Worldwide Leaders Sustainability

Risk Factors

This information is a financial promotion for the Stewart Investors Worldwide 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.
  • 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.
  • Concentration risk: the strategy invests in a relatively small number of companies which may be riskier than a strategy that invests in a large number of companies.

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 2013 and transitioned to the Sustainable Funds Group in October 2016. The strategy invests in global companies which generally have a stock market value of at least USD 3 billion, and are positioned to benefit from and contribute to sustainable development.

 

Strategy update

1 April - 30 June 2021

In a quarter that continued to set new market highs, we remained wary of valuations that are even more stretched.

We sold out of Tokyo Electron Limited and Novozymes on valuation grounds. The quality of these companies remains good and we would be happy to own them again at more reasonable valuations. We also sold out of Tech Mahindra. Although not particularly expensive, its performance is more volatile in comparison to our other top holding Tata Consultancy Services.

Two new companies were added to the portfolio this quarter. The first, Techtronic, is a company we have known and admired for a long time through our Asian portfolios. Well stewarded by the Pudwill family, the company has an excellent position in its power tools and appliances business. The company leads the industry in replacing high-polluting, fossil-fuelled products with environmentally-friendly, clean, cordless powered technology. Their early investment in battery technology, as well as strong brands in consolidated areas has meant they enjoy pricing power too. The company is also a leader in making its batteries compatible across tools and the batteries are compatible with products up to 12 years old.

Another company we added to the portfolio was Cognex, a research and development driven franchise that should continue to benefit from the growth tailwinds of automation and inspection across a variety of industries. The company has a very sound financial foundation to endure the cyclicality of end customers and remains expensive. As their products and services help improve manufacturing quality and reducewaste, we expect plenty of growth in the years ahead. Although founder-chairman and chief culture officer, Bob Shillman has now retired and stepped down from the board, the company continues to be well stewarded by long tenured Cognoids (employees and management of Cognex are known as Cognoids). The company also produces the most original annual reports that we have come across.

We continued to add to other significant holdings in bioMérieux, Deutsche Post and Philips as valuations remain very attractive.

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

After a period of much change in the strategy through 2020, we took the opportunity this quarter to continue building our positions in some of our more recent holdings.

We increased our positions in companies such as bioMérieux, a family-owned in vitro diagnostics provider, and Synopsys, a leading electronic design automation software provider. 

We believe that these companies are good examples of the marriage of quality and sustainability that we look for – well stewarded cultures, with leading market shares in their businesses, and profit pools expected to expand over the next decade, through a focus on accessible healthcare, in the case of bioMérieux, and increasing efficiency in semiconductor chip design in the case of Synopsys.

As well as adding to many of our favourite holdings, we also initiated and built a position in one new company – Jack Henry & Associates – taking the opportunity provided by some shorter term volatility in share prices. Jack Henry is a provider of core information technology to small and mid-sized banks and credit unions in the US. This is a company we have known for many years, built on a culture that we have much admiration for. The stickiness of their business was demonstrated by both the resilience of their margins as well as their continued ability to grow through a period of turbulence, such as last year. The preservation of a strong, net cash balance sheet is another example of their conservative culture. We recently interviewed Jack Henry’s CEO on their company culture, which we admire greatly. We recently interviewed Jack Henry’s CEO on their company culture, which we admire greatly. Watch the video >

In a period of readily available, cheap credit, we remain wary of and concerned about stretched valuations. We exited three positions through this quarter where we believed valuations to be getting expensive. These were CadenceSysmex Corporation, and Fanuc. To our minds, all three businesses remain high-quality, managed by competent stewards who have built franchises that are now the leaders in their industries. We chose to exit these positions as we did not see sufficient opportunities for growth to justify extended multiples. Given the quality of these companies however, we continue to pay careful attention to them and would be happy to own them again at more comfortable valuations.

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

Worldwide Leaders Sustainability

During the quarter there were 317 resolutions from 23 companies to vote on. On behalf of clients, we voted against 16 resolutions.

We voted against Adobe’s equity compensation plan and executive compensation as we believe the CEO’s median pay ratio is too high and the plan is unnecessarily complex, and we do not have enough information to determine whether the plan will benefit solely employees or will be very top heavy. (two resolutions)

We voted against the approval of Texas Instruments’ executive compensation as we believe the CEO’s median pay ratio is excessive. (one resolution)

We voted against the approval of Alcon’s executive compensation and their compensation report as we believe the CEO’s pay is excessive and we have reservations on the company awarding bonuses for the year despite all financial targets being missed. (two resolutions)

We voted against the approval of Edward Lifesciences’ executive compensation because they changed the goalposts of their plan in light of COVID-19 and the company was not achieving the threshold performance level for any of the corporate financial metrics. (one resolution)

We voted against Ansys’ equity compensation plan and executive compensation as we believe they do not reflect long-term thinking and are unnecessarily complex. (two resolutions)

We voted against Illumina’s executive compensation because they changed the goalposts of their long-term incentive plan in light of COVID-19. (one resolution)

We voted against Constellation Software’s request to appoint KPMG as their auditor for the 26th year, and their ability to set the auditor fees. We believe the non-audit fees are excessive, given they exceed those paid for audit related services, and a change in the auditor would be in shareholders’ best interests. (one resolution)

We voted against a shareholder proposal relating to Synopsys where shareholders were requesting the company lower the recently introduced provision for shareholders with a 20% holding for over one year to be able to a call a special meeting, to a 10% holding and no minimum holding period. We do not want to encourage any activist-driven change in the company’s culture to a more short-term focus. (one resolution)

We voted against two shareholder proposals relating to Texas Instruments and Edwards Lifesciences which would have enabled shareholders to take action with written consent on important issues that arise between annual meetings. We consider ourselves active shareholders and voting an important responsibility in our investment management duties. (two resolutions)

We voted against a shareholder proposal relating to Nestlé where shareholders were requesting the use of an independent proxy to vote on additional or amended proposals from shareholders at annual general meetings (AGMs). We consider ourselves active shareholders and voting an important responsibility in our investment management duties, as such we do not wish for any other business to be transacted at the AGM. (one resolution)

We voted against a shareholder proposal relating to Ansys where shareholders were requesting the company eliminate the super majority vote they have in some circumstances and replace it with a simple majority vote. We believe the current arrangement better protects the company’s independence and growth over the long term. (one resolution)

We voted against a shareholder proposal relating to Veeva where shareholders with 15% of the company’s outstanding shares would be able to call a special meeting. We do not want to encourage any activist-driven change in the company’s culture to a more short-term focus, and believe the company’s proposal of 25% and one year holding requirement is better for long- term stewardship. (one resolution)

Source for company information: Stewart Investors investment team and company data. Numbers may not add to 100 due to roundingSHP means: Shareholder Proposal.

1 January - 31 March 2021

Worldwide Leaders Sustainability

During the quarter there were 93 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:

Worldwide Leaders Sustainability Fund Class A Acc GBP Worldwide Leaders Sustainability Fund Class A Acc EUR Worldwide Leaders Sustainability Fund Class B Acc GBP Worldwide Leaders Sustainability Fund Class B Acc EUR Worldwide Leaders Sustainability Fund Class I Acc USD Worldwide Leaders Sustainability Fund Class III 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.