Worldwide Sustainability

Risk Factors

This information is a financial promotion for the Stewart Investors Worldwide 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.

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 November 2012. It is an unconstrained investment strategy and is able to invest in companies across the world which are positioned to benefit to contribute to, and benefit from sustainable development.

 

Strategy update

1 July - 30 September 2021

Markets ended the quarter roughly where they started1, although the period was punctuated by the predicament of the highly indebted Chinese property company Evergrande, as well as by concerns about inflation, supply chain challenges, energy shortages and the resurgent Delta strain of Covid-19.

In short, the period reinforced the importance of the business qualities we prize: low debt, pricing power, resilient cash flows, and adaptable and competent management teams.

We completely exited positions in Unilever and Neogen.

Unilever had been held in the strategy continuously since 2012 on the strength of its core brands and ability to provide affordable hygiene products in emerging markets, as well as its ambitious sustainable living plan. Unfortunately, since the attempted takeover by Kraft-Heinz in 2017, Unilever’s balance sheet has deteriorated, and an increasing focus on margins has done little to improve competitiveness.

The company has struggled to develop and acquire leading new brands. It has also had difficulty evolving areas of its product portfolio to suit changing consumer preferences, and has been slow to adapt to the online and omnichannel distribution environment.

The sale of Neogen was motivated mostly by valuation. However, our lack of success in attempting to engage the company on product safety and sustainability also contributed to the decision.

We bought three new companies during the period.

Synopsys is the market leader in design software for digital integrated circuits, with around 30% market share. Against a backdrop of increasing costs and resource consumption in the production of ever-more advanced semiconductors, Synopsys supports its customers in achieving better designs and in developing more energy efficient chips, while cutting down on design time and errors. Its specialist software also supports climate solutions in building automation, telepresence and electric vehicles. Synopsys is growing its security services offering, enabling customers to embed best practice cybersecurity checks into software development processes. The company has a distinctive culture and is led by co-founder Dr Aart de Geus.

Adyen is helping redefine and reduce costs in the complex payments processing ecosystem. Traditional payment processing systems include up to seven steps, commonly carried out on ageing platforms, with various intermediaries charging often-opaque fees to merchants. Adyen consolidates many of these functions to provide excellent process transparency using a modern platform which accepts many different payment types from anywhere in the world. The company is growing rapidly in emerging markets, where payments have historically been complex, expensive and insecure, thereby contributing to our access to finance human development pillar.

Masimo is a specialist health technology company that uses light and electroencephalogram (EEG) signals to monitor patients’ vital signs in a non-invasive manner. Its products are embedded in the medical devices of leading companies like Philips and GE Medical. Masimo was established in 1989 by founder and CEO Joe Kiani, whose mission to improve patient outcomes and reduce health system costs still defines and strongly influences the company’s culture.

Quality, sustainability positioning and valuation continue to inform all of our investment decisions.

1. Source: FactSet

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 April - 30 June 2021

Recent market movements have gyrated off the back of the short-term economic re-opening thematic, and expectations, or speculation, on whether inflation will be transitory or long-lasting with obvious implications for interest rates.

Either way, some economies are discussing a move to tighter money supply and slowing quantitative easing programs and uncertainty remains.

We remain focussed on the long term and the strategy is not exposed to outsized investment risks for inflation or deflation in future. We continue to examine the liquidity and solvency of our companies and the strategy is largely invested in companies with net cash balance sheets. Our companies are not over-reliant on government action or support, and the strategy is predominately invested in companies that historically show strong pricing power and resilience in a variety of economic conditions. About 45% of the strategy portfolios remain invested in companies with some form of shareholding steward, either a family, founder or foundation, who have guided their company through cycles and sometimes generations.

During the quarter we invested in Cognex, a US-listed inspection and machine vision company for industrial automation. The founder, Bob Shillman, and other executives, provide the research and development and engineering-excellence culture that makes this company successful. They guide a very high profit margin business sensibly, selectively choosing growth opportunities to maintain their pricing power. Cognex is a contributor to sustainable production as their products and software help ensure manufacturing quality, reduce waste in the process by minimising errors, reduce costs through the manufacturing process, and allow for greater traceability and control.

This new investment was funded through selling investments in Novozymes, Lenzing and Topicus. Novozymes appears very expensive considering its moderate long-term growth and more recent moves to push inventory through distribution channels, although the market voting machine has disagreed with us in the short term. Lenzing is one of our rare cyclical companies and with elevated industry inventory levels and commodity pricing for cotton, appears fully valued. Topicus was a gift to us after spinning out from our investment in parent company Constellation Software. We prefer to remain invested in the parent company and struggle to understand the structure that was created to set Topicus free.

We remain positive about the prospects for our sustainable, quality companies as we enter an uncertain second half of 2021 where a delicate balance remains between central bank policies and the fragility of real and consistent economic growth.

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

We sometimes use a gardening analogy to describe how we tend to portfolios.

Last quarter saw less new planting with the introduction of one new company, but continued care of the portfolios through company meetings, additional investments in existing holdings, and the complete sale of three companies. This period of lower turnover is a return to some normalcy after an extraordinary 2020. However, it does not mean complacency as we remain concerned about high valuations, government and central bank interventions, and stop-start progress in terms of COVID-19 vaccine roll outs. 

The new investment was Texas Instruments, a US manufacturer of analogue and embedded chips that allow the digital world to interact with the physical world. Their products are high-quality, low cost and durable, with some chips in use for more than 30 years! While the applications are diverse, the company focuses on industrial and automotive segments (57% of revenues) and plays an important role in helping improve safety and resource efficiency, including in building and industrial automation1. Texas Instruments is run with a long-term mindset, strong capital management and a clear goal of growing free cash flow.

We increased holdings in 14 of our favourite sustainability companies that suffered share price declines in late 2020 and early 2021, including world-leading plasma business CSL and diagnostics businesses bioMérieux and Tecan. We also added to Jack Henry & Associates, a critical IT provider to small and mid-sized US banks and credit unions. We recently interviewed Jack Henry’s CEO on their company culture, which we admire greatly. Watch the video >

Lastly, we completely sold Merck KGaAEnergiedienst and Demant due to concerns about financial quality or constraints on profit growth.

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.

Back to top

Proxy voting

1 July - 30 September 2021

During the quarter there were 71 resolutions from eight 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 April - 30 June 2021

During the quarter there were 417 resolutions from 28 companies to vote on. On behalf of clients, we voted against 13 resolutions and abstained on one.

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 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 Atlas Copco’s remuneration report as we believe the increase in base CEO pay, and the awarding of exceptional bonuses based on short-term and unusual circumstances, 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 have reservations on the company awarding bonuses for the year despite all financial targets being missed. (two resolutions)

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 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 Zebra Technologies’ executive compensation as we believe the CEO’s median pay ratio is too high and the plan is unnecessarily complex. (one resolution)

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 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 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)

Voting in line with WEG’s Board for the election of two independent non-executive directors to serve on their Supervisory Council resulted in us abstaining on the minority shareholder nominee. (one resolution)

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

1 January - 31 March 2021

Worldwide Sustainability

During the quarter there were 91 company resolutions to vote on. On behalf of clients, we voted against one resolution.

We voted against the approval of Nordson Corp’s executive compensation (as we did last year) due to the use of earnings per share (EPS) across both short and long-term metrics and the use of options in conjunction with Restricted Stock Units (RSUs) and Performance Stock Units (PSUs) which we believe is unnecessarily complex. This year the company have also changed the goal posts for the PSUs for the 2020-2022 period. Whilst we understand the background and unusual circumstances that prompted this decision, we believe changing remuneration goal posts can undermine the integrity of the plan itself. (one resolution)

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

Back to top

Latest webcast

Oliver Campbell gives an update on the Worldwide Sustainability Strategy.

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:

Worldwide Sustainability Fund Class A Acc GBP Worldwide Sustainability Fund Class A Inc GBP Worldwide Sustainability Fund Class B Acc GBP Worldwide Sustainability Fund Class B Inc GBP Worldwide Sustainability Fund Class A Acc EUR Worldwide Sustainability Fund Class B Acc EUR Worldwide Sustainability Fund Class A Acc USD Worldwide Sustainability Fund Class B Acc USD Worldwide Sustainability Fund Class I Acc EUR Worldwide Sustainability Fund Class VI Acc EUR Worldwide Sustainability Fund Class VI Dist EUR Worldwide Sustainability Fund Class VI Acc GBP

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.