Asia Pacific Sustainability

Risk Factors

This information is a financial promotion for the Stewart Investors Asia Pacific 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.


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Strategy overview

The strategy was launched in December 2005 and invests in companies in the Asia Pacific region (excluding Japan, including Australia and New Zealand), which are positioned to contribute to, and benefit from sustainable development. 

 

Strategy update

1 July - 30 September 2021

Companies listed in India were strong contributors over the quarter.

The most notable of these were Tech Mahindra (software services), Mahindra Logistics (logistics) and Tube Investments (industrial). Each company has high-quality family stewards, robust financials and quality franchises with the prospect of multi-decade growth.

During the quarter we purchased India’s leading internet-based exchange for basic industrial goods. This company is in the nascent stages of development, recording sales of only US$70m last year. It has high-quality people at the helm and an attractive network-based business model from which to help Indian small and medium-sized enterprises (SMEs) grow. 

We trimmed Dr. Lal PathLabs (healthcare), India’s leading diagnostics business, on valuation grounds and sold Cyient (IT) and Square Pharmaceuticals to fund higher conviction ideas.

Strong gains prompted us to trim TSMC (Taiwan), MediaTek (Taiwan), Silergy (Taiwan) and Hoya (Japan). All of these companies are involved in the manufacture of semiconductors. The current shortage of integrated circuits is well documented and while demand is likely to remain strong, we are cautious on valuation, cyclicality and sustainability.

Concerns over franchise development and product pricing caused us to reduce Pigeon Corp (Japan) and sell AK Medical (China). Deteriorating politics prompted the sale of Hemas (Sri Lanka) and a reduction of BRAC Bank (Bangladesh). Political headwinds have also intensified in China.

In China, there has been an increasing number of government edicts on the role and status of business within society. Economic activity has come under pressure and there are some signs of financial distress. This has had a negative impact on valuations, particularly in the banking, property and insurance sectors where the strategy has no exposure.1  The high-quality companies we own have been insulated from the worst of these tribulations and in response to lower valuations, we increased our holdings in six companies initially purchased last year.

We also had the opportunity to add two new companies: a leading manufacturer of soy sauce and the owner of one of the largest domestic paint brands in China. Both of these franchises are far from the interest and influence of the commanding political heights. Moreover, they are aligned with sustainable development, financed by robust balance sheets and stewarded by individuals with a passion for development over profit.

1 Source: FactSet

1 April - 30 June 2021

Our investment philosophy marries sustainability with quality.

We are most attracted to companies which occupy the intersection of both of these elements. We will not invest in a company for reasons of sustainability only. Nor will we invest in high-quality companies that are positioned poorly from a sustainability perspective. We evaluate quality across three broad measures: stewardship, franchise and financials.

During the period we sold the very marginal investment in Indigo Paints due to valuations reaching extreme levels post a much anticipated initial public offering (IPO). For reasons of valuation we also trimmed holdings in Dr. Lal PathLabs (India), Cyient (India) and Xero (Australia). We reduced Tokyo Electron Limited for reasons of cyclicality, sustainability and valuation. Fortunately, we had an opportunity to top up a number of existing holdings listed in New Zealand, Australia, Japan, India and Hong Kong for company specific attractions.

The Australian market is often dubbed ‘a commodity market’ because of the high number of successful resource companies listed on the Australian Stock Exchange. These companies, combined with a very dominant banking sector, frequently crowd out investor attention from some of the high- quality innovative business models that are also listed in Australia. During the period we concluded our evaluation of a founder-managed technology business that boasts 20% market share in the software design of printed circuit boards. We believe that this asset, and people-light business offers attractive financial characteristics, excellent stewardship and a powerful franchise that is capable of continuing to win market share from less focused peers. We added the company to the portfolio.

We increased the direct exposure to companies listed in China as we bought two new mainland A-Share companies, taking the number of Chinese listed businesses in the strategy to seven.

During the period we bought a founder-managed diagnostics business which stands distinct from government interference and assists patients with the early diagnosis of cancer. We also invested in an innovative, founder-managed, vertically-integrated, industrial automation business that improves manufacturing productivity, therefore benefiting from strong sustainability tailwinds and aligned with government ambition for national development.

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.

1 January - 31 March 2021

At Stewart Investors we operate as a team of generalists. We are indifferent, save for identifying macro headwinds and tailwinds, to the geography or sector to which a company belongs.

Over the years, we have found that the absence of competition for capital between country or sector analysts better suits the culture of the Sustainable Funds Group; curiosity trumps compulsion when it comes to promoting higher quality analysis and discussion. This is not to say that we don’t study competitors or industry peers. We pride ourselves in identifying leaders in terms of quality of stewardship or franchise, as well as companies which set an example on issues of sustainability. Often we find that smaller companies in an industry are higher quality than larger peers.

We have found this to be the case in logistics where reliability and trust are more important than scale and price. Recently we were forced to sell Expeditors, a high-quality logistics operator, because of reduced income from the Asia Pacific region. However, in our study and ownership of Expeditors, we learnt a lot about the cultural traits that drive success in this competitive industry. During the quarter we were excited to initiate a holding in a medium-sized logistics franchise, listed in New Zealand, which exhibits many of the same characteristics demonstrated by Expeditors. We were also pleased to initiate holdings in companies listed in China, Hong Kong, Malaysia and India. In addition to these new purchases we topped up on existing holdings in CSL (Australia) and Cochlear (Australia). In both instances excessive concern over short-term disruptions appears to be masking the long-term attractions of these high-quality companies for many investors.

Over the period we sold two holdings. The first was OCBC Bank (Singapore). OCBC is a tremendously high quality bank and is exceptionally well stewarded. However, we are fortunate in the all capitalisation strategies to be able to choose from a larger pool of companies which we believe are offering a more attractive risk-reward ratio at present. The same rationale applies to Metropolis Healthcare (India), the second company we sold from the portfolio. The other decision we made was to trim nine of the strategy’s holdings where we remain convinced about the qualities of the companies but valuations are most stretched. The companies we reduced were: Centre Testing International (China), Chroma ATE (Taiwan), Delta Electronics (Taiwan), Kasikornbank (Thailand), Kingmed Diagnostics (China), MediaTek (Taiwan), Shenzhen Inovance (China), Tokyo Electron (Japan) and Xero (Australia).

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.

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Proxy voting

1 July - 30 September 2021

Asia Pacific Sustainability

During the quarter, there were 219 resolutions from 29 companies to vote on. On behalf of clients, we voted against four resolutions.

We voted against Kasikornbank and 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. (two resolutions)

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 Sustainability

During the quarter there were 274 resolutions from 26 companies to vote on. On behalf of clients, we voted against 11 resolutions.

We voted against Pentamaster InternationalVinda International and AK Medical Holdings’ request to repurchase issued shares, and issue shares without pre-emptive rights, as the share discount rate had not been disclosed and the share issuance was excessive. (six resolutions)

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)

We voted against Selamat Sempurna’s request to appoint an independent auditor and their authority to set the auditor fees. At the time of voting the company had not disclosed its proposed auditor. (one resolution)

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 Sustainability

During the quarter there were 58 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)

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

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

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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.