Manager

Manager - Sujeya Desai Manager Since - 05/2023

Sujaya Desai became lead manager for the fund in May 2023 with Jack Nelson stepping back to a deputy manager role. Sujaya joined the team in 2016 and holds a MPhil in Development Studies from the University of Cambridge and a BA (Hons) in International Relations and Anthropology from Brown University. David Gait remains involved with the fund. Team transitions have been relatively seamless as team members have always worked with strong collaboration in terms of research. Following the manager handover there were no fund changes.

Jack is a Portfolio Manager with the Sustainable Funds Group at Stewart Investors and lead manager of the Global Emerging Leaders Markets Sustainability strategy. Jack joined the team in September 2011 as a graduate and holds a BA (Hons) in Politics, Philosophy and Economics from Queen’s College, Oxford.

David Gait is responsible for leading the Stewart Investors Sustainable Funds group and generating investment ideas across all sectors in emerging and developed markets. David joined the company in 1997 and holds both an MA with honours in Economics from Cambridge University, and a Master of Science in Investment Analysis from Stirling University.

Fund Objective

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Investment Process

This fund has the same philosophy regarding investing in quality with strong valuation disciplines, adopting an absolute return mind set and stewardship, as the other funds managed by the Stewart Investors Sustainability team.  Investment decisions are made with a five-year time horizon and the risk of losing money is considered more important than deviating from a benchmark.  After the application of the entirely qualitative sustainability criteria (see SRI Process) the next stage is quality assessment, which is the most important factor in all companies assessed by the Stewart Investors team.  Management integrity and corporate governance have always been key issues.  Companies are analysed over the longer term to understand how they perform over a whole economic cycle with business franchises that can stand the test of time being favoured.  The team look for companies that are able to grow their cash flows over the long term - predictability is favoured over speed of growth.  The fund has a large universe, with the team’s quality criteria the most important factor driving whether research is taken further.  Every company is assessed on its merits with the team meeting the most interesting ideas.  All team members are generalists who undertake analysis across a range of countries and sectors.  After meeting a company, if it meets the quality criteria, a team member produces a report as a first step, which is then discussed by members of the Sustainability Team.  Ultimately, Sujaya Desai has the final decision.  The team do not make snap decisions with the research process on a stock often taking 4 to 5 months.  A new company is unlikely to be a top ten holding for at least 2 or 3 years whilst the team get to know it better.  All top holdings have been met by a number of team members to ensure there is diversity of views.  The fund holds between 30 and 75 names and turnover is expected to be in the region of 20%-40% per annum.  The fund has no targeted tracking error, as it is felt this would interfere with the bottom up absolute return mind set.  They are, however, macro aware especially in terms of the potential for currency depreciation and this can often steer them away from higher risk more volatile areas. The team are very valuation conscious rather than contrarian and are always mindful of possible downside when investing. There is a high emphasis on family owned/controlled business, as this is considered an indication of strong stewardship.  This is a multi-cap fund with some companies held with $100m free float. Companies held derive at least half revenue/profits from emerging markets but not all names are listed there. Typically, consumer related businesses in their widest form are a dominant position in the fund due to the preferred qualities of visible defensive cashflows.

Responsible Process

Stewart Investors has a sustainability team split between Sydney, Singapore Edinburgh and London.  This fund does not apply a traditional ethical screening process, but certain sectors/stocks are excluded, such as tobacco/defence/gambling/spirits if believed to be harmful to society.  The team look for franchises that are socially and environmentally efficient from companies with responsible business practices.  There is the belief that products or services actually needed by society will, over the longer term, provide less volatile returns.  Stocks being considered for the fund are put through a sustainability lens, which looks at whether a stock or company has a positive or negative impact on society (e.g. helping countries to develop using limited resources). The team also look into possible negative externalities such as environmental liabilities or litigation arguing that companies with stiff sustainability headwinds could see cash flows disappear quickly.  There is a heavy emphasis on meeting company management and engaging with them to improve sustainable behaviour. Companies are classified into one three sustainability sectors – sustainable goods and services, responsible finance and required infrastructure. This is to help the team think more clearly about the long term sustainability positioning of different types of businesses.

Our Opinion

The performance record of the fund is strong over the long-term and even more so on a risk-adjusted basis. The team focus on businesses and management teams with a strong focus on stewardship, alignment with minority shareholders and a proven record over a number of cycles. Backing successful families has been a feature of the fund through its history. The fund has outperformed benchmark indices and mainstream funds over longer time periods, demonstrating that a sustainable approach is no impediment to returns. In fact, with today’s focus on ESG considerations, sustainability factors are likely to be a tailwind over time. Sujaya Desai, along with all the Sustainability team, are passionate about what they do, and co-manager and team head David Gait has shown himself to be an outstanding investor. For the entire team this investment philosophy is much more than a job.  Whilst this fund is an excellent vehicle for investors who want their money managed in a way that contributes positively to global development and improves corporate behaviour, this should not come at the cost of underperforming indices over full cycles.  Whilst its approach, like all Stewart Investors funds, is at the lower end of the risk spectrum of comparable funds, we believe it can deliver outperformance in the emerging markets sector.