Asia Pacific Leaders Sustainability

Risk Factors

This information is a financial promotion for the Stewart Investors Asia Pacific Leaders Sustainability Strategy intended for retail 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.
  • 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.
  • 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.
  • Currency risk: the strategy invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the strategy and could create losses. Currency control decisions made by governments could affect the value of the strategy’s investments and could cause the strategy to defer or suspend redemptions of its shares.

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. Reference to the names of any company is merely to explain the investment strategy and should not be construed as investment advice or a recommendation to invest in any of those companies.

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


Please use the links below to
navigate to the appropriate section:


Strategy overview

The strategy was launched in December 2003. In July 2016 the strategy transitioned to the Sustainable Funds Group. The strategy invests in large and mid-sized companies which generally have a total stock market value of at least US$1 billion in the Asia Pacific region (excluding Japan, including Australia and New Zealand) and that are positioned to contribute to, and benefit from sustainable development.

 

Strategy update

1 July - 30 September 2021

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

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

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

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

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

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

1 Source: FactSet

Source for company information: Stewart Investors investment team and company data. This stock information does not constitute any offer or inducement to enter into any investment activity. Portfolio data shown is from representative strategy accounts of each 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. 

1 April - 30 June 2021

Markets often react differently to what might be expected in the short term.

Despite negative headlines about the new strain of the COVID-19 virus and the associated human suffering, equities in India have been notably strong in the first half of the year.1 In contrast, headline news from China has been more positive and yet equities have given back all of the large gains they recorded prior to Chinese New Year.1 Such top-down vagaries can be encapsulating but rather than ponder on their cause we find it more rewarding to focus on the quality and ability of stewards to contribute to, and benefit from, the many sustainable development challenges facing the societies in which they operate.

It is estimated there were over 4.5m new cases of cancer in China last year, contributing close to 25% of global cases.2 Late diagnosis, and treatment dominated by chemotherapy, sadly means that mortality rates are far higher in China than in Western countries. Similar to what we see in the US and Europe, precision oncology and early cancer detection are two avenues that present significant opportunity for better patient outcomes and more efficient use of valuable healthcare resources. We hold a number of diagnostic businesses across our portfolios as leading franchises tend to hold durable competitive advantages and generate attractive levels of cash flows while playing an increasingly important role in the development of healthcare systems. This quarter we were fortunate to be given an opportunity to initiate a position in China’s leading molecular testing franchise. This business is owned, and run, by private entrepreneurs and enjoys a robust position in this fast emerging market thanks to years of significant investment in research and development and close relationships with global multinational pharmaceutical companies. We also initiated a holding in a high-quality, privately founded, industrial automation business in China. This vertically-integrated company is benefitting from the ongoing substitution of capital for labour on production lines, and investing heavily in product quality improvements to capture market share from higher-priced foreign competitors. In addition to these two new holdings, we invested in a company listed in Australia which boasts a 20% market share in printed circuit board design software, which is an essential component for electronic goods .

We also had the opportunity to increase the position size of four of the newer and smaller holdings in the strategy: Tata Communications (India), Tata Consumer Products (India), Infosys (India) and Fisher & Paykel Healthcare (New Zealand). Over the period we met with each of these companies and our conviction in the quality of their franchises increased. On the other side, we reduced our holdings in semiconductor related businesses TSMC (Taiwan) and Tokyo Electron Limited (Japan) because of mounting concerns over sustainability, cyclicality and valuation. We also trimmed holdings in Tech Mahindra (India) and Xero (Australia) for reasons of valuation. These were small subtractions and there were no complete disposals over the period.

1 Source: FactSet

2 Source: World Health Organization. Global Cancer Observatory. 2020 data.


 

1 January - 31 March 2021

Strong investor enthusiasm at the start of the year gave way to fears of intensifying inflation and increasing bond yields. 

After a strong run, these fears impacted the valuations of Asian equities generally and caused a retracement in highly rated companies in the healthcare and technology sectors, in particular. Rather than contemplate the possible macro shifts and the vagaries of investor sentiment, we prefer to study, meet and discuss companies. In this way we enjoyed a stimulating quarter as normal. During the period we spent significant time evaluating a wonderfully stewarded business listed in India which is helping to address one of the most shocking outcomes of economic inequality – access to medicine. It is a harrowing fact that millions of people are incapable of affording necessary medicines, or are pushed into poverty as they deplete their savings to pay for medication. 

The pull back in healthcare valuations meant we were able to make a new investment in this area and top up on existing holdings in Dr. Reddy’s Laboratories (India), CSL (Australia) and Cochlear (Australia). We also topped up weightings in three of the strategy’s larger holdings – Naver (South Korea), Unicharm (Japan) and Mahindra & Mahindra (India), as well as Infosys Technologies (India). 

The quarter also marked the conclusion of our analysis ahead of initial investment in two new companies. The first company is involved in the physical backbone of internet connectivity and the second company provides software services to construction companies. 

Despite two new investments and topping up many existing holdings, the cash in the strategy remains around the 8% level. A surge at the start of the year, after a strong 2020, presented us with valuation challenges, particularly for companies listed in China or involved in the semiconductor sector. It was for reasons of valuation only that we reduced position size in Shenzhen InovanceCentre Testing International and Kingmed Diagnostics, all of which are listed in China. We also reduced the holdings in Delta Electronics (Taiwan), MediaTek (Taiwan), Silergy (Taiwan) Tokyo Electron (Japan) and TSMC (Taiwan) which are all contributors to different areas of the manufacture of semiconductors. We remain extremely confident in the quality of these stewards, the franchises they manage and the long-term outlook for semiconductors. However, investor enthusiasm for these companies had run ahead of their attributes. This was particularly true for ASML (Netherlands) which we sold completely. High quality companies in India were also popular during the period and we sold out of Asian Paints (India) completely. In addition to these complete sales we reduced the position size of Tata Consultancy Services (India), Tech Mahindra (India) and Xero (Australia) for reasons of valuation.

Source for company information: Stewart Investors investment team and company data. Portfolio data shown is from representative strategy accounts. 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.

Back to top

Proxy voting

1 July - 30 September 2021

Asia Pacific Leaders Sustainability

During the quarter there were 155 resolutions from 21 companies to vote on. On behalf of clients, we voted against three resolutions.

We voted against Kasikornbank’s request for management to approve all other business matters before the annual general meeting (AGM) of shareholders. We consider ourselves active shareholders and prefer to vote on such matters at the AGM. (one resolution)

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

Source for company information: Stewart Investors investment team and company data. Numbers may not add to 100 due to rounding

1 April - 30 June 2021

Asia Pacific Leaders Sustainability

During the quarter there were 247 resolutions from 21 companies to vote on. On behalf of clients, we voted against five resolutions.

We voted against Bank of the Philippine Islands’ 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 Shenzhen Inovance Tech’s request to adopt a long-term stock ownership incentive plan as there was a lack of disclosure and transparency on the plan. We also voted against their request to elect an individual to their Supervisory Council as we do not believe they are truly independent. (four resolutions)

Source for company information: Stewart Investors investment team and company data. Numbers may not add to 100 due to rounding

1 January - 31 March 2021

Asia Pacific Leaders Sustainability

During the quarter there were 39 company resolutions to vote on. On behalf of clients, we voted against seven resolutions.

We voted against Centre Testing International’s request to make amendments to a number of proposals including changes to their accounting policies as we did not have sufficient information to know what changes we might be voting for. (seven resolutions)

Back to top

Fund data and information

Click on the links below to access key facts, literature, performance and portfolio information for the funds and share classes available in this jurisdiction:

Asia Pacific Leaders Sustainability Fund A Acc GBP Asia Pacific Leaders Sustainability Fund A Inc GBP Asia Pacific Leaders Sustainability Fund B Acc GBP Asia Pacific Leaders Sustainability Fund B Inc GBP Asia Pacific Leaders Sustainability Fund Class I EUR Acc Asia Pacific Leaders Sustainability Fund Class I EUR Dist Asia Pacific Leaders Sustainability Fund Class VI EUR Acc Asia Pacific Leaders Sustainability Fund Class VI EUR Dist Asia Pacific Leaders Sustainability Fund Class VI GBP Acc Asia Pacific Leaders Sustainability Fund Class VI USD Acc Asia Pacific Leaders Sustainability Fund Class VI USD Dist

Back to top

Investment terms 

View our list of investment terms to help you understand the terminology within this document.

Important information

This material has been prepared for general information purposes only and is intended to provide a summary of the subject matter covered. It does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of issue and may change over time.

Some of the information has been compiled using data from representative strategy accounts. This information relates to existing Stewart Investors strategies and has been provided to illustrate Stewart Investors’ expertise in the strategies This material is provided for information purposes only and does not constitute a recommendation, a solicitation, an offer, an advice or an invitation to purchase or sell any fund and should in no case be interpreted as such.

This is not an offer document, and does not constitute an offer, invitation, investment recommendation or inducement to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any matter contained in this material. The distribution or purchase of shares in any funds, or entering into an investment agreement with

Stewart Investors may be restricted in certain jurisdictions.

This material is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this material has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the information. We do not accept any liability for any loss arising whether directly or indirectly from any use of this material.

References to “we” or “us” are references to Stewart Investors. Stewart Investors is a trading name of First Sentier Investors (UK) Funds Limited, First Sentier Investors International IM Limited and First Sentier Investors (Ireland) Limited. First Sentier Investors entities referred to in this material are part of First Sentier Investors, a member of MUFG, a global financial group. First Sentier Investors includes a number of entities in different jurisdictions. MUFG and its subsidiaries do not 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.

Past performance is not a reliable indicator of future results.

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. Reference to the names of any company is merely to explain the investment strategy and should not be construed as investment advice or a recommendation to invest in any of those companies.

United Kingdom

In the United Kingdom this material is a financial promotion and is issued by First Sentier Investors (UK) Funds Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registration number 143359). Registered office: Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB, number 2294743.