FOCUS 2026: Finding opportunities in alternative equity – David Way

David Way explains how alternative equity strategies can provide differentiated sources of return and diversification.

Transcript

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That was a lot. That was every young child's video game dream

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to be introduced in that manner.

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I play it every morning when I get up, when I'm brushing my

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teeth.

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It shows, it shows.

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Thanks, everyone, for being here with us in beautiful

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Nashville and thank you to everyone for being online.

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I have the privilege of being joined by portfolio manager,

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David Way, who is the PM on the Fidelity Long/Short

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Alternative Fund.

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The fund achieves its six-year milestone just coming up this

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month. You've been managing this fund for six years for investors.

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Before we get into sort of the topic today, Dave, I have to

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ask, I've worked with you for eight years, you're dressed a

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little differently today.

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What gives?

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Well, it's Nashville and I've been coming here a long time.

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I'm a big live music and country music fan.

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I wanted to wear this shirt. It's a Nashville shirt from

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a store called Imogene + Willie.

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It is a store that's sort of anchored the

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hipster area of 12 South.

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If you're looking for things to bring home to family it's a

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great area.

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It started off as like a heritage denim and wool Americana

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store. They hand print their t-shirts.

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When the owner wanted to make a Nashville t-shirt and printed

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it he realized that he forgot to mirror

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the words, which is what you need to do when you need to

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print things. And then he had the wisdom to

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see that it was sort of a happy, creative accident.

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and he decided that it actually made it more unique.

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It became one of the things that sort of made the store kind

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of famous, in a manner of speaking.

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The reason I wore it is ... the reason I became a short

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seller is because I that my happy accident was that I was

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covering Sino-Forest in 2011 when it was revealed to

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be a fraud. Tt really sort of turned my interest

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in markets and sort of a passing interest

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in short selling to something that became a

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tool that I tried to build over time, without

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even really knowing that 10 years from then, in

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2020, I'd be launching a long/short fund.

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That's sort of my connection and why I decided to wear this.

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It's not a new thing. I feel much more comfortable in

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business clothing but I thought it'd be fun because we're in

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a fun city.

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That's awesome. So measure twice, cut once, short

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high, cover low.

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Awesome.

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Why don't we get into things? I want to spend about a third

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of our time today talking about your fund, the objective and

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your approach to investing, and the latter two-thirds let's

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talk about the world around us. Things are ever-changing.

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We heard a lot of great commentary from the GAA team just

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now, some of which we're going to tap into and dive into

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deeper, and how it really drives and affects your security

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selection as a bottom-up, long/short manager.

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So with this fund, long book, short book, you've tended

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to be about 90% net exposed to markets over time.

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You wanna be there, you wanna take risks but you do have this

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opportunity to go out and exploit themes in companies

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that you have less than conviction in.

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How does that work?

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Markets tend to go up over time and one of the reasons why

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I wanted to run a long/short fund that was long

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biassed, like over time would have market exposure,

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is that you wanna be able to capture sort of the broader

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economic growth that happens.

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Of course, we go through cycles

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which have as much to do with what's happening in the

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underlying economy as they do with how

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investor expectations are set versus what's

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set to unfold.

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One of the things that I have the advantage of running a

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long/short fund is that I have the opportunity to

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sort of on the long side express,

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hey, you know, these markets are growing or here's an area

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that's improving, this where I want to be exposed.

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Then you could take other parts of the market where things

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could be good, they could be bad, but that we

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know investor expectations are too high and

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I could sort of have an alternative source of returns

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by betting against those companies where I think they are

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going to disappoint investors, the valuation is too high,

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and we have a chance to generate profits from something other

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than the market going up and having some stocks go up more

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than others.

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Sources of return, long only, someone gives you $100 cash,

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you invest $99 of that, you have a dollar of

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dry powder. Can you talk about the flexibility that a

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long/short investor has to almost use shorting as a sense of

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leverage and/or create dry powder or be nimble in unique

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opportunities?

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There's really three sources of return in a long/short fund.

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The first is the same as you would get from a long-only fund,

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which is finding stocks that go up over time

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and owning those and compounding.

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The second piece is in the short portfolio,

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shorting stocks that I think will go down

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over time either because they face secular challenges,

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they face cyclical issues or they're

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frauds.

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The third source of return is when I short

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stocks it actually generates cash proceeds that

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I can then deploy into my longs

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that I'm really excited about so you can also capture

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long/short spread.

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Versus a long-only fund where you only have market

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going up, you've got your longs doing well, you've got

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your shorts which go down which generates profits, and

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long/short spreads.

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What that really enables over time is what

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I believe to be an improved sort of risk-adjusted return.

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Interesting. Markets have been very rewarding to investors.

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Various categories of risk assets have appreciated immensely

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in the past six years since you stood this fund up.

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Having a short book, kind of equate that to like a parachute

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running uphill doing wind sprints or something to that tune.

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With that said, in a bull market of sorts, but with that

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said you've actually added alpha on the short book in four of

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five calendar years.

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Can you talk about ... and again, 2022 was a long time ago

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but it was the most sustained bear market environment

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that we've witnessed and observed that we can continue to

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learn from and build around.

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What have you been doing, and what are you doing, in

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the portfolio today that's building resiliency that maybe

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isn't appreciated in this more bullish market regime?

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Well, I think one of the main things is that the short

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portfolio really helps you understand the risk

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part of the risk and reward point in the market.

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Whether it's individual sectors or

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what the broader market is doing overall

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it helps you understand where things are.

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One of ways that I know where the market is

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is that when I'm evaluating the short positions I typically

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don't target a specific short percentage

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of the portfolio. I'm looking for asymmetric

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downside. I want to see a stock that can go down 50

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and maybe only goes up 15.

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As we go through different cycles I often find myself

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covering stocks.

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I'll give a sector example, in consumer discretionary

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it's been a very fruitful place to short.

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The sector has faced broad challenges.

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I might find myself in

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a situation where I'm starting to cover more consumer

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discretionary shorts.

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The overall sort of short portfolio weight goes down but

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it is also a signal to me to be like, hey, maybe I need to be

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looking at consumer discretionary as a long, like where

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are the stocks that are really bombed out and

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providing asymmetrically positive returns.

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GAA talked about bad getting less bad.

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As a short seller you have to be equally, if not more

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cognizant of that scenario to get in there, cover and

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have that mindset to maybe adopt the flip side of the trade.

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That's very interesting.

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On that topic why don't we just spend some time in an

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area that's maybe perceived to be good but the market might

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be missing it and it's getting better, and then an area where

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as a short seller, or even just on the long book the ability

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to omit, an area where the market

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might be missing it and you think fundamentals are actually

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weaker than they are. You have the ability to be on both

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sides of the trade. I know Canadian financials have had a

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large part of the portfolio in recent disclosure.

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Maybe anything there?

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I'll give an example where they both come from the same

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bucket. There are companies in the last couple of

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years that have been branded sort of like AI losers.

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The market is generally efficient.

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Most of the companies that will be AI losers have

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been identified by the market.

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I think things will continue to get worse for those

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companies. But within the same bucket there are companies

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that have not definitively become AI

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losers, they might be priced like it, but where

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there are multiple business and strategic paths for

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them to either prove the haters wrong

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and deliver business results in the face of

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AI deployment, or companies that could be more

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aggressive in using AI, or the business opportunities

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created by AI, to actually grow earnings when

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they're being priced to shrink.

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That actually is an area where I'm spending a lot

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of time. Also, I think it highlights when you're

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a long/short manager your security selection,

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portfolio construction will differ between the long

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and short portfolio but the underlying bottom-up

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investment process is the same.

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We're beating around the bush on AI and, as we heard, the

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number one rule is that you have to talk about AI.

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With that...

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Did Claude tell you that?

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Ilan just did.

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The five-layer cake, if you would, quoting Jensen, the

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different layers of infrastructure that are in this AI, this

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compute race, if you would, where are you spending a lot of

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time looking? Where have people missed it?

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There's energy bottlenecks, there's chip and/or memory

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shortages, where are you focusing your time?

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The biggest out of benchmark exposure the

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fund has had over the last year,

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as disclosed, would be TSMC which is the foundry

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business.

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I do remain a believer that

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AI deployment will continue to

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sort of remain strong.

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There have been a lot of interesting pieces that

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perhaps will call into question like the speed of expansion.

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One of the things about being in a CapEx cycle, like a

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capital cycle, is that if you build 10 data

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centres this year in order to grow 20%

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you need to build 12 data centres next year.

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Then in order go 20% you need to add 16.

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You need to replace last year's demand plus

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add growth.

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Typically, that's how capital cycles end.

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It sort of collapses on itself either due to funding

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challenges, because now we're funding 10 data centres

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and in three years we're funding 16, funding

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challenges or just the inflation in

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those sectors that are caused by rapid growth.

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A lot of that's been financed through the hyperscalers free

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cash flow which has seemingly gone from very big to less big,

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and in some cases approaching negative in a big, big way for

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these groups. There's been a lot of issuance in debt markets

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issuing commercial paper to raise debt

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to fund the buildout of these data centres and warehouses, so

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much so that it's actually taking away from the US

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administration's competitiveness at auction.

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There's a certain component that is those that are required

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to bid at auction and those that are voluntary.

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We just heard from a group that manages multiple trillions,

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over 100 billion in Canada, and they're electing to buy less

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US Treasuries. If you start to get groupthink across a number

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of different groups of that size all of a sudden you get

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billions and billions less of US Treasuries at various ends

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of the curve being bought.

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How does that factor into the rate environment?

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We have the front end being brought up by inflation and oil,

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war in Iran. We have middle being sort of bellied

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upwards by bond issuance for AI.

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The long end is just, like, long Treasuries just don't

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like the deficits, whether it's US or other central banks

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globally. What do higher rates mean for your fund?

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Loaded long question here.

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Few years ago you were shopping around for cracks in the

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foundation as rates were getting higher.

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Today rates are also getting higher but more so on the bond

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market, a little bit in the overnight rate.

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We saw a few weeks back first hike in three years from

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the US. What does that mean for different sectors and

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companies where interest plays a big role

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in earnings?

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I think it's another market

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mechanism to sort the competition for

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capital.

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Capital is more scarce and people demand

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more compensation for allocating their capital because

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there's a lot of growth opportunities available.

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One sector that I think actually is very challenged by

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where rates are today is the fact that

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rates are higher because there is inflation but real rates

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have increased.

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That is a negative for the real estate industry.

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Unequivocally, it is very challenging.

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If you're thinking about real estate cash flows and

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a company's got a 6%-ish cap rate,

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a 10-year bond yield is the right way to value that

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company over the next 10 years.

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Real interest rates have been pushed up about 2% I think

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at that point in the curve.

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That is just unequivocally bad for most real estate.

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It's especially bad for real estate companies that

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can't reprice their rents very quickly.

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Notionally, companies like apartment REITs

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which can increase rates would do better.

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Industrial companies where demand is strong so they can get

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compensated for higher rates.

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But it is an area where I've started to look for more

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shorts and also companies that

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had the wrong capital structure.

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There are a lot of consumer staple companies that were

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growing zero to 2% through the 2010s

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and in order to generate greater earnings growth they took on

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a lot of debt, which was a great idea when they could borrow

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out 1% 10-year money in 2016

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but it's 2026 and those companies

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who are trying to refinance now are looking at

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interest rates going from 1 to 6 or 7%.

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I've had a number of companies that I'm short where the bond

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market just says, thanks, but no thanks.

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So they have to go sell a division, often their better

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performing division, in order to repay debt holders.

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It's challenging for those companies but as a short seller

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they are forced into these economic transactions

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that destroy shareholder value.

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It's kind of like the opposite of a good acquisition, they

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have to make a bad disposition.

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From a short selling perspective those are some of the things

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that can help returns.

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There's a lot of crosscurrents, whether it's AI, whether its

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rates, how do you in your process, kind of jumping back

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to your fund and how you run things, how do you separate

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signal from noise? How do kind of navigate through

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all of this data and make the most sense of it to make the

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most informed decision? You're going to hold something like

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50-some odd long positions, 20 to 30 shorts, how

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do those positions make their way to the fund?

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Walk us through your process.

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In a perfect world you find a portfolio of idiosyncratic,

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amazing sort of secular ideas where a company

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either has a really good business model,

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or they're rolling out really exciting restaurants,

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or there's something that's happening that doesn't depend on

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AI or interest rates.

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I would love to say you could find a portfolio of 50

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stocks. I could probably think about 8 to 10 stocks

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in my fund that for those stocks

15:31.730 --> 15:34.667

I don't care what happens with AI and I don't care what

15:34.667 --> 15:35.768

happen with interest rates.

15:36.936 --> 15:39.238

Then what you have to do is you have to build a portfolio

15:39.238 --> 15:42.508

that you think best positions yourself within

15:42.508 --> 15:44.443

the range of outcomes.

15:44.443 --> 15:47.579

I don't think about stocks in terms of target prices.

15:47.579 --> 15:50.616

I don't buy a stock saying I think it's going to $75.

15:50.616 --> 15:53.852

I think about it in terms of, you know, there's a 25% chance

15:53.852 --> 15:57.489

the stock goes down 20%.

15:57.489 --> 15:58.857

I think more in probabilities.

16:00.092 --> 16:03.429

What you're trying to do is you're just trying to find the

16:03.429 --> 16:04.897

cheapest dollars in the market.

16:04.897 --> 16:08.000

If you think something is worth $100 and

16:08.000 --> 16:11.203

you can buy it for $80, maybe it only goes to $90,

16:11.203 --> 16:13.806

depending on how these larger themes play out.

16:13.806 --> 16:17.009

I have been talking about fiscal deficits.

16:17.009 --> 16:19.411

I've owned gold for a number of years now.

16:19.411 --> 16:21.480

I'm not a natural gold owner.

16:22.514 --> 16:25.684

I thought David Tulk made a very good point

16:25.684 --> 16:29.521

thinking about the US dollar and how its correlation

16:29.521 --> 16:33.258

might change given that AI-related capital flows

16:33.258 --> 16:36.295

could go in reverse in a

16:36.295 --> 16:37.663

down market.

16:37.663 --> 16:40.132

There are just a lot of crosscurrents.

16:40.132 --> 16:44.336

It is a complicated adaptive system.

16:44.336 --> 16:47.506

You just try to do what you do every day, which is try

16:47.506 --> 16:50.642

to have as clear of a view of the present so

16:50.642 --> 16:54.113

that you can make your best prediction about a forecastable

16:54.113 --> 16:57.716

future, which might be one to two years of earnings.

16:57.716 --> 17:00.819

The price you have to pay, the P/E, gives you a sense of

17:00.819 --> 17:04.023

how much risk you're taking or how much that growth may

17:04.023 --> 17:05.257

or may not be priced in.

17:06.325 --> 17:09.595

Then you build a portfolio that doesn't

17:09.595 --> 17:11.463

have any unexpected tilts.

17:11.463 --> 17:14.099

You don't wanna wake up in the morning believing you have a

17:14.099 --> 17:17.403

diversified portfolio and realize that you have just

17:17.403 --> 17:20.806

had a low rates call and rates are going up.

17:20.806 --> 17:23.275

I think one of the great things about having everybody here,

17:23.275 --> 17:26.512

I think the greatest thing you can walk away from

17:26.512 --> 17:29.281

these two days is just a clearer view of the present.

17:30.382 --> 17:33.585

Evaluate that against your client's portfolio, look at the

17:33.585 --> 17:36.655

areas of your portfolios where maybe you do have

17:36.655 --> 17:38.957

a bit more exposure than you thought, or areas where you're

17:38.957 --> 17:41.894

like, geez, it's not like the hottest part of the market

17:41.894 --> 17:46.231

today but it could be a hot part of market tomorrow,

17:46.231 --> 17:49.368

rebalancing and diversifying at these points in

17:49.368 --> 17:52.438

the cycle. Clearly, the market is struggling to

17:52.438 --> 17:55.741

absorb the earnings growth we've had,

17:55.741 --> 17:58.811

the questions about its sustainability given that it is being

17:58.811 --> 18:02.247

largely driven by AI companies

18:02.247 --> 18:05.751

where the growth rates have been high and are expected to

18:05.751 --> 18:07.886

slow. That's always ...

18:07.886 --> 18:11.190

we're talking earlier about bad to less bad,

18:11.190 --> 18:12.825

can be a great setup.

18:12.825 --> 18:16.028

Great to good is actually a great setup for a short

18:16.028 --> 18:19.631

seller because that's when you need shareholder rotation

18:19.631 --> 18:22.768

where the people who owned it on the way up sell

18:22.768 --> 18:25.504

it and you need to find an incremental buyer.

18:25.504 --> 18:28.173

That incremental buyer might be a lot further down.

18:28.173 --> 18:30.742

Always think about, I guess, the mirrors of the market, like

18:30.742 --> 18:34.012

this shirt, where great to

18:34.012 --> 18:36.381

good is not good.

18:36.415 --> 18:39.451

I think that's sort of maybe the most underpriced

18:39.451 --> 18:43.222

risk in the market today where it is

18:43.255 --> 18:46.425

very important as a short seller to get your

18:46.425 --> 18:49.461

positioning and timing right on those shorts.

18:49.495 --> 18:52.764

As we saw in July there are some very

18:52.764 --> 18:56.301

hot stocks that were big AI winners that

18:56.301 --> 18:57.903

got cut in half in three weeks.

18:57.903 --> 19:01.273

I was short a few of them and I can't tell you what they are.

19:01.273 --> 19:02.641

Yeah, absolutely.

19:02.641 --> 19:05.944

We saw SaaSpocalypse of sorts earlier this

19:05.944 --> 19:08.413

year where there was a big sell-off in software names.

19:09.481 --> 19:10.883

Was value created?

19:10.883 --> 19:13.085

Were there some attractive entry points on some of those

19:13.085 --> 19:16.688

names? You saw things like cyber and security actually

19:16.688 --> 19:18.624

coming out very strong on the underside of that.

19:18.624 --> 19:20.993

Went out with the bath water but came back very strong.

19:20.993 --> 19:22.628

There's some other areas that aren't.

19:22.628 --> 19:25.430

That bifurcation and that change, great for a long/short

19:25.430 --> 19:26.532

mandate, right?

19:26.532 --> 19:29.801

Yeah, and I think particularly in the sort of AI

19:29.801 --> 19:33.372

thematic it has been an area where you do kind

19:33.372 --> 19:35.440

of get these regular corrections.

19:36.642 --> 19:39.811

Let's say you have some exposure, some other stocks

19:39.811 --> 19:43.015

have done maybe the same or better and

19:43.015 --> 19:46.185

you have regret about not owning it you

19:46.185 --> 19:49.321

often get a second kick at the can at the

19:49.321 --> 19:51.790

price you passed on it the first time.

19:51.790 --> 19:53.158

I just try to be patient.

19:53.158 --> 19:56.862

I think the worst thing you can do is capitulate

19:56.862 --> 19:59.598

either by buying at the top or selling at the bottom.

20:02.000 --> 20:04.903

I think if there's one thing I can have from a temperament

20:04.903 --> 20:07.973

perspective, it's not just

20:07.973 --> 20:11.276

patience but it's preparedness for when those opportunities

20:11.276 --> 20:14.513

come and you've been short a stock to be able to

20:14.513 --> 20:17.282

change your mind. Not even just say, hey, I'm going to cover

20:17.282 --> 20:20.385

this short but I'm going to go from short to long can

20:20.385 --> 20:23.222

often be very powerful trades. One of my biggest contributors

20:23.255 --> 20:26.291

I think in 2025 was Caterpillar

20:26.291 --> 20:29.394

and that was a stock that I went from having

20:29.394 --> 20:32.464

one of my largest short positions in Caterpillar to

20:32.464 --> 20:35.901

one of the biggest long positions within three hours

20:35.901 --> 20:37.769

where I did it on the same day.

20:37.769 --> 20:41.473

I think having that flexibility is not

20:41.473 --> 20:44.710

only key to survival as a long/short manager but it's

20:44.710 --> 20:47.946

also a very important thing to leverage to generate

20:47.946 --> 20:49.114

longer term returns.

20:49.114 --> 20:50.716

We heard from the GAA team.

20:50.716 --> 20:53.051

We heard some strong conviction towards the Canadian

20:53.051 --> 20:55.721

landscape, how we differentiate ourselves from our neighbours

20:55.721 --> 20:57.689

here in the US.

20:57.689 --> 20:59.524

You have a North American mandate.

20:59.524 --> 21:01.994

Your benchmark is half Canada, half US.

21:01.994 --> 21:05.197

How do some of these new tailwinds and/or

21:05.197 --> 21:07.866

headwinds respectively in different environments, how do they

21:07.866 --> 21:09.268

factor into your decision-making?

21:09.268 --> 21:11.303

I know you're a bottom-up stock picker.

21:11.303 --> 21:14.206

You're not saying, oh, the wind's blowing this way I'm gonna

21:14.206 --> 21:15.574

position the fund like this.

21:15.574 --> 21:17.876

How does that factor into the opportunity set for some of

21:17.876 --> 21:21.046

this promise that's offered here in Canada with

21:21.046 --> 21:24.750

some buildout, strong resource growth?

21:24.750 --> 21:27.753

I think you heard it from GAA, a perspective that I would

21:27.753 --> 21:29.988

share, which is it's very encouraging.

21:29.988 --> 21:33.091

I think conversations have changed I think

21:33.091 --> 21:36.194

in the last two years, particularly in the

21:36.194 --> 21:39.331

last six months where Canadians realized

21:39.331 --> 21:41.300

they have to do something different than what they've done

21:41.300 --> 21:44.369

before. The areas where the government

21:44.369 --> 21:47.472

is pointing and where sentiment is shifting towards I would

21:47.472 --> 21:49.875

say are positive for longer term growth.

21:49.875 --> 21:52.911

We met with all of the bank CEOs a few weeks ago.

21:54.112 --> 21:57.382

I think it's their perspective that, hey, this is great, the

21:57.382 --> 21:58.550

conversations are happening. Don't change

22:00.852 --> 22:03.588

your next calendar year first half numbers.

22:03.588 --> 22:06.491

It's going to take a while for this to filter through the

22:06.491 --> 22:10.295

system. A positive change in sentiment can actually change

22:10.295 --> 22:13.398

behaviour as well. Our analysts have

22:13.398 --> 22:17.235

done a very good job of identifying early

22:17.235 --> 22:20.572

the opportunities to grow their businesses

22:20.572 --> 22:23.675

profitably through many of the projects that

22:23.675 --> 22:26.812

are now being announced and being fast-tracked.

22:26.812 --> 22:30.048

Maybe this isn't a 2027 earnings driver but it

22:30.048 --> 22:32.250

absolutely could be a 2028 earnings driver.

22:32.250 --> 22:35.687

I think that is one of the things that helps underpin the

22:35.687 --> 22:38.724

higher multiples we see on the banks which

22:38.724 --> 22:41.893

have done very well despite having to go through the last two

22:41.893 --> 22:45.063

years of sort of pig in the python on mortgage renewals

22:45.063 --> 22:48.166

and the other sort of broader economic challenges

22:48.166 --> 22:49.167

we've had.

22:49.968 --> 22:52.671

I went to business school in the US and I have a number of

22:52.671 --> 22:54.606

friends who do long/short equities, a

22:56.108 --> 22:58.443

lot of them have lost a lot of money on Canadian banks

22:58.443 --> 23:00.812

because they heard mortgage issues,

23:01.947 --> 23:05.050

low economic growth and they've been stopped at

23:05.050 --> 23:08.053

a lot of their shorts. I always get angry messages from them,

23:08.053 --> 23:09.221

like your market's stupid.

23:10.922 --> 23:14.025

The reality is the underlying

23:14.025 --> 23:16.561

earnings growth has been better. The regulatory environment

23:16.595 --> 23:19.798

for banks, which our analysts did a really great

23:19.798 --> 23:23.135

job of outlining for portfolio managers

23:23.135 --> 23:26.605

about how to think about it, has strengthened.

23:26.605 --> 23:28.640

Now we're at higher levels of valuation, you're

23:29.741 --> 23:32.144

always trying to underwrite your risk-reward.

23:33.345 --> 23:36.114

I think the economic backdrop at least has become a lot more

23:36.114 --> 23:36.982

optimistic.

23:37.015 --> 23:39.451

You talked about earnings and their resiliency, or their

23:39.451 --> 23:40.886

strength, rather, just moments ago.

23:40.886 --> 23:43.588

I think we've underappreciated how big of a role earnings

23:43.588 --> 23:45.891

play in today's environment. We've been rangebound near

23:45.891 --> 23:47.826

all-time highs for quite a while now.

23:48.994 --> 23:51.596

Really, markets have, on average, gotten cheaper from a

23:51.596 --> 23:54.032

valuation standpoint. You do have some names that are

23:54.032 --> 23:56.668

expensive. You have your Costcos and your Walmarts of sort

23:56.668 --> 23:59.704

trading at unprecedented valuations but you actually have

23:59.704 --> 24:02.774

some of these biggest growth stories trading

24:02.774 --> 24:06.011

south of 22 times, like 15 to 22 times earnings

24:06.011 --> 24:09.281

on some names that are up 2, 3x in the past five years.

24:09.281 --> 24:11.316

They've really grown into their multiple.

24:11.316 --> 24:14.486

How does valuation factor into your process and what are you

24:14.486 --> 24:17.522

thinking about some of the unique valuations that are

24:17.522 --> 24:19.057

in different corners of the marketplace today?

24:20.292 --> 24:23.428

It doesn't make me fun at parties but I do

24:23.428 --> 24:25.630

like to be very specific on language.

24:26.765 --> 24:30.469

I think whether a stock is cheap or expensive,

24:30.469 --> 24:32.437

or a market's cheap or expense, to me isn't about the

24:32.437 --> 24:35.807

multiple, it is about the valuation

24:35.807 --> 24:38.977

or the market multiple is not

24:38.977 --> 24:39.978

high.

24:40.545 --> 24:43.648

If you look at the S&P 500, we were actually just conferring

24:43.648 --> 24:46.852

this before we came on stage, the S&P 500 is

24:46.852 --> 24:49.921

about 21 times next year's earnings.

24:49.955 --> 24:53.124

The equal weight index, which basically tamps down the

24:53.124 --> 24:56.628

impact of the AI companies and

24:56.628 --> 24:59.764

equal weights all companies, is 16 or 17 times.

25:01.066 --> 25:04.102

What that tells me is that higher

25:04.102 --> 25:08.006

interest rates have had an impact on the

25:08.006 --> 25:09.708

rest of the economy.

25:09.708 --> 25:12.844

Pull up Nike's share price chart,

25:12.844 --> 25:16.047

other consumer companies that have struggled from sort of

25:16.047 --> 25:18.850

weak consumer spending plus higher inflation and their cost

25:18.850 --> 25:22.020

of goods, it's been pretty difficult environment for a lot

25:22.020 --> 25:25.090

of companies. It would also include the AI losers which

25:25.090 --> 25:27.392

are all trading at 10 times earnings.

25:28.760 --> 25:31.496

There are companies that are 10 times earnings that I think

25:31.496 --> 25:34.699

are inexpensive. I think they will have much higher

25:34.699 --> 25:37.002

earnings in five years.

25:37.035 --> 25:40.205

If I'm right they'll trade at 15 to 20 times

25:40.205 --> 25:43.308

earnings so you can actually make two or three times

25:43.308 --> 25:46.845

your money in five years on a stock that's

25:46.845 --> 25:47.979

10 times earnings.

25:47.979 --> 25:50.982

I am also short some companies that trade at 10 times

25:50.982 --> 25:54.152

earnings that I think would be difficult to value in

25:54.152 --> 25:56.855

five years because they will be bankrupt.

25:56.855 --> 25:59.958

So 10 times kind of doesn't tell me

25:59.958 --> 26:03.428

anything about whether the company is cheap or expensive.

26:03.428 --> 26:07.232

I think on the AI stocks trading at 15, 16 times,

26:07.232 --> 26:10.402

like I think Nvidia is in that ballpark, it is saying the

26:10.402 --> 26:11.436

market doesn't know.

26:11.436 --> 26:12.904

It might have been hinting towards there.

26:14.039 --> 26:17.342

The market doesn't know what the earnings will be in

26:17.375 --> 26:19.177

three years for that company.

26:19.177 --> 26:23.048

Is it gonna be double where they are today.

26:23.048 --> 26:24.783

Is it gonna be half where they are today.

26:25.817 --> 26:27.919

There is a very, very wide range of outcomes.

26:27.919 --> 26:31.022

I think David Wolf kind

26:31.022 --> 26:33.658

of said it, like nobody knows. I think that's sort of the

26:33.658 --> 26:36.695

challenge. The memory stocks are the most extreme

26:36.695 --> 26:39.731

example of this where you have companies trading at five or

26:39.731 --> 26:43.068

six times earnings. I would sort of say what Mark

26:43.068 --> 26:46.338

Schmehl would say, the P/E multiple is the most obvious

26:46.338 --> 26:48.340

thing on the planet. It's on everybody's Bloomberg terminal,

26:48.340 --> 26:51.776

it's the thing that everybody knows so

26:51.776 --> 26:54.012

it doesn't necessarily have predictive value.

26:54.012 --> 26:56.781

One of many barometers on the screen.

26:56.815 --> 26:58.316

Fair enough, good to know.

26:58.316 --> 27:00.051

We have only a few minutes left.

27:00.051 --> 27:01.953

You briefly touched on gold earlier.

27:01.953 --> 27:04.990

It's been a core part of your thesis over some time now, and

27:04.990 --> 27:07.359

it's a medium to long term thesis, it's not like a short to

27:07.359 --> 27:10.562

mid-term thesis. We have 40 trillion

27:10.562 --> 27:13.531

of outstanding debt, we have almost a commitment from the US

27:13.531 --> 27:16.635

administration to pay bondholders back

27:16.635 --> 27:19.971

with dollars that are worth less than they are today, default

27:19.971 --> 27:21.172

in real terms, if you would.

27:22.240 --> 27:25.343

What's the play there whether it's deficits, whether it's

27:25.343 --> 27:27.879

total debt, interest coverage?

27:27.879 --> 27:29.781

Gold seems to have a decent setup.

27:29.781 --> 27:32.350

It's been a bit of a lull for the past two to three months.

27:32.350 --> 27:34.419

You buy bullion itself through an exchange-traded product,

27:34.419 --> 27:37.956

you've invested in top quality producers, what

27:37.956 --> 27:38.957

gives there?

27:40.258 --> 27:43.528

I've generally had roughly a

27:43.528 --> 27:46.665

tenth of the portfolio invested in gold for the last

27:46.665 --> 27:50.068

couple of years. I used to cover mining

27:50.068 --> 27:53.438

so I always struggle with smaller producers.

27:53.438 --> 27:56.875

I'd rather own larger cap multi-asset producers.

27:57.909 --> 28:00.912

To the extent I have less than 100% of the fund invested it

28:00.912 --> 28:03.381

has to be in a currency.

28:03.381 --> 28:06.484

I do share the David's view about the US dollar

28:06.484 --> 28:08.586

or currencies for that matter.

28:08.586 --> 28:11.623

As a result, gold can be a better way to do it.

28:11.623 --> 28:14.092

I know we're running out of time but I think the gold

28:14.092 --> 28:17.729

discussion probably broadens into a broader materials

28:17.729 --> 28:20.665

and energy discussion, talking about the real economy

28:20.665 --> 28:23.735

growing. To the extent these

28:23.735 --> 28:26.905

trends continue you have to start thinking about materials

28:26.905 --> 28:30.642

and energy more broadly than just oil and gas and gold.

28:30.642 --> 28:31.976

Another tailwind for Canada.

28:31.976 --> 28:33.745

David, thank you very much for your time today.

28:33.745 --> 28:35.513

Thank you very much everyone. Pleasure to learn more about

28:35.513 --> 28:36.514

your process.

28:40.151 --> 28:42.220

Thanks for watching or listening to

28:42.253 --> 28:44.456

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FOCUS 2026: Finding opportunities in alternative equity – David Way

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