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 European Sustainability

European Sustainability

The strategy was launched in June 2021 and invests in 30-45 companies that we consider to be the very best sustainability companies in Europe (including the UK). 

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This document is a financial promotion for the Stewart Investors European Sustainability Strategy intended for retail clients and professional clients in the UK only. 

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.
  • Specific region risk: investing in a specific region may be riskier than investing in a number of different countries or regions. Investing in a larger number of countries or regions helps spread risk.
  • Smaller companies risk: investments in smaller companies may be riskier and more difficult to buy and sell than investments in larger companies

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 European Sustainability strategy invests in companies that we consider to be the very best sustainability companies in Europe. These businesses have strong and competitive franchises, exceptional people and distinctive cultures, and resilient financials. Individually and collectively they are solving difficult problems, meeting critical needs, and helping bring about a more sustainable future.

By focusing on the highest quality and best sustainability companies in Europe, we believe we can offer an exciting portfolio that stands out from the crowd.

Why invest in European companies?

World-leading sustainability companies

  • Europe has a large listed universe, including world-leading health care, clean energy, manufacturing and IT companies
  • Many of these companies have large and growing end-markets, including in many emerging economies, and a strong presence globally and locally

Exceptional people and cultures

  • Many companies are run by outstanding management teams and are often controlled by long-term stewards – foundations, families and entrepreneurs
  • Europe has a high concentration of companies with strong cultures, great franchises, and healthy balance sheets and financial characteristics

Sustainability tailwinds

  • Social norms, policies and regulations are often favourable for companies advancing sustainable technologies and solutions
  • European companies are known and respected for setting high standards

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

European Sustainability strategy update: 1 July - 30 September 2022

It has been painful seeing the share prices of most portfolio constituents decline this year.

We hold a good variety of high-quality, great sustainability companies, with strong cash flow capabilities, ample liquidity, and safe balance sheets. If the portfolio were a collection of boats, we believe the view below the surface of the roiling sea would be of sturdy hulls and safe anchors and lines.

The economies of most European countries seem to be heading into a recession. Geopolitical tensions are mounting. Decades of short-sighted energy policies are catching up with most European nations. The cost of most things is rising. Interest rates are rising. Debt burdens are rising. Financial liquidity squeezes look increasingly likely. Pressures are mounting on company earnings. There are no miracles in the central bank box of magic tricks.

Though the quarter began with a classic bear-market rally, it was no surprise that share prices retraced in September. Our main preoccupation was the same as the previous quarter: trying to improve portfolio diversification and defensiveness. We replaced two companies, reduced exposure to twelve, and added to eight holdings. As a result of these changes the portfolio cash position ended lower than last quarter, but still elevated; this may well continue to be the case in the months ahead.

We sold the remaining portions of holdings in Vestas (Denmark: Industrials) and Ørsted (Denmark: Utilities). Both investments were mistakes. Both are well-run, but difficult, order-book businesses. Both ought to have a bright future, yet are highly sensitive to regulatory dynamics and fluctuating input costs. The longer we held them, the longer our list of unknown-unknowns became. Other investment ideas seem more likely to deliver a satisfactory return over the coming decade.

Unilever (United Kingdom: Consumer Staples) and Handelsbanken (Sweden: Financials) were brought into the portfolio. Unilever is a reasonably-valued, cash-generative, dividend-paying, global consumer goods giant. It owns over 400 brands. Its products are used daily by almost 3.5 billion people across 190 countries. The company has not fared especially well since fending off a takeover attempt by Kraft-Heinz in 2017. Although we’re generally sceptical of activist interventions, we think the involvement of Nelson Peltz’s Trian group could create opportunities for helpful changes at Unilever.

Handelsbanken is a full-service bank with a decentralised, customer-focused operating model. It has survived four major banking crises in its 150-year history. During the severe Swedish banking crisis in the early-1990s, it was the only bank not to be either bailed out or nationalised. During the 2008 Global Financial Crisis, it was a net lender to peer banks and to the Swedish (Central) Riksbank.

Handelsbanken has emerged stronger and leaner from a difficult period of restructuring and reorganisation over the last five-odd years. We believe it will continue to improve under the leadership of CEO Carina Åkerström.

We trimmed positions in Tomra (Norway: Industrials), Tecan (Switzerland: Health Care), NIBE Industrier (Sweden: Industrials) and Diploma (United Kingdom: Industrials), among others, during the spell of relative share price buoyancy in the early part of the quarter. We built positions in the companies we recently introduced into the portfolio – Admiral (United Kingdom: Financials), Elisa (Finland: Communication Services), Beiersdorf (Germany: Consumer Staples), Energiedienst (Switzerland: Utilities) and Komerční Banka (Czech Republic: Financials) – and also added to Judges Scientific (United Kingdom: Industrials) and ALK-Abelló (Denmark: Health Care).

We are long-term investors. We understand patience pays off in a number of different ways. We are also trained to invest into crises. As valuations become more attractive, we become more excited about adding to our favourite companies. We will do our best to balance enthusiasm and patience as we take opportunities ahead of us.

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

European Sustainability strategy update: 1 April - 30 June 2022

Share prices across Europe continued to fall over the quarter.

The conflict in Ukraine intensified. Geopolitical tensions worsened. Worries mounted that shortages of energy and agricultural products will fuel broader inflation and necessitate further interest rate rises. Wage disputes broke out across the continent. Fears rose that economies will weaken.

Against this backdrop of increasing economic fragility and volatility, our main focus was on trying to improve portfolio diversification and defensiveness. Portfolio turnover was unusually high: we replaced six companies, reduced exposure to twelve, and added to ten holdings. As a result of these changes, the cash position rose to its highest level since inception of the strategy just over a year ago.

We sold Philips (Netherlands) because we believe the company will struggle to execute a turnaround and recover losses since it recalled some of its ventilation products last year. Other investment ideas seem more likely to deliver a satisfactory return over the coming decade.

We sold ASML (Netherlands), a leading supplier of lithography equipment to semiconductor manufacturers, amid concerns about de-rating risk and an increasingly uncertain outlook for the semiconductor sector. Similar concerns led us to sell Alphawave IP (United Kingdom), the provider of semiconductor connectivity solutions, although the company’s management team have also proven to be less adept than we hoped.

We sold Swiss-listed Schindler, the maker of elevators and escalators, and Kardex, which provides automated storage solutions and material handling systems. The prospects for margin improvement at both companies are receding as economic headwinds stiffen.

And to help make room in the portfolio for more defensive names, we also sold Mister Spex (Germany), the digitally-native eyewear retailer. The company is young and could struggle to grow revenues if consumer discretionary spending weakens.

BechtleBeiersdorfEnergiedienstElisaAdmiral and Komerční banka were brought into the portfolio.

Bechtle is a German-listed, founder-stewarded company with a broad, vendor-neutral portfolio catering to the IT infrastructure and operational needs of its customers. Beiersdorf, also German-listed, is a family-controlled company that was founded 140 years ago. It makes skin, personal care and adhesive products, including leading brands like Nivea and Elastoplast.

Energiedienst is a 100-year old utility that supplies run-of-the river (Rhine) hydroelectricity and solar and wind-generated power to residential and commercial customers in Switzerland and Germany. Elisa is Finland's market leader in telecommunications and digital services. It has an unusual pricing model based on network speed and quality of service, rather than data volume.

Admiral is a UK-listed, founder-stewarded insurance company with a strong track record in underwriting auto, household, pet and travel insurance. It has a diverse leadership team and an impressive people-focused culture; all employees are shareholders. Insurance companies, like banks, rarely drive change in developed economies, but they play an essential role in allowing individuals, families, businesses and other organisations to cope with risks that are very difficult to bear at an individual level.

Komerční banka is a well-capitalised, conservatively-run Czech bank, with a solid deposit base and strong asset quality. It pays an attractive dividend and has an ambitious decarbonisation programme covering its lending practices and operations.

Big macro questions swirl around us. Will inflationary pressures ease as economies weaken? Have markets now adequately priced in an economic slowdown? If there is a recession, how long might it last? We don’t know the answers.

The questions preoccupying us are fundamental, bottom-up investment questions. Are we holding the best combination of high-quality, great sustainability companies in the portfolio? Do they have safe balance sheets and good liquidity? Do they have pricing power? Do they have strong cash flow capabilities? Are they reasonably valued? We will keep asking these questions, and questioning our answers, in an effort to improve the resilience of 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

European Sustainability strategy update: 1 January - 31 March 2022

‘We will not succumb to irrational exuberance in good times nor to unjustified gloom in bad times’ – Stewart Investors Hippocratic Oath¹.

Russia’s invasion of Ukraine in February triggered a sharp fall in European stock markets. Another bloody chapter of European history is being written: a humanitarian catastrophe and geopolitical cleavage which will echo down the decades.

An immediate result was extreme energy price inflation stemming from Europe’s dependence on Russian gas and oil. This is currently transmitting to the agricultural sector. Food shortages often presage social and political unrest; think of the Arab Spring in 2010.

Unfortunately, many portfolio companies had already suffered pronounced share price declines in January. Companies that had performed well last year were broadly sold. Capital shifted into cyclical beneficiaries of rising inflation: traditional energy, commodity and financial sector companies. We rarely hold these companies for clients because they seldom meet our quality and sustainability requirements.

Portfolio activity was focused on buying. We took advantage of inflows and better valuations to increase shareholdings in 32 portfolio companies. The biggest additions were in Tecan (Switzerland), Vitec Software (Sweden), NIBE Industrier (Sweden), Halma (UK) and Judges Scientific (UK). We were also able to introduce Sika (Switzerland) into the portfolio.

Sika is a Swiss-listed provider of bonding, sealing, damping, reinforcing and protecting products for the building and automotive sectors. It is reformulating existing products and developing new products that minimise the use of ecologically damaging substances, reduce emissions, and contribute to circular economy outcomes. Examples include lower-emission and recycled concrete solutions, facade systems for energy-efficient buildings, and adhesives that make electric vehicles lighter.

While susceptible to the construction cycle, Sika is a beneficiary of the perpetual and growing need to repair and maintain a growing stock of buildings around the world. It has demonstrated pricing power and an ability to maintain high margins and cash flows across market cycles.

We made no outright sales, but did halve our position in Ørsted (Denmark), the developer of offshore wind projects, following a sudden – we believe excessive – share price bounce in reaction to fears about hydrocarbon energy shortages because of the Russia-Ukraine conflict.

Over the quarter many portfolio companies reported strong results and good progress at the same time as their valuations de-rated. The combination of improving company fundamentals and increasingly reasonable valuations is unusual. It seems a good time to be buying into our favourite sustainability companies, not a time to succumb to unjustified gloom.

But neither is it a time to succumb to irrational exuberance. Concerns about inflation, rising rates, and the withdrawal of monetary and fiscal support could easily morph into even bigger worries about stagflation, declining real incomes, and the diminishing capacity of governments to absorb shocks and shore up demand as economies slide. We are not predicting a recession, but we are saying it is possible, and we need to be prepared for the possibility. 

We like the shape and composition of the portfolio. We have high conviction in the companies we hold. Holding high-quality, great sustainability companies with safe balance sheets, pricing power and strong cash flow capabilities does not ensure success in all circumstances. But it is the best recipe we know for portfolio resilience across a range of unpredictable market environments: we expect no shortage of these in the months ahead.

Hippocratic oath

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

European Sustainability strategy update: 1 October - 31 December 2021

In our previous commentary, we described how numerous political-economy concerns coalesced swiftly in Q3, but the outbreak of Omicron ended up taking centre stage during the final quarter of 2021.

Against an unsettled market backdrop, many of the companies in our portfolio performed well over the period.

We made two new investments: in Jerónimo Martins and Mister Spex. We sold out of one holding; Novo Nordisk.

Jerónimo Martins is a 230-year-old food retailing company, majority-owned by the Dos Santos family. We consider it one of the highest-quality and most responsible operators of good-value supermarkets anywhere in the world. Most of its revenues and profits are made in Poland, where it trades under the Biedronka banner. In Portugal, its country of listing, the company operates an impressive network of Pingo Doce and Recheio stores. And it is patiently building a retail network in Columbia, while continually expanding its online presence in all countries where it operates.

Sustainability is integral to the Jerónimo Martins culture. This is clear from the way the company builds relationships with farmers and suppliers, its quest to expand its offering of healthy, organic, fresh food and to reformulate products to reduce salt and sugar content, and its food and other waste-reduction initiatives.

We believe the company’s pricing power should support cash flow defensiveness, particularly in the face of potential inflationary pressures, and help improve portfolio resilience.

Mister Spex is a German-listed retailer of eyewear products. It is pioneering a digitally-native, but omnichannel business model in the “ripe-for-a-shake-up” European optical sector. We like the company’s transparent approach to pricing and its smart use of data and advanced technologies including online eye tests, 3D try-on tests, and 3D printing and customisation of frames.

The success of the business model remains to be seen, but we think the vision and ambition of the founding entrepreneurs warrants a modest position in the tail of the portfolio.

We sold Novo Nordisk, the Danish-listed maker of biological medicines. The company has been a consistent generator of cash, but we have become increasingly concerned it is approaching peak popularity on optimism about obesity drugs that seem to be a rehash of diabetes treatments.

Improving valuations allowed us to add to positions in Adyen, Indutrade, Judges Scientific, ASML and Alfen. Lofty valuations led us to trim NIBE, Beijer Ref and Alcon. We also trimmed DiaSorin and Tecan early in the period and then added to both holdings when their share prices weakened towards the end of the year.

Portfolio resilience is our main preoccupation. At times like this, it seems especially important to remain focused on the long term, while always being ready to add to high-conviction positions at better valuations. It is also especially important to own high-quality, great sustainability companies, whose stewards and leaders are as prepared for risks as they are to capitalise on opportunities. We may be confident about the companies we currently hold, but we never stop searching for companies that might improve overall portfolio risk-return characteristics.

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

European Sustainability proxy voting: 1 July - 30 September 2022

Proxy voting by country of origin

Proxy voting by proposal category

During the quarter there were 23 resolutions from one company 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.

Proxy voting: Q2 2022

European Sustainability proxy voting : 1 April - 30 June 2022

During the quarter, there were 488 resolutions from 28 companies to vote on. On behalf of clients, we voted against 12 resolutions.

We voted against Alcon’s board remuneration and their remuneration report, as we believe the CEO and Chair’s remuneration is high compared to the rest of the executive committee. We also have reservations on the company awarding discretionary bonuses. (two resolutions)

We voted against Atlas Copco’s remuneration report as no progress appears to have been made to address shareholder concerns. The CEO's total remuneration exceeds that of peers and there is no disclosure on short-term incentive plan (STIP) targets. (one resolution)

We voted against Beijer Ref’s remuneration policy and report, as we believe it lacks disclosure on performance-related measurements and is skewed to the short term. (two resolutions).

We voted against the appointment of the auditor at Indutrade, Ørsted, SFS and Vestas as they have been in place for over 10 years and the companies have 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. (four resolutions)

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 the appointment of the auditor at Sika, as per our comments on auditor rotation above. We voted against an independent proxy to vote on additional or amended proposals in accordance with the board of directors at the annual general meeting (AGM) of shareholders. We consider ourselves active shareholders and prefer to vote on such matters at the AGM. (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.

Proxy voting: Q1 2022

European Sustainability proxy voting : 1 October - 31 December 2022

During the quarter there were 168 resolutions from ten companies to vote on. On behalf of clients, we voted against nine resolutions.

We voted against the appointment of the auditors at Infineon TechnologiesRingkjøbing LandbobankRoche and Belimo as all have auditing firms, which have been in place for over 18 years. 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. (four 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: Q4 2021

European Sustainability proxy voting : 1 October - 31 December 2021

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

We voted against the appointment of the Auditor at Chr. Hansen and Coloplast. In both cases, the Auditor has been in place for over 10 years and the companies have given no information on intended rotation. (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 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 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 European Sustainability Fund

Overview of Stewart Investors European Sustainability Fund performance

Fund name Fund type Currency Price Daily change Price date
Stewart Investors European Sustainability Class E (Acc) IRVCC EUR 9.52 -0.27 25 Nov 2022
Stewart Investors European Sustainability Class E (Acc) IRVCC GBP 9.49 -0.19 25 Nov 2022
Stewart Investors European Sustainability Class E (Acc) IRVCC USD 8.15 -0.19 25 Nov 2022
Stewart Investors European Sustainability Class VI (Acc) IRVCC EUR 9.48 -0.27 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.