Get the right experience for you. Please select your location and investor type.
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 65,000 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 we go and will continue to do so for years to come. Such is the task of operating in a universe of 65,000 companies.
What we are looking for is a function of our investment philosophy and process, which is consistent across each of the sustainability funds. We are looking for companies well positioned for long-term sustainable development, which 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 “quality list” of approximately 300 of our favourite companies which we would own at the right valuation. If a company passes each of our quality hurdles we begin the process of investing, often starting small and building up conviction over several years, as we meet the management team repeatedly, engage where issues arise, visit sites, and build up 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 as 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 human development within the ecological limits of our planet. This is where we focus. Companies immediately stand out for providing sustainable goods and services, responsible finance or required infrastructure. But it is not just about applying a sustainability lens.
We travel widely and “kick the tyres” of more than 2,000 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 Japanese paint company which came to our attention as we were invested in its Indian subsidiary for our GEM funds. We look for referrals at every opportunity, and seek the views of businesses and directors we respect. For instance, we recently visited a quality Taiwanese pharmaceutical company because one of our favourite Asian food companies is also a shareholder there. We also engage with companies to sort fact from fiction. For example, when a prominent palm oil company we consider “uninvestible” recently 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 could provide. None of these methods can be achieved using a black box. Instead, our approach is simply to remain true to what is a very 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
First published Q3 2013 in ‘First State Stewart Sustainability Strategies Quarterly Client Update: Third Quarter 2013.’
Investment terms
View our list of investment terms to help you understand the terminology within this document.
Important Information
The information contained within this material is generic in nature and does not contain or constitute investment or investment product advice. The information has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information. To the extent permitted by law, neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this material.
This material has been prepared for general information purpose. It does not purport to be comprehensive or to render special advice. The views expressed herein are the views of the writer at the time of issue and not necessarily views of FSI. Such views may change over time. This is not an offer document, and does not constitute an investment recommendation. No person should rely on the content and/or act on the basis of any matter contained in this material without obtaining specific professional advice. The information in this material may not be reproduced in whole or in part or circulated without the prior consent of FSI. This material shall only be used and/or received in accordance with the applicable laws in the relevant jurisdiction.
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 the same. All securities mentioned herein may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.
In Hong Kong, this material is issued by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. In Singapore, this material is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or material has not been reviewed by the Monetary Authority of Singapore. 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. 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).
First Sentier Investors (Hong Kong) Limited and First Sentier Investors (Singapore) are part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.
MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material 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.
Investment involves risks. This website is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D and has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B) and Stewart Investors (registration number 53310114W) are the business divisions of First Sentier Investors (Singapore).
Copyright © 2024 Stewart Investors.