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 Asia Pacific Sustainability

Asia Pacific Sustainability

This strategy aims to deliver long-term capital growth by investing in companies in the Asia Pacific region, including Australia and New Zealand but excluding Japan.

Originally launched in December 2005, this equity-only strategy aims to deliver long-term capital growth by investing in between 30 to 60 companies in the Asia Pacific region, including Australia and New Zealand but excluding Japan. As with all of our strategies, we are looking for businesses that are well positioned to contribute to, and benefit from, sustainable development.

Strategy highlights: a focus on quality and sustainability

  • Companies must contribute to sustainable development and make a net-positive impact to a more sustainable future. Portfolio Explorer >

  • We invest in high-quality companies with exceptional cultures, strong franchises and resilient financials. How we pick companies >

  • We avoid companies linked to harmful activities and engage and vote for positive change. Our position on harmful products >

  • Our approach is long-term, bottom-up, high conviction and benchmark agnostic

  • We focus on capital preservation as well as capital growth – we define risk as the permanent loss of client capital

Latest insights

Strategy update: Q4 2022

Asia Pacific Sustainability strategy update: 1 October - 31 December 2022

Over the course of the quarter we started a new position in Advanced Energy Solution (AES) (Taiwan: Industrials), a provider of battery packs to the e-bike, data server and electric vehicle markets.

There are very obvious tailwinds driving the growth of electric batteries across many sectors but we have long struggled to find companies who have the ability to create any value from their part in the value chain: many players in the supply chain have strong sustainability positioning, given their role in the proliferation of batteries, but do not meet our quality threshold. AES, however, is a rare exception where they enjoy an attractive competitive position thanks to their ability to provide customised packs to customers that are essential to the performance and safety of end-products. In return, AES enjoys long, loyal relationships with customers that come with pricing power and attractive levels of profitability. The management team at AES is highly competent with a track record of long-termism that we are very excited to partner with.

Well-documented, top-down concerns about Chinese growth created the opportunity to add to a few of our mainland-listed companies (Amoy Diagnostics: Health Care – cancer diagnostics; Glodon: Information Technology – software for the construction industry; Kingmed Diagnostics Group: Health Care – independent diagnostic laboratories).

We took advantage of reduced COVID restrictions to visit Japan and South Korea during the quarter. Disappointing meetings with Nippon Paint (Japan: Materials) and Naver (South Korea: Communications Services) prompted the complete sale of both companies as we failed to build conviction in quality and sustainability positioning. We also sold Info Edge (India: Communication Services) due to valuations.

For valuation reasons we reduced Dabur (India: Consumer Staples), Marico (India: Consumer Staples), Infosys (India: Information Technology), Kotak Mahinda Bank (India: Financials) and Elgi Equipments (India: Industrials). To control the position size we trimmed Mahindra & Mahindra (India: Consumer Discretionary). 

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of the strategy shown above. Named new investments disclosed relate to holdings with a portfolio weight over 1%. It is not a recommendation or solicitation to purchase or invest in any fund. Differences between the representative account-specific constraints, currency or fees and those of a similarly managed fund or mandate would affect results.

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Stewart Investors Quarterly Client Update Q4 2022

1 October - 31 December 2022

Investment philosophy

  • We are stewards: Our role is to allocate society’s capital to productive uses, in accordance with our Hippocratic Oath
  • We are long term: Our time horizon is measured in years, not weeks, and we value companies accordingly
  • We invest only in companies contributing to a more sustainable future: We engage constructively as owners to help companies on their sustainability journeys
  • We invest only in high-quality companies: We seek out companies with exceptional cultures, strong franchises and resilient financials
  • We believe capital preservation is important for capital growth: We define risk as the possibility of the permanent loss of client capital

Investment objective

To generate attractive long-term, risk-adjusted returns by investing in the shares of high-quality companies that are particularly well positioned to contribute to, and benefit from sustainable development.

Important information

This material has been prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (FSI AIM), which forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group. Stewart Investors is a trading name of FSI AIM.

It is directed at persons who are professional, sophisticated or wholesale clients and has not been prepared for and is not intended for persons who are retail clients. A copy of the Financial Services Guide for FSI AIM is available from First Sentier Investors on its website. This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs. Before making an investment decision, you should consider, with a financial adviser, whether this information is appropriate in light of your investment needs, objectives and financial situation. 

Any opinions expressed in this material are the opinions of the individual author at the time of publication only and are subject to change without notice. Such opinions may substantially differ from other individual authors within First Sentier Investors.

MUFG and its subsidiaries do not guarantee the performance of any financial products mentioned or the repayment of capital in relation to any financial products mentioned. Investments in any investment-type financial products mentioned are not deposits or other liabilities of MUFG or its subsidiaries, and investment-type products are subject to investment risk including loss of income and capital invested. 

To the extent permitted by law, no liability is accepted by FSI AIM, MUFG nor their respective affiliates for any loss or damage as a result of any reliance on this information. This material contains, or is based upon, information that we believe to be accurate and reliable, however neither FSI AIM, MUFG nor their respective affiliates offer any warranty that it contains no factual errors. No part of this material may be reproduced or transmitted in any form or by any means without the prior written consent of FSI AIM.

Some of the information within has been compiled using data from a representative account. This information relates to an existing Stewart Investors strategy and has been provided to illustrate Stewart Investors’ expertise in the strategy. This material is provided for information purposes only and does not constitute a recommendation, a solicitation, an offer, an advice or an invitation to purchase or sell any fund and should in no case be interpreted as such. Past performance is not a reliable indicator of future results.

References to specific securities (if any) are included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. Any securities referenced may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.

© First Sentier Investors Group

Strategy update: Q3 2022

Asia Pacific Sustainability strategy update: 1 July - 30 September 2022

Top-down macroeconomic headlines continue to dominate Asian markets with manic swings in sentiment based on the reading of central banks' policies, economic data and geopolitical narrative.

Our focus on owning a portfolio of high-quality, resilient franchises run by long-term competent owners, as well as our understanding that we add little value in the forecasting of macroeconomic events, meant there were minimal changes to the portfolio over the quarter.

Marginal positions in Estun Automation (China: Industrials) and Mahindra Logistics (India: Industrials) were sold over the period: Estun reached uncomfortably high valuations while Mahindra Logistics was sold to make way for higher-quality ideas. Proceeds from these sales were used to add to holdings at lower valuations such as: OCBC Bank (Singapore: Financials), Kalbe Farma (Indonesia: Health Care), HDFC (India: Financials), Mainfreight (New Zealand: Industrials), and Unilever Indonesia (Indonesia: Consumer Staples).

During the quarter, two new investments were initiated for the strategy. The first is a leading hotels franchise in India. The company is stewarded by long-term owners who have spent the recent down cycle in tourism and hospitality making the business leaner and stronger. With the most iconic brand in the country, a franchise that is becoming more asset light through management contracts, and with the potential for a recovery in hospitality and tourism, we believe there is a long runway here for growth in profitability of the core business. 

The second is an Indian IT services and embedded software provider focused on the automotive sector. The two co-founders of the company remain in the position of Chair and CEO and have consistently managed the business for the long term, building strong relationships with key automotive original equipment manufacturers (OEMs) globally. They have recently taken a decision to shrink the business to a third of its original revenue base – a difficult decision in the short term, but one that ensures a focus on their core competence in auto engineering over the long term. To us, this is a great indicator of stewards who can resist short-term market pressures to build sound, sustainable franchises. The company’s focus is on software and services related to electric vehicles and automated driving systems, benefiting from a long runway for growth in the coming years. 

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of the strategy shown above. Named new investments disclosed relate to holdings with a portfolio weight over 1%. It is not a recommendation or solicitation to purchase or invest in any fund. Differences between the representative account-specific constraints, currency or fees and those of a similarly managed fund or mandate would affect results.

Strategy update: Q2 2022

Asia Pacific Sustainability strategy update: 1 April - 30 June 2022

Economic and political news continued to deteriorate over the second quarter. The list of investor concerns is long, and equities have been volatile but mostly weak.

Broad measures of Asian equities are down around 10% in USD terms1 during the second quarter. This is notably better than developed equities where inflation is higher and interest rate increases are considered more pressing. Volatility such as this often presents an opportunity to acquire high-quality companies at lower valuations. 

During the period, positions were initiated in two extremely high-quality companies.

The first is a bank that traces its heritage back to the great depression of 1932, making it one of the oldest, capitalised financial services firms operating in Singapore, South East Asia and parts of China. It is recognised and trusted as one the safest deposit franchises in Asia. We purchased it at slightly under one times book value and with an attractive dividend yield.

We also bought a listed subsidiary consumer goods company, which owns, manufactures and distributes high-quality brands around the largest archipelago in the world. We have admired this franchise for decades, but high valuations had always dissuaded us from ownership. During the period, we were able to take advantage of weakness to introduce this high-quality company to the strategy.

We added to the position size of some existing investments: Shenzhen Inovance Tech (China), an innovative and sustainably focused engineering franchise, listed and operating in China; Glodon (China) which provides software solutions that increase efficiency in the construction sector; and CG Power (India) which manufactures products for power and rail infrastructure.

We reduced Altium (Australia) for reasons of valuation. We sold the strategy’s holding in Hualan Biological Engineering (China), having re-evaluated the franchise strength amidst a shifting competitive landscape. 

1 Source: Bloomberg

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of the strategy shown above. Named new investments disclosed relate to holdings with a portfolio weight over 1%. It is not a recommendation or solicitation to purchase or invest in any fund. Differences between the representative account-specific constraints, currency or fees and those of a similarly managed fund or mandate would affect results.

Strategy update: Q1 2022

Asia Pacific Sustainability strategy update: 1 January - 31 March 2022

The strategy sold its investment in Xero (Australia) which provides small and medium-sized enterprises with professional software, particularly accounting software, from the cloud.

We have great respect for the quality of the franchise here but we could not reconcile current valuations with the imminent growth challenges facing the company. Mounting concerns about growth at Advantech (Taiwan), Delta Electronics (Taiwan) and Hualan Biological Engineering (China), resulted in us also reducing each of these holdings. To control position size we trimmed Unicharm (Japan). Proceeds from a reduction in Kotak Mahindra Bank (India) were used to finance the purchase of a new investment in a bank in Malaysia. 

Returns at this bank are currently depressed, but the prospects for a healthier economy, and a stronger credit cycle, are likely to improve with rising commodity prices. This bank is well placed to benefit from this environment in a sustainably responsible manner. We also invested in two new healthcare companies which we believe are helping to improve the well-being of people in India and Indonesia. In addition to these purchases, we added to existing holdings in IndiaMART (India) and Techtronic Industries (Hong Kong) on recent weakness. We also increased the position size of the new holding in Malaysia. 

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of the strategy shown above. Named new investments disclosed relate to holdings with a portfolio weight over 1%. It is not a recommendation or solicitation to purchase or invest in any fund. Differences between the representative account-specific constraints, currency or fees and those of a similarly managed fund or mandate would affect results.

Proxy voting: Q4 2022

Asia Pacific Sustainability proxy voting: 1 October - 31 December 2022

Proxy voting by country of origin

Proxy voting by proposal category

During the quarter there were 72 resolutions from 15 companies to vote on. On behalf of clients, we voted against three resolutions.

We voted against the approval of CSL's remuneration report and the equity-based remuneration of the CEO. We believe their remuneration focuses on the shorter term rather than the longer term, and the absolute level of CEO pay, and the gap between median pay, is excessive. (two resolutions)

We voted against the election of a director to the supervisory board at Foshan Haitian Flavouring as we do not believe they are truly independent. (one resolution)

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of the strategy shown above. Proxy voting chart numbers may not add to 100 due to rounding. SHP means: Shareholder Proposal.

Proxy voting: Q3 2022

Asia Pacific Sustainability proxy voting: 1 July - 30 September 2022

Proxy voting by country of origin

Proxy voting by proposal category

During the quarter there were 214 resolutions from 27 companies to vote on. On behalf of clients, we voted against three resolutions. 

We voted against the election of a director at Dabur as we do not believe they are truly independent. (one resolution)

We voted against Philippine Seven’s request for management to approve all other business matters before the annual general meeting (AGM) of shareholders. We consider ourselves active shareholders and prefer to vote on such matters at the AGM. (one resolution)

We voted against the election of the chairman of the audit committee at Vitasoy as the committee met less than four times during the last fiscal year. (one resolution)

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of the strategy shown above. Proxy voting chart numbers may not add to 100 due to rounding. SHP means: Shareholder Proposal.

Proxy voting: Q2 2022

Asia Pacific Sustainability proxy voting: 1 April - 30 June 2022

During the quarter, there were 348 resolutions from 40 companies to vote on. On behalf of clients, we voted against nine resolutions. 

We voted against Amoy Diagnostics’ request to transfer product rights and equity to a subsidiary, and to amend authorised share capital, as we did not have sufficient information at the time of voting. (two resolutions)

We voted against the approval of an Employee Stock Purchase Plan at Glodon, as we believe one-year vesting periods are too short term and not in shareholders' interests. (three resolutions)

We voted against the appointment of the auditor and the election of two directors at Hualan Biological Engineering. At the time of voting, the company had not disclosed a breakdown of the fees paid to its auditor, and we do not believe the directors are truly independent. (three resolutions)

We voted against Pentamaster’s request to issue shares without pre-emptive rights, as the share discount rate had not been disclosed. (one resolution)

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of the strategy shown above. Proxy voting chart numbers may not add to 100 due to rounding. SHP means: Shareholder Proposal.

Proxy voting: Q1 2022

Asia Pacific Sustainability proxy voting: 1 January - 31 March 2022

During the quarter there were 68 resolutions from 12 companies to vote on. On behalf of clients, we voted against one resolution. 

We voted against the approval of fees to be paid to the directors and commissioners at Bank Central Asia as we believe they are excessive. (one resolution) 

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of the strategy shown above. Proxy voting chart numbers may not add to 100 due to rounding. SHP means: Shareholder Proposal.

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For illustrative purposes only. Reference to the names of example company names mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies. Companies mentioned herein may or may not form part of the holdings of Stewart Investors. Holdings are subject to change.

Certain statements, estimates, and projections in this document may be forward-looking statements. These forward-looking statements are based upon Stewart Investors’ current assumptions and beliefs, in light of currently available information, but involve known and unknown risks and uncertainties. Actual actions or results may differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements. There is no certainty that current conditions will last, and Stewart Investors undertakes no obligation to correct, revise or update information herein, whether as a result of new information, future events or otherwise.

Source: Stewart Investors investment team and company data. Securities mentioned are all holdings which have/have had a portfolio weight over 0.5% from representative Asia Pacific Sustainability Strategy, Asia Pacific & Japan Sustainability Strategy, Asia Pacific Leaders Sustainability Strategy, European Sustainability Strategy, European (ex UK) Sustainability Strategy, Global Emerging Markets Leaders Sustainability Strategy, Global Emerging Markets Sustainability Strategy, Indian Subcontinent Sustainability Strategy, Worldwide Sustainability Strategy and Worldwide Leaders Sustainability Strategy accounts up to 31 December 2022.

The Stewart Investors supports the Sustainable Development Goals (SDGs). The full list of SDGs can be found on the United Nations website.

Source for Climate Solutions and impact figures: © 2014–2023 Project Drawdown (drawdown.org). Source for Human Development Pillars: Stewart Investors investment team.

Source for climate solutions and human development analysis and mapping: Stewart Investors investment team. Contributions are defined by the team as demonstrable contributions to any solution, either direct (directly attributable to products, services or practices provided by that company), or enabling (supported or made possible by products or technologies provided by that company).

Investment terms

View our list of investment terms to help you understand the terminology within this document.