It is possible for a global equities portfolio to differ “radically” from the tech-dominated benchmark and still deliver comparable returns, according to Stewart Investors.
According to Stewart Investors portfolio manager Nick Edgerton, who runs the Edinburgh-headquartered firm's Worldwide Sustainability Fund out of its Sydney office, there is "absolutely no trade-off necessary" between sustainable investment and performance.
Mr Edgerton's claim has been borne out by the performance of his fund, which has returned 17.9 per cent to investors in the nearly five years since its inception (versus 17.3 per cent for the benchmark).
His colleague Jack Nelson, who manages the firm's Global Emerging Markets Sustainability Fund, said the top 10 holdings of the portfolio (which accounts for 40 per cent of the fund) only represents 0.1 per cent of the benchmark.
"It's a radically different portfolio, and it doesn't look anything like the index. It doesn't own Apple, Microsoft and so on," Mr Nelson said.
Mr Edgerton added, "A lot of our clients are fascinated with the idea that for five years we've been running a fund with no FANGs [Facebook, Amazon, Netflix, Google/Alphabet] and very little US exposure at all, yet still able to produce decent returns.
"If you don't start with the benchmark to formulate your portfolio there's no shortage of great ideas out there."
Indeed, the Worldwide Sustainability Fund has 50,000 companies to choose from, Mr Edgerton said.
"What do you own versus Coke, for example? There are brilliant soy milk companies, there are brilliant healthy plant cooking oil companies, and there are organic food distribution businesses," he said.
Mr Nelson said Stewart Investors looks for companies that are well placed to contribute to and benefit from sustainable development, with a focus on three factors.
First, the company must provide required infrastructure for sustainable development. Brambles, one of the firm's two holdings in Australia, is an excellent example of a stock that contributes to the "circular" economy in the logistics chain (by re-using pallets) rather than the "linear" economy, he said.
Second, Stewart Investors backs companies that provide sustainable good and services, Mr Nelson said.
"Companies that produce and sell goods and services that are by nature well positioned for changing consumer trends, that contribute to health and wellness and are well protected from future regulatory change. So, CSL [the firm's other Australian holding] would fit very nicely into that," he said.
Finally, the fund manager looks for companies that engage in responsible finance: that is, banks and insurance companies that have a responsible approach to savings, loans and underwriting – "as far away from the Wall Street end of things as we can get".
Stewart Investors also employs a 'quality' overlay on its investments. This looks at the quality of management (including integrity and corporate governance), the quality of the business franchise and the overall financial strength of the company.
Wealth management relationships are under threat as clients look to switch providers driven by the impact of the royal commission. ...
S&P Dow Jones has announced a new addition to its global ESG index using enhanced ESG scores and granular data. ...
Investor confidence is on the rebound and the ASX hit a 12-year high on Monday. But it’s not all good news for the Australian economy. ...