

for defense companies. But no, we saw defense companies fall, we saw the gold price fall,

and then, and again, this is probably down to people saying, I'm a bit worried about what's going

on. I'm just going to lock in some profits, things I know have already done well, so I'll just

take a bit of money off the table. Now, I guess some people would perhaps call that, you know,

is that capitulation? Everyone's panicking, everyone's worried about stuff.

What's really important to me, having watched, you know, lots of ups and downs of the market,

is come Wednesday, we saw a much more stable environment here. You had sort of just small gains

across the European markets, lots of sorts of shares holding up firm, and I think you've got

to make sure there are people buying stuff they think will continue to do well, no matter what's

going on the world. So I think it's like utility companies. We've also got people going back into

defense companies again, but also there's, you know, mining companies are going up, and of course,

that's linked to views on what's happening with the global economy. So I also, it's like,

shares a little bit of risk appetite. So I think, as we're recording this, things have sort of

started to calm down, and this plays back to what we always say when we get wobbles on the stock market.

You should never really panic at the first sign of like alarming things you see on the news.

You should just sit tight and just see what's going on. Just being really patient does pay off.

And I think if you go back, we've looked at some other sort of difficult periods of markets before,

and you can see what's going on. So I think everyone will, you know, listening to this now,

we'll remember Liberation Day last year, Donald Trump came along and said,

going to impose all these big tariffs for various parts of the world for goods sold into the US.

We saw the stock market drop by 11% from peak to trough off the back of this news, and this is

not like, I'm talking about the, this is a FTSEOR world is a benchmark for the global stock market.

It only took 30 days, the market to recover again, and now markets are 23% higher than the start

of that sell-off. You know, go back to COVID. That was a 34% crash from peak to trough.

It took a bit longer, you know, 373 days to fully recover, but markets now 144% higher than the start

of that COVID sell-off back in 2020. So I'm not saying it will always recover, but you know, it just

shows the sort of the patience of it. I mean, Danny, what obviously you, you know, you're looking at

this on an hourly basis. You're looking at what's going on these markets. So how do you feel at

a moment? We're only, I know we're kind of only sort of three days into what, you could still be

a very difficult period of markets. Do you, do you feel like people now sort of,

perhaps taking a step back, taking a moment of a pause, take stock of events?

I think they are definitely. I think also, you know, that first initial reaction to what was going

on and the rhetoric that was coming out of the White House, and of course, the huge number of

attacks that were taking place, and of course, all the discussions that were going on with

world leaders and whether or not certain countries like the UK were going to get involved or not,

it was impossible not to ignore that for a lot of people waking up on Monday morning and going,

okay, we're seeing some big changes here. I think what's happening now is that, first of all,

people are looking at some of the market reactions and thinking, okay, well, yeah, the oil price has

gone up, but when Russia invaded Ukraine, we were talking about $120 a barrel, and there were a lot

of commentators at the weekend saying we could see it hit $100 barrel really quickly, and that

hasn't happened. Now, the question is, is this just a delayed reaction? Is there enough in terms

of supply at the moment to be able to sort of cushion that? I suspect the answer at the moment is

yes, and I think investors are thinking, is this going to be a long conflict or is this going to be

something which ends quite quickly and clearly for things like inflation and the impact that that

could have on all of our lives, we all remember the cost of living crisis when energy prices went sky

high, when the cost of food went sky high, people are now looking and thinking, what does this mean

for basics like fertilizer? This is a massively important commodity when you start thinking about,

you know, the stuff that needs to go in the ground that's going to end up on our plates next year,

but also the impact it's having on current shipping. We've seen big snarlops, as I say,

in the Straits of Hormuz, the price of those super tankers has gone up to record levels in the

Middle East, so that is obviously for transporting energy, but a lot of companies are also thinking

about insurance, the price of that has gone up, but this is something which a lot of companies

now have built into their business policies, they've been through this before, they understand

what to do when this happens, and I think the moment where we're just not quite sure how long

this conflict is going to last, if we're talking a matter of a week, a couple of weeks, then we don't

really need to start thinking about stackflation, you know, that inflationary spike returning and

all that that means, if it goes on for longer, then I think we do need to start considering that,

and really sort of building that into our portfolios, but you're right at the moment because

there is so much uncertainty, I think people are taking a breath, they're remembering that with

Donald Trump, quite a lot of the time, we see one big step forward and then a couple of shuffles

back and they're just building that in. I think there's potentially two issues to consider here,

I mean one is obviously the act of war, and that always would put markets on edge. The other thing

is obviously you mention about inflation and sort of changing the path of interest rates,

so that feeds into sort of valuations for financial assets, but I think we also need to think that

stock markets were doing incredibly well up until last week, even though we've had nervousness

around AI spending, AI disruption, I think there was still sort of investors find enough

places in the world to give them the confidence to keep going, and so we've had some quite testing

periods in the last few months, and yet markets are sort of wobbled and they've pushed on.

We just don't know whether that trend will continue, it is worth pointing out that there's

other things going on as well, which are still troubling markets, but things like concerns around

private credit, we've talked about this last year on the pod, there's a collapse of a couple auto

companies, first brands and tri-cola, and then more recently in the last few weeks we've had

some big sell-offs with private funds, private credit funds, they're sort of concerns around the

values of the loans that they hold, and all these things bubbling away in the background,

but for every time we've got companies issuing bad news, we do have lots of companies issuing

good news, and so I think it's an investor, it's easy to go, oh my god, my head is swirling

around, there's so much noise going on, but it is very important to try and keep a clear head

and just try and stay focused, and if you've been putting money into an ISO or a pension every

month, you're just feeding your account and looking at the long term, you sort of have to sort of say,

well I should consider doing this during bad times as well as good times, because if I'm investing

when the markets are down, I'm actually being out, this set of money I'm putting into my pension

I actually buy more stuff with my money than it had when markets were higher, but it's just

this sort of regular habit, I know it's quite hard to think to do this when you're reading all this

bad news, particularly day after day, you think you've got to worry about, but time in the markets

is so much more important than trying to time these markets, and if you can hold your nerve,

history suggests it might work in your favour, no guarantees, but it just might.

That's interesting what you said about filtering out the noise, because we're going to hear

from Simon Skitter from August later on, and he talks about that, how you really sometimes just

have to focus on the fundamentals, what you know about a company, why you're looking at investing

in this company, rather than listening to the huge clanging sounds at sirens of doom, which

are going on all around you, so yeah do keep listening for that one, but talking about noise,

normally when we have a big in inverted commas fiscal event in the UK, there's an awful lot of

noise, which is made about it, but you might not even have noticed that the chancellor gave her

spring statement yesterday, considering everything else that is going on in the world, but we did have

the speech on Tuesday, it's fair to say down that there was a mix of good and bad news, so what does

it mean for our money? Well, yeah you're right, I mean I looked on a couple of websites, news websites,

and you know you normally expect that to be the lead story, but it's buried way down, and so what

we had was, you know we had retirees come out very, very confident tone, so kind of implying

everything was going well, her plan was to get the public finances in order, create this clearer

path for economic growth, and she gave some very good reasons why that's all now under control,

but always it's this waiting game, and I think that what we need to do is look at the OBR forecasts,

and it came out and said we now think that the UK economy won't grow as much as we previously

thought for 2026, but we think from 2027 onwards that should do a bit better, and we also had

unemployment expected to rise this year, but also potentially peak, so essentially the key things

that we take away from this is that retirees gave this very confident sort of tone, and it's

saying that her plan is working, but this year isn't necessarily going to be as good for the economy,

for the jobs market as we thought a day two days ago, so I think obviously, and then we've got

the factor is that the inflation and global trade policies, they're the elephants in the room,

so the OBR flagged both of those as key risks to its forecast, so it's a tricky position,

so retirees are saying as it stands, things are going to plan, however that doesn't factor in,

we just had two days of very, very sharp rises in energy prices, and the tariff and the trade

issues with, you know, the link to the Trump administration is they're still a moving feast,

so it's really hard to sort of say, okay, everything is now fixed in the UK, we're all fine,

we still got some unknowns to consider, and I think that's why people sort of took a step back

and say, well, spring statement, there wasn't masses of bad news in it, but equally,

there wasn't masses of really good news in it at the moment, it's like kind of like a steady

she goes, but still not quite sure what's going to be around the corner. Yeah, it's fascinating,

in the fact that she's got a bit more headroom than she'd said previously, it is good news,

but of course, then you have, as you say, the elephant in the room, the ink had not been dry

on the OBR's forecast before, you know, we got this changing situation, and if she does need to

give more assistance to businesses and to households in terms of energy bills, then that headroom

is going to disappear incredibly quickly, so you're right, it is a moving picture indeed,

so yeah, I imagine that all eyes will be now on the speculation as we head towards the budget,

and that's probably going to start quite quickly. Yeah, yeah, right, let's move on to some

company news. We had results from Greggs, we like to talk about Greggs a lot on the on the podcast,

lots of people love to hear about it, that's interesting, it's weird because it's the markets

were all falling, Gregg's share price rising, but it actually reported quite a big decline in profit,

so Danny, what was it something in there that basically Gregg's saying we're going to give out

a load of free sausage rolls or something? Why is everyone suddenly happy about this coming when

they've been quite miserable on it for a while? It was interesting, yeah, because I mean, as you say,

the drop in pre-tax profits was almost 18% for the year to the 27th of December compared to a year

earlier, I mean, that is a big drop in profits. I think it was the fact that Chief Executive

Rushing Curry was really bullish in her tone. She said, I absolutely don't believe that we have

reached peak Greggs, and this is a question which has been really sort of circulating about a lot

over the past year. We obviously saw huge pressures in terms of consumer spending and on prices

for the business itself, and what Rushing Curry was saying is that a lot of that is now beginning

to balance out, and that they are now expecting that they're going to be able to continue to

expand the number of shops that they are going to open, so it opened 121 in 2025, and it is targeting

another 120 openings this year as well. It says that sales growth had been supported by

more deliveries, and also some of the change in things like shops staying open longer into the

evenings. I think for investors, they have really built the foundation to be able to continue

growing. They are demonstrating an awful lot of resilience, and I think that was what a lot

of investors were really grabbing hold of in terms of why shares went up, despite what was a pretty

gloomy set of figures. There has also been worried about, obviously, weight loss jabs, and she was

talking a lot about that last time, but this time it felt like they've been factoring into a lot

of consumer changes and challenges into their whole business model. They are changing some of the

offer that they have in order to make sure that there is something for everyone, whether or not

you're wanting high protein, you don't just want your steak bake or your pizza, you actually want

to have something which is more balanced, and they are opening in parts of the country

where they are seeing opportunity. I think for a lot of people, they're just like the Greg's

business model, and it's relatively low cost to open one of these. In terms of travel locations,

there is still an awful lot of opportunity for Greg's to really take more of a chunk of the

market. For investors, I think they sort of looked at these figures and thought, yeah, it's not

great, but we haven't reached peak Greg's. There's still a bit more room for growth, and maybe that's

why we had a bit of tuness going on. I was very surprised. They always talk on optimistic

outlook, and I guess they would always say that there's room for more. I just, anecdotally,

I want past Greg's stores. Yes, there's a queue there, but I also see lots of people give up

because they come and bought some weight, and we talked about it before. It feels like the

they've got quite small stalls sometimes, and it's like people, they want to be served quickly.

Yeah, the food on the go is that you want to eat it, grab it quickly. That includes being served

quickly, and I don't think they're quite sort of come across the right stuff formula for how to do

yet, I guess we see. It would be interesting to see how they implement AI and things like, you know,

the opportunity to pre-order in apps, and that kind of stuff. I mean, there does, as you say,

need to be a bit of a shift there in terms of people being able to grab their food on the go as

quickly as possible. That said, it is one of the few places. I know that I'm happy to wait for

a certain amount of time because I just want to get that bacon-butty and that cup of tea.

But when we're talking about the high street, let's talk about another big brand,

WH Smith. It's absolutely massive, part of most of our lives, in terms of going and buying

schoolbooks and pens and that kind of stuff. The company that took over those high street stores

isn't having the best time. I don't think really many people are going to be surprised about

that, Dan. Yeah, so this is, say, Modella bought 480 of WH Smith's UK stores last year on the

UK history. Repranded them as TGJs, which is, I don't know, it's like a bonkers name.

What, and now it's all saying that there's talk as 80 of these stores could be shut because

they're not trading very well. I mean, Danny, have you been to one of these newly branded TGJs stores?

No, I haven't, but then I don't do an awful lot on the high street and the only time I tend to go

into one of these stores is when I'm travelling and therefore it is still a WH Smith store and

that is why, of course, WH Smith kept hold of that bit of the business because that bit of the

business makes sense and in terms of trying to turn around the high street business, they've not

made many changes. No, I mean, so the one near where I live, it feels like, it's like they've got

someone on work experience and said like, just type in TGJs into a computer, we'll just print it off

whatever the first font you pick. And they've stuck a very, you know, sort of amateurish sign outside

the store, gone in, changed the till rob, so it says TGJs and literally that's it and it's like,

these stores are all, they haven't, don't expect Smith to have a reputation for having fairly

sort of messy stores. It didn't want to invest. I mean, best of how it made so much money from them

because it just worked them until they were unworkable and it had no choice but to sort of spruce

them up a bit. And I think that Madela is basically banking on people thinking, well, I always remember

that TGJs is midway on the high street and I know I'm going to go in there and it's basically people

wanting people to not actually notice that they've got a new sign outside. I'm wondering whether

people are now going, oh hang on a bit, it slightly does have a different name and, you know,

actually these prices are quite high. Like, you know, it's convenient. You've got lots of things

I might need but, you know, do I really want to go here? Don't really, there's no trust for this

brand anymore. And so, yeah, I think, you know, Madela are probably realising that it's a little

bit harder to make these stores still relevant now without they're going to have to need to spend

some money or make some big decisions and slim this store down to the estate down quite a lot.

Yeah, I mean, the locations of some of these stores are great. If you've got a thriving high street,

but certainly the WA Smith store here where I am, it disappeared and it's never returned

because there just wasn't the demand. So, yeah, I think they're going to have to really think

about what it is they're offering the consumer because, unfortunately, it's just too easy to get

stuff online and get it delivered the same day or you can have the convenience of things like

supermarkets which provide an awful lot of the same stuff. So, they're going to have a fight,

but I think there is an opportunity there, but you're right, they are going to have to stick some

cash in. So, yeah, let's see. And so, you know, another, another name that's perhaps people quite

familiar with is actually going through changes as well as Brudog. So, this is, you might have bought

some of its beer in the supermarket or you might have been to one of its pubs, but it's just

had a take over and this is quite an interesting situation and there's a reason why I want to talk

about it, but Danny, just give us a quick 30 seconds about what's happened. Why is this takeover

happened? It's happened because a lot of the hospitality sector has really been struggling.

Brudog obviously made a name as being kind of an out there brand. It was a bit new, it was a bit

feisty and funky and and, you know, real ale was pretty massive at one point, but the demand

has been falling a little bit. Certainly, the number of different options you've got in supermarkets.

I'm not saying quite so many as I used to do, but as you say, this craft beer brand

has been struggling for a while. It went into administration at the start of the week.

It was bought out of administration by a US brewer and cannabis group, which is an interesting one.

That's Till Ray. Now, not all the bars are going to be saved. So, 11 of its pub venues across

the UK and Ireland will stay open. 38 not included in the deal will close. And unfortunately,

that means 484 jobs, but it was the nature of the deal. The facts that the company went into

administration and then was bought out of administration, which then left quite a lot of small investors

in particular out of pocket down. Yeah, so breed dogs not on the stock market, but there was an

opportunity to have invested in it privately. So, go back a few years, it used a crowdfunding

platform and had this scheme called equity for punks. And basically, it sort of said, you know,

help with the public, would you like to buy, you know, small amount of money, you know, sort of,

you could put a couple hundred quid in potentially and you could get shares in the business and you

get perks like money off its beer. And I think for a while, breed dog was like really was, you know,

people, people liked it. They thought it was going places and said there was a lot of people,

bought, you know, put some more money into it and sort of thought, okay, maybe at some point,

if this floats on the stock market, you know, I might have made some money by then and I might

be able to to easily sell out if I want to do at that point. What actually happened now is that

whilst the company's been taken over, there's anyone who bought shares in this, in this crowdfunding

scheme, they have lost everything. And I think that lots of people didn't realize the sort of the

risks associated here. And one of the key things with crowdfunding is it's quite hard to be able

to sell your shares in a company when you want. And in case of breed dog, it held trading days where

investors could sell their shares to other people. But the last time this actually happened was

the 31st of August 2022. So it means that in the last couple years, where there were sort of some

signs of things weren't going as well for breed dog, you know, these investors couldn't sell unless

they found someone privately who would want to buy them. So this is really difficult. Now, if this

company was on the stock market, you might have expected someone in its situation, you might come

out saying that things aren't going as well. And the share price might have fallen, but people could

potentially have taken some small losses on it and decided to sell out by selling on the market.

But because it's crowdfunding, it's not that simple to do in the case of breed dog. I just think

it's, you know, people getting into investing, finding a bit more interesting. There's a real

distinction between investing on the stock market versus crowdfunding. I just want to sort of make

that sort of a point. And, you know, if anyone's got any questions about it or, or, you know,

other examples they want to know more about the difference between two, just drop us a line.

And we're happy to talk about more in detail is podcast at ajbel.co.uk.

So before we bring on our first guest, Dan, you mentioned wheels at the start or what's changing?

So it gave, gave back a, I think there's a couple of months ago. We were talking about wheels

on the podcast, just in general, the importance of like getting one sorted. And at the time,

I mentioned that I think it was every November, they do this national scheme whereby if you make a

charitable donation, you can actually get a will for, you know, just for that donation. You don't

actually have to pay the normal amount of money that you normally do. What it's just turned out,

it caught my eye the other day that there's something called free wheels month that runs in March as

well. So a group of charities offer people that are aged 55 and over to have a simple will written

or updated free of charge by various solicitors. So if you go into, I thought I'd just reference this

because I didn't realize this scheme existed in another month beyond November. So just type in

free wheels month. There's a website, it talks about all the, all the different things that are

going on. I won't go into ins and outs or why should you get well. I think it's just really

important to be able to, you should look at this seriously if you've not done one before. And this

is an opportunity for you to potentially get one for a lot less money than you perhaps would normally

pay for one. That's really interesting that you bring that up because we have a companion podcast

called the AJ Bell Money Matters podcast, which is primarily aimed at women. But our next podcast

episode is going to be featuring wheels. We're going to be talking all about wheels, why you need to

make one, what you need to do. We've got an expert on to talk about it. So do take a look at that.

Oh, thanks, Essie. I didn't know about that. I would definitely be tuning into that one. So

thank you for flagging that one, Danny. Right. Okay, this is special guest time. Actually, we've

got a double header this episode. So whilst all the stuff is going on about Middle East is sort of

grabbing people's attention for months or even a couple of years now, AI has been such a big

talking point. So we thought it was worth getting on a couple of experts who are offering a little

bit of a different take on events. So later in this podcast, we're going to hear about why big tech

companies are turning to the bond market for their AI investments. But let's first bring on Simon

Skinner, who leads Orbis's global investment team. So Danny recently caught up with Simon to

discuss US sectors that got potential AI tailwind. But lots of you listened to this podcast on

places like Spotify, Podbean, and you'll notice no difference this week. But for those who actually

watch the video on YouTube, I must apologise. We had a bit of a tech issue. And Gremlins have sort

of caused us like problem. We can only hear Simon's interview. We can't see him. But it's a

brilliant chance. We still want to include it. So let's hear what Danny and Simon were talking

about now. Simon, thank you so much for joining us. Look, all anybody seems to want to talk about

at the moment is AI. It does feel like the AI excitement of the past couple of years is becoming

AI fatigue. And even when you get some pretty impressive results from the likes of Nvidia,

investors don't like it. Is it just about the amount of cash being spent or is there something

more fundamental here? So it's an interesting question, but I also think it's an impossible one

to answer. What we know is that as you say, AI has been the hottest topic in investment markets

for several years. And no one in the world doesn't know that this is happening. And you have a couple

of flagship very large companies that have done extraordinarily well based on this AI narrative.

And I like to, in moments like this, step back and try and be a student of history.

And so when we have a big technological shift and you have a few companies which are apparently

at the forefront of that shift, people tend to get very excited. And they extrapolate incredible

performance for an awful long time. And they use that narrative to justify extraordinary

valuations. And so if we look at the absolute size that these companies have got to in terms of

their market capitalization, it's far larger than anything you might have expected several years

ago or that we've seen in history. And so embedded within those huge valuations are incredibly

optimistic expectations. And anything which chips away at a perfect future for these companies

is probably not going to be good for the share prices. And so it could be that the companies

are going to end up being more capital intensive than people expect. It could be that there

might be slightly more competition than people expect or it might be that people just think the

the end state is slightly less certain or less clear than they had a couple of months ago.

But any of those concerns becoming apparent to a small pocket of investors will cause the

share price to be less than good, which will start to change the narrative. And you know exactly

as you're asking in video posted fantastic results recently, but the shares are now down after

that. And so people start to second guess and they build another narrative, which is all these

were the first companies of AI, but maybe they're not the most they don't attract all the economics

in this dynamic. And so maybe I should be shifting my capital somewhere else or I should be more

conservative in my valuation. And so it's often that we don't know what first starts to change that

wave of sentiment. But you know if you look back at history, it's very unusual that investors have

been able to accurately assess all the winners of big technological shifts. And I think that's what

we're seeing today. It's been really interesting to talk to people to talk to investors over the

last really six months because there was sort of a shift from investors looking at the big AI

players that we know and love like Nvidia and trying to figure out which sectors might benefit

from AI. And then of course into the mix we have the likes of Anthropics Claude and those plug

in tools which have really upset some parts of the market. And I'm thinking of the likes of finance

and the legal profession and software. Our investors write with some of the moves that they're making

or do you think that there's a lot of overselling going on? So I think it's hard to say whether

investors are right because it's just it's just uncertain. But I think what's what what has been

correct is the people are putting a more cautious view of their the range of outcomes for some of

those businesses than they have in the past. And so previously some of these data business or

the software businesses would have been regarded as very high quality businesses with enduring

business models, great pricing power, very strong economics for an awful long time. And even as

you start to question whether you can be certain about the far end to the future, you probably

demand a slightly higher return from those stocks in the near term, which means their valuations

compress. Now that doesn't necessarily mean the stocks are oversold though because if the future

does turn out to be a lot worse, well these businesses started at quite full valuations because

the market was convinced they were the highest quality companies around. They also started with very

high levels of profitability. So some of the businesses you've described have that some of the

highest margins we can see across the stock market. And so if you see a scenario come to pass where

say competition increases because of AI, for example, and pricing power declines and maybe

their margins decline. And that happens at the same time as sentiment turns on those stocks.

Actually the valuations could compress a lot. And so I would be very cautious to say that as a basket

those types of companies are oversold here, certainly they're less highly valued than they were,

but we've seen if you can get on the wrong side of these big technological shifts,

you can see an awful lot of value lost for a market share prices before you get something which

you can say is oversold. And so you might think about what happened to newspapers with the

advent of the internet. And the first time that the Yahoo came out with its news page or the

classifieds website started popping up. I imagine those newspaper stocks started selling off.

And we could have had a conversation about whether they're oversold and 15 years later most of them

were bankrupt. And so where you have these big shifts and you're not sure that you're going to be

on the wrong one at the right side of it, I'd be quite cautious in saying in the first six months

you have a clear view that those businesses are overly discounted. It's an absolutely fascinating

period of time. And the one thing that we're also seeing is interest in maybe some sectors that

can sometimes be overlooked. And the potential that they are going to benefit from AI and

healthcare is most certainly one of those. How do you view those opportunities? And there are other

other sectors where you're lucky in thinking that's interesting. So I think you so you raised a

good point about the kind of the approach that one might bring to investing in this period.

And we think about the market as being a very rich opportunity set of thousands of companies

globally that you can choose to invest in at any one point. It's very often the fact that the best

value is found away from hot topics or key debates for investors. We like to go to places where

no one's thinking about no one's really analysing particularly retail investors have showing no

interest. Sometimes boring companies that do something which we think is essential but perhaps

undervalued because it's not exciting. There's no interesting story to write about it. So you're

absolutely right that healthcare has provided some opportunities for us. So in some areas like

laboratory services or sterilisation, these are essential services that are providing

services into a sector which is proven to itself to be quite stable over time. So US healthcare

systems, so companies like Bruka in equipment or steris in services. The other area or the other

type of stock that we're finding interest in at the moment would be businesses where we think AI

can offer the opportunity to execute ahead of their peers. And so what we're seeing at the moment

at the front end of AI is a huge amount of investment into tools and capabilities, the likes of which

we haven't seen before. That doesn't mean that those tools will be used equally well across all

businesses in the market opportunity set. And we have high conviction that businesses run by

proven entrepreneurs who retain a large stake in their businesses are likely to benefit ahead

of their competitors. And the market probably underestimates the upside in those situations.

We find those entrepreneurs are often more decisive. They have more clarity and they're more

willing to do unpopular things in the short term which position their businesses well for the long

term such as replacing software with AI or forcing their staff to adopt these new tools much more

quickly than you might find in a more conventional business. So some examples would be across

a range of industries. So we have interactive brokers which is the, you know, an online brokerage

service. We have QXO which is Brad Jacobs new building products distribution business. And we have

Ron Clark at Corpay which is a payments business. Now they're very different on the face of it

that the common theme is that they have a strong leader who we believe can execute well with his

new sets of tools that are becoming available. We've spoken a lot about potential risks.

But I'm interested in how you drown out the noise because a lot of time, you know, investors might

feel they might have a conviction about a company that they've bought stocks in but the noise

just they just can't ignore it. So how do you deal with that? So this is the, this is the classic

emotional struggle that we have with herding in markets. And the the pressure to conform and do

what the consensus believes can get intense. And if you haven't owned large US technology stocks

for the last five or seven years, the pressure has been incredible because those stocks have done

so well. They've driven almost all the market returns. And they're in the media and the news

every day. And so, you know, you have a constant reminder that you're wrong and you are giving up

value by not owning those stocks. And so it does create a lot of pressure. The best way we found

to deal with that is it was one just to be aware. So to be aware that the moments in history which are

most dangerous to capitulate and give into that pressure have turned out to be most dangerous

from a future returns point of view. So if you were invested in technology stocks in the year 2000

or if you were invested in US housing stocks in 2007, those have been, you know, the key points

in history where actually you've seen, you know, it's been a poor decision to be invested with

herd at that point when the pressure feels most intense. And we've built a whole firm around

resisting that pressure. So we have no external shareholders. We put no premium on short-term

performance. Indeed, we accept that short-term volatility is the price you pay, the long-term

outperformance. And we are very aware that pendulum in the market can swing hard and fast.

And so when you sense that everybody believes in one very narrow outcome and are positioned

for only one kind of future version of the world to unfold, just to be cautious and to really

understand that if that future doesn't unfold, the consequences will be quite dramatic. And you know,

not being involved in the area can turn out to be an excellent decision over the long time.

Considering the volatility in the world at the moment, you know, dealing with those pendulum swings

is something that we're all having to get used to. I mean, when I first arranged to talk to you,

I wanted to talk to you about tariffs because that was something that we were all getting caught

up in again because of the changes from Donald Trump's administration. Of course, as we're

recording this, people aren't talking about tariffs. They're talking about what's going on in

the Middle East, but maybe next week they'll be talking about something else, but we do still need

to address the tariff issues. So has the recent upheaval and what looks set to be quite a difficult

period of time? Has that impacted your investment decisions at all? So the short answer is yes,

but not for a specific reason around a certain tariff outcome. So, you know, we fully acknowledge

that the world is an uncertain place. And actually, I think it usually feels more uncertain today

versus history than it would have done if you'd sat in the same shoes 30 years ago. So, you know,

we were, could have been in the Cold War or we could have had the global financial crisis or we

were in the middle of COVID, but there was usually something big and scary going on in the world that

you could become concerned about. And so rather than trying to make specific bets on a certain

outcome or say, you know, I think this tariff is going to be implemented and this one is not.

We find it more conducive to better investing to try and be in situations where you don't have

to make those calls. So we like to find businesses which we think are undervalued under a range of

circumstances and we try to be have a high degree of humility about being able to predict those

big macro, you know, sometimes political calls, but find businesses that can thrive whatever the

weather brings. And there aren't many of those around the world, which is why we go, you know,

very carefully stock by stock bottom up. And it's why our portfolios, it's very different to the

broader stock market indexes because, sorry, indices. Because we are being specifically choosy

about the situations where we are choosing to invest and we are avoiding the situations where

the whim of a politician or a tweet or some geopolitical outcome can make or break your investment

case. So thanks again for Simon Skinner from Obis for coming on the podcast.

Let's bring on now our second AII related guest. Colby Stilson is one of the bond experts at US

asset manager Brown advisory and Dan recently caught up with Colby to talk about the likes of

meta and Google coming to the bond market to raise big money. Let's hear that now.

I'm very pleased to be joined by Colby Stilson, who is co-portfolio manager,

Brown advisory's global, sustainable total return bond fund. So, Colby, thank you ever so much

for coming on the podcast. I hope you're well. Very well. Thank you very much for having me.

Well, I want to talk to you about the world of big tech companies raising money to fund AI

infrastructure investments. And they're doing so by issuing corporate bonds. Now, to me,

this is slightly unusual because the type of companies that we're talking about, they generate

masses amounts of cash flow. And I always get the impression they could probably just fund all

this stuff out of their own money that they've already got. They don't need to turn to the bond

market. But I just wondered before we start to talk about why this is happening, could you

could you just give us sort of listeners a 10 second explanation of what on earth is a corporate

bond and how does it work? Yeah, for sure. It's actually relevant to the first part of your question,

which is why issue bonds. So a company, a publicly traded company and the example of what we

invest in has generally two options to raise capital. They can issue stock or they can issue bonds.

They're essentially raising capital from an investor by raising a bond. That bond has a certain

term associated with it where the capital that is raised is due back to the investor.

And over the period of that term, they're responsible for interest payments to the investor.

Okay. So I'll say, yeah, you know, you as investor, you collect a regular income and at the end of

that period, you get you hopefully get your face value, that bond back, don't you? That's how it

typically works. So I guess. Yes. Well, to equity, it's a fairly asymmetric asset class,

which or it's an asymmetric investment profile, which is important to this conversation, which I'm

sure we'll get into. There are, there's very little upside as a bond investor and downside is

essentially default and maybe even zero. So bond investors think about these investments very

different than equity. Yeah. Okay. So we're talking, we're talking to our big, big tech companies

raising, raising money through the bond market. So I guess what, what, what, what names have been

doing this recently? And, you know, what, why is this quite interesting? Because, you know,

perhaps go back to my first introduction, like, what, why are they doing it through the bond market,

not just using existing cash flows? Yeah. I think it's interesting to make a distinction between

two different kinds of the EMF tech companies. You've got the tech companies like Google, Amazon,

Microsoft, Meta that have wildly large free cash flow generative businesses that are, that are

now raising bonds to fund these AI investments. And then you also have large tech companies like

an Oracle that has a little bit higher risk profile associated with it, given the fact that they

don't generate as much free cash flow. So I think those, those are the types of companies that we're

seeing in the bond market. And, and uniquely larger volumes than we have historically. Okay. So,

I mean, this, so the money that they're raising and we took about AI infrastructure, what, what,

what is it that they're doing? This is money to, to build a data center, to pay for microchips and

stuff like that, is it? That's right. Yeah. Building the infrastructure, which would be things like

data centers, in some cases, even power infrastructure to the extent that there are bottlenecks on

things like the electricity grid, and then also all of the equipment within the data center that

supports all of the AI compute. So think GPUs or general processing units from the likes of Nvidia.

And those can be upwards of 30, 40, 50% of the overall cost to build this AI infrastructure.

And so what, so why are they going to bond markets then? Is this could, to me, it sort of,

I was reading about it and then lots of people sort of suggesting this is like slightly unusual.

But you know, you as a bond investor, do you think actually there's no reason to think this is

unusual? It's, it's normal practice. Yeah. You mentioned it earlier. Historically,

this AI investment, I would say boom, it's, it's been significant. But this AI investment cycle

has been funded by free cash flow. And so it's largely been, the risk associated with that

investment has largely been contained within each of the businesses that are, that are funding

these investments. As these investments scale, so for example, the four companies that we mentioned

earlier, Google, Amazon, Microsoft, Meta, between them, they're projected to be spending upwards

of 650 billion US dollars in, in this year on, on AI investment. Now, these are wildly profitable

businesses, but there is a limit to the free cash flow that they generate. So when we're talking

about scale like this to invest in AI, they're going to have to diversify their funding base.

And so coming to the bond market to support that is part of the capital strategy for them.

So obviously within that sort of area, I noticed that Google's parent company alphabet

raised a hundred year bond. So it's basically saying it's going to pay interest out for the next

hundred years before such redeeming that bond. When I read about long-term bonds, people say

30 years is long term, 100 years is bizarre because your average investor buying that now,

they'll be dead before that bond matures. Why is such a long period?

Well, I think mostly because they can, there is appetite in the fixed income market for very

long duration bonds, bonds with long majorities, particularly within the insurance and pension and

sort of endowment space, the sterling market, that was a sterling issuance in the UK market.

This, this market in particular has, has demand for that sort of maturity bond. And so I think

because there's that demand, Google has an opportunity to race money with those terms in mind.

And for them, they're, the opportunity set or they benefit to them or the advantage to them

is that they get to diversify their funding base across more than just the US investor

platform so they can access new markets.

And so what, what sort of response being like to these, to these bonds are being issued?

You know, I presume that they've got, you know, these big companies have raised everything that

they want, that there's still a lot of people queuing up saying, you know, yes, they're spending

those money, but actually, you know, these are big solid businesses they should be able to pay it back.

Yeah, I think, well, I guess the first thing I would say is, is it's already difficult enough

to forecast out five years with regard to where a business is going to be, but to think about it

in the context of 100 years, virtually impossible, right? Especially in the technology ecosystem where

even today, more and more so than ever, the fluidity and how dynamic things can be, it makes that

sort of idea of investing very difficult. But if you're an insurance company or an endowment

company or a pension company in your, you're matching your asset and liability where you have

liabilities way far out into the future and you can match assets to provide you income against

that, then maybe those are risks you're willing to take in very high quality companies.

I think the companies themselves, they have, they have been raising very large amounts of capital

more recently and we expect this trend to continue into this year and beyond. I think there are

projections out there that suggest trillions of dollars worth of spending needs over the next five,

seven years and increasingly that's going to be coming by virtue of invest or issuing bonds.

And so more recently, the receptivity and the appetite for this from an investor standpoint has been

very, very strong. All of these issuances have come over subscribed and what I mean by that is,

if Google is coming to raise 20 billion of bonds, there's 40, 50, 60 billion of demand.

And so at the outset, when these bonds are raised and then put into the market for trading,

there's, there's very strong demand and they trade very well, but interestingly,

you know, over time and when I say over time, even over the course of weeks and months,

you know, those bonds have kind of come off and have not been trading as strongly as they did

right out of the issuance. Is that because people are sort of worried saying,

you know, yes, actually, you know, we'll think they'll pay the money back, but actually,

it's what they're spending on because even the idea of investing in computer chips now and data

centers that, you know, it's potential that that the infrastructure, the technology behind them

could actually be go out of date even this year, let alone in five, ten years time.

Absolutely. So beyond just the pressure that the fixed income market has by virtue of issuance

and flooding of issuance, which, you know, there's a finite amount of demand. At some point,

you're going to reach the end of that demand and that puts pressure on the risk premiums that are

being allocated to bonds accordingly. But yes, what you're referencing is what we call duration

mismatch. So if I am issuing a bond that has a ten-year life and I'm buying assets that have a

three, four or five-year life with that capital, by definition, the time mismatch there provides risk

to the investor. And so it's, you know, from our perspective, the increasing risk is definitely

something we should be thinking about. And especially in the context of where overall

valuation is within fixed income markets. So what did you, in your fund, have you participated in

any of these sort of bond issuance that we've seen recently? We haven't. So in our fund, the way

that we're thinking about credit valuation at the moment is that we are at generationally rich

levels. And so when we're in an environment like that, from our perspective, we have to be very

careful about how we invest our clients' capital. And the way that we're sort of thinking about

this AI investment landscape is that we're kind of in a wait-and-see mode. We think that there is

a lot more issuance to come. We think that business models are actually changing based on

the fact that these businesses have what they they used to be sort of capital-light

recurring revenue model type businesses, which made them so appealing to begin with. And as we

transitioned into issuing bonds and spending the levels of capital expenditure that they're spending,

our view is that those business models are changing a little bit. And so we're in a wait-and-see

mode to to we actually think that the credit valuation will continue to adjust as these companies

become more capital intensive. And we think there will be a time to invest. We just don't think it's

now. That was Koby Stilson from Brown Advisory. And that is all we have time for this week. Don't

miss next week's show, which is all about ISIS. If you have any ISIS-related question, send it

to us now. The address email is podcast at ajbel.co.uk. We will try our best to get through as many

of those as possible on next week's episode. Until then, thanks so much for tuning in. Have a lovely

week. This podcast is for educational purposes and the views expressed don't necessarily reflect

those of AJ Bell. The podcast isn't telling you if a certain investment is suitable or not.

The value of investments can change and you can lose money as well as make it.

It's also important to remember that how your tax will depend on your individual circumstances

and rules can change. The way an investment performed in the past

may not be the same as how it behaves in the future. If you want help, go see a qualified financial

advisor.