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 Asia Pacific and Japan Sustainability

Asia Pacific and Japan Sustainability

The strategy was launched in June 1988, and since September 2019 has been a dedicated sustainability strategy.

The strategy was launched in June 1988, and since September 2019 has been a dedicated sustainability strategy. This equity-only strategy aims to achieve long-term capital growth by investing in a portfolio of between 30-60 companies in the Asia Pacific region, including Japan, that are helping to bring about a more sustainable future.

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 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

Q2 2022

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

In markets such as these, where share prices of a particular industry, sector, or even country, move materially and as one on the back of economic headlines, the prospects for bottom-up stock selection tend to improve. 

Over the quarter, we added to four names where we believe the long-term investment case remains robust but where valuations have de-rated and thus increased the potential for attractive long-term returns. The most material of these additions were to Mainfreight (New Zealand), Glodon (China) and Japan Elevator Service (Japan). 

Mainfreight is an ambitious, New Zealand-based, logistics provider with one of the strongest cultures we have come across. A culture that we believe provides an enduring competitive advantage. Their passion and focus on culture is seen in the below excerpt from their recently released annual report:

The Mainfreight culture – our disciplines and style of doing business – is part of our “secret sauce”. We take a decentralised approach to business – all 305 branches measure their quality and manage their own profit and loss statements. No cross-subsidisation appears in these financials and they include interest and depreciation; there is no hiding from poor performance. Decision-making that happens close to the customer, promotion of our people from within, and sharing our profits with those who earn them are other key pillars of who we are. At all times we look to dispense with bureaucracy, helping decisions to be made quickly and efficiently.*

Mainfreight has been sold-off alongside the wider logistics industry, as the market tries to understand what growth and profitability looks like once COVID-induced bottlenecks are worked out. We now find Mainfreight trading on valuation multiples roughly in-line with industry peers, despite being meaningfully higher quality and offering far more attractive opportunities for long-term growth.

We also added to Glodon, the Chinese based-provider of software to the construction industry, as broader concerns around the property sector led to a sell-off in names with any association to the sector. Glodon should be insulated from shorter-term economic stress as its software is a key, everyday input into improving the efficiency and profitability of China’s bloated, inefficient infrastructure and construction companies. Longer term, we remain very enthusiastic about Glodon’s ability to diversify its product offering and expand its addressable market.

Japan Elevator Service (JES) plays an important role in maintaining, and improving, the efficiency and safety of Japan’s housing infrastructure, with longer-term ambitions of growing throughout India and South East Asia. A general sell-off of all things seen as “growth” in Japan has brought JES to a valuation that brings longer-term returns more in line with the opportunity to profit from growing domestic market share gains. Short-term concerns have also led to the multi-decade overseas opportunity to be largely ignored.

Over the quarter, the position in Hualan Biological Engineering (China) was sold as we failed to build conviction in the ability of the company to mitigate growing competition from state-owned players. Positions in Tata Consumer Products (India) and Voltronic Power (Taiwan) were trimmed as increasingly full valuations provided greater headwinds to longer-term returns.

Mainfreight 2022 Annual Report, pg. 14, 

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 and Japan Sustainability strategy update: 1 January - 31 March 2022

Growing inflationary pressures and the long-awaited reversal of ultra-loose monetary policy by central banks provided the conditions for short-term market participants to “sell growth” and “buy value”.

This top-down trade saw a blanket sale of all things thought of as growth, with little regard for underlying business fundamentals or valuations. We have long been nervous about the valuations being asked of businesses with no track record of, or path to, profitability; a reliance on outside capital in the form of equity raising or cheap debt; and who sell their prospects by pointing largely to top-line growth and market size. It makes sense to us that this type of “growth company” was sold-off aggressively as we now look to a world with a rising opportunity cost of capital. However, as is often the case when large parts of the market trade as one, high-quality businesses with attractive growth prospects were sold indiscriminately.

A number of high-quality Japanese companies were thrown out with this “sell growth” theme which provided us the opportunity to increase the position size of three of our current holdings: MonotaRO, Japan Elevator Service and MANI. Each of these names is a leader in their respective markets, with attractive levels of free-cash-flow generation, solid balance sheets and long-term management teams at the helm. We also added to names elsewhere in the region where we felt share price weakness failed to reflect the long-term opportunity for the compounding of growth: IndiaMART (India), Mainfreight (New Zealand), Silergy Corp (Taiwan), Techtronic Industries (Hong Kong) and Vinda International (Hong Kong).

Over the period we chose to exit a number of marginal positions in the tail of the portfolio to allow us to fund larger weightings in the following names: Dr. Reddy’s Laboratories (India), Estun Automation (China), Tokyo Electron Limited (Japan) and Xero (New Zealand). The latter two names had been reduced in weight over the last year or so on valuation concerns. 

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: Q4 2021

Asia Pacific and Japan Sustainability strategy update: 1 October - 31 December 2021

Over the quarter, we initiated positions in four new holdings.

These are a diverse set of companies each offering a unique path to long-term growth while sharing our non-negotiables of high-quality people, franchises and financials. For now, they remain marginal positions so we will refrain from mentioning them by name.

Short-term concerns centred on the sustainability of earnings growth offered us lower prices to add to a number of existing holdings. We added to our position in Pigeon as we believe recent share price weakness, the result of an overly myopic view of Chinese growth, ignores the company’s longer-term opportunities in China as well as markets with attractive demographics, such as India and Indonesia. Similarly, Koh Young Technology experienced material weakness in its share price thanks to concerns over semiconductor shortages and diminished demand. Again, we believe the long-term opportunity is being overlooked. We remain very excited about Koh Young’s future as they begin to see traction in new markets after years of aggressive spending on research and development; exactly the kind of investment, and patience, we look for in long-term stewards.

Funding the above investments, while maintaining a concentrated portfolio, led us to sell Tata Communications. We bought Tata Communications last year, as we believed there to be meaningful value creation on offer should a renewed focus on profitability and financial health prove successful. However, we have a number of companies going through such transitions in the portfolio and Tata Communications is where we have the least conviction of long-term success

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: Q3 2021

Asia Pacific and Japan Sustainability strategy update: 1 July - 30 September 2021

During the quarter, we had the opportunity to invest in four new positions.

Two of which now bring the strategy’s exposure to Japanese-listed companies to over 13%. The first, Asahi Intecc is a family-owned, world leader in specialist surgical devices. Their ambitious plans for overseas growth together with investment in transformational new categories such as robotic surgery, lays the foundation for attractive levels of long-term growth while improving health outcomes for patients. Short-term concerns around pricing pressures in China as well as constrained profitability on the back of recent mergers & acquisitions (M&A) led to a significant share price decline. This offered us the opportunity to initiate a position at a relatively attractive valuation. 

The second is a world-class provider of maintenance, repair and operation products to businesses across Japan. Their highly scalable digital platform offers unmatched convenience to customers who value their product selection and delivery times - outcomes that smaller, analogue-based competitors cannot match. With domestic market share of only 2% and nascent ventures in Indonesia and India, we believe there remains a long runway ahead for the company to continue their enviable track record of profitable growth. Relative weakness in India’s largest online business-to-business marketplace and China’s leading condiment brand allowed us to initiate starting positions in names we have long watched from the sidelines in the hope of more attractive valuations.

Growing political and economic uncertainty in China offered the opportunity to add to our favourite Chinese companies. These names are high-quality, unique franchises run by entrepreneurial management teams with strong balance sheets. Most importantly, they are focused on generating positive societal outcomes while being aligned with the Chinese Communist Party’s want to reduce dependence on foreign multinationals. Examples include China’s largest diagnostic laboratory provider, a leading molecular testing franchise focused on oncology precision medicine, a leading software provider to the construction industry, and an emerging robotic champion.

Maintaining a concentrated, high-conviction portfolio necessitated selling some names to fund the above purchases. Over the period, marginal positions in Cyient (India, IT), MediaTek (Taiwan, semiconductors) and AK Medical (China, healthcare) were sold. There were a number of small trims made in names where valuations are no longer as attractive as they once were; Hoya (Japan, IT), Tata Consultancy Services (India, IT), Dr. Lal PathLabs (India, healthcare), Shenzhen Inovance (China, industrials) and Silergy (Taiwan, IT). 

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.

Q2 2022

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

During the quarter, there were 258 resolutions from 33 companies to vote on. On behalf of clients, we voted against six 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 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 and Japan Sustainability proxy voting: 1 January - 31 March 2022

During the quarter there were 62 resolutions from 11 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.

Proxy voting: Q4 2021

Asia Pacific and Japan Sustainability proxy voting: 1 October - 31 December 2021

During the quarter there were 49 resolutions from 10 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 have engaged with CSL over a number of years on remuneration and whilst we appreciate and acknowledge the changes they have made to their remuneration structure, our concerns remain that their remuneration focuses on the shorter term over the longer term, and the absolute level of CEO pay and the gap between median pay. (two resolutions) 

We voted against Shenzhen Inovance Technology's request to make amendments to the procedural rules of the company's information disclosure management system as we did not have sufficient information at the time of voting to know what these changes were. (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 2021

Asia Pacific and Japan Sustainability proxy voting: 1 July - 30 September 2021

During the quarter there were 178 resolutions from 24 companies to vote on. On behalf of clients, we voted against 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)

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 30 June 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: © 2014–2022 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), enabling (supported or made possible by products or technologies provided by that company) or indirectly (companies that are involved in and around the solution). Indirect contributions are relevant for climate solutions only.

Investment terms

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

Fund data and information

Fund prices and details

Click on the links below to access key facts, literature, performance and portfolio information for the funds and share classes available in this jurisdiction:

Stewart Investors Asia Pacific and Japan Sustainability Fund

Overview of Stewart Investors Asia Pacific and Japan Sustainability Fund performance

Fund name Fund type Currency Price Daily change Price date
Stewart Investors Asia Pacific and Japan Sustainability Class A (Acc) OEIC GBP 1628.31 -1.51 30 Sep 2022
Stewart Investors Asia Pacific and Japan Sustainability Class A (Inc) OEIC GBP 288.50 -1.51 30 Sep 2022
Stewart Investors Asia Pacific and Japan Sustainability Class B (Acc) OEIC GBP 1910.22 -1.51 30 Sep 2022
Stewart Investors Asia Pacific and Japan Sustainability Class B (Inc) OEIC GBP 294.10 -1.51 30 Sep 2022

Share prices are calculated on a forward pricing basis which means that the price at which you buy or sell will be calculated at the next valuation point after the transaction is placed. Where a fund price is marked XD, this means that the fund is currently Ex-Dividend. Past performance is not necessarily a guide to future performance. The value of shares and income from them may go down as well as up and is not guaranteed. Please note that the yield quoted above is not the historic yield. It is considered that the yield quoted represents the current position of investments, income and expenses in the fund and that this is a more accurate figure. Investors may be subject to tax on their distribution. The yield is not guaranteed or representative of future yields. You should be aware that any currency movements could affect the value of your investment. The Funds within the First Sentier Investors Global Umbrella Fund plc (Irish VCC) are denominated in USD or EUR.

Following the UK departure from the European Union, the First Sentier Investors ICVC, an open ended investment company registered in England and Wales ("OEIC") has ceased to qualify as a UCITS scheme and is instead an Alternative Investment Fund ("AIF") for European Union purposes under the terms of the Alternative Investment Fund Managers Directive (2011/61/EU). Accordingly, no marketing activities relating to the OEIC are being carried out by Stewart Investors in the European Union (or the additional EEA states) and the OEIC is not available for distribution in those jurisdictions. We have made documents available for existing EU investors in the ICVC which can be accessed here