And welcome everybody to this call. So maybe let's jump into the presentation. I've got some slides to help set our scene. If we go on one more, just the quick agenda. I actually ditched the 2024 results. I've actually put in — I'm mindful of the vote we've just seen that half of you maybe don't invest with us, maybe don't know us well, so I've swapped it out a little bit with some slides about who we are and what we do. The 2024 results are on the website, bankersinvestmenttrust.com, and really won't go into too much of them. A difficult year in a sense of two halves. First half we did outperform the global benchmark, and the second half we didn't, basically with the US sort of election exceptionalism and stocks like Tesla going up, which we didn't own, took a bit of performance away from us in the second half. But there's a lot more detail online, so rather than waste time here, I'd rather talk about what we're doing and what we're investing in, our outlook and current portfolio positioning. So let's jump on one.
And a quick sort of introduction for those that don't know us so well. And as Mark said, really, the trust is an old one. It goes back — it was launched in 1888. It gets its name not because of things it's invested in, but the people who launched it, which were a collection of bankers from a company called Williams and Glyn's in the UK, based in London, and they were a bank. And the investment trust was launched basically to allow their smaller clients access to bonds mainly, some equities in London. And we're really pretty much doing that still today. So we're there for just over a pound a share, you can get access to a global portfolio of equities. So again, democratizing investments, I think, for small investors is what we're all about. The trust itself has a twin objective: to grow capital above FTSE World and to grow dividends above inflation over the long term. We're listed in London, we're listed also in New Zealand, oddly. New Zealand allows investment trusts to list there, and about 14–15% of our share base, or our investors, are based in New Zealand, which is great for them, I think. We've been there for about 30 years.
We also had a lot of continuity of management. I've been here since 2003. My predecessor, Michael Mougeot, who some of you may have invested with at City of London and Bankers, was investment manager from sort of mid-1970s. So sort of two of us carrying the torch for just nearly 50 years or so. The yield itself, not the highest in the market sense, but it's one of the highest ones in the global sector. US market yielding about 1% nowadays. You know, it gets harder and harder to find income, but we're yielding about 2.3% there, and a long history of growing the trust's dividends. So let's jump on one more slide and look at some of our core principles, as I've called them. And say, you know, I think we're one of the few trusts with a twin objective there of growing capital and income. You know, I think it's been slightly more challenging in the last two or three years, a very sort of growth-orientated US technology market where dividends really don't matter. You know, but I think over the long term, if you look at any study over 30, 40, 50, 60 years, you know, both growing income and capital does seem a long-term way to wealth accumulation. So I think we're still mindful of that, even though we've bent a little bit into the wind to accommodate more growth-orientated holdings, as you'll see towards the end when we look at some of our key investments. But I think long-term, that twin objective is very important for that long-term accumulation of wealth.
Consistency — I've mentioned before, you know, we've continued to stick to our knitting, equity investments in global markets for many, many years. And then balance, I think, is important as well. We're not, you know, I wouldn't have said we were particularly known these days for being value, nor are we particularly known for growth. I hope we can bend between those two as different markets are driven by different characteristics. The US is overtly a growth-orientated sort of selection of stocks when I look at it in our portfolio, because that's been the place to drive best performance. When I look at places like Asia, you know, you tend to see where actually value has a place and actually performs pretty well for a lot of the time. Europe again ebbs and flows, and you know, I would argue the UK probably more driven by that more value orientation there. So we've got this ability to shift a little bit in the parameters there. We'll look at the team in a minute, very much global specialists investing based in their regions. And then we're one of the longest investment records for dividend growth. City of London just nicks our record by about three or four months with its dividend rises in June, but we've been going since 1966 increasing the dividend. I've actually taken the history back to the Second World War, that is, and we haven't cut the dividend in any period in that time. In 1966, a lot of trusts actually held dividends because that was the year corporation tax was introduced, so it was a bit tricky paying a bit more tax, and so dividends didn't tend to go up. But it's a very long-term record, and we grew the dividends about 5% last year, so again comfortably above inflation. And then finally, low cost — charges matter a lot. So our management fee is tiered, so as the assets go up, the fees drop. But we've got an all-in ongoing charge, fees and other costs, audit fees, etc., all those sort of things, is 0.5%, and our debt and gearing, which again we might touch on later if there are any questions maybe, is an average cost of 2.7%. So what I like about that is it's almost bang on the dividend yield of the portfolio. So I would think over the next 20 years or plus, all the capital growth and the income growth at this point should accrue to you as shareholders and not be consumed by interest cost. So we jump on one.
The team here — my role, I suppose, at the top here as lead manager, very much sort of regional allocation, trying to make sure we've got assets in the right places of the world, sort out the gearing as I mentioned before, and challenging the managers to get the best performance and looking at the consistency of what they're doing and trying to avoid unintended consequences of one region being overweight something and another underweight. So the differences of opinion, I try to net those down. Below me then we've got sort of four stock pickers really. I've done many of these roles myself over the last 25, 30 years or so. But we've got Jeremiah, who sits in Denver, which is the main hub for Janus Henderson. We've got sort of 30, 40 analysts based there looking at the US market, and he's got, as you can see, 27 years' experience in US markets. Jamie Ross is here in London with me. Junko is in Tokyo and Satish in Singapore covering the Asia regions. So very much sort of long-term records there, experts in their field, and located locally, which I think is important to really meet those companies, meet management more often, and really have a good grasp of what's going on and driving markets. Portfolio, as I mentioned, is all equity, just investing in mainly larger cap companies, if we're honest, with sort of that would be sort of $10 billion and upwards market cap. And then we've tried to hold the portfolio around about 100 stocks. We've sort of reduced this in the last year or so. Did a lot of research looking at the, I suppose you'd call it the tail of smaller holdings within each region, and the analysis proved over sort of many years that really managers were picking good stocks, but we should have put more money allocated behind those ideas. So their best ideas, the biggest allocations were actually where they were generating the most return. So we've cut back the holdings. We're reasonably concentrated in each of these regions, so sort of 20-ish, 25 to 30 holdings in each area, giving you that sort of 100. And really trying to follow, I suppose, the one thing that defines us in terms of style, if you want to think of it that way, is trying to invest in companies with good cash generation characteristics. So either currently generating lots of cash, or looking like you're seeing the inflection from investment to cash generation. So cash flow yield, which is a concept looking at cash relative to the market cap as a yield, as you know, trying to find higher yield in companies where the market's really not pricing in the cash generation. I've always thought cash is probably, of all the characteristics you'd look at in a company relative to profit, certainly is a number that's less easy to manipulate, should we say. You can sort of see the drivers of why cash is building up on the balance sheet or declining. It's a hard number, whereas profit can be quite heavily manipulated by a lot of accounting standards. So I think following the cash, I always call it, is a good strategy over time. Again, there are certain periods when it struggles a little bit, when the market's more thematic or wanting to sort of believe in the future very heavily and the benefits of things coming through. But I think over time, ultimately, good companies generate cash, and they've got sort of — they've got sort of, I suppose, you know, their future is defined by the dividends they can pay, companies that can buy capex, and all again driven by the cash generated internally. So that's sort of the team really. Won't labour too long there, and we'll look a little bit more at the outlook, what we're seeing. So jump on a slide, two maybe, one more.
I think, you know, the background for me for equities in the last post-COVID, the volatility we saw initially through COVID has been very supportive. So equities have been in a good place, partly because of government spending, but also because really inflation starting to bubble away again is good for real assets, which equities is a principal component. So relative to the 30 years before that, when we saw sort of more deflationary periods and bonds were definitely outperforming, equities have had a much better time. I see some structural changes here, I suppose, relative to the last 20, 30 years. Long-term bond yields, I'll show you those in a minute, to my mind have clearly reset to a higher level. We see sort of shortages of labour ongoing there, declining birth rates. You know, it's harder to move labour around the world. I don't see any of that changing, and that's leading to higher wages as labour shortages are coming through. The geopolitics has definitely got more difficult in the last few years, and again, I think the philosophical challenges between, I suppose, East and West and other regions is getting ever tougher to navigate. But again, that leads to challenges, I think, from an inflationary point of view. Supply chain reconfiguration, deglobalization peaked sort of 2018–19, and again, tariffs, whatever Trump brings in that space, is going to continue to be, again, an inflationary policy to my mind. And then, you know, expansionary fiscal policy post-COVID, governments definitely have got that fix of raising ever more amounts of money and spending it in their definite pet projects, which again we've seen printing money is inflationary. And finally, extreme weather events continue to bubble away, global warming definitely behind a lot of those. And again, the investment needed for net zero, if we do get there by 2050, is expensive. So whether we can afford it is a challenge. These are all, to my mind, relatively inflationary periods. So I think my view or outlook is that we'll see 2% inflation as a floor, not a ceiling, as it's been in the last 10, 15, 20 years. And so we're likely to see inflation, you know, well above most central banks' target of that 2% level. So if we look on the next slide, you see that in very clear stark contrast to the US 10-year Treasury yield. So most of my career here from 1990 when I started, and, you know, 10-year yields sort of 8%, 9% would you see all the way down to — never got negative on the US, but certainly we saw that in Europe, negative interest rates on long-term bonds. And it's definitely reset upwards. As I said, I think the natural place probably for the moment is 4 to 6, unless we see, you know, meaningful spike further in inflation. But it's not that sort of 0 to 4, it's going to be higher. And I think the consequences of this are being delayed. I think, you know, certainly companies in particular have been very good at terming out their debt, but it will come to pass. The cost of capital has gone up, and it'll make it more challenging for some areas of the market, I think. I think again, positive for equities as long as it doesn't go up too high, inflation. But it's sort of negative continues for, you know, I would argue private leveraged equity, probably bonds, property, although we've seen obviously repricing in the property space, but not always in the private space. So I think this is something to build into calculations. If we go to the next page, you know, I think the big change we've also seen — jump on the slide, please.
It's really the fiscal position, and this has kept a lot of things at bay. This is the US, looking at the US government debt and budget deficit, and you can see COVID in the middle there. Obviously, as all across the world, cost a lot of money to support the economy. But you certainly, the US under Biden has not shied away from spending money and borrowing gobs of money. The last two years, I think the numbers roughly, the US has borrowed about $4 trillion and got real GDP growth increase of about $1.2 trillion. So 30 cents on the dollar return, pretty disappointing. So that's a sort of 7% deficit or so the last couple of years. That's very high relative to the last, well, post-war years outside of recessions. Europe is a bit more moderate, sort of 4-ish, 4 to 5, but that's driven about 1.5, 1 to 2% GDP growth. So again, still a pretty poor multiplier effect. This is basically mortgaging the future, but the consequences are going to come to roost in terms of higher rates and higher long-term borrowing, as we've seen on the previous slide. So again, it's something that's a slow burn. It stopped a recession, but I think, you know, the cumulative effect here takes ever more borrowing to get ever more results. We need to be mindful that this could come to an end, and certainly Trump is talking about that. We'll have to see the consequence of it. If you jump on one more, you had the US being the only place to invest for 4, 5, 10 years or so. That exceptionalism does come with a high price, and we can see the price to book here of US assets, very efficiently managed assets, I must say. When you look at the Magnificent Seven, as I'll come on to, some of these businesses are incredibly profitable, so hence a high price to book. And the US market has the highest return on equity, but you can see how, you know, the rest of the world is eyeing that up. And, you know, I think the US has got where it has to, buoyed by a lot of deficit spending and also the positive effect of an economy growing helps a lot. So I do expect some of those countries on the left to — you know, Japan, we'll touch on that later, is very keen to improve its return on equity and creep to the right, and one should see therefore a benefit from a better price to book ratio on that market. So I think a lot of these markets in the middle there have got potential to improve. They're not priced for it, as you can see here, as the US just seems to be priced for perfection. So we'll see how we go. If we jump on one more, the US has definitely been driven by, you know, a small cohort of stocks called the Mag 7. For those few who don't know what those are, those are Apple, Microsoft, Nvidia, Alphabet, Meta, Amazon, and Tesla. So these are really effectively the largest seven stocks in the US market. And actually, if you strip them out, the US market pretty much performed in line with Europe and Japan last year, rising about 13%. But with them, it's been a very strong price return there, as you can see. Second year really of this very strong performance. 2023 saw very much a massive earnings recovery in some of these names as they dropped some of the more speculative businesses. Nvidia saw its increase in revenue and returns, and basically they got very serious on jacking up returns in a lot of these businesses. Last year was some elements of that still, that earnings story, but a massive increase in valuations as well coming through, driving this return. But if we look forward in the next page, we look at the earnings growth we've seen. So just to be clear on this one, the first column on each of these is the Q4 sort of growth, I suppose, year-on-year growth in '23, and then second quarter '24, and then fourth quarter what we're expecting, we're just seeing as they're coming out currently. So you can see how those big six — I've taken out Tesla, which, you know, does make relatively little money — but looking at the largest big players there, you can see how, you know, when you're growing at 68% earnings, you rate quite seriously. But that premium growth is declining. The rest of tech, as you can see on the next bunch there in the US market, is catching up. So 20% forward growth in the current set of quarterly figures relative to 15. But equally, the S&P, the rest of the US market ex-tech, again from sort of no growth in '23, is picking up growth as well. So I think we'll see that change. So you'll see a sell-off in some of those names. We can go into questions about what's been going on with DeepSeek and other things, but I think you will see a broadening of the market. So last year we saw was the narrowest concentration of returns that we've seen in 50 years or something. I think only about 25, 26% of S&P companies outperformed the index. I do think the fact that so many companies are growing, you know, on a comparable almost rate with those large US names, should lead to a broadening and should lead to a wider selection of stocks outperforming, which again should suit the Bankers portfolio.
So let's jump on one quickly and look at some themes, conscious of time and getting some Q&A. I think we're not necessarily a thematic investor. We don't sort of sit in an ivory tower and conjure up interesting themes, but the themes come through, I think, in terms of when these regional managers are picking stocks. I've listed some of the stocks on the right-hand side in the semiconductor space, and I think what we're very excited about here is not really AI in the sense — what we're very excited about, I think, is that the capital expenditure on chip manufacturing is likely to accelerate for another two or three years, and a big element of that is onshoring. So there's still some issues around all the manufacture of Nvidia's chips is in Taiwan and the politics that revolve around that country. You know, both Europe, Japan, China, and America all want to onshore more chip manufacturing, so that's going to be a big increase in capex. We've still got some big advancements in semiconductor nodes, as it were, so the size of chips are reducing as we — Apple is moving from sort of three to two nanometers. So as you do that, on the left you can see that it takes billions more to build a fab to generate that extra improvement in reduction in size and hopefully speed and performance. And we're at some cyclical lows as well, one needs to understand, in terms of industrial chips, autos, and other consumer goods. So again, we can see an improving trend the next two or three years of reordering in that space. A lot of what we own here, you know, is into that space. Some of it is AI. Broadcom is a good example of where I think, you know, Nvidia's market share is going to be likely pegged back by what Broadcom does. But a lot of these others are other components and the manufacturing processes for semiconductors. So I think we're still excited about prospects there. And next one is electrification. If you jump on a slide, is again an interesting trend. I put on the left here looking at historical, which is the green line, of US power demand. It's been very flat for 20 years, and that's because basically the economy has grown, but the efficiency of LED lighting, all sorts of things, has improved. So there's almost no growth in electricity demand, and we're expecting that to accelerate quite materially. Might have to slightly review some of these numbers in the US post-Trump and his policies, but I think if we do talk about it globally, you know, I don't see a change in trend in Europe in terms of climate mitigation, should we call it. So renewables increasing, that increases investment in national grids, and then electrification as we go towards electric cars globally should just continue to lead to big investments, I think, in electrifying countries, grids. And so a lot of the investments we've got again on the right are playing into that theme. You know, power grid in India, for instance, Nari is in China, and then obviously National Grid, many of you will know well here. So, you know, again, a big investment theme coming out. When we look bottom up, we just see some very exciting growth prospects and moderate valuations. Next is a bit of innovation healthcare. If you jump on again, a sector that's gone nowhere two or three years, sort of viewed as defensive, worries about rolling over of a lot of drug patents. But, you know, the area has done very well for us particularly and many others. We own Novo Nordisk and Eli Lilly as the GLP-1s of the obesity drugs there, again proving that they actually do a lot of health as well around the heart and other areas. So we see that as a particularly strong growing market. I'm not worried about the gatings we've seen the last sort of few months. I think the volumes are going to come through very strongly, and there's a big enough market here for more than two companies to operate. But I think the market's underpricing this. It's a good example where I think the market's focused too narrowly on AI in terms of the winners because it hasn't thought about the industries that benefit. And if AI is going to take off, it'll be about wider industries adopting it. And to my mind, healthcare, the provision of healthcare as well as drugs and pharmaceuticals, you know, it's a clear, clear winner, an area where AI could reform and, you know, lead to efficiencies, productivity gains, and new innovations. So again, an area that's not priced for it, but I think it's going to offer great opportunities. And then finally, Japan, which I might not labour too much, but I've been talking about this for some time, is, you know, we've seen an increasing improvement in corporate governance. So the number of companies with independent directors almost used to be zero. It's sort of now a third of companies. 90% — sorry, of 90% of all Japanese companies now have a third independent directors, and, you know, it's 20% have full independence and rising rapidly. So that's leading to harder questions around cross-holdings, around cozy relationships, and they still exist in a lot of industries. So this last year we've seen the insurance industry really get its act together and start cutting a lot of the cross-holdings, inefficiency on balance sheets there, and we've seen a very improved return to us as investors in Japanese insurance. There's lots of opportunity in companies like Toyota to cut some of the cross-holdings there and improve returns to investors. So as we show here on the slide, I think the key line is a strapline: over 10 years, the compounding growth in earnings has been about 7%, but for dividends it's compounding at 9, and share buybacks at 17. So we're seeing acceleration of companies wanting to improve the balance sheet, improve return on equity, and shareholder activism demanding better returns coming through. So all good news. Jump on one more, two more actually. Maybe just look at the — let's wrap up quickly on the portfolio. I've talked too much, I think, but there's the top 10. Understandably, a load of tech names. To some extent, we've got five of the Mag 7, although we're sort of pretty much in line benchmark on Apple. But the key overweights within there is really — the largest overweights are Amazon, where we're really quite positive. Alphabet we've been buying back into as well, which again we see, you know, a lot of the risks there beginning to de-risk a little bit in that stock, and it's been a bit dull for six months. Amazon, I think, is all about profit margins improving, growth in advertising, and you've got obviously the cloud-based AWS on the top, which is a nice thing. Microsoft, again, a little bit less about, to my mind, Azure, but again there's a nice PC cycle building. I think figures yesterday showing quite positive returns coming through in that side of it, and each-way bet again on Azure, OpenAI. And then Meta is probably the next one that's just off the list, but we do own ServiceNow, which is number nine, which again we're getting more positive on. The obvious one we don't own is Nvidia, where I struggle with the price. I think there's also increasing competition going to be coming down the line, and therefore margins are likely to come under pressure. And then also I think I'm getting a little bit worried about cash generation, increasing receivables on the balance sheet there, and reliance on, you know, basically offering chips for stakes in businesses. If you jump on one more, we can see the sector allocations. So we're sort of broadly in line with information technology or tech. I think the key overweight to my mind is financials. I think there's a key desire for deregulation, starting in the US, and it's likely to follow from that into European markets. So, you know, a lot of people would say financials are quite fairly valued. I don't think they are. If we look back to prices that were achieved on these businesses in the 80s and 90s, price to book can easily get over two to three times in good businesses, and I think deregulation will drive more growth in those businesses. So again, have to be careful that we buy the right ones. I never like a bank going too quickly, but I think certainly if we can reduce sort of costs and inefficiencies in the market and drive some top-line growth, which is sorely needed, I think we can see better valuations there. Consumer discretionary, it's been a bit tough in that space, but I see that coming back. Valuations have come back a long way. And really where we're underweight is consumer staples, where again I think they've taken too much price over the last couple of years, and we're seeing challenging volume growth and, like you say, market share issues there. And again in sort of energy and materials, again two areas I think we're less favourable of. We maybe cover those in questions. And then on a regional basis, you know, the US is a dominant stock market these days. We've got a 60% — we've increased allocation sort of pre and post the —
the US election, we do have a more favorable stance towards that market in the next sort of five to six months. But as I mentioned earlier, I think there's an element of mortgaging the future going on there in terms of issuance of bonds, and I think it's an area to be a bit cautious on over the medium term. But I think in the next six months there's still going to be some positive winds to keep that market going. I think it might stop there.
Conscious of time, actually, sorry, a couple more very quick ones. Next one is dividend growth. There we go, just showing us the dark line. We had obviously a rise in inflation in '22, and we've seen that come through in profits and our dividend growth. So we're now back above dividends. And then finally the discount. I'm sure somebody will ask this, preempted again. One more slide, please.
You know, I think Bankers is like a lot of trusts, and certainly in the sector, are trading on a discount. I think we're about 9% today, but we've been steadily buying back shares. We bought back 5% in '23, about seven, maybe eight or nine in the last 12 months. We're quite happy to continue accelerating that buyback, and we see good value. This reminds you we were on a premium back in 2019 to '21 or so, and slightly before that as well. So I don't think there's any reason. Our assets are easy to value, not like an infrastructure fund. And the biggest sellers being private wealth advisors, I suppose, understandably putting clients in sort of long, low coupon gilts. I think that story is sort of largely playing itself out, and hopefully they'll be back to buying good quality managed investment trusts in due course. So let's stop there, and Mark, happy to go to some questions.
Super, thank you very much, Alex. And we'll carry on on the discount front because, yes, you're right, the most uploaded question is on discount management. The comment is that the level of buyback is clearly not sufficient to get us back to where we were a few years ago. What about a tender offer for, say, 25% of capital? These things seem more effective. Have you discussed this with directors? And I would just sort of throw in my two pence worth that the discount is an industry-wide issue at the moment, and you can see in the graph that you just showed that it's the last three years where it's been there, which is consistent with the industry. And I think also, personally, I see more of an issue when a discount is associated with an underperformance. Your three years have been somewhat difficult, as you said. There's been a pickup recently, but your longer-dated performance outstrips the MSCI World. So I don't see you guys as having a combination of those two events, which makes it as critical. But nevertheless, fair question, and you certainly have enough assets under management to consider some form of tender. So how would you respond to that?
Yes, if I tackle the slightly middling question. I've been managing trusts, actually I managed Henderson Income before this one, since the mid-90s, and I've seen sort of two other periods, '99, 2000s, you know, when investors saw other things to invest in, direct investments, as people went after the tech boom, they sold collective funds and discounts widened very materially. We then saw another period around the GFC when I think basically people were just fearful of any market exposure and they raised cash. And I see this period a bit like that prior one, where actually I think a lot of, when I talk to wealth advisers, they're merrily buying stocks direct instead of collectives. You know, they usually get burnt at some point, but there have been these clear phases when discounts across the board for all investment trusts have widened, not just a performance issue in one trust relative to others. So I've seen them before, I think they'll come back again.
In terms of us, you know, we started trying to, you know, we thought we've been buying back, so no issue with buyback. We've issued stock in the past, we'll buy it back at a decent discount, and we've used about 5%, and then I said we used about seven or eight or something last year. We've accelerated that into this year. We've taken the power every year to buy 15%. So I think I'd rather try and accelerate the buyback and see if that has any material impact. As you say, so far a little, but not a huge amount. So let's accelerate it first, and then if we need to, I'm not sure a clearing event of a 25% tender is going to have that. It might just reopen up another problem the other side. So let's try and accelerate the buyback on a daily basis and see if that has an impact. If it doesn't, we'll move to plan B.
Okay, yeah, I think my point was about frustration, and I think if you do have the combination of underperformance, then you have shareholder frustration, and at that point you need to think about a more nuclear option. But I'm sorry, I'm answering your questions, which I shouldn't be doing. Next question is portfolio related. There's a large concentration in US mega-cap tech at the moment, at a time when there are ever more questions about valuation sustainability, obviously in the last week or so, renewed debate on potential winners. Why increase the weighting on this part of the portfolio now? And I'm conscious you've spoken about this, but if you wouldn't mind just readdressing.
Yeah, well, we're about 18% in that Mag 7 complex, and I think it's 25% of my benchmark. It's a huge number, it's sort of 33 or something of the US market, so we're technically underweight. You know, as I said earlier, we own five of the seven. I think Apple is sort of, you know, we've been taking some money out of Apple, so we've been net sellers into that one. So though we put money into the US market, we actually didn't increase our exposure to the Mag 7 in net-net because we took money out of Apple and put a bit more into Alphabet. But the whole step, we put more money to the ex-S&P 500 than we did into those Mag 7 names. So we are mindful the questions are starting to be raised, and I think they will. You know, they're still going to grow earnings quite well in the next six months, and I think, you know, we can talk more deeply if we want about the challenges in the capex program there.
But I think when I look at some of these businesses like Amazon, it's less of that. It's when you look at the drivers, it's growing top line at 10, 11%, but then the efficiencies it's gaining in terms of distribution and continuing to cut the cost of delivering relative to the sales. So that's growing at sort of 3 or 4%, sales at 10. It's going to keep grinding out some quite nice numbers, and it's not an AI story. It's about the efficiencies coming through and the scale of that business. And who the hell's going to create another Amazon? It's just inconceivable, that size of the business. So, you know, to my mind, anything on AWS is icing on the top of it.
Thank you. Slightly different direction, a question on the portfolio in terms of concentration. The writer agrees with the overall approach, given academic research supports this conclusion, but there's a danger that you've also sold out of some cheap mid-cap companies at the wrong point in the cycle, given that mid-cap has underperformed large mega-cap over the last five years in particular. And the same point, question on geography, best performers are likely to have been larger US holdings, but that doesn't necessarily mean they will be going forward.
There's always the inevitability you sell something that you wished you hadn't. You know, I think it's inevitable we've sold something, but have we sold and reinvested in others that we're happy with? So I think this is an interesting question again. I think for us, I like to sort of think that hopefully we're a simple conception to invest in. So if you've got a client that says, yes, we want to be one of your investors, you know, I really like small cap, then buy a small cap specialist. Don't buy somebody trying to be a small cap specialist. And there's some really good trusts doing that.
You know, I still think larger companies have access to cheaper credit, have access to some opportunities, you know, global opportunities that maybe some of those midsize don't have. And so some of the challenges of why they've been struggling the last few years, labor, all sorts of other, you know, the cost of, can they afford the cost of, you know, what AI might bring in terms of productivity gains or automation. I still think that that's sort of $10 billion upwards, which in the US is mid-cap, by the way, got plenty of US mid-cap, is likely still to be a good advantage, I think. But yes, we've sold out a few names. I've kept some interesting ones. Cranswick we still own, Intermediate Capital, which used to be mid but have got bigger as they've done well. So we've not thrown everything out. And hopefully what we've kept, I think, should do well.
And then I think what was the other one was about regional. Yes, again, I've said clearly, I think, you know, certainly for six months, I just see the US policy, you know, will we get some lower, if Trump cuts taxes down to 15, it is beneficial for US. The first phase of tariffs will be beneficial to US companies, but will there be retaliatory tariffs down the road that won't be? So I think, you know, it's a watching brief. But I did feel the sort of first six months of Trump's presidency would be very pro-business, pro-stock market, pro-US stocks. I reserve the right to turn around the mid-year and say, right, it's all in the price and we need to move in other places. So, but the portfolio is, you know, I would argue it's underweight Mag 7 now, but sort of equal weight non-Mag 7, but that means we're slightly underweight the US in the benchmark, which is sort of 68% or something, I think, is the US market. We're at 62 or something.
And I would add, I think that concentration and conviction are two reasons why one goes for an investment trust. I don't think one wants to necessarily see an investment trust anywhere near a benchmark.
Next question, we've seen companies like Taiwan Semiconductor share price rise significantly, while ASML hasn't. What is the outlook for companies involved in the AI transformation, from foundries, equipment makers, semiconductor manufacturers to some of the hyperscalers? And I know you talked a little bit about the sort of potential user base, but is this more value chain, I think, question?
Yeah, so I think ASML and, you know, the thing there is very lumpy, or a big machine, and it's very lumpy order books, and it's also, you know, when they get ordered in the life cycle of building a foundry. So, you know, TSMC is producing all of NVIDIA's chips and many others for many other companies, Apple included. So it's in production phase. So as orders come through, you know, cash is exploding upwards. So you can see why, you know, we own that one. I've got that one as well. So we're doing well there. My argument with the others is you will see these foundries built, and in two or three years' time, we'll probably be talking about a glut of chips and the pricing coming down again. Different time, different, that's where the beauty of these active investment trusts, we can switch around and find the opportunities there.
But I think, you know, you've seen with ASML, I think, you know, slight downdraft in terms of, you know, Chinese orders definitely were preempting tightening from the US. So he's probably brought forward orders into '22, '23, and then we've seen, we're seeing a slightly, you know, probably just an air pocket in orders as they come through, we think, in '25. So, and that's what the company's telling us. So let's see how we go.
And then, you know, the other companies like KLA, very excited about that one. Again, all about as chips get smaller, KLA will do a lot of the processes for, you know, effectively checking the quality of those chips. So as they get smaller, the failure rate goes up. So again, having that extra layer is incredibly important to that business. So we should see as these foundries get built, get invested, you know, the order books go up for these companies. So I still think we've got another 18 months to two years of strong orders coming through, and then we start to worry. No doubt it's a cyclical industry, it's always priced on price to book to bill, the order book against deliveries. We'll remind ourselves again, it's cyclicality, and that's not in the price of some of those names in the semi.
Thank you. Can you talk a little bit about gearing and how you gear, whether it's CFDs, bank debt, what you use, how you apply it, and level and trend now, please? And if they see you gearing up, is that a reflection of bullishness?
Yeah, so I think, you know, the secret with gearing, so these are, you know, investment trusts are corporate entities, so they can borrow money over the long term. And the key really, I think, is always to have some very good long-term borrowing, which allows you to have some flexibility, not to have to borrow when rates go up. And so over the last sort of years, as those interest rates on that graph I showed you headed to almost zero, we were sort of pushing out our debt into the longer term from the short term, where we had a lot of short-term borrowings when it was very cheap. And so we've got, I think the longest dated, it's called loan stock, the longest basically debt we've issued is out to 2045, and we've got some, the next, you know, into the 30s, mid-30s, and out there. So, you know, we borrowed over the long term. The average cost is 2.7%, as I said, so we've got some quite low-cost Euro borrowings, which was quite good putting on, and that means we've got no short-term borrowing. So I'm not borrowing from any bank at the moment. I can do, and if rates come down, then yes, if they get below three, we might look at borrowing again from banks. But at the moment, I don't need to because we pushed it all out nice long term.
So if I'm fully invested, which is probably the normal, I think what you should think of us for Bankers is we'd normally invest everything. So cash is for working capital, paying dividends and moving stocks and things like that. We'd be geared about eight and a half to nine percent. So at the moment, we're not far off that, I think sort of six, seven. So that's just a case of, I think, markets having run up a little bit through that Trump election, you know, and actually we've seen some prices, a lot of prices hitting all-time highs. We've just taken a little bit off. So I'm a little marginally cautious, I think would probably be my line, but not enough. You know, I can go net cash, I'm very cautious, but we're not there. We still think equities will go up this year, obviously had quite a good start to January.
Thank you. Question on your, well, there's a couple of questions that relate to your specific role, I think. You've got the JH research platform behind you, you've got a hundred-odd stocks in the portfolio, so the writer assumes that you're not specifically a stock picker. Is your particular role and skill theme selection or portfolio management? How does it work in terms of dividing up the tasks?
Yeah, I've sort of given it to the, I've handed it over to the specialists. I used to, we go back, I've managed the UK portfolio and Asia and even Japan for a time. So I've got a lot of experience over years plus of investing in all these regions. So, you know, I think therefore my role very much is over the top, really to get the best out of the team, talk to them, share ideas between them and making sure they're understanding why we own things, what we're doing and make sure they're keeping to the consistency of their style. So in that sense, I'm sort of overseer for that. I'm the conduit to the board to make sure they understand what we're doing, investor relations, as we said here as well, meeting investors, sharing the story, updating people. And then those, the four I showed you are, you know, doing the nitty-gritty of meeting a lot of the, I try and meet the companies as well. I sort of sit in on the company meetings, certainly make sure I read the research reports, so have a good understanding of why we invest in everything. But they're living and breathing the daily, yeah, the daily dividends and results.
Thank you. Coming back to the portfolio construction, there's a lot of US-based in there, obviously, but the question is, is there anything in emerging markets that the trust has taken large positions in or is watching closely as you get a decoupling of China and Southeast Asia in particular, and where are you looking to benefit?
Yeah, good question, that one. We, again, about, it's probably eight years now, seven, eight years ago, I did a lot of work looking at, you know, we used to own chunks of things in South Africa, we did very well in the 2000s, and then Latin America, but it got increasingly tough to invest in these regions, and some of it was currency, a lot of it was, if I'm honest, sort of scandals and issues around corporate governance. And I did a lot of research looking at it, and everything just basically turned up, said, just put your money in America, it's a lot better return for lower volatility and a better currency. And so we cut out, China is a different story, but we cut out basically all our emerging markets in the sense of Africa, Latin America, before COVID, so 2017, 18, and that's proved a good switch into America.
China, we overstayed our welcome there. We did very well again investing in Chinese A-shares from about 2014, 15, had some wonderful returns, and I hoped that China would recover from COVID a bit like we have, but they didn't. They took a very harsh view of COVID, continued lockdowns a lot longer than we expected, and then coming out of that, continued with sort of corporate purging. There are other issues we talk about, property, all sorts of things, but it's just an economy that hasn't recovered in the same way, and certainly from a corporate profitability point of view, hasn't recovered. And so we're probably a bit late recognizing that, a little bit, if I'm honest, but we've cut that right back. We're about one and a half percent or something in China, but a watching brief. I mean, I do think there are some interesting opportunities. I'd just like to see the politics between Trump and President Xi, how that plays out. It could go either way.
And China, I think, needs to do a sort of TARP equivalent, if you remember that America did to solve its property crisis. So you need to basically take all the debt, property debt, out of the banking system and put it in a special vehicle to work it off and get the property market running again. So that's holding back, I think, the market. So watching brief there, but we've cut right back. We've got bits of Asia we like, bits of Asia, Indonesia, Vietnam, and some other markets there. So we're not particularly in the exporting story, but in the financials and some more domestic growth stories in those markets. So hopefully we've got some interesting ideas there, but long-winded answer.
Thank you very much. There's a request to see the one, three, and five-year performance relative to the benchmark. I'm not sure if you've got that. It's all on the website, I do think, and I haven't got it in here because I just, it keeps getting out of date, and I keep urging people, go and have a look at the website. When I look at three, there's a bit of a hole in the three, where three is where we've struggled a bit. When, you know, we're not an overtly growth, I'm not a tech fund, I'm not an overtly growth investor. I said earlier we like free cash flow growth, which I think over the long term does you well, but when the markets are very strong in a very small section of tech companies, we're going to struggle a little bit. I do need it to broaden out, and if we get that, performance will kick in quite nicely. So we saw around, you know, say in the last, when it went very AI back of end of '22, wasn't it, into early '23 and '24, that we just struggled a bit with that period.
Yeah, and I was going to say the website is fantastic. There's an excellent interactive graph which gives you one month, three, six, one, and it updates daily, better than my presentation, and it doesn't hide anything. It's share price, net asset value per share, and FTSE World Total Return in sterling. So it gives a very clear... If you're a huge bull of AI in the short, you know, I think, you know, we're probably not the best place. But if you're a huge fan of AI transforming other industries, which it has to do, I mean, otherwise where does the money come from? Then I think Bankers is a very interesting play on that because we've got solid investments, and we talk to companies about, you know, which ones will benefit. And I think that's where I see a broadening. It can't just be this very small subset of stocks that are right to the core. I think it's going to broaden out, and, you know, I think the news we've seen this week is exactly showing you, if you can reduce the cost of AI, you know, by lowering the cost of models and other things, then it's going to benefit more companies, and that's what I find interesting, the next three or four years of investing.
Thank you. We're 56 minutes in, so I'm probably going to cut it short shortly, but there is a question going back to your asset allocation. The increase of 10% in weighting to the US since the October results, and the fact that that's based on the outlook for the next five to six months, I think there's a sort of concern being expressed that that might be sort of momentum-style allocation at the tail end of a rally. So can I put that one back to you, please?
Yeah, so at the year-end results, you saw we had a lot more cash. So about half that investment was me taking some cash on board ahead of the election. If you remember, two or three weeks out of that election, we were very much, you know, could be Biden again, could be some other, you know, there's a lot of uncertainty. And I think markets, to my mind, it was a natural point to make, raise a bit of cash. So we did. But then having seen a more, you know, definitely a pro-business, I thought, hang on, I think markets can continue to rise with optimism. So a lot of that investment was just saying, look, cash earning, you know, okay, four or five percent, but we've got more than that back in the last sort of three or four months. So I think that's been a positive decision.
You know, we're not big ones for moving large amounts of capital around, so I don't think anybody accuses you, look at our long-term history, of being momentum junkies in any sense. But I did feel when we looked at, you know, we took a bit of money out of Japan, which has been the right move, it had a good run. So that was sort of again another two or three percent of the next five to go in the US. And I think that's, we still overweight Japan, but I still like the story, but, you know, things do run a little bit too far. So no, I don't think I'm, you won't see me with a totally different allocation in two months' time, but I'm reserving that right. Six months, I say, into the Trump, usually we found this in this first period, you had a strong hand, as everybody thought, thought it was an easy game, and, you know, courts, we've already seen the courts begin to start to stymie some of his policies, and maybe that happens again, and we need to, you know, broaden out.
But we do need Europe to cut rates. We need European companies not to be on the wrong side of some rather heavy tariffs. So I think there's a lot of interesting things could happen in the next 12 months.
So I have two questions remaining, which is quite good that we're getting to, we've got through them. But the first one relates to Europe, which you just mentioned, but it's more focused on whether or not, if we see peace in Ukraine and the Middle East this year, that would tempt you into Europe.
I think the peace in Ukraine would be the key. I'm not sure, the Middle East piece would be all, is welcome, but I'm not sure it has quite the economic impact that it's, we've seen the oil price hardly blip in with the Middle East, but I think it will be material for Europe. Again, it depends on the type of ceasefire, and therein, does it allow Russian gas to come back into Europe? I honestly don't know. I think it's so we have to look and see what it means, but I think there's definitely a path to peace, the path to opening up Ukraine economy and things like that would be very much welcome, takes a big risk off and does allow opportunities there. So I think that would be definitely a positive effect for Europe. Yeah, it's not priced in yet, I don't think, but that they see fantastic.
And from the same question, it's just slipped in here, are you feeling bullish? I think I am, yeah. I think I am. You know, markets were stronger than I expected last year. I think this year, I think consensus is something like, again, another 10 to 12% growth. I'd probably dial that down a little bit, but 8 to 10. And where I see bonds still struggling, mentioned earlier, the inflationary trends not going away, I can see a point where the US rates go up in the second half of the year. It's not my core, but you could see how bond prices are really struggling. So in that sense of what else do you invest in, you can definitely make a case for gold, and I think you make a case for equities. But yes, I am bullish.
Thank you. And final, final question, technical. With the shares that you buy back in share buybacks, are they treated as treasury holdings or are they retired? What happens with those?
They are currently going to treasury. I think we are going to have a debate about what we do with, whether it's just too much. There's an efficiency if we want to reissue them in terms of if they're in treasury, it saves us money issuing again. So, but if they're, what's the point of, they're so high. So we'll see, but they're going to treasury.
Fantastic. Thank you, Alex. That's the end of our questions, and I'm going to release you to your evening. But thank you, everybody.
