Daniel Needham: Our view is that markets in general, equity markets in general, are trading on high prices relative to fundamentals or the cash flows that you get from owning them like looking at dividends and cash flows. So, earnings, sales, they all seem very elevated. So, equity markets from here we don't think are priced to give you high returns, but actually, we think they're generally priced to give you low returns. And the U.S. is the part of the market that we think is the most overpriced where we think if you bought a portfolio of U.S. stocks and held them for 10 years, and reinvested the dividends, we think you're going to get a pretty low return relative to history. But there are pockets of opportunities in the U.S. We think the more cyclical parts of the market where maybe things like financials, so banks, the airlines, parts of the market that be more exposed to the economic cycle, so energy, for example. We think they're more out of favor. And investors have really preferred the sort of high growth or the very safe – so, utilities or some of the kind of enterprise-wide software businesses or some of the better-known sort of Googles and Apples and Amazon's. That's really where investors have gone. So, we think there's some relatively attractive opportunity there. But on the whole, we prefer markets outside the U.S. at the moment.

I think in Asia, we think South Korea looks attractive. The sort of memory chip businesses and so, Samsung, for example, and SK Hynix and businesses like that. But just in general, we think South Korea is relatively attractive and pretty out of favor. And so, we like markets like that. We are not there to invest in popular stuff. We want to generate good returns. So, companies in South Korea look interesting. Generally, we're still constructive on Japan, especially businesses that are kind of exposed to that continued sort of Abe's third arrow of improving a regulatory focus, improving the way companies are managed, the way companies can be managed for the benefit of shareholders. So, we quite like Japan. Japan financials particularly look really cheap.

We think despite Brexit, all the headlines, we think U.K. stocks look pretty reasonable. Really nowhere around the world for us is like table thumping cheap, but on a relative basis, the U.K. seems to be priced pretty negatively. And then, European financials and also European telecoms. I mean, I think, in general, Europe books relatively cheap on the whole. Germany is very out of favor. I think, the auto sector and the various providers in that sort of value chain have all been under massive pressure. There's huge question marks over combustion engines and the whole kind of traditional automobile sector. And that's meant that the prices of companies like BMW and Daimler, which obviously makes Mercedes, they're down heavily relative to history. And the banks in Germany are being under pressure. Actually, that means that the prices for German stocks are pretty low relative to history, and there's pockets of opportunities across Europe. But generally, some of the sectors – so, automobiles, financials, so banks especially, certainly look relatively attractive. European telcos, that's really a market-by-market proposition. But Spain, for example, where you've got Telefonica, there's a bit of competition there, but generally, Telefonica is – it looks like it's got a good strategy, it's trading on very low multiples. So, you got to take a little bit of a bottom-up view, but there's value in Europe in our mind.

And out of Europe, but out of the Eurozone and the European Union, but still on the European continent, Switzerland. The Swiss banks, you know, Credit Suisse, UBS, I mean, these are businesses that have got good private wealth franchises, phenomenal domestic banks, in the sense of, mortgage – lending money to Swiss citizens. And so, we think there's value there as well. So, Europe is definitely relatively high on our list.

The way we think about it is that when you buy an asset, our view is that the assets worth buying are the ones that have cash flows. So, people talk a lot about gold and artwork and stuff. We struggle with those because they don't throw cash often, they're hard to value. But certainly, any investment that throws off cash that can be analyzed, we think can be valued. And so, bonds effectively, if you buy a bond – when bond yields are high, you get you get a high return if you hold the bond to maturity and it doesn't default. And when bond yields are very low or negative, no surprises, you're going to get a low return.

The impact that has on markets is, as interest rates come down, the present value of cash flows just in general go up. And so, what that means is, when interest rates are very low, we think generally that pushes the price of assets up. And so, equities whilst it's not as certain what the coupons are going to be as, say, a government bond, the dividends occur well into the future. What tends to happen is, the more that the prices get bid up, the lower the return, prospective returns are. So, we think in a world where there has been lower rates and quantitative easing or nontraditional monetary policy, we think that's pushed up current valuations, but it's driven down prospective returns, similar to what happens when bond yields fall, the expected returns from those bonds go down. And so, we still think there's opportunities in bond markets around the world. We're tending to find opportunities in emerging market bonds rather than sort of, say, U.S. government bonds or Japanese government bonds. Similarly, we think emerging market stocks, we think there's a lot of value there as well. So, generally, emerging market bonds and emerging market stocks, we think are relatively attractive in a world where many assets have been beat up, and at least partly explained by people assuming that low rates mean that assets are worth more.