Sean Emory, Avery & Company

And I was really heading up the capital market side, so the asset management side as an analyst, and then became the director of research and chief investment officer there. Launched a concentrated equity strategy. And that origin of the concentration, data-driven, continued on thereafter when we founded Avery and Company here in Miami. So that same origin of trying to seek and find unique assets and then putting them into our portfolio was really from the very beginning.

The last 30 seconds of the season, I think weren't the highlight, but, uh, it was a national championship and was excited to, uh, get there and, you know,

We own and why, and, and ultimately not rely on kind of third party research, even though, there's a lot of good research out there and rely on our own kind of, research data and, and intuition, uh, to make our investment decisions. So that was kind of like the baseline, which is, Hey, we can do it because we've done this, uh, at other firms and we can launch and build, uh, the same or similar portfolios, that we were doing in the past. So in general is taking that and, and pushing that into Avery and controlling obviously that, that end to end soup to nuts, uh, for ourselves, but look, Avery, at its core is investing forward. That's our, our motto. Uh, again, it's kind of buzzy, but what are we trying to do is,

You step back, you say, where's the world going? Where's it headed? Um, and you're trying to find, different areas, uh, that directionally the, the world's going and that is your margin of safety. That's also your opportunity. generally speaking revenue is your best margin of safety for the time being until, until it's not. So we're stepping back, we're trying to find friction points out there in the world, being cognizant and, aware of our own surroundings. So you think of like, Uber back in the day and, you were standing on a street corner and, you're dialing a number, trying to figure out exactly how to, uh, you know,

Get someone to pick you up. that was friction that we were all feeling. Um, yet, people were not necessarily building, a product for that. And it took, multiple iterations, black car, black lane, and, some of the other companies that, came before it. Ultimately we're sitting here today and Uber and Lyft have filled that friction. And now they're, 70, $80 billion, market caps. Um, and so that's ultimately what we're trying to do is stepping back, thinking about directionally where the world is going, trying to segment, different categories that we think we have acumen in, and then, trying to find those companies and management teams, and then

Putting that into strategy. And for us, our, our early days were separately managed accounts. So, we have our highest conviction equity strategy called premier growth. We obviously have, a more, uh, slightly more diversified strategy that manifests in, in, um, the ETF that we're talking about foundational, uh, ETF and, and, that is a ETF that is, 20 to 30 companies in it. So a little bit more diversified, but still kind of meets what we consider to be high conviction. Um, and it's again, these secular winners and transformation stories that, are trying to position themselves to be kind of those structural winners or companies transitioning, uh, to realign to kind of where the world is going, but directionally is where's the

World going and then working backwards from that and investing with that, that process and,

The ETF or any sort of investment vehicle market that, has some sort of, uh, infrastructure costs to it. Um, look, I'd say, it's been pretty fun, uh, to be, to be quite frank is, I, I think ultimately it's, it's the why, why are you doing it? Like, why are you moving into some sort of tool or product or, structure? Again, it's a, it's a strategy, but the strategy can be bought in different ways, right? So you can create a fun and a vehicle and you can sit on the Cayman islands and have kind of this Delaware Cayman, structure. You can go to Europe because maybe, you can, you can create,

Structures for that. You can go to, other international markets. You can, you can create a mutual fund. You can anything, right? Just sit in SMAs and that's probably your, your cheapest option. Uh, but also your more complex option, I'd say, uh, from a, managing from a trading and operational standpoint, but ultimately is we grew up in the SMA market ourselves. And we thought the next step, the next logical step was, Hey, we have these investors out there, uh, mostly like RIAs and family offices that, wanted to have access to our, our process, our acumen, our research, our portfolio. And the easiest way to do that was to have something that, uh, could serve their need. And the easiest way to serve their need is

Something where they can point and click as opposed to, um, go to their clients or end clients, have them sign, sub documents with us directly. We become the sub advisor to an account. And if they have 500 accounts, you have to do that process, roughly 500 times. Um, and so I think from an accessibility standpoint, that was the, that was really it. That was the process. But, the journey through that was, going out, reaching out to learning about the structure, right? So there's nuances to it and we don't have to get like too deep into it, but you have these boards and, advisory boards and, and, uh, things that are more structured and legal aspects to it.

And you can either try to go down that route yourself, or you can, leverage a third party that, does this, uh, has done this multiple time over and over again. So we chose that path, which was, let's, um, use somebody industry experts out there, uh, that are, essentially building these, these ETFs and assisting us in the process. So we'll be the investment acumen and work alongside them from a compliance standpoint, from an operational standpoint to some degree, uh, but then utilize, a lot of their resources as it relates to structuring these things. So that's it. Like that's the tedious part. And, that, that lasted, call it, three or four months,

Uh, just back and forth, back and forth. I would say we were pretty, uh, adamant of, trying to get launched right at the start of the year. So anything we got sent in to answer some questions, you file with the SEC that goes through an extensive process. Um, and the team that we were working with, uh, we're, we're really the ones helping to, um, navigate that with us. And then from there, there's other compliance factors that go, that are involved that we had to make sure that we square out. And then, and then it becomes the fun part, right? Which is kind of like, as you're starting to get to launch day, uh, you're, you're talking with some of your external

Investors and trying to, just getting excited about the idea that you have this publicly listed security out there. Uh, you're talking to exchanges. So next month or not next month, we're already in March, but, um, this month we'll be in Chicago at the CDOE and kind of ringing the bell. So it'd be a cool moment for us right at our 10 year anniversary. Um, so I say that's, that's part of it. And now we can, go out to market. There's a lot of compliance to it. Uh, so keep that in mind as you're, you're thinking about, uh, uh, this type of structure, it's, it's much more, um, or less compliant friendly, let's say to some of the other structures,

Uh, from a marketing standpoint. So you don't see us, posting a lot of stuff directly about it unless it's been pre-approved. Um, so anyways, that's kind of like the whole journey here. And, we're going to, this is the start of our journey in the ETF world. So we're excited for, now, but also honestly, like the next three years.

Right. Foundational ETF. And the point there was, was pretty simple as, again, we're looking for industries and, that are foundational to their, to the future. Uh, so if you think of investing, in the future, investing where the world is headed, which is our motto internally, um, foundational industries that are foundation of the future is, is, monumental to this approach. And then from there it's, who are the companies that are foundational to that, to those industries, to those subsectors. And from there it's, you're also looking for, management teams that are, um, generally founder led, uh, if they're not founder led, there's someone that's been there for, either since close to the beginning,

If not the beginning, uh, that, took over as, CEO or something like that. Um, so again, you have these three, tiers of where foundational just kept coming up for us. Um, and that was, essentially the, the rationale behind foundational and look, we're looking for, we don't try to pigeonhole ourselves into, growth or value. I think at the end of the day, we're all value investors at our heart. We're looking, we're seeking value, uh, in these companies. Uh, and so we wanted to have this forward looking approach and that's like the nature of our firm, but at the same time, you have to have some sort of discipline. So we looked in the market and we said, okay, is this the

Right strategy for an ETF wrapper? Is this the right strategy for the market in general? And when you're looking at the, the ETF ecosystem, you see a couple of different things that, are continuous over the last, five to 10 years started with index based, cool, low cost index based ETFs. You're just capturing beta, you're capturing exposure. Um, from there it started to, become a little bit more thematic. So you were having a little bit more pinpointed areas of opportunity and you had these thematic ETFs that come out and they all do great jobs. Um, and people, carve out parts of their portfolio for interesting ideas, whether it's, I want solar or I want, uh, in this stage,

Defense, uh, and I want, frontier defense or whatever you can think of and imagine there's probably a, thematic ETF for it. And we said, what's actually like somewhat lacking, at least in scale, um, are actively managed, non-thematic, future focused, um, that have, unlimited cash constraints, meaning we can go to, a hundred percent cash should we want to. Um, therefore we're aligned, call it with the investor base. And at the same time, something that is, high conviction. So 20 to 30 names, not, 50, 60, a hundred names, uh, in a portfolio. And so we, we, when you put all those things into a blender,

You come out and we think we have, a unique little, product that's in market, um, that we've been doing, handling for quite some time. Uh, and that was the origin story there. Now from like a actual process, we have this six Ms approach, is really the fundamental drivers, right? I talked about like thematic, where's the world going, what are the key, areas that we're looking for, whether it's identity or automation or, how mobility is shifting. And then from there, it's okay, let's get to the, the investment process. And those six Ms are important. you have everything from, the management team, you have, you know,

Are they aligned with us? Have they executed in the past? You have market, is that market growing? Um, if they're in digital advertising, is that expanding or contracting? Um, within that, the third M is, market share, are they capturing market and share in that market? And you can hear, right? If you have a market that's growing, you're capturing market share, you're starting to compound growth pretty considerably from there. It's margin expansion. That's, the fourth M, uh, is today's margins, are they under earning, let's say, relative to the opportunity. And you'll, we'll see that in fleck going forward or, or whatnot. And then multiple expansion, is there room for, further multiple expansion from here? Or again, going

Back to my comments around thematic is sometimes you can get pigeonholed and do great stories, great ideas, great markets. But at the same time, the valuations may reflect, Cisco in 1999. Uh, and it took, just this past year for you to get, break even at that point in time. And then lastly is margin of safety. So like, that's the sixth M, which is, you, you put everything together and you say, in a, in a bad scenario here, um, what is it, what, what's the turnout for us as investors? And ultimately it's those six M's that I think, um, help us understand, the business, but also then, allow us to hopefully compound value over time.

Push and pulls you didn't have, uh, different cycles happening at the same time. on one side you have the consumer spending on the other side, housing's in a recession, um, and prices are stagnant, but volume is, uh, contracting and sitting at, 2008 lows. And so today you have a lot more dispersion, which arguably I would say means there's more value. So you're more likely and more inclined to stay, be invested. You should be able to find more opportunities in that environment, but having the ability to raise cash, it's definitely not technically driven. It's definitely more a valuation and fundamentally driven. And, and in a case where we're saying, Hey, we need to own, uh,

20 to 30 companies, uh, to have that enough diversification to truly be a core holding in someone's portfolio. Uh, if we can find 12 really good companies at really good prices, yet we're not that comfortable on another eight, that becomes the cash. Uh, and we can do that, pretty, pretty quickly. So. Interesting. Thanks for explaining that. So

Um, uh, weights across the board. So it's, it's systematic in that way from a, uh, valuation to weight perspective. And then ultimately, you, what you'll see is we'll let our winners run and then snap them back when, um, from a technical perspective, if things are starting to shift or valuation gets a little excessive, that's when we'll make a decision to, Hey, let's do a full rebalance here, or let's do a partial rebalance in this tier. Um, and that's ultimately how we, we characterize our, our weightings, uh, versus, just cutting it at a, if it's going from six to seven, cutting it right back down to six. So we definitely let our winners run, uh, and then do kind of these capital recycles where, clearly if we still think

Companies in the portfolio at the bottom end where weights continue to shrink, uh, either because they're not moving higher or they're moving lower while everything else is moving higher. Um, and those thesis remain intact. We'll, we'll go out and do a, rebalance if we think a

Rebalances happening where, when, when things are volatile out there, uh, like you're kind of seeing in the markets, uh, from time to time, those are obviously periods where you're, maybe not earnings, not even happening. And you're just trying to recycle capital where you may think, uh, a certain area, a certain pocket of your portfolio is getting hit, uh, indiscriminately. And therefore, you think it's very prudent to, um, add to those and, or, uh, subtract from others. So you have a bucket of companies that you call

Which is just workflow automation. Uh, there's automation inside hospitals. So like the branches start to sprawl out, uh, underneath those, folders that we, we deem the areas we want to be in. Within that, there's going to be clearly the structural winners, right? And this is kind of how we, we segment the market. We have the structural winners within these categories. And then we have the companies that were either legacy incumbents. what you're referring to is companies going through transformation. And we want to find, we think the biggest dislocations happen in those two pockets, meaning in secular growth, if it's truly secular, meaning the shift from on-premise computing to cloud, right? We're still talking about this today.

Amazon, uh, Microsoft, all the hyperscalers still say we're still, not fully penetrated by any stretch. And that just shows you how secular some of these, these things can get. Um, so mobile cloud, obviously AI feels that way as well. Uh, and the secular growth of those tend to last longer. And the companies that are truly participating in those, uh, can, can also see their revenue and or margins and earnings power last longer than some expect. And that's the dislocation there. So on that side, sometimes those are storytelling and it's easier to, uh, uh, see what's actually happening. On the other side is the transformation stories, like you mentioned, and you'll have companies that are in a category. They are the leader and incumbent that the ground is

Shifting. Uh, and we don't own Microsoft, but I use it as a prime example, where in the early nineties, it was the, it was the, it was the, the, the secular winner, right? Internet was booming. Um, it was turning on productivity tools were turning on PowerPoint, word Excel, everybody needed this stuff. Um, and 2004, 2005, 2006 growth slows, everything's coming down. Right. Uh, and at that point, the valuation of someone like Microsoft was trading at, single digit, earning multiples and they had to make a transition. They were still well positioned at this moment in time to where the world was going. It was going towards more software as a surface. It was going more towards cloud. It was going more towards, um, gaming,

Which obviously they, they executed on there and they made that transition. And so we're looking for these moments in time where you have an incumbent sitting in a category, ground is shifting. They have time. And you obviously had the leadership team and the product capabilities. You have to have some sort of entrenchment and ecosystem that gives you time to execute and transition your business. You need a leader that is willing to do it. Uh, you need the margins and cash and balance sheet to actually sustain it. And that is that transitional moment, uh, where, again, using Microsoft as the example, they went from, uh, selling DVDs, uh, CDs to, selling, uh, office through 65 as a service. And that was a good example. Then they went into gaming

And they bought GitHub, then they bought LinkedIn. Uh, so they started to be more and more attached to where everything was going directionally. And, fast forward to today, it's almost the same thing. Um, are they well positioned or are they not? And you're seeing dislocations in the market. And these are these transitional moments where I think you can actually find, uh, good companies at good prices with good balance sheets and leadership teams that can execute.

Doctor or the patient and it not being the doctor, um, email spoofing, um, so many things, visuals, at some point down the line, when you're on a zoom call, uh, you're not going to know necessarily, uh, if that person's that person. So I think all of this is reality. We're seeing some of the early, versions of this technology today. And, if we went from, identity fraud a long time ago, it's only going to get worse. Uh, but it's only, it's going to get worse in every spectrum. So we think that's such a large opportunity. And we have a couple of investments, uh, in our portfolio to go after that. And, and that's a big thing, right? So I think identity is super important. I think it,

It, it's going to touch everything. And therefore that end market is going to be very, very powerful.

We have a weekly, a webcast where we're just talking about, different things. So there's a level of transparency there that I think, um, somebody that's, seeking an investment, uh, product to build an allocation should feel comfortable with. So having that, that voice of reason, always, uh, constantly there being flexible and being able to speak to, these different groups that are out there, large or small, what we make sure we're, we're available. And so I think, again, if you, if you take those characteristics of, leadership qualities, we tend to have pristine balance sheets, uh, in our companies and, and, uh, but still growth oriented, uh, but not growth at all costs.

I think that is a perfect, balance. So you're thematic enough. Um, you're big enough. And I often look at some of our companies in our portfolio that are, let's say $2 billion or $6 billion market caps, uh, with no debt, billion dollars of cash leaders in their category, sometimes in a duopoly. I'm like, look, these are more powerful, more dominant, more entrenched in their ecosystem than the 50, $60 billion, or a hundred billion dollar, uh, uh, uh, turbo tax, uh, industry or something like that. Right. Where, uh, again, so sometimes it's, um, not misconstruing market cap size for dominance. Um, and in some cases that actually insulates you from, the big ones, which are, Microsoft's not

Going to go after a $2 billion market, right. Uh, or $6 billion market. It's just doesn't serve them any purpose. Um, and so in some ways it, it almost feels counterintuitive to think that, those, uh, wouldn't be a core holding, uh, in someone's portfolio. So as long as we're doing the right work and, and, and, checking off all our, our, our checklist to ensure these companies are executing well, I think, um, our view is that it's a core holding.