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 Worldwide Leaders Sustainability

Worldwide Leaders Sustainability

The Worldwide Leaders Sustainability strategy launched in November 2013 and transitioned to become a dedicated sustainability strategy in October 2016. 

The Worldwide Leaders Sustainability strategy launched in November 2013 and transitioned to become a dedicated sustainability strategy in October 2016. The strategy invests in 40-60 high-quality global companies that are particularly well positioned to contribute to, and benefit from, sustainable development.

Leaders simply means that this strategy is focused on companies with a market cap value of at least USD3 billion. 

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

Worldwide Leaders Sustainability strategy update: 1 April - 30 June 2022

There is a lot of “macro” economic chatter going on right now, and while it is relevant to the investment environment, it is also somewhat noisy for bottom-up investors like us.

We remain focused on the quality of the management teams in which we invest. We have faith that they are capable of managing their franchises through, what will likely be, a stormy cycle. We believe that these franchises are necessary and have the strength to endure. Finally, we are confident that the balance sheets and financials underpinning these companies are built to last.

We are aware that the sustainability challenges and opportunities facing our companies are the key investment issues over the long term, and hence we remain mindful of the long term, especially while the short-term noise increases. This is how we have always invested and, when it comes to protecting and growing our clients’ capital, we believe these criteria are as important now as they ever have been.

We have taken the opportunity to initiate two new positions in the quarter. First is a Singaporean bank, OCBC Bank, which we have known for decades through our Asia funds. It is a well-governed, family-owned bank based in Singapore; a market known for its economic and macro-prudential discipline. OCBC also has subsidiaries and associates in Indonesia, Hong Kong and China, which we believe will help drive future profitability. The valuations here are not demanding, versus acceptable and reasonable long-term return expectations.

We have also re-invested in Nestlé (Switzerland) which is a consumer franchise that is well positioned for resilience and robust growth in a difficult inflationary environment. We have long said that there is no such thing as a perfect company and some of these ‘imperfect giants’ make compelling investment cases as they address broader franchise challenges: Nestlé falls into this category.

We have added to several positions in the quarter as soft share prices have presented some very exciting opportunities. Higher positions in companies such as Deutsche Post DHL Group (Germany), bioMérieux (France) and Watsco (United States) should add to portfolio resilience, while additions to Hamamatsu Photonics (Japan) and WEG (Brazil) should provide compelling longer-term growth opportunities.

We have sold out of Illumina (United States) and Ansys (United States). Increasingly Illumina was demonstrating franchise issues ranging from regulatory concerns (over their re-acquisition of early-cancer detection testing company, Grail) to patent lawsuits, and it became harder to assess its long-term franchise potential. For Ansys, while we have been invested for many years, we began to feel that the quality of management was deteriorating, as reflected by its growth struggles and declining financial quality.

As is always the case, the macro outlook remains opaque, and while there is plenty of economic noise out there, there is also plenty of comfort to be found in high-quality managements, strong and necessary sustainability franchises and resilient balance sheets and financials, all of which allow us to focus on the next decade (rather than the next quarter). These characteristics should provide resilience for the portfolio. 

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

Worldwide Leaders Sustainability strategy update: 1 January - 31 March 2022

The strategy's performance during the quarter was disappointing but not surprising. The conflict in Ukraine is adding fuel to the inflationary pressures that had already been building up.

Our limited exposure to commodity businesses and avoidance of fossil-fuel companies means our portfolios will underperform in such markets. 

Our portfolio companies tend to be consumers of commodities. As category leaders with structural growth opportunities, they are well placed to manage inflation. This has given us some great opportunities to add to some of our favourite holdings such as bioMérieux (France), Deutsche Post DHL Group (Germany), Expeditors (United States), HDFC (India) and Natura (Brazil). Deutsche Post, which owns DHL, the world’s leading express-logistics business is on a price/earnings ratio (PE) of 11x. While the pandemic played a part in boosting near-term earnings, the business has gone from strength to strength, with cash flows compounding at 15% over the last decade1. HDFC is trading at its cheapest valuations in the last three decades, as measured by its price to book.

Over the course of this quarter, we also initiated a position in KLA-Tencor (United States), a leading supplier of process control and yield management equipment to the semiconductor supply chain. KLA have, since 1976, consistently reinvested in innovation and improving research and development (R&D). This investment, combined with working closely with their customers over decades, has meant that KLA is one of the most trusted equipment suppliers in this ecosystem, with dominant market share in process control. Whilst the business is fully free float, the long-tenured managers have stewarded the company through cycles, maintaining steady growth and profitability, as well as a robust balance sheet. As an indicator, the top three managers have between them 92 years at KLA. The equipment the company produces enables semiconductor foundries to reduce waste and improve yields, thereby making KLA well positioned to continue growing with the demand for more chips.

During the quarter, we sold out of Schindler (Switzerland). While we still like the franchise and ownership, there were better opportunities given its valuation and growth outlook. We also exited Shopify (Canada) and Masimo (United States) as we were unable to build conviction. In the case of Shopify, valuations remain expensive despite a deterioration in the outlook for future capital expenditure (CapEx). While in Masimo, a significant unrelated diversification broke the investment case. We continued to trim our holdings in Ansys (United States), Fortinet (United States) and Arista Networks (United States) due to expensive valuations.

A notable feature of some of our companies is the use of non-GAAP (Generally Accepted Accounting Principles) earnings. For instance, Ansys and Fortinet trade on a PE multiples of 40x and 70x respectively2. However, using a more conservative GAAP accounting approach, these jump to 57x and 87x. One of the main drivers of this difference is the treatment of stock compensation. Non-GAAP earnings usually exclude stock compensation in income statements and operating cash flows, significantly overstating earnings. Strong stock market returns and poor accounting and performance assessment choices are leading to higher stock issuances to employees. Attracting and retaining talent in such markets is a challenge, but simply paying more stock to employees may not prove to be a sustainable long-term solution. One only has to go back to the tech bubble in 2000 to understand the risks of poor stock market performance on employee morale.

In the last decade, the S&P 500 has returned roughly 16% p.a3. A very strong period considering equity returns over the last century are closer to 10%. Low interest rates have provided immense tailwinds to these returns. However, the coming decade may not be as accommodative given rising inflationary pressures. We continue to look for stewards who are mindful of the easy monetary, fiscal and global trading conditions. One of the reasons why we have preferred net cash balance sheets, even during a period of low interest rates. Such businesses will have the financial flexibility to capitalize on opportunities that might arise from a more challenging macro-environment. We remain excited by the sustainability positioning, balance sheet strength and growth prospects of our portfolio companies. We were lucky to add to some of them at cheaper valuations last quarter. 

1  Source: FactSet 

2 Source: FactSet 

3 S&P 500 Returns since 2012, https://www.officialdata.org/us/stocks/s-p-500/2012?amount=100&endYear=2022

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

Worldwide Leaders Sustainability strategy update: 1 October - 31 December 2021

We initiated one new position in the strategy – Old Dominion Freight Lines.

The company focuses on less-than-truckload freight services, moving small items across the United States quickly, using a complex network of their own trucks and warehouses. They have focused on doing one thing, and doing it well. This concentration of ambition comes from the Congdon family who started the business in the 1930s. The long termism of these stewards is evidenced by steady investments in building out a wide network of warehouses across the country. The ability to control these physical assets combined with a culture obsessed with customer satisfaction has resulted in incremental gains in market share over time. Holding themselves to higher standards on speed and quality of delivery also results in a better ability to control prices, and results in best-in-class margins. Old Dominion continues to benefit from structural tailwinds around more efficient logistics and increased consolidation across the industry.

We also continued adding to Jack Henry and Natura. Jack Henry provides core banking software to credit unions and mid-sized financial institutions across the US. The business remains well managed by a strong and stable management team who have consistently invested in improving the franchise. A beneficiary of the increasing requirements of digital banking infrastructure, 80% of Jack Henry’s sales are now recurring in nature. We continued building our position in the company through this quarter. At Natura, a Brazilian personal care products company, we have seen the stewards build an ethos of sustainability in everything from sourcing and packaging to distribution. The turmoil caused by the pandemic as well as the integration of an acquisition have given us the opportunity to further build a position here as well.

This quarter, we also exited our positions in Taiwan Semiconductor (TSMC) and Alcon. TSMC remains a solid franchise and the leading semiconductor foundry consistently at the cutting-edge of technology. We decided however to increase our holdings in other companies benefiting from similar tailwinds, more focused on software and where the business models had a greater source of recurring revenues. We also sold out of our position in Alcon, an eye care and surgical instruments franchise. Alcon has been looking to steadily improve the profitability of the franchise, but we decided to exit as valuations became increasingly full for the quality of the growth ahead.

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

Worldwide Leaders Sustainability strategy update: 1 July - 30 September 2021

During the quarter we had an opportunity to initiate a position in two companies we have long admired; Natura in Brazil and MonotaRO in Japan. 

Natura is a Brazilian beauty and personal care group with operations across the world. We have been lucky to have known Natura since it listed and have held it in various client portfolios over the years. The company was founded with an ethos of sustainability and is an exemplar of balancing profitability with looking after other stakeholders. Natura is a world leader in its approach to a whole range of sustainability issues ranging from biodiversity in sourcing, fair treatment of staff and environmental design of products and packaging. 

In 2014, Natura became the world's first publicly listed B-Corp, joining a select group of companies legally committed to driving positive change in society through sustainable business practices. Recent share price weakness gave us an opportunity to make an investment. Veeva Systems is our other B-Corp investment.

MonotaRO is a business-to-business online platform which sells maintenance, repair and operations products such as cutting tools, safety kit, bearings and fasteners as well as office equipment and medical products, mainly to small and medium sized enterprises. It has been growing at over 25% compound annual growth rate over the last decade with a very low capital intensity. Once again, a bout of share price weakness helped us to make an initial investment although it remains an expensively valued company.

We have continued to increase our investments into AnsysbioMérieux and Deutsche Post DHL Group where valuations seem acceptable.

After seven years of an investment in Nestlé, we completely sold out of the company. In many ways, the company is an imperfect giant and it is hard to tell whether enough has changed in the sustainability thinking at this huge food behemoth. The product portfolio has certainly improved vastly and the commitment to tackle plastic packaging is also commendable. Ultimately, we were concerned about the level of growth that it offered on valuations that were expensive.

We also sold out of Microsoft. Although there are no imminent threats, we cannot help but worry about regulatory risks in this giant.

Finally, we trimmed some of our semiconductor related holdings.

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

Worldwide Leaders Sustainability proxy voting: 1 April - 30 June 2022

During the quarter, there were 338 resolutions from 27 companies to vote on. On behalf of clients, we voted against 32 and abstained on four resolutions.

We voted against Adobe’s execution remuneration, as we believe the CEO's total remuneration is high compared to the median employee. We voted against the appointment of the auditor, as they have been in place for over 10 years and the company has given no information on intended rotation. We believe rotating an auditor on a relatively frequent basis (e.g. every 5-10 years) helps to ensure a fresh pair of eyes are examining the accounts, and following best practice. (two resolutions)

We voted against Ansys’ executive remuneration, as we believe it is subject to adjustments to facilitate payments to management. We voted against the appointment of the auditor, as per our comments on auditor rotation above. (two resolutions)

We voted against the appointment of the auditor at Arista NetworksCognex, Constellation Software, Expeditors, Fastenal, Fortinet, Graco and Old Dominion Freight Line, as per our comments on auditor rotation above. (eight resolutions)

We voted against Edwards Lifesciences’ execution remuneration, as we believe there is an over reliance on options resulting in outsized pay for their CEO. We voted against the appointment of the auditor, as per our comments on auditor rotation above. (two resolutions)

We voted against Illumina’s executive remuneration as they have changed the goalposts of their long-term incentive plan in light of COVID-19. We voted against the appointment of the auditor, as per our comments on auditor rotation above. (two resolutions)

We voted against Knorr-Bremse’s remuneration report due to adjustments made to executive remuneration in relation to the impact of COVID-19. (one resolution)

We voted against Philips’ remuneration report as we believe it is unnecessarily complex and is subject to repeated adjustments to facilitate payments to management. (one resolution)

We voted against Natura's request to adopt cumulative voting and to recast votes for an amended slate of directors. We do not believe these requests are in shareholders’ interests. Unfortunately, due to an operational voting error, we abstained from voting on the company’s remuneration policy and the election of a candidate to the supervisory council. We had intended to vote for the remuneration policy, but had flagged areas to follow up with the company on. Our voting intention was to abstain from voting on the establishment of a supervisory council and a separate election for board members. This error did not have a material impact on the results of the meeting. (two resolutions against, two resolutions abstained)

We voted against amendments to Synopsys’ equity incentive plan due to uncertainties over greater stock based compensation grants. We voted against the appointment of the auditor, as per our comments on auditor rotation above. (two resolutions)

We voted against Texas Instruments’ executive remuneration, as we believe the absolute pay-outs for the CEO are high compared to other executive directors and the median employee. We voted against the appointment of the auditor, as per our comments on auditor rotation above. (two resolutions)

We voted against amendments to Veeva System’s equity incentive plan which would have given authority to the administrator to reprice options without shareholder approval. We voted against the appointment of the auditor, as per our comments on auditor rotation above. (two resolutions)

We voted against WEG’s request to adopt cumulative voting and to recast votes for the amended board and supervisory council slate. We do not believe these requests are in shareholders’ interests. We abstained from voting for a minority candidate as we prefer to support the Board. (three resolutions against, two resolutions abstained)

We supported a shareholder proposal relating to Constellation Software which requested the company prepare a report on its plans to identify, address, mitigate and dismantle racial disparities within its workforce. (one resolution)

We supported a shareholder proposal relating to Fortinet which requested the company eliminate its supermajority vote provisions. Supermajority vote requirements can impede shareholders’ abilities to vote on resolutions that are in their interests. (one resolution)

We supported shareholder proposals relating to Edwards LifesciencesIllumina and Texas Instruments which would enable shareholders with a combined 10% share ownership the right to call a special shareholder meeting. (three resolutions)

We supported a shareholder proposal relating to Expeditors which requested the company report semi-annually on its political contributions and expenditures. (one resolution)

We voted against a shareholder proposal relating to Ansys where shareholders were seeking to declassify the board. We believe a classified board offers some protection against hostile takeovers. (one resolution)

We voted against a shareholder proposal relating to Synopsys which would have enabled shareholders to take action with written consent on important issues that arise between annual meetings. We consider ourselves active shareholders and voting an important responsibility in our investment management duties. (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

Worldwide Leaders Sustainability proxy voting: 1 January - 31 March 2022

During the quarter there were 57 resolutions from six companies to vote on. On behalf of clients, we voted against three resolutions.

Voting with management, we voted against the approval of two proposals put forward by shareholders of Costco. We voted against the request for the company to disclose charitable contributions of US$5,000 or more, as we find the company's current disclosure regarding its charitable activities to be adequate. We also voted against the request for the company to report on its sustainability commitment to address structural racism, nutrition insecurity, and health disparities. We are not convinced that this proposal would be a productive use of company resources, particularly given its existing disclosures on its efforts to improve access to affordable, healthy food and to address food insecurity through philanthropic efforts. (two resolutions)

We supported one shareholder proposal requesting Costco adopt short-, medium-, and long-term science-based greenhouse gas (GHG) emissions reduction targets to achieve net-zero emissions by 2050. Although the Company has provided detailed disclosures concerning its Climate Action Plan and has committed to setting a Scope 1 and 2 emissions reduction target, we believe supporting this resolution will further encourage the development of these goals.

We voted against the appointment of the auditor at Infineon Technologies, as they have been in place for over 20 years and the company has given no information on intended rotation. (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

Worldwide Leaders Sustainability proxy voting: 1 October - 31 December 2021

During the quarter there were 37 resolutions from five 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 the appointment of the Auditor at Coloplast, as the Auditor has been in place for over 10 years and the company has given no information on intended rotation. (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

Worldwide Leaders Sustainability proxy voting: 1 July - 30 September 2021

During the quarter there were 56 resolutions from four companies to vote on. On behalf of clients, we did not vote against any 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 Worldwide Leaders Sustainability Fund

Overview of Stewart Investors Worldwide Leaders Sustainability Fund performance

Fund name Fund type Currency Price Daily change Price date
Stewart Investors Worldwide Leaders Sustainability Class A (Acc) OEIC GBP 563.95 -2.11 30 Sep 2022
Stewart Investors Worldwide Leaders Sustainability Class B (Acc) OEIC GBP 663.96 -2.10 30 Sep 2022
Stewart Investors Worldwide Leaders Sustainability Class I (Acc) IRVCC USD 13.85 0.17 30 Sep 2022
Stewart Investors Worldwide Leaders Sustainability Class III (Acc) IRVCC USD 11.54 0.17 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