Bonds, biotech and business after tariffs: PWM Tea Break

Andrew Craig, founder and portfolio manager at Investing in Plain English, talks to PWM about investments in biotech, environmental projects and how to make the best portfolio allocations, over a refreshing cuppa.

In the discussion with PWM’s Yuri Bender and Ali Al-Enazi, Mr Craig shares his prediction about future innovations in this century being dominated by biology rather than physics, and how science fiction in this arena is fast turning into science fact. He discusses the difficulties of European life science companies — with attractive valuations — struggling to secure funding.

He also suggests that investors should not get too carried away by geopolitical posturing from President Trump’s team in Washington, the stand-off with China or the pronouncements of central bankers. Instead, they should seek out undervalued, innovative small firms with the potential to solve the problems and challenges of our society.

Ali Al-Enazi: It's been a rollercoaster week, with recent news on tariffs triggering significant market reactions amid rising trade tensions. And to make sense of it all, I'm here with my co-host, Yuri Bender, and we're joined by Andrew Craig, founder of investment manager Plain English Finance and author of Our Future Is Biotech. Andrew, how are you?

Andrew Craig: Alright, thank you. Thank you very much for having me. It's always a real honour to do these things.

Ali Al-Enazi: And to help us digest all of today's topics, what tea have you gone for?

Andrew Craig: I’m a coffee drinker, but I also spent quite a few months of my life in Japan, very fortunately. And so, the tea that I love is mugi cha. When you're in Japan, mugi cha is a barley tea—it's caffeine-free and really nice.

Yuri Bender: And we were talking about this earlier—about those coffee runs you had to do as a junior working for UBS: fifteen cups of coffee in the tray, and then all the traders giving you dead arms. Do you miss those days?

Andrew Craig: I do, yes. Anybody starting in financial services in London now probably isn't going to have quite the same experience that we had in the late ’90s. That's for sure.

Yuri Bender: Well, we've got different challenges today, with the tariffs, the geopolitical pressures. And I've actually gone for green tea today to pay homage to your book The Future Is Biotech, and I had a quick skim through it earlier on. One of the interesting things for me was how you're saying that biotech is going to affect everything, and how transistor-centred computers will be substituted for biological computers—which sounds pretty scary for many of us. What do these trends mean for family office investors in biotech and related sectors?

Andrew Craig: My view is that the last century, if you like, was about physics and tech, and that delivered—well, up until quite recently—north of 10 per cent annualised returns for US equities for a century. The next century, for a bunch of fairly intractable, prosaic structural reasons, is going to be about biology and biotech. And that really is just because you create economic value from solving human problems and delivering human wants and needs.

Most of the remaining challenges and problems we have as a species—all of which are huge opportunities, like curing cancer, or dealing with dementia or Parkinson’s, or whatever else—but perhaps even more excitingly, environmental degradation and revolutionising agricultural productivity. These are all problems of biology.

So we're at a point now where the technology—the biotechnology—is developing exponentially. It's very exciting. Science fact is increasingly what science fiction was not that long ago.

For example, a gram of DNA can store about 215 million gigabytes of data—something approaching the entire assembled data that human beings have ever created in history—in something the size of a Ford Transit van, because DNA has four bases instead of the two in the binary system.

But what's even more exciting is that if you can code something that—whether or not it’s living is kind of moot—it’s biological, right? If you can just code the DNA to store data, which you can then read back later, the really exciting thing is that you wouldn’t need any power.

From a world of blade servers hoovering up electricity and having to cool racks of servers in huge warehouses, we could move to a situation where all digital storage was just little sugar cube-sized things storing petabytes of information sitting on a shelf.

Yuri Bender: And Ali, you've been speaking to our old friends at Syz Bank in Geneva about some of these innovations and how private markets and venture capital investments can be used to invest in the companies and the start-ups. One of your conclusions, interestingly enough, is that the alternatives managers are now looking at many small and medium-sized firms, particularly in the B2B space.

Ali Al-Enazi: These businesses are often overlooked by larger players, and their valuations tend to be more attractive compared to their US counterparts. I mean, Europe—with its large number of family-owned companies—presents significant growth opportunities, especially as these businesses continue to innovate. Is it true that in the type of biotech funds you're looking at, there's also much more interest in these SMEs, particularly outside the USA?

Andrew Craig: Due to a bunch of historical, structural reasons, the world is actually really bad at funding innovation in life sciences, and that's got far more to do with structural challenges in the investment and asset management industries than it does with the commercial potential of the science or the companies.

To unpack that: smaller companies in the UK doing biotech have confronted a complete desert in terms of funding. There's nothing out there. A big part of the reason is structural—London's been so challenged. The London Stock Exchange had 3,250 companies a generation ago, and today it's got fewer than 1,700 in total.

UK pension assets used to be 53 per cent in UK equities in 2000; now they’re just 3 per cent. So the aggregate amount of capital available to equities is very small in the UK. That’s been hugely problematic. It’s why businesses like ARM Holdings are now on the other side of the Atlantic, along with lots of others.

Biotech companies are defined as smaller companies—whether private or public. Smaller company asset managers are almost always generalists. They don’t have the specialist skills and use conventional valuation metrics like P/E ratios, which you can’t apply to a loss-making, bleeding-edge, science-driven life sciences business.

In the US, you’ve got vast amounts of capital—many billions of dollars—and hundreds of really exciting biotech companies on your doorstep. You may have even gone to the same Ivy League university as the CEO. A British company is very much the poor relation.

That's genuinely been a “valley of death” and hugely challenging for British and European companies. The valuation opportunity is really extreme. There are companies valued at tiny, peppercorn levels in the UK, Europe, and Australia, that—if they were in the States—would be much more richly valued. And I think smart family offices are beginning to look at that.

Yuri Bender: Beyond biotech, they're also looking at the environmental opportunities.

Ali Al-Enazi: Yes, we carried an excellent opinion piece from Saurabh Sharma, who runs the Sustainable Water and Waste Fund at J.O. Hambro Capital Management. He’s been writing that the water and waste industries remain largely insulated from tariff pressures because much of the infrastructure underpinning these industries enjoys bipartisan political support due to the essential nature of their operations. Are you and your colleagues essentially now looking for investments least affected by the Trump barrage of rhetoric and regulation?

Andrew Craig: The universe we're looking at now—ex-US, small life sciences businesses that could have a chance of curing cancer and creating astonishing amounts of value—is one where, if you have enough margin for error, you want to focus on the micro and on the company specifics over a long enough time period.

So I’m seldom explicitly thinking about the impact of massive geopolitical events—things over which I've got no control—like tariffs or where the dollar is going. I'm trying to find businesses that are so extraordinarily undervalued based on their commercial potential that I don’t need to concern myself with those macro issues.

And the only other corollary is that ultimately, businesses that solve extraordinary human problems create a great deal of economic value.

Yuri Bender: Our colleague Elisa Trovato has been working on our Global Asset Tracker survey, speaking to fifty chief investment officers of leading private banks controlling about $25 trillion in assets. Elisa has found that bonds are looking like an increasingly attractive ballast against equity-heavy portfolios, with their volatility, and that fixed income is becoming a focal point.

There’s this perennial issue facing wealthy investors—when fixed income is coming back into fashion, bonds, private markets, and alternatives—how do you decide which perform better in a portfolio?

Andrew Craig: A very, very simple rule of thumb that's worked for decades is: 100 minus your age. So, if you're 30, you should be 70 per cent aggressive and 30 per cent defensive. If you're 70, you should be the opposite. You should probably only change that allocation every five years or so.

That sorts your aggressive versus defensive allocation. Then, to your question about the defensive portion: if you've got real estate exposure—your primary residence, which is a huge exposure for most people, even if not ultra-high-net-worth individuals—and potentially more exposure through REITs or otherwise, that's given you a lot of defensive and yield exposure.

You probably still want to focus on rich country bond ETFs, rather than the sovereign debt of countries with terrible balance sheets—like most of the developed West at the moment, as evidenced by what's going on with Trump and the States in particular.

Ali Al-Enazi: As a result of Trump's unprecedented series of tariff announcements, and the resulting calculations, we could end up losing confidence in the dollar. This could be the end of the so-called golden age for the greenback—an opinion we featured from Benjamin Dubois of Edmond de Rothschild. Do you agree with that sentiment, or are you in the camp that—to paraphrase Mark Twain—rumours of the death of the US dollar are vastly exaggerated?

Andrew Craig: Well, they’ve been vastly exaggerated for, you know, as long as I’ve been in capital markets—which is coming up to 30 years. The St. Louis Fed estimates there's $102 trillion of outstanding US-denominated debt, $36 trillion of which is government debt.

Each of the last three presidents has added more US dollar government debt to the existing stock than all previous presidents in the history of the United States. I believe I’m right in saying that.

If I’m honest, I kind of sidestep it—because it goes back to my earlier point. If you're investing over a long enough time horizon... I’ve been buying gold for 20 years, undeterred by whatever’s happened in the meantime, because that’s a big structural call. I’ll be buying biotech for the next 20 years. I try to zoom out from all that noise because I believe that’s how you succeed with any kind of big-picture, thematic investment approach.

Yuri Bender: The other thing we’re going to have to do, Ali, is start bringing in tariffs for people drinking coffee instead of tea.

Ali Al-Enazi: I need to vet my guests. Yes, we need to vet the guests!

Andrew Craig: If you can get me some mugi cha—Japanese barley tea—next time we shoot together.

Ali Al-Enazi: Andrew, thank you so much for joining us. Unfortunately, that’s all we have time for. Thank you for tuning in to this week’s Tea Break. Make sure to catch our weekly episodes on the PWM website or the YouTube channel, and if you have any questions for our guests, visit the website for more information. See you next week.

Further reading:

Syz outlines alternative assets revolution

How water and waste combine sustainability and profitability

DPAM, CANDRIAM and Pictet embrace responsible investment branding

Bonds back in focus amid trade tensions

Will Trump hasten the end of US dollar’s Golden Age?