On the Couch with Nick Griffin (Munro Partners): Markets, AI and Global Tech Themes

Welcome to the latest episode of On the Couch with Marcus Today's Henry Jennings.

This episode, Henry sits down with Nick Griffin – founding partner and CIO of Munro Partners. Nick has been on the couch before, and it's a timely catch-up in what has been an 'interesting' market. Full disclosure: Henry is a shareholder of MAET.

Nick brings over 25 years of financial services experience, including 15 years in funds management at K2 and Munro. US AI and global tech themes are on the agenda – and it's a very interesting conversation.

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Disclaimer
This podcast is general information only and does not consider your personal circumstances. It is not personal financial advice.

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IMPORTANT DISCLAIMER – MUNRO PARTNERS

Performance data mentioned in this podcast is as of 16 April 2026. The figures provided are as at 16 April 2026 and reflect more recent market movements. These differ from the 31 March 2026 quarter-end figures previously reported due to timing and valuation updates. For the most current position, please rely on the 16 April figures. This podcast is for general information purposes only, as it is not investment advice of any nature. The information contained in this podcast reflects, as of the date of publication, the views of Munro Partners and sources believed by Munro Partners to be reliable. There can be no guarantee that any projection, forecast or opinion in these materials will be realised. The views expressed in this podcast may change at any time after the date of issue. This information has been prepared without taking into account the objectives, financial situation or needs of individuals. Before making an investment decision in relation to the Funds, investors should obtain independent advice from a licensed professional adviser. Information about the Munro Funds issued in Australia, including the product disclosure statements (PDS), and target market determination (TMD) for the Munro Funds, is available at www.gsfm.com.au, www.munropartners.com or by calling 1300 133 451. Past performance information in this podcast is given for illustrative purposes only and should not be relied upon as an indication of future performance. None of GSFM Responsible Entity Services, Munro Partners, its related bodies or associates, nor any other person guarantees the repayment of capital or the performance of the Funds or any particular returns from the Funds. No representation or warranty is made concerning the accuracy of any data contained in this podcast. You should consider the PDS and Additional Information to the PDS in its entirety before making a decision to acquire or continue to hold an interest in the Funds. This podcast was recorded on 16 April 2026.

Transcript

Welcome And General Advice

SPEAKER_02 0:01

Well, welcome to another episode of On the Couch with myself Henry Jennings from Marcus Today. And today I'm delighted to be joined by an old friend of this podcast and someone who I respect highly in the funds management business, Nick Griffin from Munro Partners. So, Nick, thank you so much for coming on the programme today. I really do appreciate it. I know you're a busy man, and it's an interesting time to say the least. So we've got lots to talk about, so I can't wait to get into it. So thanks again.

SPEAKER_00 0:27

No, thanks very much for having me, Henry.

Volatility Through An Earnings Lens

SPEAKER_02 0:29

Now, for those of you that don't know, Nick is uh the founder and the uh CIO of Munro Partners, which is um a boutique fund manager down in Melbourne uh with a number of listed ETF products, and Nick has been around considering how young he looks, he's been around for a little while. Uh, 25 years in financial services, uh, 15 years in funds management experience. He was previously with K2 Select International Absolute Return, and we have done one or two podcasts with Nick before, so always great value. So, as always, though, remember listeners, this is general advice only. So, please do your own research, contact your own financial advisor after um listening to any other thoughts, ideas, or insights in this podcast? So, Nick, all right, it's it's fair to say it's been an interesting time in the markets the last uh the last quarter, uh especially the last month. How do you approach um these these kind of markets in the current climate? How how does Munro Partners uh you know weave its way through the current volatility and make some sense of it?

SPEAKER_00 1:36

Yeah, so so as you know, Henry, Monroe Partners is is there to be your global growth investor. So our job is to do just global equity, so we're not going to talk much Australia today. Um, and we our job is to you know to invest our clients' money in what we think are the best growth companies in the world. And and as you said, we do that through a number of ETFs that you can find on our website and and and on the ASX. Um our North Star is earnings growth. So so if a company, I'm gonna tell you something really quite scary here, you know, it's really detailed and complicated, but we generally find that companies make more money every year, we generally find their share prices go up. Um, and so if a company can grow its earnings structurally over a long period of time, then we find their share prices ultimately just follow their earnings. Um, and so what we're trying to do is identify the big structural changes, and those structural changes equal structural earnings growth, and that earnings growth equals share price growth. Um, this year, despite all the noise, in the key areas we're looking, like around AI and the data center build-out and the need for compute, um, all of that's actually accelerating this year. Um, so that is actually accelerating, and so the earnings growth of the companies we're looking at is actually accelerating. So that's very positive. Um the adoption of AI is accelerating, and then and then elsewhere, you know, when you look at what's happened with the war and in and other areas we invest, you know, that's actually accelerates defense spending, that accelerates reshoring, uh, et cetera, et cetera. So, and the last thing I'd just say is, and then the adopters of AI are also seeing their earnings accelerate. So despite all the noise, and and I understand people get very emotional about this stuff, the earnings growth of the S P 500 in particular is accelerating. Um, and so the whole time you know the war's been getting on, the market's actually getting cheaper, even though it's not going down that much. Um, and that's why you're seeing this very sparp snap back as soon as you've had a peace deal, because in the background, things have actually been getting better. Um, and so from our point of view, we've been trying to hold on to our process, which is you know, earnings growth drives stock prices, earnings is actually accelerating. Um, so we shouldn't change our view here. Um, and that view is is still bullish markets. We are still medium-term bullish markets because we do think we're in a bull market, we're in about the fourth year of that bull market. Earnings growth is accelerating and broadening out, and and all of that is is reasonably positive. Um, and if anything, it's all just got a little bit cheaper to buy it through this period.

SPEAKER_02 4:05

And and is it harder to find the winners, uh, the earnings growth? Is is the is the noise complicating that uh that argument, or is it or is it just uh crystallizing you know the the winners? It becomes very Darwinian, I guess, in some respects, or binary, and that you get the winners and then you get those that fall by the wayside in these times of turmoil. So is it still easy or relatively easy, I guess, to find those winners?

Finding Winners In The AI Build

SPEAKER_00 4:29

It's always a game of few winners and lots of losers. So I mean, I could tell you that if you look at any market in the world, roughly five percent of all the listed companies drive the entire returns over 10 or 20 year periods, um, even 50-year periods. So it is always a game of few winners and lots of losers, and your job is to find those few winners, and it's always structural change that create those few winners. Um, in this environment, what I'm what I'm particularly around what's happening with AI and the data center build-out, which I'm I'm sure we'll talk about, um, you know, the money, the amount of money that's being spent here is you know north of a trillion dollars this year on data centers. And so that is actually, you know, sort of changing the winner dynamic. You're actually getting more winners because because what's ended up happening is this trillion dollars of spending is is is finding its way through the economy to all sorts of different companies that you wouldn't expect us to invest in. Uh, but you know, if you think about it, you know, companies that help power the data center boom, so people that make gas turbines, companies that provide the HVAC equipment, heating ventilation and cooling, uh, EPC contractors that help build these things, um, companies that build the liquid cooling, companies that provide the semiconductors, companies that provide the equipment to make the semiconductors. Um, so this is actually a broadening out trade, and it's a broadening out trade mainly not because the economy is getting that much better, it's not. Um, because the data center spending is so big that it's that it's finding its way to lots of different parts of the economy. So right now we're not having trouble finding the winners. Um we're having trouble trying to work out who the ultimate winner of AI is, like who's going to be the big platform that wins out of it, or what are the applications that win from AI. That's that's hard. But the companies that are enabling this data center build out, and this data center build out is accelerating. Um, they're everywhere. Um, and we're finding them both across our all-cap mandate, so our concentrated fund, we find them in our climate mandate in particular, because around the power site, uh, and we also find them in our small cap mandate, um, which we've been running for a while.

Inside A Data Centre Reality Check

SPEAKER_02 6:30

Um, I was lucky enough uh to go last week on a tour of uh a data center. Yeah, um, next DC's S3 uh big data center in our tarman. I was absolutely gobsmacked. Um, it was like going into a uh a James Bond, you know, it's like going into a James Bond set in some respects. There were you know biometric fingerprinting, we had to go through the pod doors that analyzed you as you went through. Some of it was top secret. Um, I wasn't allowed uh really to take too many pictures. Um, and it was an extraordinary revelation in just I guess where the money goes, because it is extraordinary. The redundancy that has to be built in to these data centers, and and they're they're really hotels. I mean, that they they basically, as far as I could work out, this this was a hotel, and you rented out rooms to people, and they didn't have any furniture or beds or um desks or lamps or anything in their rooms, but the hotel management provided the the air conditioning, the electricity, and uh the internet connection, so you got all that, but everything else you had to fit yourself, you had to bring your own IKEA furniture or uh in the case of a data center, fill those racks, and it was it was quite interesting to see um that process, I guess. Um, and I was fascinated, I have to say, and you can see where the money goes, it's you know, everything's got to be backed up, everything's got to be um doubled, tripled, and quadrupled in case the the power supply goes out. So extraordinary stuff. Um I've no doubt you've toured many of these things, but um yeah, maybe put that in perspective.

Agentic AI And Tokens Surge

SPEAKER_00 8:14

I mean, you you toured a co-locational data center, which is one that we would put near a city, and it's really just to connect that last mile, so where all the corporates put their own racks inside a business, but that co-locational data center actually connects to an Amazon Web Services data center or a Google Cloud data center or an Azure data center where the actual cloud work is done, and that Amazon Web Services data center is roughly 50 to 100 times the size of the one that you just went through. Um and you know, there's ones in the US now that they're building that are going to be literally three-quarters of the size of Manhattan. Um and and so what people sort of need to get their head around here, which is the sort of platform shift we're going through here, is that AI is effectively generating tokens. So you might have heard of this word tokens, okay? So so when you ask ChatGPT a question, it's basically giving you it's generating tokens to give you an answer, if that makes sense. And so before we were just asking it a question, it would give you an answer. It was a bit like a really good version of search. Um, and now as we move into a gentic AI, you can set these AI agents off to solve problems for you. Uh, we can use them internally to build a whole Excel model. Um, you can use them to analyze a bunch of data for you and give you some advice. And and then when you're asking it to do that, it's gonna work for like 10 minutes or it'll work for a day. And so when it's doing that, it's using somewhere between a thousand and a hundred thousand more compute than when it's using just that one-shot answer, okay? And as we train these models and we're spending all these money training these models, they're getting better and better. So you might have heard of things like Anthropic Mythos, we're about to get OpenAI spud. These are all the new models that they've built that it can do more and more things, okay. Now, let me just put this in a little bit of perspective for you, okay? Yeah, so Anthropic is one of these large language model providers, and three years ago it didn't exist, and then in its first year it made roughly$140 million in revenue, and then a year later it made$1.4 billion in revenue, and then a year later it made$9 billion in revenue, and that was the end of 2025, so three months ago. And at the end of March, it's making$30 billion in revenue. Okay, so it added$21 billion in average revenue run rate in three months, which means it's adding roughly six to seven billion dollars a month at the moment from people just using these tokens on agentic workflows. That's roughly double what the entire software industry added in revenue in those periods, and open AI is growing just as fast. And so what you're seeing right now is people are starting to use AI at an industrial scale. They are using these tokens at an industrial scale, and we are just at the beginning because you don't grow a thousand percent near the end of your life, you grow a thousand percent at the start of your life, and so what you're seeing now is these tokens all being used, and there's just not enough compute in the world to solve the all the problems that these things can solve. And so we are massively short data centers, and so everyone's basically spent the last three years saying everyone's been overspending on data centers, there's no ROI. Now their ROI is turned up, and now everyone's actually going, oh my god, we're not spending enough on all these data centers. And and so what you're going to a world is where tokens are effectively the new oil. Oil is in tokens are intelligence in the same way that the industrial revolution drove machines, tokens intelligence will drive the intelligence revolution, and those data centers that you just toured are you know the big oil platforms in the new economy. Um, and as we went through the industrial revolution, we built oil platforms to the never never and ultimately saturated the world with oil and got all the benefits. We're now going to build data centers for a very long period of time to saturate the world with tokens to allow AI to go solve all these problems. Um and we are right at the start of this process, and so that's why it's such an exciting time. That's why all these data points, that anthropic data point I told you about, sort of dropped during the war there, and people just weren't watching. And now suddenly, you know, the war's over. They're like, oh my god, look what just happened in the last three months. This is this is really exciting. And and and like I said, we think we're near the start of that, not the end.

SPEAKER_02 12:30

So in your eyes, the war has just been noise and and a bit of a distraction from what has really been going on, and you know, we're on the cusp of a I guess a an explosion in in technology stocks in the US again.

SPEAKER_00 12:45

Um short answer is yes, but not necessarily an explosion in the technology stocks. Um so the short answer is the war feels a bit like Liberation Day was last year. You know, it was it was a bit of a mistake. Let's let's I think we can say that out aloud. Um and you know, like all good mistakes, you try and back your way out of it. I mean, they're now trying to back your way out of it. And so the Liberation Day last year was obviously caused a very big correction in markets, but ultimately didn't stop us from having a double-digit market return last year, and and our funds did better than that, thankfully. This year, you know, we got down sort of seven or eight percent for the year at one point, and now we're back up. And so think of it as like a correction. In terms of the explosion that's going on, what we're seeing is the explosion in the data center build-out and in AI. And so that's definitely going to cause an explosion for the market, but it's gonna cause an explosion in those stocks that I said that benefit from this. And so, yes, that's semiconductor companies and companies that help build semiconductors, but it's also power equipment companies, it's also you know, companies, HVAC equipment companies, liquid cooling, all the pieces that go into these big data centers. The best way to think about this is like you remember, and I think we all remember the super cycle here in Australia, it was good times, remember? Um, you know, people got paid 200 grand to drive a truck in WA. Um, you could I remember I owned a company called Fleetwood, they made caravans, and caravan, it was a great stock, and it was a and it was a great stock, but it literally made caravans. Um we're in that sort of a boom now, so we're in a boom where we're building all these data centers, and all the pieces of the puzzle that go into that are going to enjoy this boom in the same way that lots of companies in Australia and the world enjoyed the super cycle. The boom will end, all booms do. Uh, but people should think about it more on a 10-year time horizon than a two-year time horizon, and we're really only two or three years into this one.

SPEAKER_02 14:35

So if you were uh talking um you know about one particular stock to the listeners of this podcast, what what's the stock that really excites you uh immensely at the moment? Is that is there one that you stand out and go, this is just the best thing since lice bread, and this is going to the moon. Is there one stock? You're grinning. You're grinning.

SPEAKER_00 14:54

I'm not allowed to give stock advice.

SPEAKER_02 14:56

All right.

SPEAKER_00 14:57

No, I'm joking. I think what the way I would think about this, and I'll look, I'll mention a couple, but they're holdings in our funds, so I just want to be clear this is not stock advice.

SPEAKER_02 15:05

No, it's not.

SPEAKER_00 15:06

But if the way to think about this, and and look, we're obviously just at the start here, so we're not a hundred percent sure how this is going to play out, so I'll just put all sorts of disclaimers over the top of this. But technology is changing from a world where technology used to be on your screen, and if you sold an extra piece of software, that extra piece of software you know had zero marginal cost. Like it had zero marginal cost. You effectively sold air, you developed the software, and every extra piece of software you sold was 100% gross margin. And hence you have all these great software companies with really high gross margins that are now unfortunately being disrupted. Um and so now technology is agentic, right? So it technology is is agentic, it's offdoing a task for you through these large language models, and you pay for that with tokens. And so if that continues to grow from here, and that's the new type of technology that ultimately disrupts this snapshot technology or this air technology, then technology has a marginal cost in the same way that Ionore has a marginal cost. You sell it for a dollar, but it costs you like 50 cents to make it. Here you're gonna sell technology in tokens, but it's gonna cost you 50 cents to make them, if that makes sense. And so the companies that you want to invest in, the companies that help make these tokens. Um, and so from our point of view, you've got to be thinking a little bit more in the physical world than in the digital world, than maybe what people are used to hearing us talk about. Um, and in the physical world, the companies that are the ultimate manufacturers of tokens effectively are companies like TSMC, which is the world's largest maker in Taiwan, which is the world's largest maker of high-end semiconductors. Um, yes, it's in Taiwan. Unfortunately, I can't fix that. Uh, but they have facilities in Arizona, Japan, and Germany and elsewhere. Um they're an integral part of making sure that we have enough semiconductors to supply this boom. Um, other countries you companies you'd be thinking about is people that make gas turbines like G Venova or C Siemens Energies. These are highly oligopic industries whereby we have enough gas turbines to power all of these data centers that we're going to build. Um, that include things like CATL in China that make batteries, that we have enough, big enough batteries to connect the the renewables that we're going to need to power all these data centers. Um those are the sort of things we're thinking about. Um, companies in oligopolic industries or or or monopolistic industries that are ultimately providing the physical pieces that are going to be required to do this data center build out to ultimately make these tokens, assuming all these tokens get used. Uh and right now all the evidence suggests by that parabolic launch, as I showed you in anthropic at OpenAI's revenues, is that people are finding a lot of use cases for AI, and that's probably only just begun.

SPEAKER_02 17:58

So you're obviously using uh a lot of AI in your investment process these days, is is is that fair to say?

SPEAKER_00 18:04

Yep. Yes, we are. So we use it so we're using it in the same way lots of people are using it. They would find a small task, and so us it would be build building a model. Um you know, you went from summarizing meetings and now the AI's got better, so now I can use it to build a model, and then the AI is gonna get better, and I'm gonna use it to interpret the model, and then I'm gonna get it to look at all the models and tell me what the next best thing I should do is. Um and let me just say this importantly, I need to do that because if I don't do that, my competitor's going to do it. And so if Monroe doesn't do that, then our Monroe's competitor is gonna do that, and then Munro's competitor is gonna get an edge against us. Um and we want to be the best. Um and then just think about that across every industry in the planet, okay? So think about you know, your airline. This is a bit like say your airline Okay, so a long time ago, your airline, you know, we used to have to go to the airport and check in. Now, and then the mobile came along and we can check in online. And so now we check into our airplane online and we don't have to turn up an hour beforehand, we can turn up ten minutes beforehand, and so that's fifty minutes in my life that I've got back, and it's wonderful. Um, imagine your airline didn't have an online check-in app, or your bank didn't have an online banking app, you probably wouldn't bank there. And so you should think about AI the same way. People are gonna start using these use cases that work, they're going to save time, save money, or improve the customer experience. But if you don't do these things, then your competitor will, and they'll ultimately go past you. And that's what we've seen in every other technology transition, and that's probably what we're gonna see in this one. And so now what we've just got to work out is how fast is that gonna happen versus the valuation of the stocks in the market, and more importantly, you know, who wins from when that happens, and then vice versa, who gets disrupted from when that happens? Um, and we're already starting to see the first signs of that, with obviously what's happened with software companies in the last 12 to 18 months. Um, and I suspect that's not the only industry that's going to that's going to suffer here. Um, but that's that's our job as your global growth investor is to find your way through that.

SPEAKER_02 20:20

It's it's interesting. I had um uh Armina Rosenberg uh we did a podcast recently, Minotaur Capital, and uh she was kind enough to invite me to uh to to to actually witness their AI model that they had built because it that's it's a very AI-centric fund. And I I was just blown away, you know, absolutely blown away by what what they were doing and what what the model could produce in terms of um you know uh the the background and what it monitored and and the and the research output that it produced in in minutes, it was uh it was pretty staggering.

SPEAKER_00 20:56

Yeah, no, she's very good. And um, she's offered me the same demo, and I need to take it up. Um you should you should.

SPEAKER_02 21:02

It's it's it is I've got to say it's it's very impressive.

SPEAKER_00 21:05

Well what we what we've offered to do is compare notes.

Why SaaS Loses Pricing Power

SPEAKER_02 21:07

Uh you should compare notes. I I didn't want to compare notes because I was sitting there with an iPhone 8, so I thought I felt very, very uh out of it. I am still a Luddite in that respect with my iPhone. But um it I guess it's interesting. We've had the um I I don't know what whether we should still call it the SAS Pocalypse or Sass Mageddon, um, in terms of these software companies being absolutely smashed. We're still we're starting to see a bit of a uh a pickup again. They got a little bit too smashed, I think. Do you do you think that that was deserved, or do you think that was just the market going in the path of least resistance and the and the shorts and the hedge funds just punishing the software companies?

SPEAKER_00 21:48

Um, short answer is we think it's deserved. Um we don't own any of these companies. We did own them all last year. Um and so let me just talk you through why we decided to sell. And if anything's changed. But but ultimately we did own Microsoft, we did own ServiceNow, we did own these companies. And we run a internal risk management process. So discipline usually outweighs conviction, is the nice way to think about it. And and one of our disciplines was, you know, if a company falls a certain point from peak or from cost, we're forced to review it. And we don't have to sell it, we just have to review it. And then if we do review it and we all decide to keep it, we can keep it, but we can only keep it for like 30 days at a maximum or or or two weeks, and then we have to review it again. And so what we do is we anyway, all these stocks triggered last year. Um and we're like, oh, it's liberation day, it's not a big deal, and you know, it they'll bounce. And then they did bounce, but then they triggered again. And the more we had to keep re-pitching the bull case, and we often pitch the bear case as well, the more we sort of listen to it, we sort of thought, we don't actually really know what's going to happen here. Um because the big question is is does does the software company sit on top of the large language model and say, hey, we can give you agents in our software, or does the lot or does anthropic and open AI sit on top of the software model? And basically you just deal with anthropic and open AI, and the software model becomes just a data provider to open AI. Does that make sense?

SPEAKER_01 23:14

Yeah, yeah.

SPEAKER_00 23:14

And so who who owns the UI, so to speak, or the user experience? Um and we couldn't really work out what was going to happen. So, and then we're like, well, why are we paying 45 times earnings, 50 times earnings for something that you know is a bit 50-50 from here? Um, so we chose to step to the sidelines. Um, and then coming into this year, we own no software stocks. And then what ends up happening is you know, it it goes the way, starts to go the way we were worried about, i.e., Claude has got a plug into Excel, um, Claude's taking on the cyber names, um, there's applications, people are managing to zide apps like on a weekend that basically replace Salesforce. All these stories start to come out and down go the stocks. Um, and so from our point of view, they've only really lost their multiple now. Um, and that makes perfect sense to us because that's what we were worried about. Um, from here, they're probably going to lose their earnings as well. Um, because you can't have, you know, anthropic adding six billion, seven billion a month, which is more than double what every other software company is addling, and it not come from somewhere else. Like it's not all additional, it has to be coming from somewhere, and it's coming from other software spent. Um, and on top of that, you know, if you've got these models that can spin up a new piece of software this easily, then what's gonna happen when Salesforce comes in and asks for a 10% price rise or a three-year contract? You know, it's just not gonna happen. So none of this is gonna happen overnight, but it is very clear to us that their environment has changed. Um, a lot of that's now more reflected in the price. As we go forward, it's more interesting what's gonna happen to everything else, like these other info services. What's gonna happen to like a Morningstar or a Bloomberg or a realestate.com or a car sales. That's where it gets much harder because they're much more ingrained and you know have a much stronger position, but but ultimately exposed to the same problem. Um, and I'd come back to what I said before. You have a lot of companies earning 80% gross margins plus um ultimately, and everything they sell is is is a hundred percent gross margin, right? Like it's it's free, like software is air. Um, and they've been doing this for a long time and they've been jacking up the price for a long time, and now you have disruptive competitors that are very nimble, that are based on these large language models that basically charge half the margin. And these companies are either gonna have to spend money to defend their turf or they're gonna lose their turf. Um, and I think that is solvable. I just don't think it's solvable in the next 12 to 18 months.

SPEAKER_01 25:52

Right.

SPEAKER_00 25:52

Um, so where's we think it's a big we think it's sort of off limits for a little while. Um and we also think that this entire digital ecosystem has a problem in the fact that it has very high margins and now very well funded, high-quality, disruptive competitors. Uh, and we haven't seen that for like more than a decade. You know, this has been a winner-takes most industry for a very long time. And and maybe it'll stay that way, but maybe it won't. Um, and in the meantime, you can buy the enablers of AI, i.e. the people that help build these tokens, uh like your TSMCs and CATLs and others that I mentioned, you can buy them for literally half the multiple. And they've all got earnings upgrades, not downgrades. So it seemed like a fairly obvious move for us. Um, but but I know other people have different views.

SPEAKER_02 26:42

Yeah, it's it's interesting, isn't it? I I have to say I I'm not a um I don't pay for AI at the moment. I'm a bit of a Luddite in this respect, but I do use Chat GPT, and I've given it a name, I call it Holly, um, after the computer in Red Dwarf. But um I actually asked it the other day, I I asked the question, is that what's the point of um artificial intelligence? And it gave me a fantastic response. 800 words, brilliant. Um, and I asked Copilot the same thing, and it was absolutely hopeless. It's it came up with a draft, it said, Oh, you should consider this, you should consider that. Have you thought of this? I thought, no, and the question was justify yourself, and Holly was absolutely fantastic, spot on. Um, whereas Copilot or Clippy 2.0, as I call it, um, was was just rubbish. Yeah. Um in com in comparison. Uh it just you just think, well, okay, Microsoft, you've got a problem here. Um you need you need to catch up.

SPEAKER_00 27:40

Correct. But does that not feel like when you use Google the first time versus using Yahoo?

SPEAKER_02 27:46

Uh yes, it it does. It does. I mean, that's a long time ago.

SPEAKER_00 27:50

That's a long time ago, but that's that's where we're at. And so that's why they're spending all this money. And what's gonna become clear, or what is becoming clear right now, is that that was actually the right thing to do.

unknown 28:04

Yeah.

SPEAKER_00 28:05

And that they should actually spend more. Um because look what just happened to all the companies that didn't spend any money. Um and so that's the regime shift that's going on here that we're trying to position to benefit from.

SPEAKER_02 28:19

It it is an arms race, isn't it? That we've um bought.

SPEAKER_00 28:23

Correct, and it's it's very different to what we had before. It's very different, and and I think people need to I think that's clear now. I think people need to recognise that and and that this is actually gonna be this way for a long time. I new technology from here has an input cost. The input cost is big. Um, and to win they will keep spending. Um, but most importantly, to your story, the utility that you're gonna get back from that is going to justify that spending. We think. Uh and so far, so good. You know, this looks like it's really happening. Like three years ago, we're like, oh, this could happen, everyone's gonna spend the money, and you know, it's gonna be really good, but we don't know. Now we know it's really good because the revenue of these companies is accelerating, not not exponentially, like parabolically. Like not we've never seen anything like this before in the history of the world. Um, and so as that revenue accelerates, it it just becomes really clear that actually this is gonna work. This comp this technology is gonna be hugely disruptive. Uh, it does have amazing utility. That utility is only gonna get better because the models that they release next year and the year after are gonna be even better than the models that are here today. And and your friend at Microsoft, you're right, now has to catch up. And so, how do they catch up? They spend money. Um, and so if you don't spend, you lose. Um, and so what we want to do is position, what we think you should do is position the funds to the companies that enable that build out that are collecting all that spending. We call them the collectors, because then they collect the money and then thankfully give it back to shareholders, etc. Um, and they're the companies that are actually in a good position now, which are is is is somewhat different to how the world was three or four years ago?

SPEAKER_02 30:16

Does it worry you where all this is gonna end up? I mean, you you're one of the smartest guys around in terms of technology. Does does it worry you? You know, we we've seen massive job losses from a variety of of companies. Um does does it worry you that this is actually not just a technological shift, but actually a societal shift, shift in in terms of how the whole framework of our society is gonna go in ten years' time with with people having all this free time and no jobs? And is that a concern?

SPEAKER_00 30:49

Um look, the short answer is no. I I I understand where people are coming from, but again, I would remind people that we have seen this before, like this has happened before. Um we used to get all our data out of a newspaper, it then went digital. We now got all our data off a computer screen and and and then it went mobile, and then we got all our data off a mobile phone, and then and then now it's gonna go to another form factor or or an agentic form factor, so we're gonna get all our data a different way. So this has happened before, um, and the world coped with it. Um and I mean I tell this story, I hopefully people get it, but but the reality is is all you know, if you if you go back to what I said about the industrial revolution, you know, before the industrial revolution, we were all like farmers, okay. And then the industrial revolution, we discovered oil, oil created tractors, tractors created, you know, made agriculture productive, and we all left the fields and became knowledge workers, okay? We're now all knowledge workers, okay. So now AI is going to come along and probably do to knowledge workers what it did to farmers. Or at least some of us. Um and we're going to have to go find something else to do. Um, but there's no shortage of things to do. I mean, I joke about this, but you know, like nutritionists, psychologists, influencers, none of these none of these categories existed 10-15 years ago. But you know, once social media comes along, you know, we can we can we create a whole world of influencers who have a perfectly good career just influencing on the social media. And I'm not saying people think that's a great career, but it's working out for people. Um so from our point of view, you know, the world will adapt. This has happened before. Um, but the one thing I will say is this is definitely happening much, much faster than we thought it was going to. Um, and often it's the speed of these things that cause the problems, not actually what's actually happening. I ultimately think this technology is going to help make the world a better place. Um, it's going to solve a lot of problems that we'd love to solve. It's going to come with downsides in the same way things like social media come with downsides. Um, but it should be net positive. Um the question is is to is it going to happen so fast that it's going to create it's going to be a bumpy road to get there? I think is what people are asking. And I think that's that's that's potentially a fair criticism.

Munro Performance And Market Outlook

SPEAKER_02 33:14

Yeah, uh yeah, let's um let's keep our fingers crossed that it is a a force for good rather than a force for evil, because it does seem to be a very concentrated few that are kind of dictating the future um for the many, which is an interesting concept. Um so so Nick, just going back to uh to Munro, um obviously the last quarter's been interesting, um, but better times are coming. Uh you're happy with how things have gone around at Munro and you're happy that you've weathered the storm in some respects better than others?

SPEAKER_00 33:49

Yeah, so from our point of view, look, all the funds are up uh for the year, so that's a win. Uh never like losing people money. Um and if you take out the currency effect, like the Aussie dollar's been a big headwind this year, um, the funds would be would be up even more. Um interestingly, coming back to what I said more about, you know, probably leaning slightly towards more physical businesses and and and particularly smaller businesses in this new world who are benefiting this build out. Interestingly, our climate fund, which which invests in a lot of the power, is by far our best performer this year. Um it's up more than 8% for the year, and and um if you took out the currency, it'd be well into the double digits. And equally, like our small cap fund is is also up, you know, high single digits for the year. And if you took out the currency, it would be well into the double digits. So those two have been the best performers, and that's actually been very helpful for the all-cap mandates that are that are up sort of low single digits for the year, um, and if you took out the currency more like mid-single digits. Um, but you know, the bigger the the all-cap funds have sort of suffered somewhat from you know some big tech holdings that have sort of lagged this period. Um, but ultimately, you know, I think you know, we're roughly on the right track. Um, the funds are doing well, they're doing very well versus a lot of our growth peers, I must say, also who, you know, are probably still a bit trying to solve the conversations that that we think we solved last year through our risk management process. Um and then from our point of view, you know, assuming we can reopen the Straits of Remo's, um, this year hopefully will play out a lot like last year. You know, you've sort of had the correction for the year, um, and we can we can now just go back to focusing on earnings growth. Um earnings growth is ultimately what drives stock prices, and we are expecting quite a lot of good results this first quarter and second quarter because everything we're seeing around particularly the AI build out and the data center build-out is actually accelerating.

SPEAKER_02 35:50

Yeah, it it certainly is, isn't it? And certainly, you know, the the US um is expecting a pretty solid uh reporting season, so um all systems go, I I guess in some respects. You talk about the uh the sorry, can I just jump in there?

SPEAKER_00 36:04

The numbers I gave there are all as of 16th of the 4th, 2026. Um obviously we've had a a big bounce back in the first 16 days of this month. If people look at the reported numbers for the end of the quarter, you know that they would they they're not in line with what I what I just what I just referenced there. But um, yeah, just to be clear on that.

Aussie Dollar Views And Hedging

SPEAKER_02 36:23

Uh and on this Aussie dollar, I mean it is it is pretty strong, um, not only against the um the US but also against uh some of the other currencies. Um I'm delighted that it's quite quite so strong against the euro at the moment, which is which is fantastic. Um do you see this continuing? And if and if so, do you take out any kind of hedge against the uh a rising Aussie dollar, or are you just that's just part of the game?

SPEAKER_00 36:46

No, thank you. Um so the short answer is we do see it continuing. Um because if you think about again what we said, we're we're sort of going from a a very digital world to a more physical world, and and we're doing a big build-out here. We're in a boom, like a super cycle type boom. It's not it's not you know building out the infrastructure of China, it's building out the data center infrastructure of the world. Um, Australia is a net beneficiary of that, you know, the copper price is a net beneficiary of that. Um iron ore is probably less used, but but but still is a beneficiary of that. Um, and so from our point of view, Australia is the lucky country, is once more well well positioned here. Um and so that should see the Aussie dollar ride higher. We should have higher interest rates than the rest of the world, which it looks like we're going to, it's going to create the carry trade. Um, for our funds, the MCGG, which is uh Monroe Concentrated Global Growth Fund, is our long-only mandate. So that's our best 20 to 40 ideas long only. That is always unhedged, okay? So that's an unhedged product, so we can't protect against that. Uh MCCL, the climate fund, is a long-only product, is the same, um, as is our SMID product that is not actually an ETF today. Uh, but Mate, M-A-E-T or Mate, as we like to call it, MAIT is our absolute return fund. Uh, there we are able to hedge the currency, and we've we've hedged roughly 60% out of that today. And we might do more. The only reason to not have to run a small unhedged portion of US dollars right now is really just because it's very good for hedging out geopolitical risk. Um, you just get this natural benefit of the US dollar around geopolitics. But if geopolitics continue to calm down, you you may see us hedge more because the last thing we like to do is give up uh share price upside um with with dollar upside. I've seen that happen before during the last super cycle. This is a slightly different super cycle, but but I do think Australia is, well we do think that Australia is is well positioned and that probably lends itself to a higher Australian dollar over time.

Explaining The Big Distribution Drop

SPEAKER_02 38:49

It's funny, isn't it? I remember the last super cycle, as you say, you know, the Aussie dollar was um parody and above. Yeah. Uh well and and and the governor at the time, uh, I think it was Glenn Stevens, uh, spent most of his time trying to jawbone the Aussie dollar down. Um and then, you know, it worked over a very long period of time. Um I have to say, full disclosure, I am a shareholder of uh Mate, um and uh have been for some time, so um that is full disclosure there. Um I did have uh an interesting question from from one of our members. I threw it out there um in terms of an interesting question, um, and and uh I kind of gave him the answer to this, but I'd be interested to hear your take on this. He he said that when he looks at the chart of something like mate and he sees that big drop. We know what it was, it was the distribution. Yeah, um it it puts him off. He looks at charts. Is that something that you've come across before? I I know it's uh unavoidable, and it's a signal of your success to some extent that you're paying out a big distribution, but when the chartists look at it and go, Oh my god, what happened then? Um is it something you've come across before?

SPEAKER_00 40:00

No, thank you for the question, Henry. I I do. Obviously, I have friends and family who are investors in Maid, and I think you know that time of year is always after June 30. Um, and so just to be clear with the listeners, okay, so in Australia, we run unit trusts. The unit trusts are tax-free, so we don't pay tax, it's not an investment company. If it's an investment company, we'd have to pay tax. As a unit trust, it's a tax-free structure. Um, and so if we have realized gains every year, so i.e. we buy NVIDIA and it goes up a thousand percent and we choose to sell some, which we we did that year, um, we crystallize a realized gain, and that realized gain comes out in a distribution. Um, that distribution is is then goes into your tax environment, whatever your tax environment is. And so this is obviously a better environment because some people are in superannuation, they have a better tax environment than say some people who are paying income tax, etc. Some people, some people are charities, so so everyone can take advantage of their tax environment rather than just getting a tax that we would pay on investment company. So this is a good structure. Um, and distributions from us are normally roughly about a third to a quarter of our total return for any one year. Um, however, last year, and this is the one you're talking about, yeah, uh, and it happened in July, and I happened to be on holidays. Um we had just had a two-year period where the fund had made more than 60%, roughly. Um 23 and 24, we'd made 60%. Um, and then we had chosen, similar to what you guys do, you know, to raise a bit of cash prior to Liberation Day. Um, we raised a bit of cash. Um we hadn't had a big distribution the year before. Um, we raised a bit of cash and we ended up paying, I think, a 16% distribution, which was basically one quarter of that 60% we'd made over the two years. And of course, the stock, like a dividend, goes ex dividend. It goes ex distribution, it fell 16% in one day. And didn't my phone light up? Um I had text messages coming through the roof. And on top of that, we're not allowed to tell anybody what the distribution is, by the way, because then people can sell the day before and buy the day after. So we're not allowed to tell you, unfortunately. Um, for people who might want to who have a different tax environment because that would disadvantage other unit holders. Um, and so anybody who's listening should understand that whatever our fund is returned in any one year, you should expect you know, we're going to have crystallized some of the gains, we don't hold all the stocks forever. Um, that then comes out in a distribution, that then goes into your tax environment. But most importantly, it also lowers your cost base. Um sorry, it lowers your your price, it lowers the capital gains you would pay if you chose to sell the funds. And so thank you for giving me the chance to explain that. Um, it doesn't look great on a chart for those of you who are all technical gurus, uh, and everyone's a bit of a technical guru, and I understand that as well. But um, what you need to do is add that on. So you need to look at the fund on a total return basis, and on a total return basis, it's been it's been very good. But I understand if you look at the chart I made, it looks a bit flat, but it's okay. You've got the money in your bank account, it's there. Uh, it's it's just the distributions and and um and they will continue, I'm afraid. It's it's it's the nature of the structure, and it is a structure that that is most advantageous to to all of our investors.

SPEAKER_02 43:22

That that that is a great answer, and uh is pretty much the answer I gave um at the time to people that were going, my god, you put it you've been recommending mate, and look at them, they've dropped you know, yeah, and look, it was it was just an unfortunate, we'd been really long since the bottom of the bull market.

SPEAKER_00 43:38

Yeah, 23 and 24 had been great years. Like I said, we've been well more, I think it was well more than 60 percent over those two years, and then we decided to sell some things, which was the right thing to do because Liberation Day hit and we were there able to buy, but um, but it did cause a an unfortunately large distribution, slightly larger than than even we expected, but that's where it came from.

SPEAKER_02 44:01

That's um a fantastic explanation. Um now Nick, we're coming to the end and I've monopolized your time way too much. We we've gone over, but it's always great to chat to you. Is is there anything finally uh that you can um any wise words of wisdom that you can give to our listeners out there in terms of what's happening, what's gonna happen, where they should be looking, just to to cap off this fantastic podcast.

SPEAKER_00 44:23

I'll probably finish where we started. Um, you pointed out quite kindly at the start, I've been doing this for a long time. Um ultimately stocks just follow earnings in the long run. Your ability to remain confident into the future, and how we think about it, is we've been doing this a really long time. The world will keep changing. We just talked about a lot of the changes that are happening right now, and as we go forward, it will change again. Um, provided you can identify those structural changes and identify the winners, you will find the earnings growth, and that earnings growth will equal share price growth. The rest of it is just having disciplined risk management that I talked about before. And if you if you if you put those two things together, you can identify structural growth, that structural growth equals earnings growth, and you're reasonably militant about managing your downside disciplines, then you're effectively mathematically solving for more than double-digit returns because every company you're investing in is growing more than double digits. Um, that's essentially what we're trying to do. And when it does get noisy and you watch the news, just remember the news is basically they need to fill it every day. So, and they need to fill it with things that you'll click on. But try and try just to think about is that actually going to change the earnings profile of TSMC for the next five years? And if it doesn't, then it's not really gonna change where the share price is gonna go. And so that's sort of how we think about it. Um, that's what we do. We go back to our North Star, North Star is earnings, earnings look okay from here, uh, valuations are okay from here. Uh, so ultimately, on any sort of medium-term view, this should this should work out from here. Uh, but if the world changes, you can be confident that that we'll change again. Um, and that's sort of what we do at Monroe, and that's what we've been doing for a long time and looking forward to doing it for a lot more times. And and if anything, like this is like the funnest. I think we said this off air before, but this is like the funnest time we've had in a long time. Because the world's changing faster than ever. Um, and that that's actually giving us more opportunities, and so it is actually it's quite a fun time to be doing our job.

SPEAKER_02 46:24

Well, Nick, it's been absolutely delightful chatting to you again, and as always, um, some fantastic words of wisdom. And I'm always inspired when I come away from talking to uh to you. So thank you very much for your time. It's been uh you've been very generous with your time. We've gone overs, but I'm sure it's been uh worthwhile for people to stick with this podcast, and I really am grateful for your time today. So thanks again, Nick, and a very happy shareholder as well, yeah, by the way.

SPEAKER_00 46:48

Apart from in July when you're what why I'm trying to work out why I was down so much. But we solved that one too.

SPEAKER_02 46:53

But we solved that one.

SPEAKER_00 46:54

Thank you very much for the opportunity, Henry.

SPEAKER_02 46:56

Appreciate it. It's my my my pleasure, mate. Thanks for letting in.