Stewart Investors Asia Pacific Leaders - a quality team looking for quality businesses

Kate Marshall | Thu 02 May 2019

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• The team continues to focus on quality companies that consider sustainability issues
• Exposure to Japanese companies has increased
• The fund held up well in 2018 when markets were weak, but has lagged a stronger market this year

Our view

There's often a lot more to a fund than what's on the surface. Performance and where the fund invests are two of the most obvious things to consider. But delve a little deeper and there's much more going on.

Our research team look at a range of other things, like the fund's manager, their team, what motivates them, and their working environment. These factors can have a bigger impact than you might first think.

We think Stewart Investors has all the ingredients of a successful investment group. It's home to a focused, well-resourced team, but without too many cooks spoiling the broth. And they've developed a great culture and philosophy over the years. They don't put personal gain ahead of their investors, and look for companies that treat their customers in a similar way.

It's a recipe that's worked well over the years. And we think their Asia Pacific Leaders Fund has great long-term potential. It's not currently on the Wealth 50 because we think there are other Asian funds with excellent potential, which are available at lower cost. We still think it could do well over the long run though.

Quality counts for a lot

Quality is at the heart of Stewart Investors' investment process. But how do they measure quality, and what does it look like in a company?

The quality of a company's management is crucial to the team. They should put the needs of their customers and shareholders before their own, and act with honesty and integrity at all times.

Sustainability issues are also important. These range from climate change, poverty, and ethnic and gender inequality, to safety, management and governance practices. The team take these issues into account when they analyse companies. They only invest in those that make a positive contribution to society and the countries where they’re based.

These companies should also be in a healthy financial position. They should make plenty of cash and be transparent when it comes to their finances.

Overall, the type of company they look for tends to be run in a conservative way. It's helped the fund hold up well when markets go through a tough patch. 2018 was a good example – the fund grew 5.4%* while the broader Asian stock market fell 8.5%.

The fund doesn't tend to go up as much when markets rise quickly though, which we've seen so far this year. Past performance isn't a guide to future returns and there will be times when the fund falls in value so you could get back less than you invest.

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2019

Tata Consultancy Services, an IT services company, is currently the fund's biggest investment. It's based in India, but it carries out business across the globe. The team thinks it ticks a lot of boxes when it comes to sustainability: it has a strong code of ethics, a supportive and inclusive environment for employees, and promotes innovation across a range of businesses. They expect it to benefit as the world becomes increasingly digitalised.

Elsewhere the team's increased the fund's exposure to Japanese companies that earn money from across Asia, not only in Japan. They have the type of culture and high governance standards the team looks for.

They've recently added to an investment in Hoya, a global leader in eyeglass and contact lenses. Their products are used in a wide range of other products as well, such as TVs and smartphones, as well as medical devices. The fund also invests in emerging markets, which increases risk.

Overall these quality companies have performed well for several years. The team think some of their share prices don't have as much growth potential anymore. So they haven't invested in as many new companies recently and the fund has a higher level of cash at 15%. They're keeping a close eye on a number of companies they like though – if their shares get to a more attractive level, or they find companies with better potential, they'll invest more of the fund's cash.

Find out more about this fund including charges

Stewart Investors Asia Pacific Leaders key investor information