Small (EM) is beautiful
Patrick Cadell, Portfolio Manager for Emerging Markets Small Cap Equity and Gustavo Medeiros, Ashmore’s Head of Research discuss the opportunities present in the Emerging Market Small Cap Equity universe and the outlook for the second half of 2023 and beyond.
The discussion covers topics such as:
- What have been the drivers behind EM Small Caps strong performance?
- Is alpha generation as important as market beta for driving returns?
- Should allocators consider Small Caps as a liquid alternative to larger cap EM?
- What are the most common investment challenges?
- Where is the team focusing its research as we look forward?
Transcript is available below.
Stephen Rudman: Good day, my name is Stephen Rudman. I'm a member of the New York City client-facing team for Ashmore. Welcome and thank you for joining Ashmore's webinar on Emerging Markets small cap equities. We hope all are well, and we really appreciate your time in joining us today.
Today's webinar is for investment professionals only. If you are a media member, this would be the time to log off. So, thank you. This webinar is targeted for just around 30 minutes and we will address questions at the end. If not, I promise we will get back to you post-webinar with detailed and dedicated answers.
Today's speakers are Gustavo Medeiros, Ashmore's Global Head of Research, together with Patrick Cadell, a Portfolio Manager on our All Cap team, including small cap specifically. We know that small cap is in Emerging Markets, underappreciated. So, we thought this was a great opportunity to share where there are opportunities in the Emerging Market small cap space. With that said, I'd love to turn it over to you, Gus.
Gustavo Medeiros: Thank you very much, Stephen, for the kind of introduction as always. I'm delighted to have Patrick with me today to talk about small caps. He is a member of the All Cap team, and the leading Portfolio Manager for the small cap strategy.
One of the themes we've been discussing with clients over the last two years is that we're in a new macro regime. Over the last 10-15 years, we have had very low inflation, but also very low inflation volatility as a result of this mega-trend of inequality widening, and quantitative easing being a driving factor of that.
Now, in my view, we're going to see a very different macro environment for the next five to 10 years, and it's been the Ashmore house view for a while.
One of the drifts in terms of style that often people talk about from the macro level is that the older environment tended to favour large caps, while where we’re headed to tends to favour small caps. I think in the bigger picture, of the Developed World markets, that's precisely what you see. However, it's been different over the last three years, and even in the longer time horizons, small caps actually have already been outperforming. So, can you walk us through what has been driving that?
Patrick Cadell: Absolutely. So, globally, we've seen small cap as a factor drive outperformance over the long run. And that's common across Developed Markets and Emerging Markets (EM). So, take EM as an example. Over the last 20 years, you've seen about 150% cumulative outperformance in small cap over large cap. This is often explained by the fact that small cap companies have a greater ability to grow, and a lot of runway for growth. So, that higher growth delivers better returns.
I think what's most interesting is the most recent performance over the last three years. Since the beginning of 2020, small cap stocks in Emerging Markets have outperformed large cap stocks by about 7% annualised. This is a huge difference over this period, and that's in what's been a pretty tumultuous global macro environment. We've had COVID, the Russia-Ukraine war, spiralling inflation and higher interest rates. This is not an environment you would expect to be conducive to small cap performance, yet it has been.
So, it's worth really exploring what has driven that better performance over the past three years, and why it should continue over time. The main factors for that better performance over the last three years are, first of all, the fact that EM small cap is a much more balanced, much more diversified, expression of Emerging Markets than large cap.
The large cap index in EM is slightly dominated by China. It accounts for about 35% of the index versus just 10% in the EM small cap index. That means the outcomes for the entire small cap asset class are not dominated by a single country. You have a much more balanced exposure to Emerging Markets, and that comes not just from the country allocation, but also the individual stocks. So, the top 10 EM large cap stocks account for about 30% of the index, whereas in small cap, that's just 3%. So there is much more balanced, much more diversified exposure to EM with the small cap universe
That means in the last three years, when there's been some challenges in China, EM small caps have been able to deliver positive returns, whereas the large cap indexes, face more challenges. So, that's one factor.
The second factor is that the small cap index also has had much greater exposure to the domestic Emerging Market story. Ultimately, as an investor, what attracts you to Emerging Markets is this domestic demand story. It's about the growing consumption, it's about the convergence with larger developed economies. And if you want to express that, the best way is really through EM small caps, because there are many more consumption plays, and there's much less dependence on global cyclical sectors such as mining, financials, and energy.
You don't have the Petrobas, Vale, all these big index weights in large cap don't exist in small cap, so, you're much more exposed to the domestic story. That can be summarised by the fact that about 35% of revenues for large cap companies come from overseas, whereas in small cap, that's just 25%. So again, you're much more domestically-orientated.
The third point, which has been a big factor over the last three years, is that small cap stocks are much bigger beneficiaries of domestic liquidity, and a deepening of domestic equity markets. As Emerging Markets get richer, you typically see a greater proportion of savings be financialised, and then move into equities.
A great example of that is India, where over the last three years in particular, you've seen a much greater participation in equity markets from normal retail investors, mostly through systematic investment plans which lead to a consistent flow of money into the equity markets. And this tends to benefit small cap companies more, because large cap companies can be driven much more by the big flows in, and out, from foreign and institutional investors, whereas often domestic liquidity impacts small cap stocks.
So, I think the confluence of these three factors of the more diversified exposure, the more domestic exposure – so less susceptible to an economic slowdown in Europe and US – and the beneficiaries of domestic liquidity in deepening capital markets in Emerging Markets have driven this outperformance over the last three years. And it should continue.
Gustavo Medeiros: Very good, well, I'm sold. Now, small cap is also a very broad, and diverse universe, right? And in the case of India, I think some equity analysts refer to it as the stock picker's paradise because they have so many opportunities. So, talk us through a little bit of the alpha opportunity set as well as beta.
Patrick Cadell: Yes, absolutely. So, alpha is incredibly important in small cap as an asset class, because inherently, this is an inefficient asset class. It's under-researched, there's less institutional participation, and that creates opportunities. The great thing as a fund manager focusing on EM small cap is this is somewhere where it's completely proven that active management consistently adds value. That's not the case if you're talking about Developed Markets, US equities, or large caps. So, this is a location where active management makes sense, has delivered alpha over time, and if you look over long time horizons, five years-plus, you'll consistently see that the Emerging Market small cap index, and exchange-traded fund (ETF), are third, or even fourth quartile performers within the peer group of all EM funds. And so, 75% plus of EM small cap funds outperform the index.
So, this is somewhere where much active management really makes sense, and where alpha generation could be significant. It's worth drilling down to why there are these inefficiencies in the asset class, and it can be explained by a number of reasons, but I think chiefly it is the under-researched investment universe.
There are around 2,000 stocks we can invest in that meet our liquidity and our market capital requirements. The analyst coverage of these stocks is far below what it is in large cap. So, the average small cap stock has about five analysts covering it, versus 17 for large cap. Beyond that, about 20% of our investment universe has zero analysts, and about 40% has fewer than two analysts. So, a lot less people are looking at these markets.
But I don't think that fully tells the real story, because it's not just the quantity of analysts, it's the quality. What you'll typically see is of those five analysts covering a small cap stock, the majority of them will be local retail brokers. Really, they're catering to a retail market, they're looking for short-term earnings momentum. They're not focusing on the bigger picture, they're not doing fundamental deep dive analysis. And that creates a gap in the market for active managers who have feet on the ground, and are willing to go in and do the work.
That's something that has really played to our advantage at Ashmore, as an investment manager with deep EM expertise. Having feet on the ground and big investment teams in key markets like India, Indonesia, the Middle East, gives us an ability to find under covered stocks, and really identify these inefficiencies. That's what has enabled us to deliver alpha over time. I think it's great being in an asset class where asset management really does offer significant value.
Absolutely. Well, I don't subscribe fully to the efficient market theory, but for sure in small caps, and in places that are under-researched, it's very easy to make the case with the data. Now, the question is, EM equities is already a place that some investors consider a relatively small part of their portfolio. So for these investors, buying EM small cap is yet another step into a different frontier. Should investors consider EM small cap as a part of their EM location or a separate allocation? How do you consider that?
Patrick Cadell: Yes, it's a good question, and I think you can look at it as both. It can be an alternative to EM large cap, or it can be complementary. So, from an alternative perspective, I think the fact that it is more diverse, is a more balanced representation of Emerging Markets, is a big positive. Also, for me, it’s a much better investment universe in that you don't have as many state-owned enterprises (SOEs).
One of the big EM large cap criticisms is that it is dominated by SOEs and other inefficient companies. You don't have that problem with small cap, as a much smaller percentage of the index is state-owned enterprises.
Second, EM small cap equities have s performed a lot better than the large cap over time. So, why would you not go for something that's delivered better returns over time? And particularly if you're buying an active EM small cap fund, I think over the last five years, something like 95% of active EM small cap funds have outperformed the large cap index, because you've had a better investment universe performance, plus you've had additional alpha on top of that. So, it definitely makes sense from that perspective.
I think it's also worth highlighting that it's increasingly investible. So, liquidity is something we take very seriously here. We have strict liquidity constraints at a position level, but also at a portfolio level. And yet despite that, we have a big investment universe, we have plenty of capacity, and liquidity is not really preventing people with a long-term investment horizon from starting a position in an EM small cap equity fund. That said, I think it can also be something you can use to complement your existing exposure. And that's because it's important to highlight that this is a distinct investment universe to large cap. There's no overlap in the EM small cap index, and the traditional MSCI large cap index. That means you do have lower correlations than in the past. Right now, the small cap index has about a 0.85 correlation to the large cap index. And if you look at our small cap fund, it's about 0.7 correlation to a large cap index. So, you do have some diversification benefits here, as well as gaining exposure to a broader selection of EM markets, and exposure to some of the smaller EM markets, it's quite hard to find good stocks for in a large cap index.
Gustavo Medeiros: Sounds good. Yes, it feels to me if you invest in Emerging Markets without an allocation to small cap, it's like going to a supermarket and shopping at only one or two aisles only, and leaving the most interesting aisles out, right?
Patrick Cadell: That's a good analogy, I like it.
Gustavo Medeiros: I think I stole from it from my predecessor though. And what are the most common challenges to consider when you invest in EM small cap?
Patrick Cadell: Yes, it's a fair point. I've highlighted a lot of the good things about EM small cap, but there are challenges too, no doubt. But I think a lot of these challenges can be well mitigated by a well thought out investment process, and particularly one that focuses on the quality above anything else. That can really eliminate some big risks which exist within the small cap universe.
So, just going through some of those potential challenges, and how we mitigate them. The first one is that there's a perceived higher risk of business failure with small cap companies. Often these companies are less established, they might be dependent on one or two products, one or two markets. They may be concept stocks, or they may not be profitable stocks. These are all challenges. So, our investment approach focuses on quality above all. We don't invest in loss-making businesses and we don't invest in concept stocks. We look for companies that have proven robust business models, have strong management teams, and therefore can navigate the challenge of being a smaller business in a much better manner. So, that's the first thing that we do.
Second, in tough markets, small cap companies often get cut off from capital markets quicker. So, debt markets might close up to a smaller company before they do to a larger company. So to mitigate risk, we focus a lot on balance sheet strength when it comes to our assessment of quality. The majority of our investments currently are net cash positive companies, and generate free cash flow each year. So, they’re not dependent on raising money. We know that large amounts of debt can ruin even the best businesses, particularly smaller businesses. So, we're very focused on eliminating that risk by analysing the balance sheets, and investing in net cash-positive companies as well. So, that's definitely a big factor, and again, it goes down to that quality again. It's something we have a lot of in the portfolio because it helps to mitigate that risk.
Patrick Cadell: I think people also look at small caps, and Emerging Markets, and they say, well, isn't there a risk of fraud, and bad actors? Again, that's something we're cognisant of, and focusing on quality helps to reduce that that.
It's also something where the Ashmore advantage comes into play again. We have deep ties in Emerging Markets. We know the history, we know the good people, and we know the bad people in a lot of these markets. That helps steer us away from bad actors and towards better businesses. Again, having feet on the ground in these key markets, travelling a lot and being an EM-focused business helps us really eliminate that risk. Again, we focus on transparency and on governance, and that helps reduce that risk even further.
Another perceived challenge of small cap investing is higher trading costs. Our response to that is, we take a long-term investment horizon. We're three-to-five year investors. We have an ownership mentality rather than a trading mentality, and that helps mitigate the risk.
And the final comment I often get is that single stock volatility is so high in EM small cap. I'm not going to lie, that can be a stress at times. You can wake up in the morning and stocks have moved up or down 10% on no news at all. This can be challenging, but ultimately, that's a source of opportunity for us. This is the inherent inefficiency of the asset class, where you have much wider swings in the stock price than in the intrinsic value of these businesses. So, as a patient long-term active manager, we're given great opportunities to buy high quality businesses at good prices, because the market panics, retail investors panic, and that's really fantastic for us. Stressful, yes, but that's what allows active management to work in small cap.
Gustavo Medeiros: You don't seem to look too stressed, so I think you're doing a good job. Now, what are the areas, sectors, or opportunities that you're focusing on, in particular within the next six months to one, two years?
Patrick Cadell: Yes, the great thing about the small cap EM universe is that it's a big universe, it's interesting, and it's inefficient, so there's always lots we're looking at. To highlight a couple of things that I'm pretty excited about, first is Indonesia as a market.
As an equity investor, Indonesia is somewhere that's arguably underperformed versus what we'd have liked. It hasn't quite met expectations in a lot of the past. It has got huge potential, but certainly through history has been a bit more dependent on just a few commodities: the export of coal and palm oil, for example. Also, the relatively low value add is the manufacturing sector. But there's a lot going on within Indonesia to try and change that.
They're trying to diversify their exports by focusing on metals, particularly metals that go into electric vehicles (EV) and batteries. They're trying to focus on more value add, by actually processing these metals into refined products before exporting. So, that also improves the value added to the economy, drives much stronger job creation, much greater earnings power for the people there, and ultimately better gross domestic product (GDP) growth. So, that is a very conducive macro environment for good stocks. The nice thing about small cap is the investment universe in Indonesia is much bigger than it is in large cap. So, there's a lot of good opportunities we can find, whereas in large cap, you are often constrained to maybe a few of the large banks rather than its much broader equity market that exists below that.
The second opportunity I'd mention is in software, and semiconductors. This is somewhere we've traditionally had a decent overweight. We find that a lot of good small cap companies that operate in strong niches within software and semiconductors.
Obviously, there's a lot of interest at the moment around the impact of artificial intelligence (AI), and ChatGPT. As a small cap equity investor, this is much more exciting than it is for a large cap investor. We're not constrained to looking at Nvidia, Microsoft, and maybe TSMC if you're an EM investor. Instead, we have a huge array of exciting businesses in Taiwan and Korea. Both of these have very deep liquid markets with some really good high quality businesses that are going to benefit from this AI super theme over time. So, we've got a number of stocks we've added too recently on that side of things.
Gustavo Medeiros: That's great. Well, we have to mention AI at least three or four times. I think the more we mention AI, the more popular of this call is going to be, judging by the earnings result presentations over the last couple of months.
But we agree very much with the Indonesian story, it's a great macro story. It sounds like, what Indonesia is trying to do in the EV space is very interesting, because if they manage to open up this massive highly specialised industry, it brings a lot of jobs and opportunities. It's a story we really like. I think we still have a little bit of time, so, why not walk us through the factors that have been specifically driving alpha in the portfolio you've been running over the last couple of years?
Patrick Cadell: Yes, absolutely. So, I think first of all, framing our investment process, we are very much quality growth investors. We think quality protects you from the downside, particularly in small cap. And of course, growth is why you're looking at Emerging Markets, and EM small cap in the first place. So, there's no point investing here if you don't want some growth. And we are quality growth investors, bottom up investors. But ultimately, over time, what has driven portfolio risk and the outcomes is the single stock idiosyncratic factors. Around 70% of our risk and our return can be explained by single stock risk. So, that is a big driver of returns.
In terms of where we have found alpha in the past, it's been across a wide selection of markets, but I call out in particular India, Korea, Taiwan. These are three big, deep markets where there are a host of great small cap companies. I think Korea is in particular very interesting, Because at a large cap level, it's a market a lot of people shy away from, as it's not particularly interesting. You have these big Chaebols that dominate the index – Hyundai, Samsung, SK Group – whereas in small cap, there's a host of much more interesting entrepreneur-owned modern businesses that are disrupting semiconductors and other areas. So, that's somewhere we like a lot, somewhere we've generated a lot of alpha over the last few years. And yes, I think ultimately, it's across a range of geographies and sectors, but it comes down to stocks, really. It's the stocks that matter and that's what we get right.
Gustavo Medeiros: Very good. I'd like to get Chris Mader, a fellow Portfolio Manager here at Ashmore, to defend TSMC. But we still love it very much, and I agree with you, I think small caps are more interesting, there's more breadth, and I think the interesting element from the countries you mentioned is it feels to me that South Korea and Taiwan is where the frontier of technological development has been taking place. And with technology so deep across a number of sectors and companies, you can find different ways of capturing the profits from each of the sectors across the value chain. Which I think is very important, rather than being just at the top of it, or dependent on the big companies, where a lot more can go wrong, right?
Patrick Cadell: That's exactly it. A lot of the companies we've ended up investing in in Taiwan or South Korea will be serving TSMC. We love the TSMC story, because it's a fantastic business, but the value chain within TSMC is also very interesting. We’ve found some great businesses that serve TSMC, Intel, Samsung, and are really the enablers, and they can benefit from the broader growth in the ecosystem. They're the key critical parts of these value chains. So, often quite interesting niches. They're usually very high return capital businesses.
Gustavo Medeiros: That reminds me, we should probably host a webinar on semiconductors, which is one of the most interesting, and one of the most complex sectors.
So, I think India could be a market that can, in the future, replicate quite a lot of that, because they are starting on an accelerated path towards bringing quite a lot more manufacturing. We have had some very high profile technology companies announcing investment in factories there, and that typically brings this array, which already exists in India, right? It's already a very rich market.
Patrick Cadell: Oh, absolutely. I think the Amazing India scheme is creating a huge amount of opportunities, and again, there's a lot of small cap ways to play that. And so, India is the biggest market for small cap. It's a growing market, and somewhere we've seen a huge amount of opportunity in the past. I think as more and more industries build a manufacturing footprint in India, that's going to open up an array of interesting small cap companies for us.
Gustavo Medeiros: Sounds good. Now, can you just give us a little bit of a flavour, either on the sectoral level, or on individual level, of what you think is interesting, so our audience can actually grasp a little bit better what the opportunity is.
Patrick Cadell: Yes, absolutely. Staying on India, given it's one of the most exciting long-term markets, and somewhere we think there's a whole host of great small cap companies. I'll talk about a company called India Energy Exchange (IEX). It does what it says on the tin; it is the predominant spot power exchange, for electricity markets in India.
Now, exchanges are typically very good businesses. Some of the longest listed – and longest-surviving companies in the world are exchanges. That's because you have incredibly powerful network effects. Once liquidity and volumes are in one place, it's very hard to shift all market participants to another forum. So typically, the dominant exchange in a particular market will have an 80%-plus market share. That's the case in this power market in India, where IEX has about 95% market share.
So, from a quality perspective, which is where we first start looking at things, that's a high quality business. It's got a dominant market position that results in very high margins, makes 70% EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins. It has a very high return on investor capital and it's got a strong competitive advantage through network effects, which is really hard to disrupt. So, from a quality angle, that's why we liked IEX to start with.
We then looked at it from a growth perspective. What's the growth opportunity here? The growth opportunity's huge. So, IEX has about a 5% share of the total power market, of power exchanges, in India. In Developed Markets, often 50 to 70% or more is done via a short term exchange. And the Indian government wants to move in that direction. It wants power exchanges to go from 5% of the market to 25% of the market. The reason for this is renewables. As you integrate more renewables into your grid, you need a short term exchange where you can buy power on a spot basis, because renewables are intermittent. When the wind stops blowing, when the sun goes away, you need to be able to access an alternative power supply via an exchange.
So, in order to support the development of renewables in India, you need big growth in the market for power exchanges. And IEX, which is the dominant player, can continue to take share within the Indian power markets. And the Indian power market itself will keep growing at 10% or so, because this is, again, a very long growth story for India and its electricity consumption. So, this gives you a very long growth runway for both the market growing, and the market share growing for exchanges. Then on top of that, you've got a number of new products IEX is looking at launching. So, staying on the environmental, social and governance (ESG) theme, the Indian government has identified the need to have a carbon credit market in India. And IEX is the front-runner to launch and operate that, which is another big growth driver.
So, IEX is certainly a position we've added to recently. It's now up to a top five position for us. That quality of growth angle is there, but it's also worth mentioning the value side. We've owned this business for some time, we reduced it in 2021 when valuations got too extreme. We're now adding back into it when valuations are much more acceptable. So, we're quality growth investors, but value matters to us as well. We don't hold stocks forever, we do look at target prices, we reduce when we see less upside and reallocate to better opportunities within the portfolio. So, I hope that gives you a bit of flavour of how we look at stocks and how we manage the portfolio.
Gustavo Medeiros: That's great, and it also ties in with the very good story at the macro top down level. India came from having less than 5% of their energy matrix in renewables to more than a quarter. It’s one of the countries that has made the fastest progress in renewables, actually. Sometimes India is portrayed as the villain, because it's still increasing its diesel consumption, just because they are growing very, very quickly. But the reality is that India is turning into an environmental powerhouse, and yes, their carbon credit market is also very exciting.
I think we're running out of time. Stephen, are there any other questions that were asked online?
Stephen Rudman: Thank you, Gus and Patrick. We have had one question, and it's the obvious one, right? I hate to use this word, but we’re in ‘dicey’ markets. There's a lot of things going on globally, both in Developed and Emerging Markets.
I think the two of you together have laid out why it makes sense that small cap should be included as an investment opportunity, particularly that the active side of managing the sector is really important.
The question is today with the 5% Treasury Bill, and things that seem to satisfy the current need for investors, can you give some thoughts as we look out over the next six or 12 months, why there may be opportunity to start adding small cap exposure now, ensuring that you've got some allocation there.
Patrick Cadell: Absolutely. Yes, so in certainly challenging times, as they have been for the last few years it has been a market where small caps have done well. I think one of the reasons for that is that there's less dependence on Developed Markets. And so, the slowdown and the challenges we're seeing at the moment are mostly in the US and Europe, whereas some EM markets such as India or Indonesia are doing well still, and still growing at 5-7%.
So, I think it's not a bad time to invest in small caps now because valuations are very attractive. The index trades on 11 to 12 times forward earnings. Earnings growth in this domestic-focused part of the index is very strong. And yes, I think the opportunity's there right now.
Gustavo Medeiros: I think Patrick answered it already, but the thesis here is that if you can get 5% from owning T-Bills, which are 'risk free', a CAPM framework environment, you need to get a higher, larger risk premium to invest in other corners of the market.
I think it's quite clear that at these multiples, there is quite a large risk premium. That’s not to say that typically this sector does well if interest rates decline as well. Most important for this sector is local interest rates, because they are not going to go issue a newer bond priced on top of the 5% fed fund rates. They're going to come and fund themselves with the Indian banks, with the Brazilian banks, with the Thai, and South Korean banks. And here is where the story is much clearer to us, I see much more upside in local rates. And if anything, the central banks in Emerging Markets are ahead of the curve. And they're very likely to ease ahead of the US Federal Reserve.
And typically what you see in the equity market is that there is a rerating higher of stocks when interest rates decline. This rerating should be larger for the smaller companies.
But I think the other element which Patrick mentioned, which is extremely important, is people really want to put money to work in themes like artificial intelligence. And you can see some of the top companies in the sector trading at eye-watering levels of valuations. And when there is a gold rush, often, it's better to actually sell the tools for the guys that are going to go try to find the gold, rather than try to go and mine directly.
There is a huge amount of value that can be located in the supply chain, even if margins are complicated, even if it's a more complicated environment for competition because of geopolitical risks. You know these sectors need to develop, there's going to be money flowing downstream from them, so I think that's a very exciting way of investing in sectors, and as Patrick mentioned, there's a strong emphasis towards, South Korea, Taiwan, India. It goes without saying that there's quite a lot of technology opportunities there, and an environment where people are not monitoring too much. I'd rather do that than pay 30 times revenues for a company that I'm not going to mention the name.
Stephen Rudman: Awesome, thank you. Hopefully that gives everybody encouragement, because I know that that's a welcome thought process and theme for these days. With that said, gentlemen, thank you, always very helpful. We do appreciate the time. To all attending, we appreciate you joining us today. If you do have any additional questions, please feel free to reach out to your Ashmore representative. We're more than happy to spend the time with questions on wherever you want to go. We will be sending an email post-webinar, with a replay of the webinar. Feel free to share it with your colleagues where you think it would be valuable. With that said, all be well. Thank you again for joining. And until the next time. Thank you.
Gustavo Medeiros: Thank you, Stephen and Patrick, and thanks everyone.