Last time we spoke You weren't as defensive as you are now What's changed So i would say don it's not that we're Overly defensive it's that you know While some people have said okay we've Created a tremendous amount of value in The market at this point and perhaps It's not now a time to step in i think We're more in wait and see mode you know We de-risked in our portfolio uh earlier This year we're sitting on very high Levels of cash relative to history And as much as i want to jump in when i See some of these companies derate as Much as they have and i think we're Getting closer to peacockiness when it Comes to the fed you know i'm still Remaining a little bit cautious about Adding a lot of incremental risk in the Near term i'm struggling i think like a Lot of investors to come up with Powerful catalysts aside from some Technical and sort of sentiment pops to Lead to more sustained rally in the Equity market okay let's talk about how To play defense then because the Defensive part of this equity market There was a real bias there over the Last few months and then even the Defensive names got caught up in some of This as well so help us understand how Best to play defense in a world that We're in at the moment
Yeah john i think there's been a bit of Lazy uh investing happening over recent Months in particular people are looking At a defensive playbook like perhaps to Say you know they want to invest in Staples or utilities as taylor was just Discussing um but those are not Necessarily companies i think that are Going to be able to meaningfully Maintain their margins or even grow Earnings through a slower economic Growth cycle and so we actually think Defensive means looking at quality Companies who have a little bit more of A kind of a teflon earnings stream Believe it or not for you know a lot of That is in technology at there's some Parts of consumer where brands or Services are unlikely to be uh sort of Uh you're not gonna see diminished Demand for them uh even if economic Growth slows and the fed really manages To slow down the overall economy so i Think it's more than just looking at Sectors it's looking at companies it's Looking at business models And it's looking about really where the Future of demand is Not just what kind of the playbook we've Had in the past of defensive sectors or Industries okay let's talk about where That demand is where it has speed and How it's changing as an economist you Might be looking at the rotation of
Consumer spending away from goods and Towards services is that an equity story For you too Yeah it is a story i mean i think a lot Of that has started to play out already In price action by the way uh we've Known that this transition from goods to Services was going to happen as soon as The u.s and global economy opened up in More meaningful size but even within Services i mean some of those services Have meaningful pricing power uh some of Them have pricing power that's enduring As in not just a snapback uh to Activities that people had to pull back On during the pandemic and when there Were shutdowns um and so again this is Going to be more like company by company Uh and sometimes industry Exposure as opposed to just saying i'm Rotating wholesale into services a Moment ago you played uh that clip from Katie koch at goldman sachs and i think That's completely spot on this is going To be a more challenging aggregate Returns environment and you have to be More agile and you have to get deeper Into specific stories you're seeing this Really play out as companies have Reported earnings over the course of the Last few weeks it's not just good enough To have had okay results or solid Results that maybe beat ex consensus Expectations for the first quarter but
Companies have to offer up guidance and Give you know a level of assurance to Event investors that they have uh Earnings power in coming quarters how Many companies are actually able to Offer guidance at the moment kate oh Gosh yeah that you're just you have to Catch me on that one you're right Because fewer and fewer companies are Offering up guidance and they have Historically one bit of data i was Looking at earlier this morning was Actually the number of companies that Have reduced guidance relative to uh you Know raised guidance or maintained their Previous guidance you know that's come Down but we're talking about a pretty Small pool relative to history look if You're a corporate management team There's not a huge amount of incentive To put you know big uh far-reaching Numbers out there um the penalty for Missing is pretty significant so it's Not so much just about the earnings Numbers but it's about like sort of the Direction of travel for their businesses That we're paying attention to missing The rally on crude there's been a big Penalty for that Energy names on the s p are 44 and just Going through your notes kate some of The calls from you and the team This is a part of the market that you Still like the energy patch why is that
Yeah i mean we liked energy before uh Russia's invasion of the ukraine by the Way and a lot of that had to do with a Supply discipline frankly uh in the Sector and you know that capex and Supply and spending discipline we think Is going to persist even if on the Margin we see a little bit more Production out of other parts of the World um Given in the situation with russia That said it's possible in some parts of The commodity complex even though we Remain really constructive we see a Slightly weaker demand environment over The course of the next few months than We saw over the past a couple months i Think that would be an opportunity to Add in more commodity and resource Exposure For the medium term so we're looking at Any weakness like we've seen a little Bit in copper And some other base materials as an Opportunity to add For a more medium-term view so kate am i Doing that in the u.s or through the European names These are global names right commodities Are a global market uh so some of the U.s materials names have a little bit More sort of chemical uh bias to them The global miners are listed you know More often in london and in europe than
The rest of the world um and then there Are really specific names actually Interesting names in parts of the Emerging world i think that can add to Your resource basket are you comfortable With the beta to chinese growth Associated with some of those names Yeah some of those names have had as you Point out incredible beta to chinese Growth historically That said we think there's broad-based Demand both from construction and Overall industrial activity That will support combined with Relatively lower inventories than we've Seen in history and compliance combined With not just a supply display we saw in The energy sector but across a lot of The minor so look it's it's a pretty Good story if china completely collapses Of course we're going to see a massive Sentiment hit a lot of these names that Is not our base case at this point and Certainly uh does not work in uh xi's uh Favor going into the fall party meetings
