Stewart Investors Global Emerging Markets Leaders - good stewardship, good returns?

Kate Marshall | Thu 08 August 2019

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• The fund's conservative approach recently held back performance
• We think the team has the potential to deliver good long-term returns
• They take into account good business stewardship, like environmental and governance issues

Our view

The team behind the Stewart Investors Global Emerging Markets Leaders Fund has a lot of experience. They’ve invested in emerging stock markets and used the same investment process for many years.

They look for companies that make lots of cash and are in good financial health. It’s important they’re run by management teams that can be trusted to give an honest assessment of what’s going on in the business. We like the fact the team have been loyal to this process, and to the companies they invest in, for a long time.

We think the team has the potential to deliver good returns for investors over the long run, though of course there are no guarantees. Stewart Investors has restricted the amount of money that can be invested in the fund in order to keep it a manageable size. So it doesn’t currently feature on the Wealth 50 list of our favourite funds.

Our favoured funds for new investment in the higher-risk emerging markets sector can be found on the Wealth 50.

Good stewardship – the key to success?

The investment philosophy behind this fund is founded on stewardship. The team at Stewart Investors look for quality companies that follow a set of principles for the good of both the business and shareholders, as well as the broader environment and society. This includes:

• Quality management – the team likes businesses that are run by honest management teams that act with integrity. They should stick to what they do well, but also be willing to adapt and improve.
• No government links – some emerging markets businesses are partially, or solely, controlled by the government. The team avoids them because they don't think governments always make decisions that are in the interests of other shareholders, or will lead to long-term success.
• Sustainable growth & dividends – the team favours companies that deliver steadier rates of growth, rather than short-term bursts of growth often achieved by buying other businesses. They think growing dividends is also a sign a company wants to look after its shareholders.
• Consider all stakeholders – companies that take into account the needs of customers, employees, and society at large are more likely to achieve long-term success, in the team's view. A focus on environmental, social and governance issues could help here.

Company in focus – Uni-President Enterprises

Uni-President is a leading food company in Taiwan, which is now looking to build successful brands in China. It's made mistakes in the Chinese market in the past, but company management are willing to learn from this and improve. The team at Stewart Investors view this positively.

The company also plans to develop healthier products. It's already reduced the salt content in its instant noodles, cut the use of sugar in some of its dairy and beverage products, and increased the amount of fresh fruit and vegetables in its convenience stores.

Conservative approach holds back returns

The team's conservative approach and focus on more sustainable businesses means the fund's tended to hold up fairly well when markets are weaker. We saw this when global stock markets fell sharply in the last few months of 2018.

The fund hasn’t tended to go up as much when markets rise quickly though, which has happened so far this year. A lack of exposure to China, which has been one of the stronger-performing emerging stock markets, and a focus on India, which hasn't done so well, also hasn't helped.

We think the team has the potential to deliver good returns over the long run, though please remember there are no guarantees and past performance isn't a guide to future returns.

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2019

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