We are conviction-based, bottom-up stock selectors with a strong emphasis on proprietary research. Our goal is to identify high quality companies to invest in for the long term. We look for founders and management teams that act with integrity and risk awareness; and dominant franchises that have the ability to deliver sustainable and predictable returns over the long term.

We are conservative investors and define risk in terms of the permanent loss of capital, rather than deviation from any benchmark index. We believe that by investing in quality companies and holding for the long term, the risk to capital is greatly reduced.

Investment Philosophy and Approach

Our investment process is driven by bottom-up fundamental company analysis. We appraise both qualitative factors and quantitative financial data to assess the quality of a company. This is supplemented by an extensive program of country research trips and meetings with senior and operational management. It is through direct company meetings that we gain valuable insights on the businesses we want to own.

Our approach has a number of key features:

Bottom-Up Stock Selection

We are conviction-based, bottom-up stock selectors with a strong emphasis on high quality proprietary research and direct contact with the companies in which we invest.

Quality Companies

Through our in-depth research process, we assess the quality of management, quality of franchise and quality of financials. We only invest where we perceive the management operates the business effectively and in the interests of all stakeholders. Companies that do not look after their customers, employees, suppliers and the larger community are unlikely to reward long-term shareholders.

Sensible Valuations

We employ a variety of valuation techniques to arrive at a fair market value (FMV) for each company in which we might invest. We do not want to overpay for growth prospects and, in general, prefer to buy companies that are not yet fashionable and where the true potential of the company has yet to be recognised by the market.

Long-Term Investing

We are long-term investors and prefer to invest in quality companies that we can hold on to for many years. When we make an investment, we regard ourselves as buying shares, on behalf of our clients, in a real business. This entails responsibilities as well as normal shareholders’ rights and we engage extensively on environmental, labour and other governance issues.

Absolute Return Mind-Set

We are conservative investors and focus as much on capital preservation as on capital growth. We specifically define risk as losing clients’ money and adopt an ‘absolute return mind-set’ throughout our investment process. Although this prudent investment style may lag in strong liquidity-driven or momentum-led markets, our approach has consistently produced long-term outperformance

Benchmark Indifference

We are indifferent to benchmark indices and also to short-term performance relative to the index and peer group.  We are not required to own any individual country, sector or stock in our portfolios. As a result, we tend to run relatively concentrated, high-conviction portfolios, though we aim to be adequately diversified across countries and industries at all times.

Team Profile

First State Stewart Asia is an autonomous investment management team within First State Investments, with offices in Hong Kong, Singapore and Edinburgh. The team manages US$25 billion (as at 30 June 2018) across a range of Asia Pacific and Global Emerging Markets equity strategies.

Investment Team

19

Location

Hong Kong, Singapore, Edinburgh

 

Stewardship and ESG Integration

We are responsible investors and have integrated ESG analysis and company engagement into the investment process. We believe that relevant ESG factors highlight the sustainability of a company’s earnings and could generate a significant impact on investment performance.

We believe quality companies with better ESG credentials will generally merit a higher valuation multiple; conversely, weaker companies may warrant a discount. By evaluating ESG factors, we can assess what might significantly improve or indeed destroy the investment case in terms of future valuations.

On the other side of the equation, being responsible investors means that we are responsible owners. We consider every company meeting as an opportunity to engage with management and we take our ownership responsibilities seriously. We engage extensively with companies to share best practice and influence behaviour on material issues. 

Assessment and monitoring

FSSA’s investment approach is heavily focused on research. Our bottom-up investment process combines regular company visits with extensive fundamental analysis, seeking to identify high quality companies to invest in for the long-term. We typically look for founders and management teams that have high governance standards and are well-aligned with minority shareholders; and strong franchises that have the ability to deliver sustainable and predictable returns comfortably in excess of the cost of capital. We focus particularly on companies where we believe the market has incorrectly priced future growth potential.

Investment ideas are stimulated by extensive company visits, research trips, industry contacts, team discussions and broker research. Our 17-person investment team conducts more than a thousand direct company meetings a year and we visit the majority of companies at least once before investing. 

Company meetings usually take place with senior and operational management and focus on gaining a thorough understanding of the company and its industry – it is during these meetings that we incorporate ESG analysis into our investment process. We do not apply a check box approach as we believe the relevance of specific ESG factors will differ from company to company.

Every company meeting is written up in a meeting note and, if potentially investible, discussed over email and at twice-weekly team meetings. The most promising investment ideas result in a detailed company report which includes a section on ESG.

To assist in our ESG analysis, we have subscribed to RepRisk, a business intelligence provider that specialises in ESG risk analytics and metrics. The service highlights all relevant ESG issues on our portfolio holdings and serves as a due diligence tool for potential investee companies.

Significant ESG concerns from either our company meetings or from RepRisk are discussed at our team meetings. We take our ownership and engagement responsibilities seriously and engage with companies on material issues and to achieve specific outcomes, namely to ensure good ESG practices and to protect our clients’ capital.

On important issues, we may decide to set out our concerns in a formal letter to the company; if the management response is judged to be inadequate, we may apply a valuation discount, or, in extreme cases we may consider divesting our ownership.

"Companies that do not look after their customers, employees, suppliers and the larger community are unlikely, in our view, to be rewarding long-term investments."

"During 2016 we held 1,446 company meetings across China, Hong Kong, India, Japan, Malaysia, Kenya, Singapore, South Korea, Taiwan, Thailand and Vietnam"

Countries visited in 2017

China, Hong Kong, India, Japan, Malaysia, Nairobi, Singapore, South Korea, Taiwan, Thailand, Vietnam

Number of meetings

1645

 

Engagement

Company meetings usually take place with senior and operational management and focus on gaining a thorough understanding of the company and its industry – it is during these meetings that we incorporate ESG analysis into our investment process. We do not apply a check box approach as we believe the relevance of specific ESG factors will differ from company to company.

Every company meeting is written up in a meeting note and, if potentially investible, discussed over email and at twice-weekly team meetings. The most promising investment ideas result in a detailed company report, which includes a section on ESG.

To assist in our ESG analysis, we have subscribed to RepRisk, a business intelligence provider that specialises in ESG risk analytics and metrics. The service highlights all relevant ESG issues on our portfolio holdings and serves as a due diligence tool for potential investee companies.

Significant ESG concerns from either our company meetings or from RepRisk are discussed at our team meetings. We take our ownership and engagement responsibilities seriously and engage with companies on material issues and to achieve specific outcomes, namely to ensure good ESG practices and to protect our clients’ capital.

On important issues, we may decide to set out our concerns in a formal letter to the company; if the management response is judged to be inadequate, we may apply a valuation discount, or, in extreme cases we may consider divesting our ownership.

Case Studies

We believe that a strong commitment to stewardship is an essential component of a strong approach to responsible investment (RI), and that embedding RI into the core of our investment activities is in the best long-term interests of our clients. For more than a decade we have systematically and progressively improved our practices and processes across our investment capabilities globally.

Learn more through our interactive case studies map

Climate Change

The section below provides addition, team specific, information on climate change. Further information on our approach to climate change can be found in our climate change statement. 

Team Climate Change Statement

Climate change is a key consideration in our investment process; we have invested in several companies that are actively taking steps to solve the climate change problem. In China, for example, policies to tackle rising pollution levels has led to a series of reforms in the clean energy sector, benefitting the likes of ENN Energy and Hong Kong & China Gas which distributes natural gas, as well as Xinjiang Goldwind Science & Technology, which makes wind turbines and manages wind farms.

LG Chemical, a petrochemicals company that has become the world’s largest automotive battery supplier, is another example of how we think about climate change. The International Energy Agency (IEA) estimates that the number of electric vehicles will grow from two million globally (2016 figures) to somewhere between 40 and 70 million by 2025. LG Chemical has been growing its electric vehicle (EV) battery business, winning projects to supply major auto companies such as General Motors and Ford, among others.

We also consider climate change in respect of a business’s impact on the environment. DMCI Holdings is a diversified conglomerate in the Philippines with businesses in construction, power plants, mining and utilities. We have engaged with DMCI on a number of occasions, including on polluting mines, environmental rehabilitation projects, mangrove planting, reforestation, giant clam seeding and protection measures, as well as other matters surrounding disclosures, operating standards (especially on safety) and community engagement.

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Proxy Voting

Proxy voting rights are an important asset for listed equity investors and exercising these rights is a core part of our stewardship responsibilities. We seek to vote on all possible resolutions at company meetings. Prior to voting, we consider each resolution against generally accepted corporate governance best practice guidelines and, where appropriate, seek to engage with company management before a potential vote against.

In addition, the team retains a selection of independent corporate governance research providers that advise on proxy voting matters, although we retain full control over final voting decisions. Where an issue is controversial or affects multiple portfolios, it will be discussed at team meetings before a decision is made. 

View the team's live proxy voting record

Proxy voting history by type of resolution

The table below contains the proxy voting history for the team by issue type. The chart provides the same information for 2016.

Voting Independence 

The chart below shows the number of times the team has voted against management recommendations, proxy advisors' recommendations, or against both. The purpose of this table is to show the independent judgement which is applied by the team when making voting decisions.

 

Abstain

Against

For

2017/18 Total

Audit/Financials

-

2

527

529

Capital Management

2

105

1,220

1,327

Director election

1

103

2,716

2,820

Director Remuneration

-

5

319

324

Executive Remuneration

-

22

191

213

General business

-

52

788

840

Governance related

2

24

1,125

1,151

M&A

-

2

88

90

Remuneration Related

-

5

23

28

Shareholder proposal

-

1

4

5

Shareholder rights

-

107

222

329

Climate Change Related

-

-

-

-

Grand Total

5

428

7,223

7,656

 

Proxy voting by region

The chart below shows the number of times the team voted in each reason and the percentage of votes against management recommendations, against our proxy advisors' recommendation, or against both. The purpose of this table is to show the regional difference in voting patterns and governance concerns. 

 

Proxy voting information is as at 30/06/2018
Source: First State Investments / CGI Glass Lewis

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