Global Emerging Markets Leaders Sustainability


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Strategy overview

The strategy was launched in April 2020. The strategy invests in large and mid-sized emerging markets companies which generally have a total stock market value of at least US$1 billion and that are positioned to contribute to, and benefit from sustainable development.

1 July - 30 September 2021

During the course of this quarter, we chose to exit a few of the positions in the strategy. These changes were driven primarily by our continued focus on incrementally improving the quality of the portfolio, and adding instead to companies we think have better long-term sustainable and structural tailwinds of growth for the decade ahead. 

Four of the positions exited include UnileverKasikornbankSamsung Electronics, and Tencent. We have slowly trimmed our longstanding holding in Unilever, and chose to exit this quarter as we have struggled to find conviction in their efforts to reinvigorate the franchise. Without this, their opportunities for growth over the next decade look to be more challenged than they have been over the previous one. We also exited our holding in Kasikornbank, which remains in our minds the best bank in Thailand. We admire the stewardship of the Lamsam family and the conservatism they have embedded in the bank post the Asian Financial Crisis. However, we worry about their limited opportunities for loan growth in the country and the rising threats from fintech disruption. We chose to exit the position and add to companies where we had more conviction.

Samsung Electronics is another company we exited through this quarter, primarily due to the cyclicality of earnings. Given our long-term approach, we are unlikely to be able to make a call on when memory chip prices reach their peak or trough, and thus chose to exit our position after Samsung delivered strong absolute returns for clients. We owned Tencent only for a brief period – unlike our typical holdings. We engaged with Tencent, shortly after we initiated a position, on issues around data privacy and government regulations. A few actions of the company, including de-platforming LGBTQ student groups, and the rising threats around government regulation led us to correct our mistake quickly, and we chose to exit the position.

We also exited our position in Avast. The company is a global leader in cybersecurity software for consumers, based out of the Czech Republic. While we believe the company has a long runway for growth, they have announced a merger with the US-based NortonLifeLock. The combined entity will be ineligible for our emerging markets funds and we have therefore had to sell out of our position.  

Through this quarter, we have re-initiated a position in Foshan Haitian, the leader in soy sauce and other condiments in China. Foshan is the domestic leader in these condiments by a high margin, continues to have a long runway to evolve into other condiments, and has focused on growing through volumes rather than by increasing prices. We had previously exited our position in the company due to valuations reaching all-time highs, and had an opportunity over these past months to buy back into the company at a more attractive valuation.

We also added to many of our other Chinese holdings including Glodon, Guangzhou Kingmed, and Estun Automation, amongst others. We believe these companies continue to be well managed by their owner-managers and are the leaders in their respective industries, providing necessary products and services, setting them up well to continue growing 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 each 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. 

1 April - 30 June 2021

We initiated a number of new positions in the strategy during the quarter.

During the first half of 2021, there has been a continuing rotation away from quality-growth and towards value- cyclicals, as economies around the world rebound from the COVID-19 pandemic and associated lockdowns.

The broader market has been attracted to owning companies that have the best chance of rapid earnings growth in the next twelve months. In many cases, this means companies in cyclical commodity industries like shipping and mining whose earnings collapsed last year and which are most sensitive to re-opening. Whilst these companies may outperform in the short term, we believe in the long run the owners of their equity will likely realise a return more commensurate with their modest returns on invested capital.

One consequence of this rotation has been that a number of high-quality companies which were more resilient throughout 2020, but which now do not offer the same short-term upside, have become much more reasonably valued. This has been particularly true in China, the country which is most advanced in its economic recovery.

Many of the most attractive long-term companies to own in China have become significantly more affordable over the last two quarters.

For instance, we have been watching one specific Chinese plasma and vaccines company for some years. Our first meeting with the company was ten years ago, but it has been in the last few years that we built conviction up to feeling the company met our quality criteria. It has a well-stewarded balance sheet, a competent owner-manager and is the domestic leader in China in an industry we know well, having been long- term shareholders in companies like CSL in Australia.

Since February, the company’s share price has fallen by around a third as solid, defensive earnings streams have become less popular relative to those driven by re- opening and recovery. With a return on capital above 20% and medium-term growth rates at a similar level, this felt like an opportune time to initiate a position in what we believe will be a long-term winner in China.

The same pattern and fundamental logic underlies recent new positions in a China software company and two Chinese medical diagnostics companies.

In order to fund these ideas, we trimmed some existing positions. These were primarily holdings which have done very well and where a combination of resultant position size and valuation multiple has led us to take some profit, whilst retaining meaningful exposure.

One example would be EPAM Systems, a Belorussian IT services company listed in New York, which has benefited hugely from a surge in corporate spending on ‘digitalisation’. Another would be Dabur, an Indian ayurvedic consumer goods company which has seen very strong results as people increasingly spend on wellness products in the wake of the COVID-19 pandemic.

We continue to believe the companies we own in the strategy in emerging markets offer attractive long-term opportunities for capital growth.

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 each 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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Proxy voting

1 July - 30 September 2021

Global Emerging Markets Leaders Sustainability

During the quarter there were 143 resolutions from 19 companies to vote on. On behalf of clients, we voted against three resolutions.

We voted against Kasikornbank’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 two directors at Dabur as we do not believe they are truly independent. (two resolutions)

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. Proxy voting chart numbers may not add to 100 due to rounding. 

1 April - 30 June 2021

Global Emerging Markets Leaders Sustainability

During the quarter there were 332 resolutions from 23 companies to vote on. On behalf of clients, we voted against seven 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)

We voted against Natura’s request to establish a Supervisory Council as we do not believe it is necessary given they are a one share, one vote company and we are comfortable with management. (one resolution)

We voted against Tencent’s request to issue shares without pre-emptive rights as the share discount rate had not been disclosed and the share issuance was excessive. We also voted against their request to adopt the share option plan of a subsidiary as there was a lack of detail provided on the terms of the plan. (two resolutions)

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. Proxy voting chart numbers may not add to 100 due to rounding. 

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Investment terms 

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

Important information

This information has been prepared and issued by First Sentier Investors (Australia) IM Limited (ABN 89 114 194 311 AFSL 289017) (FSI AIM).

Stewart Investors is a trading name of FSI AIM. FSI AIM forms part of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group.

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.

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 or any affiliates thereof for any loss or damage as a result of any reliance on this information. This information is, or is based upon, information that we believe to be accurate and reliable, however neither FSI AIM, MUFG nor any affiliates thereof 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 has been compiled using data from representative accounts. This information relates to existing Stewart Investors strategies and has been provided to illustrate Stewart Investors’ expertise in the strategies. 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.

Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell. Reference to the names of any company is merely to explain the investment strategy and should not be construed as investment advice or a recommendation to invest in any of those companies.