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 Global Emerging Markets Sustainability

Global Emerging Markets Sustainability

The Global Emerging Markets Sustainability strategy invests in between 30-75 high-quality companies that are contributing to a more sustainable future.

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This information is a financial promotion for the Stewart Investors Global Emerging Markets Sustainability Strategy intended for retail and professional clients in the UK.

Investing involves certain risks including:

  • The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
  • Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses. Currency control decisions made by governments could affect the value of the Fund's investments and could cause the Fund to defer or suspend redemptions of its shares.
  • Emerging market risk: Emerging markets tend to be more sensitive to economic and political conditions than developed markets. Other factors include greater liquidity risk, restrictions on investment or transfer of assets, failed/delayed settlement and difficulties valuing securities.

Where featured, specific securities or companies are intended as an illustration of investment strategy only, and should not be construed as investment advice or a recommendation to buy or sell any security.

For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document.

If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.

Our Global Emerging Market Sustainability strategy was launched in 2009 and invests in between 30 to 75 high-quality companies that are contributing to a more sustainable future. The strategy’s bottom-up approach allows us to find only the very best businesses from an investable universe of some 65,000 companies. We are looking for companies well positioned to contribute to long-term sustainable development; businesses with high quality management teams, franchises, and financials. 

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

Q3 2022

Global Emerging Markets Sustainability strategy update: 1 July - 30 September 2022

Over the course of another turbulent quarter, our focus remained on bottom-up stock picking. We continue to believe that identifying competent stewards who manage growing, resilient franchises with defensive financial profiles continues to be the best route to delivering sound absolute returns over the long term.

As a result, we have initiated positions in two new companies in the portfolio. The first new addition is Komerční Banka (Czech Republic: Financials), a well-capitalised, conservatively-run Czech bank. With a solid deposit base and strong asset quality, Komerční had de-rated to close to one times book with an attractive dividend yield.

We also bought a small position in an Indian IT services and embedded software provider focused on the automotive sector. The two co-founders of the company remain in the position of Chair and CEO, and have consistently managed the business for the long term, building strong relationships with key automotive original equipment manufacturers (OEMs) globally. They have recently taken a decision to shrink the business to a third of its original revenue base – a difficult decision in the short term, but one that ensures a focus on their core competence in auto engineering over the long term. To us, this is a great indicator of stewards who can resist short-term market pressures to build sound, sustainable franchises. The company’s focus is on software and services related to electric vehicles and automated driving systems, benefiting from a long runway for growth in the coming years. 

During this quarter, we also trimmed positions in Info Edge (India: Communication Services) and Estun Automation (China: Industrials), where valuations were becoming increasingly full and could prove to be a headwind to long-term returns. Lastly, we exited one position in the strategy – Mahindra Logistics (India: Industrials) – as we struggled to build further conviction in the focus and evolution of the franchise.

In a scenario of increasing geopolitical tensions and macroeconomic uncertainty, we continue to believe that bottom-up analysis, a focus on fundamental quality and sustainable growth tailwinds, is the best route to tapping into the opportunities and protecting against the risks of investing in emerging markets.  

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: Q2 2022

Global Emerging Markets Sustainability strategy update: 1 April - 30 June 2022

During the second quarter, markets were exceptionally volatile and weak, as investors began to price in the likelihood of sustained inflation in the developed world, higher interest rates and the potential for global recession.

In the past, such episodes have tended not to be pleasant experiences for emerging markets, and the first half of 2022 has been no exception.

At the time of writing, on a sector basis only utilities and financials have delivered a positive return year to date in emerging markets. Materials and energy have also held up relatively well, given rises in commodity prices. All told, beneficiaries of rising inflation and higher interest rates – banks, energy and commodity companies – have been comparatively strong. 

We rarely hold companies in these sectors for clients because they seldom meet our quality and sustainability requirements. In contrast, sectors like healthcare, technology and consumer staples – where we do tend to find attractive ideas – have been weaker. Performance over the very short term has been commensurately weak.

In an environment such as this, we have continued to focus on bottom-up stock selection, focusing on identifying high-quality stewards managing franchises with growth tailwinds and resilient financials. Reflecting this, we have recently added four new companies into the portfolio.

We believe retailers Dino Polska (Poland) and Jerónimo Martins (Portugal) are likely to remain resilient in the current environment. Grocery stores tend to remain stable through periods of inflation, and both Dino Polska and Jerónimo Martins are very well stewarded by the founder and founding family respectively. Jerónimo for example is a 230 years old business, now represented by the fourth generation of the dos Santos family. Their consistent focus on high-quality, low-cost retail and long-term time horizons with regard to nurturing businesses in new geographies has served them well through the past decades.

Over the course of the past year, we re-initiated a position in Pigeon (Japan), a consumer goods franchise focused on high-quality products for infants and mothers. Stewarded by the founding Nakata family, Pigeon has consistently focused on building consumer trust and creating a brand around their reputation for quality. At reasonable valuations, we believe Pigeon has the ability to continue growing across geographies where they have been laying the foundations for long-term growth.

We also initiated a position in Banco Bradesco (Brazil). We have owned Bradesco on behalf of clients in the past and, over recent months, the Bank had de-rated to valuations around one times price to book with 7-8% dividend yields1 providing an attractive entry point. Bradesco remains one of the best banks in the country, well positioned to continue growing through increased penetration across Brazil and adapting to a more digital ecosystem.

We also added to a number of existing holdings which had suffered from more acute weakness, including Silergy Corp (Taiwan), Techtronic Industries (Hong Kong) and MercadoLibre (US listed, headquartered in Argentina). We remain convinced of the quality and attractive long-term growth prospects of these businesses, and so took the opportunity to purchase more shares at prices substantially below where they have traded lately.

We funded some of these purchases by reducing cash and trimming some companies which had held up relatively well, like Unicharm (Japan) and Mahindra & Mahindra (India). We also exited one small holding, Hualan Biological Engineering (China), in which we have found it difficult to build conviction in the ability of the company to mitigate growing competition from state-owned peers.

Going forward, it seems as though we are in a period of fairly unprecedented macroeconomic policy uncertainty. Monetary policy has shifted from ultra-loose to a rapid tightening with frantic speed, and may well overshoot, with accordantly dramatic impacts on equity prices in the short term. In such an environment, it seems less than fruitful to try to predict the near-term future direction of inflation or interest rates. Instead, we are focused on building portfolios full of resilient companies with long-term tailwinds which should benefit over the longer term from the opportunities in emerging markets.

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

Global Emerging Markets Sustainability strategy update: 1 January - 31 March 2022

Over the course of this quarter we made a small number of meaningful transactions in the strategy.

After a more than 50% rally from its trough, we made the decision to exit our position in Alibaba (China). In light of the comparatively more muted growth prospects the company has going forward, a lower price-to-earnings or price-to-cash-flow multiple would seem appropriate. Our primary mistake has perhaps been in being too backwards looking in assessing quality of franchise. It is a truism, no less powerful for its simplicity, that all companies – indeed all organisations – are at any given time either strengthening or weakening relative to their competitors. The last two years have seen the company, encouraged by regulation designed to promote competition and weaken the market power of incumbents, slide into a much more competitive, capital intensive and less profitable position than it had been previously. 

We used some of the proceeds from exiting our position in Alibaba to add to a number of our Chinese holdings. These included companies like Estun Automation, the leading domestic robotics manufacturer, and Yifeng Pharmacy Chain, a rapidly growing drug retail chain consolidating China’s highly fragmented market. We believe these companies to be either lower risk or at an earlier stage of life (and thus enjoying greater prospects), or both. Both companies benefit from strong sustainability tailwinds, improving efficiency and reducing prices in the respective sectors in which they operate.

We also purchased Tube Investments, an Indian industrial conglomerate. The founding Murugappa family continues to own 48% of the business, and next generation owner-manager, Vellayan Subbiah, has embarked on a journey to both improve execution within the core franchise and broaden the remit of the business. Looking to the histories of global industrial conglomerates such as Halma and Danaher for inspiration, and with a wonderfully long-term time horizon, Tube has set out to create something similar in India. The first step on this journey was the acquisition of CG Power, an electric motors business that is the beneficiary of strong, sustainable tailwinds selling into electric vehicles and renewable energy. India is home to numerous small, family-owned industrial businesses that are looking for homes for their franchises when the next generation might not want to take control. The reputation of the Murugappa family, Vellayan’s history of successful execution, and the strength of the balance sheet, mean that Tube has the opportunity to provide these companies this home and continue to grow their own business. This balance of a century-old family legacy alongside the ambition to create something that endures for at least another century, we believe, provides an opportunity for solid returns over the coming years.

Along with Tube Investments, we also initiated a position in IndiaMART, an online B2B classifieds platform in India, connecting suppliers and buyers across a range of end industries. Founded by the Agarwal cousins in 1996, IndiaMART has grown to control 60% market share in the country, about 10 times larger than their nearest competitor, but are only at the starting stages of continued penetration of the platform, with only a small percentage of small and medium-sized enterprises (SMEs) across the country having a digital presence. The founders have demonstrated a focus on building a resilient business over the long term, balancing growth and profitability, and on maintaining a solid balance sheet. This is a cash-generative business, and the managers have consistently reinvested behind growth to remain beneficiaries of the structural growth tailwinds around them. 

Our strategies do not invest in oil, gas or coal, and we are always likely to underperform on a relative basis for short periods when fossil fuel markets are rallying. As ever, our focus remains on long-term absolute returns, which we believe are best achieved through avoiding investing in fossil-fuel reliant businesses. Through this period, we have continued to build up position sizes across a number of our favourite companies – such as Mahindra & Mahindra (India), WEG (Brazil) and Network International (UK-listed company operating in the Middle East and Africa) – where we have high conviction in quality as well as the long-term opportunity.

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

Global Emerging Markets Sustainability strategy update: 1 October - 31 December 2021

We exited two positions over the quarter; both weaker franchises in economies which are less likely to be resilient in a rising interest rates environment.

These were SPAR Group, the South African grocery retailer, and Banco Bradesco, one of Brazil’s largest financial conglomerates.

Both companies had been attractive to us a year or so ago based on what appeared, at the time, quite modest valuations; both companies have dividend yields over 5%. However, in our experience it can be difficult to preserve capital in companies that are by nature dependent on their local economic environment when those economies are sailing into solid global headwinds – as South Africa and Brazil appear to be now – even when they are trading at ostensibly cheap valuations.

As often as not, in companies like these without growth tailwinds, any value creation in local currency is more than offset by currency devaluation. Therefore, in countries like South Africa and Brazil, we tend to look for companies with sufficient growth to enable them to overcome the long-term impacts of devaluation. We believe this is our best chance of deriving attractive hard currency returns in these economies.

During the quarter, we re-initiated a position in a Brazilian electrical motor company that is an archetypal example of this kind of business. A world leader in motor efficiency, the company derives most of its sales outside Brazil, which means it is naturally hedged against devaluation. It is growing rapidly as it benefits from sustainable development tailwinds around energy efficiency, electric vehicles and renewable energy generation.

We had owned the company for many years but exited in late 2020 when we felt valuations had become excessive. In US$, the share price fell 23% in the year¹, to the point where we felt a small position is again an attractive addition to the portfolio.

We also initiated a small new position in a Chinese company;, a leading drug store chain. We already own several such businesses (Raia Drogasil in Brazil and Clicks in South Africa), and we note numerous similarities between these companies and our new holding in China.

Leading drug stores benefit from a virtuous cycle that tends to see them consolidate fragmented local markets over time. Superior purchasing power and logistics efficiency enables lower costs, allowing large chains to offer reduced prices to consumers. This not only drives access to medicine for people at the bottom of the pyramid, but attracts more consumers and puts the company in an ever-better position over time to continue outcompeting smaller peers.

The result can be exceptional long-term value creation, when the model is run competently and is properly stewarded by high-quality people. In the case of our new Chinese holding, the combination of a private entrepreneur as owner-manager as well as a cadre of executives who have joined from multinationals, means we believe the company can contribute positively to the portfolio over time.

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.

Q3 2022

Global Emerging Markets Sustainability proxy voting: 1 July - 30 September 2022

Proxy voting by country of origin

Proxy voting by proposal category

During the quarter there were 169 resolutions from 19 companies to vote on. On behalf of clients, we voted against three resolutions.

We voted against the election of a director at Dabur as we do not believe they are truly independent. (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)

We voted against the election of the chairman of the audit committee at Vitasoy as the committee met less than four times during the last fiscal year. (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: Q2 2022

Global Emerging Markets Sustainability proxy voting: 1 April - 30 June 2022

During the quarter, there were 438 resolutions from 39 companies to vote on. On behalf of clients, we voted against 18 and abstained on eight resolutions.

We voted against AK Medical Holdings’ request to repurchase issued shares, and issue shares without pre-emptive rights, as the share discount rate had not been disclosed. (two 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)

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 abstained from voting on Quálitas’ request to grant powers to an undisclosed number of managers, as we did not have sufficient information at the time of voting. (one resolution)

We abstained from voting on the election of Raia Drogasil’s supervisory council as we were happy to support the candidates presented by the minority and preferred shareholders. As a result of this vote, we voted against the recasting of votes for the amended supervisory council slate. (one resolution against, one resolution abstained)

We voted against Totvs’ request to adopt cumulative voting and for permission to re-consider voting instructions should the meeting be held on second call. We do not believe these requests are in shareholders’ interests. We abstained from voting on the company’s request to establish a supervisory council as we did not have sufficient information to know who we would be voting for. (two resolutions against, two resolutions abstained)

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)

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

Global Emerging Markets Sustainability proxy voting: 1 January - 31 March 2022

During the quarter there were 60 resolutions from ten 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

Global Emerging Markets Sustainability proxy voting: 1 October - 31 December 2021

During the quarter there were 17 resolutions from four companies to vote on. On behalf of clients, we voted against one resolution.

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.

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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 September 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 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 Global Emerging Markets Sustainability Fund

Overview of Stewart Investors Global Emerging Markets Sustainability Fund performance

Fund name Fund type Currency Price Daily change Price date
Stewart Investors Global Emerging Markets Sustainability Class VI (Acc) IRVCC GBP 9.13 -0.04 25 Nov 2022
Stewart Investors Global Emerging Markets Sustainability Class VI (Acc) IRVCC USD 10.80 -0.04 25 Nov 2022
Stewart Investors Global Emerging Markets Sustainability Class A (Acc) OEIC GBP 366.10 0.16 25 Nov 2022
Stewart Investors Global Emerging Markets Sustainability Class B (Acc) OEIC GBP 403.02 0.17 25 Nov 2022
Stewart Investors Global Emerging Markets Sustainability Class A (Acc) OEIC EUR 410.27 0.01 25 Nov 2022
Stewart Investors Global Emerging Markets Sustainability Class III (Acc) IRVCC JPY 1087.09 0.75 25 Nov 2022
Stewart Investors Global Emerging Markets Sustainability Class I (Acc) IRVCC EUR 8.95 -0.13 25 Nov 2022
Stewart Investors Global Emerging Markets Sustainability Class VI (Acc) IRVCC EUR 2.28 -0.12 25 Nov 2022
Stewart Investors Global Emerging Markets Sustainability Class VI (Dist) IRVCC EUR 11.05 -0.12 25 Nov 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.