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  • 08/05/2016

Ethos of stewardship and responsibility pays dividends for First State’s India investors


Stewardship Pays Dividends, Approaching India

By Kathryn Robertson

At First State Stewart Asia, the concept of stewardship isn’t just a buzzword; it is a deep-rooted belief that underpins investment across all of their funds. It has also has resulted in the firm picking up BENCHMARK House Awards for both India and Japan equities. Portfolio Manager, Sophia Li, explains how it works.

The team’s approach to risk – applied to both Japan and India equities – is straightforward and refreshing. They define risk in simple terms: the permanent loss of clients’ capital. Moreover, as Li points out, “we invest our clients’ money as if it were our own”. They are unconcerned with metrics such as tracking error or deviating from benchmark returns. Instead of relying on complex models or difficult valuation cases, the team studies the companies it invests in. This scrutiny is all-encompassing, spanning corporate history, competitive advantages and past track records. Moreover, the team has both the resource and experience to throw at the task. With 17 portfolio managers and analysts, First State Stewart Asia is one of the most experienced investment teams in Asia.

Uncovering Quality Companies

So, what type of company is likely to catch the team’s eye? Li explains that they seek out quality companies with sound growth prospects and strong management teams, then pay a sensible price to invest in them. Importantly, the team is likely to shun companies that do not look after their customers, employees, suppliers and the larger community. As she points out, “such companies are unlikely, in our view, to be rewarding long-term investments”.

Getting Under the Skin of a Company

The managers at First State Stewart Asia pride themselves on their long-term stance, which lets them get to know companies well over time. Li remarks that “as long-term investors, we strive to make investment decisions over a five-year time horizon”. Not only does this patient approach provide a valuable insight into investment decisions, it means the team is well placed to influence management on relevant Environmental, Social and Governance (ESG) issues.

As Li remarks, “We believe that we have a responsibility as investors to manage our clients’ money to the mutual benefit of all stakeholders and the wider community”. This sense of responsibility, to both clients and the broader community, is put into practice on a day-to-day basis. The wider team conducts over a thousand company visits per year, to generate investment ideas and check in with companies. And, the team engages with every company it is invested in, ensuring ESG practices are upheld. In turn, this helps to protect clients’ capital.

Investing India

The themes of stewardship and capital preservation run through all of First State Stewart Asia’s offerings, contributing to the team’s success. One fund attracting notable accolades, however, is the First State Indian Subcontinent Fund, which can also invest in companies in Pakistan, Sri Lanka and Bangladesh.

As well as receiving an award for its Indian equity capabilities, the team won a Best-in-Class award from BENCHMARK, thanks to its impressive long-term track record. Summing up the team’s investment approach, the Fund’s manager, Vinay Agarwal explained that “when we make an investment, we regard ourselves as buying shares, on behalf of our clients, in a real business”. This echoes the ethos of stewardship and responsibility embedded across the firm.

Approaching India

Investing in India requires particular skill. Although Prime Minister Modi has made efforts to tackle corruption, it is a deep-seated issue that will take some time to resolve. Excessive red tape and bureaucracy is another hurdle facing investors in India. To overcome these challenges, Agarwal and his team search for quality, with a focus on the people, business and financials for each company. They want to see company management teams that recognize the broader consequences of their companies’ impact on society. Conversely, management teams that are preoccupied with short-term profits represent a red flag and are avoided.

Agarwal comments that “the companies we like often exhibit characteristics such as high cash flows, low debt levels and stable dividend yield. The softer aspects of a business, such as the alignment of interests, the corporate culture and succession planning are important to us too”. Ultimately, the team is looking for management whose interests are aligned with those of long-term shareholders.

Some companies in the wider investment universe are deemed unsuitable for inclusion in the Fund. A careful screening process precludes investment in companies engaged in the gambling, armaments and tobacco industries. While profitable on paper in the short term, Agarwal and his team believe that the high social costs will be reflected in these companies’ valuations, in the long run, mirroring their Western counterparts.

This approach to investment in India is cautious but effective – in the long term. Over time, the Fund has tended to perform better and preserve more capital in challenging markets conditions, while sometimes failing to keep up with the shooting stars when markets have been buoyant. However, as Agarwal points out, “That is an acceptable trade-off in our view. Short-term performance is far less relevant than ensuring the Fund is resilient over longer time periods”. This circumspection has paid dividends – the Fund has delivered stellar returns to investors from launch to date.

The Courage to Turn Away Money

Turning away money might seem a counter-intuitive strategy for an asset-management company. However, the First State Stewart Asia team did precisely that – closing the First State India Subcontinent Fund to new subscriptions for nearly five years. Because of the lower liquidity in the Indian equity market, the team deemed it prudent to keep the Fund size smaller than they would within developed markets. This decision reflects the team’s desire to ensure its ability to meet the Fund objectives is never compromised. Put simply; the team would rather run a smaller portfolio of quality businesses than allocate clients’ money to companies that were lower quality. In other words, stewardship. BM

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現代管家帶來效益

Kathryn Robertson 撰文

對於首域盈信亞洲來說,「現代管家」的管理概念並非只是噱頭,而是支撐著公司裡任何基金投資時所堅守的信念。也因如此,它造就了該公司成功獲得 《指標》基金公司大獎-印度及日本股票的殊榮。日本股票基金經理李青將會解釋如何實踐「現代管家」。

在面對風險上,例如應用於日本與印度股票時,首域盈信亞洲團隊會採取直接和靈活的方法。她指出:「我們會把客戶的資金視為自己的來投資。」對於什麼追踪誤差或基準回報的偏離率等測量方式,他們都不感興趣。比起錯綜複雜的投資模型或深奧的估值案例,他們選擇直接研究目標公司。這審查是全方位的,包括企業史、競爭優勢以及往績紀錄。其實,首域盈信亞洲擁有17位投資組合經理及分析師,具備豐富的資源及經驗來應付任何工作,已是亞洲經驗最豐富的投資團隊之一。

發掘優質公司

那麼,怎樣的公司最受他們青睞呢?李青繼續解釋,他們先物色有穩健增長的前景,以及擁有強勢管理團隊的優質公司,然後再按合理價格進行投資。最重要的是,團隊盡可能避開無法兼顧客戶、僱員、供應商或廣大社群的公司。如李青所指:「依我們所見,這些公司在長遠投資中極不可能帶來利潤。」

深入解構公司

首域盈信亞洲的投資經理為了深入了解目標公司而願意花長時間觀察,這點是讓他們所自豪的。李青強調:「作為長線投資者,我們致力在制訂投資決策時以每五年時間為單位。」而此等耐性不僅為投資決策帶來難得的觀察,同時亦讓團隊在有關環境保護、社會責任及公司治理(ESG)等範疇上,對其管理層構成一定的影響力。李青道:「我們堅信,身為投資者有責任管理好客戶資金,並以全體持份者及廣大社群的共同利益為依歸。」這種對客戶及廣大社群所抱持的責任心,乃是團隊每天持之而行的工作態度。團隊每年造訪公司逾千間,除了取納不同的投資意念外,同時亦可審視各間公司內部。此外,團隊亦會參與所投資的公司活動,確保他們繼續維持ESG守則,從而保障客戶的資金。

最優秀的印度投資

「現代管家」與資本保全的理念貫徹於首域盈信亞洲的全線投資產品中,這也造就了他們步向成功。首域印度次大陸基金贏得各方盛讚,而該基金同時也能夠投資巴基斯坦、斯里蘭卡及孟加拉的公司。

印度股票憑著長期優秀的往績紀錄,團隊不但獲獎,也榮獲《指標》同級最佳的獎項。要歸納團隊的投資之道,印度股票基金經理Vinay Agarwal解釋:「作出每項投資時,我們都把自己看成客戶的代表,如一盤真實的生意裡購入股份。」這與全公司所持著的「現代管家」理念和責任感同出一轍。

進軍印度

在印度進行投資,需要某些特別的技能。儘管總理莫迪已致力嚴打貪腐,畢竟那是根深蒂固的陋習,杜絕仍需時。另外,繁鎖的程序及官僚主義也是印度投資者所面對的難關之一。為克服這些挑戰,首域盈信亞洲團隊主力著眼於人力資源、業務及財政狀況等範圍來篩選優質公司。他們留意那些公司的管理團隊,能否察覺到本身對社會所構成的廣泛影響;相反,若只重視短期盈利的管理層絕對是一大警號,他們會避而遠之。

Agarwal回應:「我們偏愛的公司通常都具備某些特點,例如現金流動高、債務水平低及穩健的股息率。對於我們來說,利益平衡、企業文化及繼承的計劃等較軟性的業務特質亦同等重要。」從根本上說,團隊所物色的是,公司利益能配合股東長遠利益的管理層。

在廣泛的投資市場裡,某類公司被視為不宜納入基金組合內。經審慎的篩選程序後,任何涉及賭博、軍備及煙草行業的公司將被排除在外。儘管它們會令短期賬面的盈利可觀,但是Agarwal與他的團隊深信高昂的社會成本也將反映在那些公司的估值當中。長遠而言,這只會步向西方同業者的後塵。

在印度這樣的投資方法,雖審慎但有效。幾年來,基金的表現愈來愈好,並於挑戰性的市況下成功保本,雖然有時基金未能於市場活躍時趕上流星般的良機。不過,正如Agarwal指出:「依我們來看,這代價是可接受的。相比於能夠確保基金在長期表現中具有強韌性,所謂的短期盈利並非重點所在。」這深思熟慮的心意早已見成效——由推出至今,基金已為投資者帶來豐厚的回報。

審慎投資 堅守理念

對於一間資產管理公司而言,拒絕大量資金看似有違本能。然而,首域盈信亞洲的團隊正是這樣做——首域印度次大陸基金已拒絕新的認購近五年了,直至去年才重新接受認購。由於印度股市的流動性較低,相比已發展市場的基金,認為盡量維持細規模乃比較審慎。這決定正正反映團隊所堅守的理念,為了確保有能力履行基金目標而不願妥協。簡單來說,團隊寧可擁有較小型但優質股的投資組合,也不願意把客戶資金投放於較劣質的公司上。換言之,這就是「現代管家」了。BM

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