I recently had the pleasure of sitting down with Darren Thompson, Chief Investment Officer at Equity Trustees. We explored how a nearly 140-year-old firm like Equity Trustees stays nimble, the art of balancing profit with purpose, and practical advice for everyday Australians looking to grow their wealth.
Darren’s journey into investing wasn’t a straight path. Growing up in Lithgow as the son of teenage parents, he never imagined he’d end up steering billions in assets. After leaving university, he dove into the world of chartered accounting, specializing in tax at a major firm. This gave him a rock-solid foundation in financial analysis and problem-solving. But it was a stint overseas and a chance connection that led him to a small stockbroking firm, where he started as an analyst covering tourism and leisure stocks. From there, he moved to the “buy side” at IAG (formerly NRMA), rising to portfolio manager before co-founding a boutique investment firm in 2007. In 2018, he joined Equity Trustees, where he’s been ever since.
I asked Darren how his accounting background shapes his approach to investing. He emphasized that it’s all about the numbers. “At the end of the day, everything has a value,” he said. By distilling qualitative trends and market dynamics into hard financials, he assesses a company’s intrinsic worth and compares it to its market price. This disciplined approach gives him the conviction to make investment decisions, even in volatile markets.
Equity Trustees, founded in 1888 by Sir John Madden, has a rich history rooted in trust. Originally established to safeguard assets for vulnerable clients like widows and orphans, the firm now manages billions for charities, super funds, and retail investors. I was surprised to learn they even give new hires an induction on the company’s heritage—complete with tales of high-profile directors like Robert Menzies and Jeff Kennett. Despite its Melbourne establishment roots, Darren stressed that Equity Trustees is now a modern, Australia-wide business. Its core mission remains unchanged: growing clients’ capital over time while generating income, whether for charitable bequests or personal expenses.
One of the episode’s highlights was Darren’s take on achieving those impressive 11% returns. He boiled it down to three principles from his economics degree: there’s no free lunch (higher returns require risk), the power of compounding is transformative, and markets are efficient but not always rational. By combining these with a disciplined process—focusing on quality companies at reasonable prices—his team identifies opportunities to buy undervalued assets and sell when they’re overpriced. He gave a shout-out to his colleague Chris Haynes and their team, who execute this strategy with Australian equities, looking for firms with strong management, sound balance sheets, and growth prospects.
We also dove into real-world examples. Darren shared how they doubled down on ResMed, a CPAP device maker, when its stock tanked due to fears over GLP-1 weight-loss drugs. His team’s deep research—talking to doctors, distributors, and sleep centers—convinced them the market had overreacted, and the bet paid off. On the flip side, he expressed frustration with James Hardie’s recent decision to acquire a U.S. company at a steep price without shareholder approval, prompting his team to reassess their holdings.
For everyday investors, Darren’s advice was refreshingly straightforward. Start early, invest what you can afford to leave untouched, and focus on steady growth over quick wins. “It’s time in the market, not timing the market,” he said, echoing Peter Lynch. He warned against checking stock prices daily, as it fuels emotional decisions to buy high and sell low. Instead, stick to a long-term plan and let compounding work its magic. He also cautioned against the temptation to become a stock picker without the emotional discipline to weather volatility. For those starting out, he suggested a diversified portfolio through a quality manager or index fund to avoid putting all eggs in one basket.
We wrapped up discussing opportunities and risks in Australian equities. Darren sees some near-term downside due to lofty market valuations but remains optimistic for long-term investors. He highlighted defensive sectors like healthcare (stocks like CSL, ResMed, and Telix) and telcos (Telstra), as well as data center plays like NextDC and Goodman Group, which have pulled back but offer growth potential tied to AI and data consumption.
TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE
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EPISODE TRANSCRIPT
Phil: G'day and welcome back to Shares for Beginners. I'm Phil Musatello. How does an the nearly 140 year old firm remain nimble in today's financial world? What's the secret to balancing profit with purpose for retail investors? Today's Guest has over 30 years of experience and a track record of over 11% returns for the last 14 years. G'day Darren. G'day Phil. Great to be here, thanks very much for coming on.
Darren Thompson is chief investment officer at Equity Trustees
Darren Thompson is chief Investment Officer at Equity Trustees. He blends strategy, finance and performance driven investing to deliver returns for clients Equity Trustees found. Founded nearly 140 years ago by sir uh, John Madden, it's a cornerstone of trust management in Australia, safeguarding billions for charity super funds and investors. So Darren, you've had a long career, tell us about your career before joining Equity Trustees. How did the young Darren leave university and join the workforce?
Darren: This is probably the last place I thought I'd end up to be perfectly honest. I was born into humble beginnings, son of teenage parents in Lithgow. So investing was not a part of my upbringing when I was growing up. But when, when I left university I went into the charter at a accounting world and had the joy of become a tax specialist with one of the big firms. And that gave me a really good grounding and financial analysis and also problem solving. But when I returned from a stin overseas I came back and I want to do something actually interesting with my life. So I uh, through an ex colleague I had an opportunity to go to a small stockbroking firm and I became an analyst in stockbring and that was my first entree into the investment market. So I started with a blank spreadsheet covering tourism and leisure stocks and building financial models covering companies like Sydney Aquarium and tourism and leisure stocks, hotel stocks. And so through that I worked in stockbrking for a period of time. But I soon uh, discovered that really my desire was to be on the other side of the fence, what we call the buy side where you're actually investing clients money rather than advising on how it to be managed. And so I had an opportunity to join iag, the old NRMA at the time and grew through that process to rise through analyst to portfolio manager. We had the opportunity to start a small boutique investment firm back in 2007, ran that successfully for a period of time and then the opportunity arose to join Equity Trustees in 2018 and I've been here ever since. I'm very happy to be here.
Financial analysis and accounting is a sound background for analysing companies
Phil: So do you find an accounting background gives you good foundation for analysing a company?
Darren: Absolutely. I think at the end of the day we're looking to distill knowledge and assessments and opinions, but back into the financials to determine EV valuation and looking to assess the value that the assets'currently trading up with our assess value. So I definitely think the financial. There's a lot of different backgrounds in investment markets but I certainly think that financial analysis and accounting is certainly a sound background for that.
Phil: Yes, because it's really about the numbers, isn't it, for companies, you know, what they call qualitative research as well, where you're sort of looking at where you think a broad trend might m be emerg. But do you really believe it's in the numbers?
Darren: Absolutely. I think it ultimately comes down to the numbers because at the end of the day everything has a value. And so trying to understand and get to that sort of intrinsic value is a key element in having confidence in investing and assessing where uh, an investment is currently trading at versus your assessment of value and giving you conviction therefore to make that investment decision. So I think whilst there are various components and skills that come into making a decision, having a handle of the numbers is key.
Phil: I think it's important and especially for beginners who are listening to episodes like this, to understand that the value of a company and hopefully reflected in its share price really is driven by the underlying profit, isn't it? Is there any particular metric that you use and that you like to look at to determine what that's going to be or is it a combination of factors?
Darren: It's definitely a combination of factors because it's a combination of the amount of earnings, if you like, or the amount of cash flow that a company might generate. But I guess the quality and the certainty around that. So some companies might have strong potential but be highly risked as to how they might achieve that, whereas other companies uh, have probably less upside but probably less downside. So trying to bring those factors together I think is important. So like there's value in steady earning streams that grow over time and there's also value in potentially growth in earning streams, albeit that they might come with higher risk. So balancing up that risk and reward is really key. And try and understand the investor's
00:05:00
Darren: appetite for that. Because it's one thing to say that you're happy to undertake or take on risk, but like periods we're feeling at the moment when there's volatility, some certain investors aren't necessarily that comfortable with taking on the extra volatility.
Phil: So what do you advise them M when they sort of get on the phone here and say I can't stand this anymore, to be honest.
Darren: Generally sound advice is if you've got a sort of a well formed long term strategy, the best thing to do is offer nothing, particularly when times are volatile. Because what we really try and entrench is the underlying volatility in earnings and dividends is generally much lower than the volatility in share prices. It's a little bit like the old cliche that if you had to stand on the corner and sell your house every day, the price you got from that would vary wildly but over the longer period of time it would generally grow in value. And that's true of most investments and particularly investments where your cash flows are growing. So the best advice we generally give investors is you're soundly positioned. We're in a good portfolio of businesses. Don't get too excited when the market goes up too aggressively and don't get too disappointed or nervous when the market goes down. Because there's an old adage in the market that in the short term the market's a voting machine. I is it's more driven by sentiment, but in the long term it's a weighing machine. It has greater regard for where earnings end up over time and values will gravitate towards that over the longer term.
Phil: Yeah, that's hard. Being a long term investor who looks at a five minute chart. Very true. Constantly.
Darren: Absolutely.
Equity Trustee started in 1888 looking after the assets of vulnerable clients
Phil: So when you first joined Equity Trustees, did you get an induction course? Did they tell you about the history of the company and what it means for the business and so forth? Because it's a long history. Run us through it.
Darren: It is a long history. It's great. It makes me feel young. So equity trustees, we do get an induction course and I think it is important to some degree could because the cultural dynamics of that do sort of run through the business. Equity Trustee started in 1888. It's a very old school Victorian firm. I think it's evolved a bit since then, but really fundamental to its existence. Is looking after the assets of its clients and looking and particularly those who are often vulnerable. I think it originally started as looking after the assets of widows and orphans because back then they often weren't seen to have investment acumen if you like to look after their assets. So it was to safeguard assets of those who were uh, perhaps uh, needed that help. And whilst definitely the world's evolved since then, that underlying principle of looking after the assets of others is a real core value of the business. And one of the key values of the business is around trust. And when the core of your business is you know the core of our clients funds are uh, assets like perpetual charitable trusts and endowments which have essentially almost uh, an endless lifespan. When you have clients like that you need to be able to demonstrate that you'll be trusted to do what you got to say you do over and over again. And that's kind of instilled through everyone in the business and sort of helps drive a lot of the culture.
Equity Trustees has very strong Melbourne heritage
Phil: Can you explore a little bit more of that? Because I mean it sounds like uh, like you said it's establishment Melbourne and people outside of Melbourne don't really understand how deeply that runs through the system. And I'm assuming John Madden, he was a Chief justice wasn't he? He was one of the early Chief justice of.
Darren: He was, he was uh, he was apparently one of the first four. You know I learnedt this in my induction. He was one of the first four uh, graduates from law school in Melbourne and he was a Chief Justice. And I think you know through its history Equity Trustees has had a lot of high profile directors and managing directors. Robert Menzies was one of the directors of the board. Jeff Kennett was the chair when I first joined in 2018 and I think his grandfather was also a chair of Equity Trustees. So it's definitely has that Melbourne heritage. Although it's now very much an Australian wide business and is a very contemporary business these days albeit with that heritage.
Phil: By the way I was only joking when I asked the question about the induction. I didn't realise there actually was an induction. That's good to hear. Yeah.
Life Sherpa focuses on looking after investors assets and generating income
So how has the company changed to adapt to the times?
Darren: Look, to be honest I think what we do is relevant now as it was back in 1888 and that is looking after investors assets and looking to grow those assets. Whilst every investor has slightly different you investment objectives and risk and return tolerances generally it's centers around a core proposition of growing the real value of capital over time whilst also have a Secondary purpose of generating an income stream for, whether it be for, uh, charitable bequests, uh, or granting, or whether it be for operational purposes or living expenses. So it's really growing capital over time and generating income. And I think that's as relevant today as it was back in 1888, to be honest. So whilst the investment strategies and the types of investments, whether it be private market assets or investment classes, may have evolved, the core principles are very much the same.
Phil: So you've got
00:10:00
Phil: a pretty impressive record that 11% per annum. Is that after fees?
Darren: It is after fees, yes. It is, yeah.
Phil: That's pretty good. How do you approach it? I mean, there's not a lot of people who can nail those kind of returns.
Darren: Look, there's probably a few guiding principles that are sort of have adopted and helped to apply here and obviously that tre track record extends before joining Equity Trustees, but essentially, I think, you know, I didn't take too many things away from economics degree, but probably three core principles I took away with me is there's no such thing as a free lunch, meaning that if you want additional return, you've generally got to take on risk. The second one is the power of compound interest, and that is that essentially if you're starting and just continuing to grow, consistently has the power to grow asset and wealth over time. And the third element is that, uh, whilst the markets are efficient, they're not always rational. So it provides you with opportunities to ideally obtain. If you've done the work and you've got a disciplined process, you can identify opportunities to acquire assets at the right price and ideally sell them if they become overvalued. So trying to bring those three elements together is, I think probably core to investment philosophy, if you like. And I guess it really comes down to having a good team. You know, certainly I haven't generated those returns individually. It's by having really good people with great knowledge applying a consistent investment process.
Darren: Are you confused about how to invest? Life Sherpa can ease the burden of having to decide for yourself. Head to lifesharpa.com.au to find out more. Liferpa, uh, Australia's most affordable online financial advice.
Phil: I think you said two words in the disciplined process.
Quality at a reasonable price is the core investment principle at Equity Trustees
Let's focus in on that a little bit. What is that? Discipline, process?
Darren: Yeah, well, the key asset class that I've been involved with, uh, over my career been Australian equities. And certainly that is the core foundational pillar of many of our strategies at Equity Trustees. So really, in terms of who's driving that here, At Equity Trustees, that's one of my peers who I joined Equity Trustees with. Chris Haynes and his team are really implementing that investment process and our name for that is Quality at a reasonable price. What that means is we are looking for attributes of investments. Uh, companies that have ideally good management, sound balance sheets, good cash flow generation, ideally good market leadership positions and growth prospects. They're either in a growing market or they're certainly growing within that market segment. They've got good governance in place, they've got a good social license, a whole range of criteria that we would say makes a quality company. Now, the reasonable price piece is that generally those companies aren't, um, trading particularly cheap because they've got those desirable attributes. But from time to time they can fall out of favor. So we're looking to acquire those and hold them through time. So the discipline is around having a team and we think we've got a really strong team of analysts who know their companies and sectors well, so they stay abreast of those drivers. Identify the best companies to be invested in and either we're already holding them or we get an opportunity to acquire them at the right price when that becomes available. So, and then the second element is if they become mispriced or if we get the thesis wrong and our assessment is wrong, which does happen, it happens plenty of times that we've got the discipline to say, okay, circumstances of change, we're going to exit that investment, or if it becomes too expensive, that it's, well, there's better value elsewhere. So it's having that sound investment process around what constitutes a good investment, and then being able to have the right behaviour elements to manage that portfolio of investments at any one point in time.
When you're cutting and run on a particular stock or investment, is it usually
Phil: So when you're cutting and run on a particular stock or investment, is it usually around earnings season or confession season, something like that? Is it based on the numbers or can there be other factors that weigh on your decision now?
Darren: It could definitely be both. Confession season or earning season is definitely often a time at which information becomes more visible. Certainly over the 30 years that have been in markets, disappointingly that's become more the norm now. Back 25 or 30 years ago, you could probably get a little bit more information through being out of meeting with management and getting, doing your own research. But certainly it's become a bit more vanilla now. So really these days a lot of your assessment needs to be based on. I'm really bringing together public information and forming a balanced assessment. So often that is more visible at reporting season. But certainly we have A very strong company visitation program where analysts are having over a thousand meetings a year with company management and or competitors in order to try and get that understanding of how businesses are operating.
There's been a long tradition of Australian companies making overseas acquisitions
Phil: Have you got a specific example of a uh, process that's happened recently like that?
Darren: Yeah, look it's probably one good one bad. Ye so uh, the positive one would be an investment which
00:15:00
Darren: we we've held for a period of time in ResMed. Ye. So ResMed is a maker of CPAP devices to treat sleep apnea. In the main it's got other uses but that's kind of its core business. About 12 to 18 months ago there was, you might be aware of GLP1 drugs that are essentially looking to reduce obesity and so forth. There are diabetes drugs that have now been used for reducing weight and overweight. People have more sleep apnea. So there it was seen as being a potential adverse outcome on and resmeds long term growth. So we spent a lot of time and our analyst Paul Dav and spent a lot of time assessing GLP1 drugs speaking to medical distributors in the States, doctors, uh, sleep centreers, a whole range of activities for company competitors. And through our assessment we believe that the risks are somewhat overplayed but the stock was sold off quite aggressively based on that risk. So we essentially added to our portfolio holdings and that's proved to be a uh, good decision. Notwithstanding it's now going through some issues relating to Trump tariffs and how that might impact but you know the world's always eventful. A secondary example would be we've got a holding in a company called James Hardy which again has been a long standing investment. A really strong core proposition growing strongly in the States in, in building materials but certainly fiber cement. And over a long period of time the management team there had rebuilt that company after its issues with asbestos going back 20 or 25 years and had a really strong track record delivery. But they'd been turnedover in senior management and the board and they've just made what we consider to be a very poor investment decision to where they've got a takeover offer in place to acquire a company in the US called aec. What we see as being uh, an expensive price. Yeah, we don't need them to make that portfolio decision on our behalf but they've nonetheless done that and disappointingly they haven't gone to shareholders for approval for that. So that was an example where we've now been talking to the board and also management around that and we need to assess, you know, assess the outings of that decision and what it means for our investment in that company. So there're two different examples I guess of where new information has come to light. One good one or even. Even where there's been perhaps potentially negative in the rese situation where there's. It provides a potential opportunity.
Phil: Yeah. There's been a long tradition of Australian companies making overseas acquisitions which haven't worked out very well.
Darren: Generally I think Australian companies overestimate their ability to translate domestic success into international success as a rule.
Phil: M mind you, Nick Scaly's been pretty good at it.
Darren: No, there's certainly exceptions and there's businesses like Macquarie and others that have definitely have grown successfully overseas. It's just that there are a number that haven't.
Are you designing portfolios for different clients and re weighting depending on needs
Phil: So are you designing portfolios for different clients and re weighting depending on their particular needs, whether they're a charitable trust or retail investors, for example?
Darren: Yes. So look, uh, I think one of the key things we attempt to do is to understand, we touched on it earlier but understand really the key drivers of the client. What are the investment objectives and maybe sounds like a term, but really just what are their risk and return attributes? Do they have a need for the capital they're investing? What are their income requirements, what uh, are any other characteristics, whether they want responsible investing overlay and things like that. So getting that understanding right up front helps us structure, you know, the portfolio construction weightings by asset class and the type of investments. And so that does vary by client. I mentioned earlier, a lot of our clients uh, have a long term time horizon, you know, charitable trusts, endowments. So that enables us to invest for the long term, which means we can have a higher weighting to growth assets which have proven to deliver better average returns over the long term, but they experience greater volatility through that so that their growth assets and higher waightning growth assets are very good for clients with long term time horizons. But if for example you need to withdraw capital, you don't want to have to be withdraw capital at the wrong time and endure what we call sequencing risk. You know, the risk that you have to take your money out at a low point in that cycle. So they're the sort of things we take into account uh, are the tax status of clients. For example, one of the reasons why Australian equities have proven so such a sound placement for a lot of our clients is because of that high after tax income stream that have been provided by frank dividends. And so any change to tax status or those sort of issues are definitely taken into account.
You mentioned about some clients wanting the overlay of responsible investing
Phil: You mentioned about some clients wanting the overlay of. I can't remember the term but like for social good, making sure that the companies that are being invested in. How do you adjust for those kind of requirements?
Darren: Yes. So we call it responsible investing. That's the term we use here, whether you call it esg, environment, social or governance. So we look to do it in two ways. One is that we look to integrate responsible investing as a component of uh, our investment
00:20:00
Darren: process. And that's not just because it kind of makes us feel good or we think it's the right. We just think ultimately there is a natural alignment with companies that perform well over time. That also there's a good correlation between how they perform over time and the way they attend to those issues. There's a term that's used to be used quite a lot of social license to operate. And that's particularly true in this day and age where companies uh, I think not only seem to be making profits but also do the right things by their customers and other stakeholders. Employees and others generally will have greater acceptance. So we think there's a good correlation between good investments in responsible investing. Number of our clients also want to exclude certain sectors that they view on ethical grounds that they would like to exclude. So alcohol gaming, those where they consider that, that to be not providing a social good or doing social harm. So we also run specific portfolios that exclude those industries and uh, enable clients to invest without having exposure to those type of investments.
Phil: What are some of those kind of investments we're referring to? So in someco and tobacco and weapons, obviously they're the main ones but there other ones.
Darren: Yeah, so an example that would be like Aristocrat or Light and Wonder make money from gaming machines. That's certainly the key one. Treasury wine estates in the alcohol space. So it's really around uh, alcohol and gaming in Australia in international portfolios. It's also extends to tobacco and weapons as well.
Tim Ferriss: Australians looking to grow wealth without getting lost in hype
Phil: So what advice would you give every day? Australians looking to grow their wealth without getting lost in the noise of financial jargon and hype.
Darren: Yeah, look to be honest, I think it touches on a few things we've talked about which is generally just getting started is a key thing and ideally investing an amount that you don't feel you need to touch. So uh, particularly if you're going to be investing in the stock market, don't invest in the market with a view that you're going to make rapid gains. And I've made this mistake in my personal portfolio. I tend, you know, my client portfolios have outperformed my personal portfolio because there's a tendency to look for quick wins and generally the better investments of those that just grow steadily over time and compound over time. So I think the best advice I would say is not try and go for the quick win, not look to make 10% next week but look to invest in a portfolio of companies that are going to grow over time because that's where that compounding really comes to play. And essentially the behavior element is so key. Not getting caught up in don't look at it every day because the tendency will be to sell when things look bad and buy when things look good. And that's generally just the wrong time to be doing either of those things. So uh, so I think it's get started, don't try and hit it for the fence ones and twos rather than hitting sixes and just start uh, the as Peter lynch would say, a really famous investor, uh, it's Tim in market, not timing the market which is key. And I think that's really really important.
Phil: It's interesting that you say that people are looking for quick returns because that is a psychological mindset that people have who don't have no experience in the market.
Just tell us about, because you mentioned earlier about compounding
Just tell us about, because you mentioned earlier about compounding. Tell us about the beauty of compounding.
Darren: Uh, absolutely. I do think there is uh, uh yeah and we all suffer from it. You know when I first got into the markets my family would call up and say I've got this great scheme, you know, it's offering me 15% return and it's, it looks great. And, and my immediate thing is without even knowing what is just don't do it because again there is no free lunch. And so I think that one of the reasons I'm really attracted to markets is it just kind of makes sense because company earnings economies grow over time. If you're invested in good sound companies they will grow with the economy over time and really add a little bit on top of it. So if you're growing your investments at call it nominal economic growth, adding a little bit more for the fact that you're in good companies and that compounds over time that is really really valuable. So the whilst it was at my economic degree we talked about compound interest. There was a really old gentleman, Don Stammer, who's a really well known economist, I work with a Deutsche bank and he would start every meeting, he was very well respected. He would start every meeting with the power of compound interest. And no matter how sophisticated investor you are, uh, that principle is just so powerful. But in order for that to have effect, you've got to actually start and you've got to leave, got to leave the assets there and not try and time the market. So you know, it's like the old clip, you know, if you continue to grow assets, by the time you're building off the power of the 10th year and the 11th year, you know it's really powerful. I think there's a stat that you. 98% of Warren Buffett's wealth accumulate after the age of 58. That's because he continues to compound on a very large number and has maintained that discipline over a long period of time. Now don't
00:25:00
Darren: we expect to be Warren Buffett? But I think that can be also quite powerful just for everyday Australians.
So do you have any warnings for everyday Australians about investing
Phil: So do you have any warnings for everyday Australians? Because a lot of people fancy themselves very quickly as stock pickers as opposed to possibly going into a fund of some sort with someone else is looking after it for you. What would you suggest to people who get that bug before they do anything stupid?
Darren: Yeah, look, I think it's inherently a good thing to want to invest but I genuinely think that the emotional piece is underestimated. We talked right at the start about what you need to have to have an investment discipline and that is sort of knowledge and applied knowledge and assess outcomes. But as much as anything, I do think the emotional piece is really important. I think in investing, uh, is a combination of being confident without being arrogant, having enough knowledge to have conviction without anchoring and being not being able to change. So my advice to everyday Australians is, which I am one is to.
Phil: You're from Lithgo?
Darren: I'm from Lithgo, I'm a coal miner son from Lithgow is to not get too greedy and essentially just to be dispassionate around it. If you've made a sound long term plan, stick to it. And generally I can't tell you what the market's going to do tomorrow. I can say with a bit of greater certainty what's happening in a year. I'll have a far greater certainty the longer the timef frme. In 7 or 10 years I think the market will be up and it will ll be up soundly. But what happens tomorrow is really a lottery, particularly in this day and age, depending on what sort of beard Donald gets out of. So I think it's around take having a long term plan and just having some the behavior element to be able to stick to that.
Goodman Group has a view on opportunities and risks in Australian equities
Phil: So do you have a view on any opportunities and risks in Australian equitiesities right now.
Darren: Yeah look for all the things I've said I actually think there's probably a little bit of downside risk to markets at the moment. I think over a period of time there's been a bit of complacency built into the market pricing. You know whether we view it on price to earnings model, you know a lot of technical jargon but price to earnings multiples or price to book equity risk premium there's a whole lot of jargon but if you look over long term trends it's trading a little bit expensive now that sounds like well you shouldn't invest but I think if you're investing for the long term you can still invest now soundly but that doesn't mean that there isn't some near term downside risk. So uh, in the short term I think there is. We think there's greater opportunities in some of the more defensive sectors. We think the healthcare sector for example there's some, certainly some stocks in that area that we think have that offer really sound value. Stocks like CSL which have really strong long term pipeline again being buffeted around a bit by tariff noise. Uh stocks like ResMed I've already mentioned a stock like Teix which is around treatment of cancer and having radioactive isotopes to identify cancer. We think that's got good growth prospects. I think there's just good opportunities in some of the more defensive names like, like Telstra and Telco it's good sound defensive earnings stream the data centers an area which have come right back so we definitely think that AI and the consumption of data is a long term thematic again got a little bit exuberant but then it's pulled back quite quickly with the deep SEQ type uh discussions and potentially a pullback of data center demand. So companies like NextDC and Goodmans S are uh, I think are an interesting time, interesting place at the moment as well given again they've fallen out of favor with the market.
Phil: Goodman's uh, they involved in data centreers as well.
Darren: Yeah so yeah so Goodman didn realize. Yeah Goodman Group they've obviously been a massive success story predominantly through industrial property but they've certainly uh one of their stronger growth streams is through data centreers both here and into Asia.
Having a good quality portfolio of companies is really important for investors
Phil: What about Macquarie in that space? Not, not the bank, the telco.
Darren: No, no, Macquarie Telco. Uh see I'm probably not one that I'm as familiar with in terms of their exposure there. Certainly Macquarie bank has done well more recently through their sale of their part Ownership in air trunk more recently and again Macquarie Bank I think is again it's a very well we talk about quality elements. It's a very well managed business with good structures, diversified revenue streams that has had uh, a meaningful pullback in the current market conditions that still think has good long term potential.
Phil: And that's the thing with good companies isn't it? It's very hard to get that time, the timing right to get into them. I mean there's so many great companies on the asx but then you look at you know their're earning and, or the P.E. and um, they're always quite expensive. Well generally yeah it is. Generally that's the case isn't it?
Darren: Yeah, you generally need to ye so, so that's what we talk about having a quality at a reasonable price, not not at a cheap price because very rarely do things get cheap but as long as they're reasonable. And we touched on before about what should you know momm and dad investors think about. I do think either a you good quality manage with a portfolio of stocks or
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Darren: an index fund or a cheap or you know if you're not looking to identify a manager. A value index fund is also a good way to play it. But I think it's around having a good portfolio of companies rather than necessarily putting all their eggs in one basket because it's not around trying to hit it out of the park by getting one right and really blowing that out. Because even good managers make lots and lots of mistakes in terms of the assets we invest in. So it's having a portfolio that you average out, you get more right than you get wrong and ideally your winners uh have more of an impact than the ones that don't work. So it's around having a portfolio of companies I think is really important.
You mentioned a little while ago about managers and management treating staff well
Phil: You mentioned a little while ago about managers and management and how they treat staff as being a key or one of the key factors that you look at one of the kind of tools because these days there's plenty of opportunities now for employees to even you know rate their own companies that they work for. Do you use tools like that or.
Darren: Look we have those regards. To be honest it's probably more, it's generally probably more of a negative screen where if there are uh, red flags we certainly have our own research and we also use providers like MSCI and so forth to, and also proxy voting firms to provide us with screens around that sort of data. So it's certainly an indicator and you companies do have a cliche about people being have been their uh, greatest asset. Not all sort of adhere to that but I think it's really where there are adverse cultures where we would see red flags and then look there's probably some uh, examples of that in the marketplace at moment which caused us to act. So I don't necessari want to call them out here but uh, there's some that are quite visible where it certainly would materially impact our view around the value of a company's opportunity set. You know uh, I'll mention so wisetec for example, you know a really sound underlying product but with significant risk around and issues around I would say corporate governance and how and I would argue the culture within that business. So that to us is a real red flag and makes it difficult to invest.
Phil: Inah it's always difficult to balance. That mean we've discussed wiseteh so much on the podcast and the Australian Shareholders association who I'm closely involved with then you know very much looking for good behavior amongst management teams. But then there's other investors who say look at the value that he's created without naming names.
Darren: No, no, and I understand, I understand that. So that there's a balance between. There is. Well I don't know how fine the line is in this one but you know there's founders who drive and are dominating cultures often drive significant wealth and there's a lot of founder led businesses that have done extremely well and certainly I argue wisetech is very dependent. But again that is the flip side. That is a risk if you that highly dependent on a single individual. If that individual is no longer there then that's obviously a concern and I guess it's looking to balance and having the right sort of checks and balances around that.
North says management teams in resource names have shown generally sound discipline
Phil: Well let's end on a positive note Y and name some management teams that you, you're very impressed by. Just one or two.
Darren: Uh, yeah, north, that's a really good question. Look' it's probably recency biasd because we just talked about it but Macquarie has been a company that I've been that even from my analyst days been closely associ so with you know that was back in the days of Alan Moss and then Nicholas Moore and then Shimra. It's one where to some extent it was probably seen as having sharp elbows and a little bit aggressive but it's always that they've always had a high degree of meritocracy and governance and well regarded and that meritocracy has enabled to grow and develop in areas and I think reward those who contribute to the business. So I think that management team has uh, one of the reasons why I would call it out is it's continued to innovate and continue to find new areas to grow into in a pretty challenging industry. So I certainly would uh, we certainly would rate that management team. I think other businesses, the management teams have continued to evolve so at some points in their cycles they've been good and others perhaps, perhaps not. So certainly over time would say that the CSL management team have continued to be generally sound. Again that's had degrees of evolution and corporate involvement but that would certainly be a couple of examples where we think that uh, you know, the management team is really sound in the resource space. There's probably been a positive evolution of capital discipline in recent periods compared to decades past. So overall you know d say the management teams in our key resource names have shown generally sound discipline within that industry.
Phil: So's you're referring to some unfortunate overseas expansions, Correct?
Darren: Correct, correct.
Phil: I mean capital management'really important isn't it? It's fund that money is going to be put because there'very few places that you can place that capital, isn't there?
Darren: Absolutely, absolutely. We talked about James Hardy. You know it's
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Darren: really decimated long period of I guess trust and has sort of decimated that in one decision. Resource companies are renowned from spending their good fortune in ill time decisions generally at the top of the market, you know, shale assets in the US or a whole range of examples we could point to. So no, capital discipline is really key and if you don't have a good use for the capital, don't spend it, give it back to shareholders and allow that to be deployed at appropriate return on equity. That's what we want.
Okay Darren, so tell listeners how they can find out more about equity trustees
Phil: Okay Darren, so tell listeners how they can find out more and I'm disappointed because I don't think you've got any socials. I'm not sure if that's a good thing about Don Pro.
Darren: I probably should do a bit more of that but maybe y.
Phil: But generally it's the website and LinkedIn, isn't it?
Darren: Yeah, maybe this is the start. So look where you can find more about equity trustees, it's obviously on our website equityrustees.com do LinkedIn. But look, we really welcome any incoming. I think uh, I think if you're interested in investing please give us a call and we'd be uh, glad to have a chat to you.
Phil: At least have a look at the history lesson on the website as well in the about. Exactly, exactly Darren, thank you very much for joining me today.
Darren: Thanks Phil. Absolute pleasure.
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