Get the right experience for you. Please select your location and investor type.
How we select companies
We are often asked how we narrow down a universe of approximately 18,000 [1] Asian and Emerging Markets companies to a portfolio of roughly 50. It’s a good question, and since we invest globally too, giving us an investible universe of approximately 70,000 [1] companies, the challenge is even starker.
We would love to be able to say we have constructed a clever algorithm so that a black box tells us which ten companies to consider each week, but we haven’t.
In reality, we start with a blank sheet of paper, and instead of whittling down 70,000 to 50; actually we are starting from 0 and building up to 50. One analogy that we have used is the idea of walking along a beach looking for 50 of our favourite shells. We know what we are looking for in our collection, but we won’t be looking at every shell on the beach to find them. And we are likely to spot new shells each day and will continue to do so for years to come. Such is the task of operating in a universe of 70,000 companies.
What we are looking for is a function of our investment philosophy and process, which is consistent across each of our funds. We are looking for companies that we believe contribute to, and benefit from, sustainable development, and have high quality management teams, franchises, and financials. With such companies we take a disciplined approach to valuation, considering the potential growth of the company over the long-term.
We maintain a “focus list” of approximately 300 of our favourite companies that we would own at the right valuation. If a company meets our quality requirements, we begin the process of investing. We often start small and build our conviction over several years, as we meet the management team repeatedly, engage where issues arise, visit sites, and gather reference checks from third parties such as suppliers, competitors, directors, industry associations and media.
But the question remains, when we get to the beach, how do we know where to start looking? Our emphasis on long-term sustainability positioning helps in this regard. We have a strong focus on seeking out those companies which support and profit from the ongoing transition to a genuinely sustainable future. In simple terms, this means improving human development outcomes within the environmental limits of our planet.
This is where we focus. But it is not just about applying a sustainability lens. We travel widely and “kick the tyres” of around 500 companies per year; there is nothing like examining a dingy head office above a store, or a plush marble foyer of a new building. We lean heavily on our long history of investing in Asian and Global Emerging Markets (GEM). For example, we invested in a US health care company which came to our attention because we knew one of its board directors from an Indian company we held for our Asian funds. We look for referrals at every opportunity, and seek the views of businesses and directors we respect.
We also engage with companies to sort fact from fiction. For example, when a prominent palm oil company we consider “uninvestible” received poor press about its activities, we contacted them not to engage on changing their practices, but rather to determine which of their buyers had been giving them a hard time. This proved a much more effective way of comparing and contrasting the supply chain practices of large multinational consumer companies than any amount of reading of their sustainability reports might provide.
None of these methods can be achieved using a black box. Instead, our approach is simply to remain true to what is a simple investment philosophy and process, in order to patiently maintain and constantly refine our shell collection. Fortunately, there are always new shells out there just waiting to be found.
David Gait
Updated as of Dec 2024. First published Q3 2013 in ‘First State Stewart Sustainability Strategies Quarterly Client Update: Third Quarter 2013.’ Not all funds are available in all jurisdictions.
[1] Source: Stewart Investors, 31 December 2024
Investment terms
View our list of investment terms to help you understand the terminology within this website.
Subscribe to our updates
To get regular updates and content from Stewart Investors, please register here.
Important Information
This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.
We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. To the extent this material contains any measurements or data related to environmental, social and governance (ESG) factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.
To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.
To the extent this material contains any ESG related commitments or targets, such commitments or targets are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any commitments and targets set out in this material are continuously reviewed by the relevant investment teams and subject to change without notice.
About First Sentier Investors
References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners, all of which are part of the First Sentier Investors group.
We communicate and conduct business through different legal entities in different locations. This material is communicated in:
- Australia and New Zealand by First Sentier Investors (Australia) IM Ltd, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)
- European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)
- Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First Sentier Investors, FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners are the business names of First Sentier Investors (Hong Kong) Limited.
- Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and this advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), RQI Investors (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions of First Sentier Investors (Singapore).
- Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611)
- United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)
- United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167)
- other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (FCA ref no. 122512; Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB; Company no. SC079063).
To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.
© First Sentier Investors Group
