First State Stewart Asia

Our investment philosophy is founded on the concept of stewardship – most importantly, we invest our clients’ funds as if they were our own.

Our objective is to find high quality companies to invest in for the long term. We look for companies with proven management and strong franchises that can be held for many years while ignoring short-term market ‘noise’. Our 17-person investment team conducts more than a thousand direct company meetings a year.

We endeavour to make use of all relevant information at hand, including how companies manage environmental, social and governance issues, and only invest where we perceive the management operates the business effectively and in the interests of all stakeholders.

Investment Philosophy and Approach

Our investment philosophy is founded on the concept of stewardship. Most importantly, we invest our clients’ funds as if it were our own. Underpinning this is the belief that investment ought to have a social purpose, this being the efficient allocation of clients’ assets to high quality companies at sensible prices. 

Our approach has a number of key features:

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.

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.

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. 

Absolute Return Mindset

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 mindset’ 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 independent investment management team within First State Investments, with offices in Hong Kong, Singapore, Edinburgh and London. As at 31 December 2016, the team managed US$21 billion across a range of Asia Pacific, China, India and Japan equity strategies on behalf of institutional and wholesale clients globally.

We are conviction-based, bottom-up stock selectors with a strong emphasis on high quality proprietary research. Our 17-person investment team, based in Hong Kong, Singapore, Edinburgh and London, conducts more than a thousand direct company meetings a year

9
yrs

Stewardship And ESG Integration

The concept of stewardship is central to our investment philosophy and informs our approach to Responsible Investment. Having this mindset – that our clients have entrusted us with their long-term savings – means that we are, by nature, conservative investors. 

We endeavour to make use of all relevant information at hand, including how companies manage environmental, social and governance issues, and 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, in our view, to be rewarding long-term investments.

On the other side of the equation, Responsible Investment also means being responsible owners. When we make an investment, we regard ourselves as buying shares in a real business, with all the rights and responsibilities that this entails. As long-term investors, we engage extensively on ESG matters, particularly where we feel we can add value or can pass on experiences of best practice.

Assessment and monitoring

Our investment approach is heavily focused on research. The 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 whose interests 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.

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.

  "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"

 

 

Investment Information And Performance

Investment characteristics– Asia Pacific Strategies 

Average turnover across all funds
(Five years annualised)
25%
Stock name retention over five year period 44%
Number of holdings 70
% of portfolio companies met with 100%

  

Top five holdings (as at 31/12/2016)

Brambles Limited
CSL NPV
CK Hutchison Holdings
HDFC Bank Limited
Taiwan Semiconductor


Performance 

Portfolios outperforming their relevant benchmark over five years (Weighted by size of fund) 100%
Weighted average of outperformance (Five years annualised. Weighted by size of fund) 2.86%
Absolute return over five years
First State Stewart Asia - Asia Pacific
9.68%

Investment characteristics – China Strategies

Average turnover across all funds
(Five years annualised)
26%
Stock name retention over five year period 45%
Number of holdings 51
% of portfolio companies met with 100%

 

Top five holdings (as at 31/12/2016)

China Taiping Insurance Holdings Company Ltd
Minth Group
CSPC Pharmaceutical Group Limited
Shenzhou International Group
Delta Electronics


Performance

Portfolios outperforming their relevant benchmark over five years (Weighted by size of fund) 74.40%
Weighted average of outperformance (Five years annualised. Weighted by size of fund) 1.63%
Absolute return over five years
First State China Growth Fund
7.80%

Investment characteristics – Japan Strategies

Average turnover across all funds
(Five years annualised)
n/a
Stock name retention over five year period n/a
Number of holdings 52
% of portfolio companies met with 100%

 

Top five holdings (as at 31/12/2016)

Ryohin Keikaku Co,
Tosho Company Ltd,
Start Today Co Ltd,
Tsuruha Holdings Inc,
Daito Trust Construction Co Lt 

Performance

Portfolios outperforming their relevant benchmark over five years (Weighted by size of fund) n/a*
Weighted average of outperformance (Five years annualised. Weighted by size of fund) n/a*
Absolute return over five years
First State Japan Equity Fund
n/a*

*less than 5 years, inception date 2/2/2015 

 

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. 

Investment characteristics – India Strategies 

Average turnover across all funds
(Five years annualised)
31%
Stock name retention over five year period 38%
Number of holdings 42
% of portfolio companies met with 100%

 

Top five holdings (as at 31/12/2016)

Kotak Mahindra Bank,
Nestle India,
Tech Mahindra,
Cipla Limited,
HDFC Bank Limited

Performance

Portfolios outperforming their relevant benchmark over five years (Weighted by size of fund) 100%
Weighted average of outperformance (Five years annualised. Weighted by size of fund) 11.37%
Absolute return over five years
First State Indian Subcontinent Fund
19.33%

 Performance and investment characteristics are as at 31/12/2016

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.

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 122 122
Capital Management 15 216 231
Director election 10 6 708 724
Director Remuneration 66 66
Executive Remuneration 7 71 78
General business 24 132 156
Governance related 3 340 343
M&A 41 21 62
Remuneration Related 7 7
Shareholder proposal 1 1
Shareholder rights 17 18 35
Grand Total 10 114 1701 1825

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.

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 31/12/2016
Source: First State Investments / CGI Glass Lewis

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