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 Asia Pacific Leaders Sustainability

Asia Pacific Leaders Sustainability

The Asia Pacific Leaders strategy invests in large and mid-sized companies which generally have a total stock market value of at least US$1 billion. 

The Asia Pacific Leaders strategy was originally launched in December 2003 and invests in large and mid-sized companies which generally have a total stock market value of at least US$1 billion (hence ‘Leaders’).

This equity-only strategy seeks to invest in between 30 to 60 high-quality businesses in the Asia Pacific region (including Australia and New Zealand, but excluding Japan) that are helping bring about a more sustainable future.

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

Proxy voting

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

The second quarter of 2022 was extremely volatile and mostly weak for equities.

Inflation is less acute in Asia, and while regional equities did not fall as much as global peers, they are down around 10% in USD terms1 according to broad measures. Investor fears of recession, aggravated by war in Ukraine and increasing commodity prices, appear to be rising. Within this context our philosophy and process stayed exactly the same and we added to high-quality companies at attractive valuations.

During the second quarter, we increased the position size of three existing holdings. The first was OCBC Bank (Singapore), an excellent financial services franchise in Singapore, Malaysia, Indonesia and Greater China, stewarded by the Lee family. The second was Shenzhen Inovance Tech (China), an innovative engineering company with strong sustainability tailwinds. The third was Public Bank (Malaysia), one of the finest banking franchises in Malaysia and an indirect beneficiary of rising commodity prices.

We did not add any new companies during the period. But we note, with anticipation, an increasing number of high-quality franchises with good prospects at more enticing valuations.

Not all equities in the region fell. We trimmed Mahindra & Mahindra (India) and Tata Consultancy Services (India), two of the strategy’s largest holdings, to control position size. We also reduced Altium (Australia) for reasons of valuation.

We sold Hualan Biological Engineering, having re-evaluated the quality of the franchise amidst a more 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 Leaders Sustainability strategy update: 1 January - 31 March 2022

We invested in a bank in Malaysia during the quarter. Under the excellent stewardship of founder/owner, Teh Hong Piow, the bank has thrived through adversity and crisis for over fifty years. 

This bank has the highest-quality operating metrics in the country and has one of the most respected track records in Asia. Like all countries, the Malaysian economy has struggled with COVID-19 but the country is blessed with a broad range of natural resources which are now rising in price. This should strengthen the economy, provide more profitable lending opportunities for the bank, and is likely to improve returns on capital from historically low levels. We have been adding to our initial investment in the bank throughout the quarter. We also topped up holdings in HDFC (India), Kotak Mahindra Bank (India) and Techtronic Industries (Hong Kong) on share price weakness. 

We revised our assessment of quality at Xero (Australia) and Biocon (India), resulting in the sale of both companies from the portfolio. Our primary concerns are growth challenges at Xero and slow franchise development at Biocon. In addition to these sells, we trimmed holdings in Delta Electronics (Taiwan) and Advantech (Taiwan), where we believe the company valuations implied more growth than the franchises are likely to deliver in the medium term. We also reduced Hoya (Japan) which manufactures components used for making semiconductors. The semiconductor industry is nearing a cyclical high and faces intensifying sustainability headwinds which may challenge Hoya.

We also reduced Hualan Biological Engineering (China) on growth concerns, Unicharm (Japan) to control position size, and despite topping up Kotak Mahindra Bank (India) earlier in the quarter, we later reduced our holding to finance an increase in the position size of the new holding in Malaysia. Lastly, we reduced the holding in Dr. Reddy’s Laboratories (India) over uncertainty about their operations in Russia. These operations only account for approximately 8% of sales for Dr. Reddy’s, but the company might face increasing challenges as the Russian war with Ukraine continues.

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 Leaders Sustainability strategy update: 1 October - 31 December 2021

There were three small transactions made during the final quarter of 2021.

The divestment of Bank of the Philippine Islands (BPI), part of the Ayala conglomerate, was the most significant. This sale marks the first time in the strategy’s history that there are no direct investments in the Philippines. Long-term investors will know that we have great respect for the high-quality stewardship provided by the Ayala family; this has not changed. The integrity, competence and vision of the current generation is beyond question. Their genuine focus on sustainability, with the emphasis on bettering the lives of Filipinos, is particularly commendable. We have not turned our back on the Philippines or other franchises stewarded by this family. However, we are concerned that government development policy is increasingly hard to determine and that high levels of debt within the economy has reduced the ability of corporates to contend with exogenous shocks. We sold BPI because banking franchises are often susceptible to politicisation, innately geared and therefore most vulnerable to such concerns.

Our questioning of valuations, sustainability positioning and cyclicality of many companies operating within the semiconductor supply chain increased over the year. Consequently, we reduced a number of semiconductor related holdings for one or more of these reasons, and sold MediaTek (Taiwan) completely. For valuation reasons, during the fourth quarter of 2021, we trimmed Hoya (Japan) which manufactures lenses for correcting vision impairment as well as mask blanks that are vital components for the manufacture of semiconductors.

On the back of more attractive valuations, we chose to increase our holding in Pigeon, a Japanese manufacturer of bottles and accessories for babies. Despite being one of the major detractors to the strategy’s performance in recent years, Pigeon have dominant market share in Japan and an excellent reputation for high-quality products across Asia with emerging businesses in markets with attractive demographics, such as India and Indonesia. During this quarter, a conversation with senior management allayed our concerns over franchise positioning and growth opportunities within China.

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 Leaders Sustainability strategy update: 1 June - 30 September 2021

Political headwinds have intensified and economic activity has slowed in China.

Chinese bond and equity markets suffered with the most dramatic falls found in the education and property sectors.1 There are some signs of financial distress in pockets of the economy. This had a negative impact on the valuation of banks and insurance companies which may face financial losses.Fortunately, the strategy has no exposure to any of these industries..

Our views on China have not changed; we look to invest in high-quality companies that are aligned with sustainable development. We look for stewards who prefer anonymity over notoriety, franchises that are unencumbered by political patronage and financials that are resilient not frail. Our focus on quality protected the strategy from the worst of the recent falls in China and we remain indifferent to many of the large, well-known companies, regardless of lower valuations. We took advantage of market weakness to purchase two new high-quality companies in China

The first company purchased is a leading player in soy sauce and other condiments. A trusted brand with three hundred years of history, which plays an important role in the company’s ability to generate attractive margins and free cash flow. We are also attracted to the long-term evolution into other condiments. The second is China’s largest decorative paint brand. In addition to these new holdings we topped up on four of the companies we purchased in the first half of 2020. Each of these companies have excellent financials, inspiring stewards and franchises built around products that complement China’s development.

The portfolio has benefitted from strong investor interest in Indian equities. Even after solid gains we are convinced that some of the highest quality companies in Asia, at reasonable valuations, are still to be found within the top ten holdings of the strategy. Indeed, we only trimmed Tata Consultancy Services to control the position size. For this reason, the majority of the reductions were made outside of India.

We reduced TSMC (Taiwan), MediaTek (Taiwan), Silergy (Taiwan) and Hoya (Japan). All of these companies are involved, at different stages, in the design and manufacture of semiconductors. Each company has benefitted from strong industry tailwinds and is likely to experience buoyant demand for some time to come. However, we are increasingly mindful of valuations now being asked across much of the sector. 

1 Source: FactSet

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 Leaders Sustainability proxy voting: 1 April - 30 June 2022

During the quarter, there were 276 resolutions from 29 companies to vote on. On behalf of clients, we voted against eight 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)

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 Leaders Sustainability proxy voting: 1 January - 31 March 2022

During the quarter there were 52 resolutions from eight 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 Leaders Sustainability proxy voting: 1 October - 31 December 2021

During the quarter there were 38 resolutions from seven 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 Leaders Sustainability proxy voting: 1 July - 30 September 2021

During the quarter there were 155 resolutions from 21 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. 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 Leaders Sustainability Fund

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