Australian Equities, Core

We employ a sensible, transparent investment process, which has been unchanged for more than 20 years. Disciplined and risk-aware portfolio construction is a key feature of our style.

The team has adopted a bottom-up approach to identifying key ESG risks. Our analysts consider ESG and sustainability issues as one of six factors in the stock research and selection process.

We engage with all companies held in our portfolios and many others in the investment universe and beyond.

Investment Philosophy and Approach

Our strategies seek to protect and create long-term wealth for our investors by taking an active and disciplined approach to managing investments in the Australian equity market.

Our investment process has no persistent style bias and seeks to add value regardless of market cycles or thematics. We employ a sensible, transparent investment process, which has been unchanged for more than 20 years. Disciplined and risk-aware portfolio construction is a key feature of our style.

The business has been based on people with sound judgement. The experience of working through multiple business cycles provides us with the expertise to outperform in a range of market conditions.

Team Profile

Led by Matthew Reynolds, the investment team is highly experienced and has a mix of complementary skills. Specialist investors within the team manage a range of Australian equity strategies, including active large cap, equity income and passive. 

Our incentive structures are directly aligned to the results we deliver to our investors. We believe this promotes commitment and intellectual engagement, aligning our interests and success with those of our investors. 

The RI Representatives for the Australian Equities, Core team are Tim King, Head of Research and Robin Balcomb, Portfolio Manager, Core Index.

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Stewardship and ESG Integration

An assessment of companies' commitment to sustainability, the integration of governance policies in the organisation and the adoption of appropriate disclosure practices are aspects we assess. 

By engaging on ESG issues with the companies in which we invest, we believe we are able to identify potential risks and opportunities in companies, determine how those risks are material, and what is being done to manage them. 

We believe there is a correlation between companies with good governance practices and strong, sustainable shareholder returns. Consequently, we seek to positively influence companies towards ESG best practice for the ultimate benefit of our investors.

Assessment and monitoring

The team has adopted a bottom-up approach to identifying key ESG risks. Our internal analysis is supplemented by company disclosures, media and external research. Our analysts consider ESG and sustainability issues as one of six factors in the stock research and selection process. A consideration of a company's ESG policies and practices is therefore an explicit part of the stock research process, and has been in place since 2007. 

Integration

Where ESG and sustainability factors are determined to have a material impact on profitability, they are quantified and included in other factors, most directly in the valuation and financials of the stock. 

Engagement

We engage with all companies held in our portfolios and many others in the investment universe and beyond. Issues for engagement are identified through detailed company research and analysis. 

Progress on ESG issues is monitored by analysts. Subsequent meetings with management provide opportunities to monitor progress on particular topics of concern. 

Engagement activities are designed to improve our understanding of the policies and practices of companies and to assess their effectiveness in managing ESG risks. The outcomes of our engagement with companies flows through to proxy voting and investment decisions. 

 

"We believe there is a correlation between companies with good governance practices and strong, sustainable shareholder returns." 

 

 

"Engagement activities are designed to improve our understanding of the policies and practices of companies and to assess their effectiveness in managing ESG risks. The outcomes of our engagement with companies flows through to proxy voting and investment decisions."  

Investment Information and Performance

Investment characteristics

Average turnover across all funds (Five years annualised) 56
Stock name retention over five year period 51%
Number of holdings Wholesale Australian Share - Core Fund 81
% of portfolio companies met with 100%

 

Top five holdings
(as at 31/12/2016)
All funds combined
Commonwealth Bank of Australia
Australia and New Zealand Banking Group
Westpac Banking Corporation
National Australia Bank
BHP Billiton Ltd
Top five active holdings
(as at 31/12/2016)

Wholesale Australian Share Core Fund
Australia and New Zealand Banking Group
Rio Tinto Ltd
Woolworths Ltd
Macquarie Group Ltd
QBE Insurance Group Ltd
% of portfolio companies met with  100%

Performance and investment characteristics are as at 31/12/2016
Performance is quoted pre-fees and in $A terms. 
Source: First State Investments
Please follow this link for information on how our RI and Stewardship Measures are calculated. 

 

Performance

Portfolios outperforming their relevant benchmark over five years
(Weighted by size of fund)
55.54%
Weighted average of outperformance
(Five years annualised. Weighted by size of fund)
0.04%
Absolute return (per annum) over five years
Wholesale Australian Share - Core Fund 
11.97% 

 

ESG Profile

The following tables incorporate third party information to provide additional context. We believe that providing an independent view of some typical ESG issues facing the industries and countries where we invest helps to emphasize the importance of considering ESG factors, as well as the value that this approach can add to investment outcomes. These risks are not company specific, but are relevant to the team's larger industry and country exposures.

This contextual information should be considered alongside the description of the team's approach to integrating and engaging on ESG issues, and the company-specific case studies provided. Taken together a more complete view can be formed on how the team is able to generate value through responsible investment and stewardship.

Typical ESG Risks by Sector

The bar chart below counts the number of times different risks have been flagged by Sustainalytics as being material for the different sectors the team invests in. The line graph does the same, only as a weighted average based on the value of the team's holdings in each sector across all portfolios. These risks are generic for the industry and may be different for individual companies. They also don't reflect how individual companies are managing the risks. 

Sector Split

Typical ESG - Risks by Sector

Sector exposure percentages are as at 31/12/2016
Source: Sustainalytics (sector risks)

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

The Core team recognises that climate change is a reality that must be allowed for by responsible investment teams. It creates both risks and opportunities for businesses. A company’s exposure to climate change is one of the aspects that the team considers when evaluating a stock’s Sustainability/ ESG factor. Our investigation looks at how companies are improving their operating procedures to reduce their current impact on the environment. We also consider how corporate strategies are evolving to meet the demands of customers in a world that has less tolerance for activities that may impact the environment.

Holdings in companies with fossil fuel exposure

The table opposite outlines the companies which the team invests in that have exposure to fossil fuels. There is no revenue, cost curve or other threshold applied and so the fossil fuel exposure should not be seen as a guide to the risk of stranded assets, however it is reasonable to expect that the attention paid to the risk of stranded assets by teams will correspond to their fossil fuel exposure.


Number of Companies % of Funds
Number of companies 91 100%
Fossil Fuel Companies inc gas 8 19%
Total 8 19%
Companies with Gas Reserves 4 11%

Carbon exposure

The table opposite provides an overview of the team's carbon exposure. The first measure provides an equity ownership approach to accounting for the emissions, while the second set of numbers provides a guide of how efficient the average company held is versus other companies in that industry group. The chart below shows the difference between the two. 

The carbon emissions, fossil fuel and revenue data have been provided by MSCI. 14% of the carbon emissions data has been estimated due to gaps in company disclosure. Companies without carbon or revenue data have been excluded, hence the difference between these and the fossil fuel numbers. Please see the RI and Stewardship Measures page for more information on how these and other metrics have been calculated.


Equity Share Carbon Emissions Number of Companies Team Average Team Company Intensity Number of Companies (GICS) Industry Group (Australia) Average Industry Group Intensity (Australia)
Materials 455329 14 613.49 73 791.56
Utilities 396616 1 5251.45 13 3340.77
Energy 214193 3 1035.94 22 875.98
Food & Staples Retailing 25248 2 74.73 3 68.26
Commercial & Professional Services 11854 4 94.35 21 79.26
Real Estate 5051 7 85.62 48 81.58
Consumer Services 3789 7 67.19 26 56.54
Banks 2896 12 5.97 12 5.76
Telecommunication Services 2392 3 68.26 7 61.79
Software & Services 2016 5 100.87 27 38.55
Other 4978 27 31.7 166 114.7
Grand Total 1124367 85 221.2 418 337

Difference Team Average Intensity vs Industry Average Intensity

Fossil Fuel and carbon information are as at 31/12/2016
Source: MSCI

Proxy Voting

The team's live proxy voting record is available here 

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.


Abstain Against For 2016 Total
Audit/Financials 1 1 12 14
Capital Management 1 96 97
Director election 4 37 678 719
Director Remuneration 2 60 62
Executive Remuneration 2 38 251 291
General business 1 1
Governance related 9 151 160
M&A 1 20 21
Remuneration Related 23 206 229
Shareholder proposal 2 2
Shareholder rights 9 9
Grand Total 8 111 1486 1605

 

Proxy voting information is as at 31/12/2016
Source: First State Investments / CGI Glass Lewis

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.

Please follow this link for information on how our RI and Stewardship Measures are calculated.