The strategy was launched in June 1988. In September 2019, it was inherited by the Sustainable Funds Group and in May 2020, transitioned to become an Asia Pacific and Japan Sustainability strategy. This change means the strategy is able to invest in companies that derive the majority of their economic exposure from Japan. The ability to invest directly in Japan allows clients to own high quality Japanese companies far earlier in their Asian growth journeys as well as accessing a greater pool of domestic companies with attractive growth opportunities that are positioned to benefit from and contribute to sustainable development.
1 April - 30 June 2021
Over the quarter, a rare bout of volatility, in what have largely been unshakeable upward markets, presented the opportunity to increase our exposure to high-quality names in Japan and China.
In Japan, a position in AS ONE was initiated after “the market” took issue with short-term results. AS ONE is the leading wholesaler of scientific and healthcare instruments in Japan where dominant scale allows them to offer the broadest collection of products at vastly superior delivery times versus smaller peers, and in doing so creating significant value for researchers and scientists. Effectively operating as a “one-stop shop” for scientists and researchers, AS ONE, facilitated by a long-term family owner, has a unique business model that we believe is capable of weathering economic cycles while generating attractive margins, returns and cash flows. We have studied equivalent businesses in the US and Europe and believe this business model offers durable competitive advantages while playing a critical role in supporting global innovation. Longer term, we believe AS ONE has the potential to improve the quality of its franchise through the shift toward online ordering while also expanding their valued service to research departments in the rest of Asia.
We also added to the holding in Mani (instruments used in dental and ophthalmic surgery). Mani is another of our Japanese holdings that is very well positioned to take advantage of growth in emerging Asian markets.
Broad weakness in China offered the window to invest in two new names: we continue to build positions in these companies so will refrain from naming them directly. The first is a leading provider of molecular testing equipment that will play a critical role in addressing China’s growing cancer burden. The second, is an emerging local champion in China’s robot industry with attractive long-term tailwinds, driven by growing automation spend and the government’s want to reduce dependence on global multinationals.
These purchases were largely funded through the complete disposal of a small position in Dabur (India, Consumer staples) and trimming Xero (Australia, IT), Mediatek (Taiwan, IT) and Tokyo Electron Limited (Japan, IT) due to stretched valuations.
With many markets trading near all-time highs, volatility near all-time lows, the continued focus on narrative rather than fundamentals, a growing list of fraudulent activity and an unshakeable infatuation with high-growth companies, we are keeping an eye on capital preservation and downside protection rather than trying to outrun overly exuberant markets.
We are not in the forecasting business so won’t claim to know when things will change, only that they will. In response to that uncertainty, we look to build resilient portfolios from a diversified collection of high-quality businesses run by high-quality people on reasonable valuations. This disciplined philosophy has protected capital in most drawdowns while allowing us to participate in up markets: a combination that, over the long term, has delivered attractive long-term returns.
The opportunity that lies ahead of a long-term investor in the Asian region is an exciting one. It is home to some of the highest quality stewards, and highest quality franchises globally, with many avenues for long-term growth.
1 April - 30 June 2021
Asia Pacific and Japan Sustainability
During the quarter there were 245 resolutions from 23 companies to vote on. On behalf of clients, we voted against 10 resolutions.
We voted against Pentamaster International, Vinda International and AK Medical Holdings’ request to repurchase issued shares, and issue shares without pre-emptive rights, as the share discount rate had not been disclosed and the share issuance was excessive. (six resolutions)
We voted against Shenzhen Inovance Tech’s request to adopt a long-term stock ownership incentive plan as there was a lack of disclosure and transparency on the plan. We also voted against their request to elect an individual to their Supervisory Council as we do not believe they are truly independent. (four resolutions)
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