Strategies
Active Fundamental Equity
Global Sustain Strategy
|
|
Global Sustain Strategy
|
|
Strategies
Active Fundamental Equity
Global Sustain Strategy
|
|
Global Sustain Strategy
|
Global Sustain offers the same long-term focus on high-quality companies and integration of material ESG factors – both threats and opportunities to long-term returns – as the team’s other global equity strategies. The strategy has explicit restrictions against investments in companies with a core business* in tobacco, alcohol, adult entertainment, bulk commodities (coal, iron ore, etc.) and fossil fuels, gas and electrical utilities, controversial weapons and civilian firearms.
The team believes investing with a conscience is fully compatible with generating attractive long-term returns and that the best way to compound shareholders’ wealth over the long term is by owning very high-quality companies with sustainable and high returns on operating capital. Material social and environmental risks to the sustainability of high returns are more important than ever, given political and technological change. Leading the way on such issues can be a positive force for corporate success if it drives consumer and/or employee engagement. The higher the quality of a company, the more important the governance, as management has more degrees of freedom to mismanage the business.
A ROBUST ACTIVE ESG PROCESS |
|
Our bottom-up stock picking approach, ongoing access to management and use, where appropriate, of external sources such as MSCI ESG and Sustainalytics data, enable us to review material ESG issues with companies and engage with management where relevant. |
INTEGRATING ESG WITHOUT COMPROMISING QUALITY |
|
We look for companies that we believe have sustainably high return businesses that can compound over the long term. We look for any risks or opportunities (including ESG factors) that may materially influence longterm returns on a case-by-case basis as part of our investment process. |
A PROVEN INVESTMENT TEAM – SUCCESSFUL RECORD OF ENGAGEMENT |
|
As bottom-up long-term investors, the team interacts directly with company managements on issues they believe are material, and has done so for over 20 years. |
| 1 | Identify High Return Companies (post exclusions) |
|
• High unlevered returns on operating capital employed (ROOCE) • High gross margins (pricing power) • Capital-light business models driving free cash flow (FCF) generation • Strong balance sheet • Exclude tobacco, alcohol, adult entertainment, gambling, civilian firearms or weapons, bulk commodities, fossil fuels, and gas or electric utilities |
|
| 2 | Make Sure Returns are Sustainable |
|
• Ability to remain relevant through powerful intangible assets including brands and networks, sustaining high barriers to entry. • Returns sustainable against material threats or improvable through material opportunities, including Environmental or Social factors • Dominant market shares helping to protect against new entrants • Stable sales – often repeat business driving recurring revenues • Steady organic growth & geographic spread |
|
| 3 | Confirm Management’s Commitment to Sustaining Returns |
|
• Focus on return on capital rather than sales or EPS growth • Capital discipline (reinvest at high returns or return the excess capital to shareholders) • Committed to innovation and investment in franchises • Review management incentives • Sound Governance structure • Engagement on material issues or opportunities where relevant, including ESG factors |
|
| 4 | Valuation |
|
• A focus on free cash flow, not accounting number • FCF yield, DCF, EV/NOPAT
|
