Indian Subcontinent Sustainability

Risk Factors

This information is a financial promotion for the Stewart Investors Indian Subcontinent 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.
  • Indian Subcontinent risk: although India has seen rapid economic and structural development, investing there may still involve increased risks of political and governmental intervention, potentially limitations on the allocation of the strategy’s capital, and legal, regulatory, economic and other risks including 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 November 2006 and transitioned to the Sustainable Funds Group in 2008. The strategy invests in companies based in or having significant operations in India, Pakistan, Sri Lanka or Bangladesh and which are positioned to benefit from and contribute to sustainable development.

 

Strategy update

1 April - 30 June 2021

During the course of this quarter, we initiated two new positions in Cholamandalam Financial Holdings and Blue Dart Express in the strategy.

Cholamandalam Financial Holdings owns a 45% stake in Chola Finance, an NBFC (Non-Banking Financial Company) we have previously owned in this strategy, and a 60% stake in Chola MS General Insurance. The business is 49% owned by the Murugappa family, who have a century-long history of conservative growth in India. We have watched the family evolve over the past decades, and built comfort in their stewardship and improving capital allocation. We are encouraged to see the management changes in the insurance business, and a growing focus on underwriting profits. In an insurance market as underpenetrated as India is, a conservative insurer keen to grow profitably with the Murugappa heritage behind them is well set up to continue taking market share.

Our second new position this quarter, Blue Dart Express, is the Indian express logistics subsidiary of the Deutsche Post Group who continue to own 75% of the business. Average tenure of senior managers within the business is 15 years, with the current CEO having been with Blue Dart for over 35 years. These managers have built the leading express franchise within the country, consistently reinvesting behind expanding the reach of their network. In the face of multiple rounds of price-based competition, they have also demonstrated the ability to remain focused on their core strengths of quality and speed, enabling them to retain their strong competitive position. We believe Blue Dart remains well situated to continue benefiting from the tailwinds around improved logistics and connectivity within India.

We also continued to add to businesses like CG Power and Bosch India, that stand to benefit from sustainable tailwinds around industrial growth and improved penetration of electric vehicles. Both businesses are managed by competent stewards, with long runways for structural growth. Bosch, the only listed subsidiary of the international group, is owned ultimately by a foundation which gives them the benefit of a time horizon measured in decades rather than quarters. This has allowed them to make early investments into electrification across automotives. Similarly, CG Power’s electric motors are essential in sustainable infrastructure across the country. Emerging from bankruptcy under its previous owners, the company is now well set up to focus in on profitable growth under their new stewards, Tube Investments, which is also a large holding in the strategy and a Murugappa company.

We decided to exit our position in SKF India, a maker of ball bearings for automotive and industrial end uses, choosing instead to add to what we believe to be higher quality industrials, mentioned above. While SKF India remains a well-managed company, we believe the others have better opportunities for growth in the decade ahead.

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

The strategy raised cash during the quarter by trimming companies where valuations are discounting much of the optimism in the near to medium term.

We sold out of Asian Paints completely. Asian Paints is one of the highest quality companies in our investment universe but valuations broke through our high tolerance barriers and we did not see much potential for sensible returns in the medium term. We would love to own the company should valuations become more reasonable. We also continued to trim Dabur and Godrej Consumer Products. Both of these are high-quality companies and well positioned in the markets they operate in, but high valuations temper our optimism for absolute returns. 

Amongst others, we continued to add to our holdings in Syngene and Tata Communications. Syngene has been investing over decades, building a relationship of trust with its global pharma customers. A rise in capital expenditure in the last few years makes it well positioned to grow faster in the coming decade, providing quality research and manufacturing support for its customers. Tata Communications is a leading IT infrastructure provider, particularly in digital, security and cloud services. The pandemic has made the need for robust digital infrastructure abundantly clear. Roughly 30% of the world’s data flows through Tata Communication’s networks1. With a new CEO from Tata Consulting Services and the sale of the government’s stake in the business, the company’s prospects look bright in the coming decade. The parent Tata Sons has increased its stake to 60% in the business, which we think is a sign of confidence1.

1. Source: Stewart Investors investment team and company data.

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 April - 30 June 2021

Indian Subcontinent Sustainability

During the quarter there were 53 resolutions from nine companies 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. Numbers may not add to 100 due to rounding

1 January - 31 March 2021

Indian Subcontinent Sustainability

During the quarter there were 21 company resolutions 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. 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:

Indian Subcontinent Sustainability Fund Class A Acc GBP Indian Subcontinent Sustainability Fund Class A Acc EUR Indian Subcontinent Sustainability Fund Class B Acc GBP Indian Subcontinent Sustainability Fund Class B Acc EUR Indian Subcontinent Sustainability Fund Class B Acc USD

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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.