- Sashi Reddy and David Gait are highly experienced fund managers in Indian and Asian companies
- Their track record is impressive, and they've delivered strong returns over the long run
- We like the focus on stewardship, sustainability and high-quality companies
- This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential
How this fund fits in a portfolio
The Stewart Investors Indian Subcontinent Sustainability fund focuses on companies based in the Indian Subcontinent, with the aim to provide long-term investment growth. The fund mainly invests in Indian companies, though it can also invest in Pakistan, Sri Lanka and Bangladesh. We think the fund could sit well alongside those that invest across the globe or more broadly across Asia. India has excellent long-term growth potential, but a fund focused on a single emerging country is a high-risk option so it should only be considered as a small portion of an investment portfolio.
Manager
Sashi Reddy has managed this fund since December 2009. He joined First Sentier Investments in 2007, initially providing analysis and research support to portfolio managers, with a focus on Indian companies. India has remained his specialist area since, though he also looks at companies across the globe.
David Gait has been co-manager of the fund since the end of 2007. He is a long-standing member of the group's Asian equities team, which he joined in 1997, and has been fundamental in helping to evolve the Asian investment strategies.
Reddy is a highly experienced and respected fund manager in Indian equities, and we like the fact he has the support of other managers we hold in high regard and a close-knit team of analysts. Some of these team members manage other funds with their own good track records.
Reddy also currently runs the Stewart Investors Worldwide Leaders Sustainability Fund, though we feel this is a reasonable workload. He gave up some of his previous fund management responsibilities to focus fully on the Indian and global funds. He also has the help and input of other managers and analysts, and the team focuses only on a selection of companies that meet their quality threshold.
Process
The team at Stewart Investors has based its investment approach on the same philosophy that dates to 1988. The philosophy is founded on stewardship, and fund managers invest investors' capital as though it's their own. They aim to grow investors' wealth over the long term, while limiting losses when markets fall.
Reddy and Gait invest in quality companies they believe can deliver sustainable and predictable growth over the long term. They like cash-generative businesses, which are in good financial health and could withstand periods of economic volatility. The managers also put emphasis on businesses’ people and culture, and only invest in companies they believe are run by management teams with integrity.
The managers mainly invest in large and medium-sized companies, though they also invest in some higher-risk smaller companies. Our analysis shows the managers have added value by investing in this part of the market over the longer term. They’re aware of the extra risk involved from these less proven businesses, so they carry out in depth analysis over a period to ensure only what they believe to be the highest-quality companies make it into the fund.
93.00% of the fund is currently invested directly in India. The rest is invested in Bangladesh, with around 4.5% in cash. The managers hold higher levels of cash at times, which can provide a buffer in tougher market conditions and the chance to invest in favoured companies at cheaper share prices during times of stress. 2020, during the coronavirus crisis, was an example of this.
The managers focus on companies and sectors that are typically more defensive, which means they're expected to hold up a bit better when markets are weaker. This includes the consumer staples and healthcare sectors, which sell products and services that people often continue to buy, regardless of what's going on in the wider economy.
New investments over the past year include Blue Dart Express, which provides courier delivery services, and Tarsons Products, which supplies labware for use within molecular biology, cell culture, genomics, and immunology. On the other hand, pharmaceutical company Biocon and software company Cyient have been sold from the fund.
The managers don’t often make big changes to the fund though – they aim to invest in companies with at least a 10 year view, so they tend to hold on to companies for long periods of time.
Culture
We think the culture and philosophy that has evolved at the group over the years is attractive. The team doesn't put personal gain ahead of its investors and looks for companies that treat their customers in a similar way. It also places emphasis on recruiting and maintaining great people. Every manager and analyst advocate the team's overriding philosophy.
Stewart Investors forms part of First Sentier Investments, which was acquired by Mitsubishi UFJ, a Japanese bank, in 2019. Takeovers can sometimes lead to disruption and corporate change, though positively Stewart Investors remains an independent investment team.
Stewart Investors has been home to two teams that work closely together – Sustainable Funds Group (SFG) and St Andrews Partners (SAP). The SFG team manages this fund, and it was recently announced that the SAP team will close. This will have no operational impact on the remaining SFG team, though there will be a loss of some experienced investors from the wider group, and it is a change we will continue to monitor. The SFG team will take over a couple of emerging markets funds from SAP, as these are focused on areas they know well. The remaining funds will be closed.
ESG integration
Stewardship and sustainability form a core part of the team’s investment strategy, and it's become an increasingly important part of the process over the years. Reddy and Gait focus on companies they believe could benefit from and contribute to the sustainable development of the countries they're based in. Analysing environmental, social and governance information helps them understand more about the quality of companies, and they think their long-term investment horizon makes sustainability even more important.
The team likes to actively engage with businesses as they believe this can enhance returns and reduce risk. For example, they engage with companies to reduce plastic waste. To help achieve this, they have previously commissioned research on plastic waste in consumer goods companies and part-funded the operational costs of a sustainability charity to develop an India Plastics Pact. Companies have since significantly increased post-consumer waste collection and their use of recycled and recyclable plastics in their packaging. The team continues to encourage ambitious targets and greater participation in the India Plastics Pact.
Cost
This fund has an ongoing annual fund charge of 1.11% which, although high, we think is reasonable given the quality of the fund managers, and the fact it invests in a single emerging country where costs can be higher. Investing through HL, a platform fee of up to 0.45% a year also applies.
Performance
The managers' long-term record on this fund is impressive. It's outperformed the broader Indian stock market since Gait became co-manager in 2007 and since Reddy has been lead manager from 2009. Our analysis shows Reddy and Gait have added value through good stock-picking, which means many of the companies they invest in go on to perform well regardless of the size of the company or what sector it's in. Investments in medium-sized companies have added the most value. As always, past performance isn't a guide to future returns.
The focus on quality companies and a more conservative investment style means the fund has tended to hold up better when the Indian stock market falls but doesn't quite keep up when it rises. This has led to an attractive performance profile over the long run.
We're positive about the fund's long-term prospects, but investors shouldn't underestimate the potential for volatility, especially as the fund mainly focuses on a single emerging country. All investments can fall as well as rise in value so you could get back less than you invest.
Annual percentage growth | |||||
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Jun 17 -
Jun 18 |
Jun 18 -
Jun 19 |
Jun 19 -
Jun 20 |
Jun 20 -
Jun 21 |
Jun 21 -
Jun 22 |
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Stewart Investors Indian Subcontinent Sustainability | 11.09% | 1.65% | -11.08% | 47.52% | 9.31% |
FTSE India | 4.84% | 9.76% | -13.65% | 43.55% | 7.96% |
Past performance is not a guide to the future. Source: Lipper IM to 30/06/2022.
More on Stewart Investors Indian Subcontinent Sustainability, including charges
Stewart Investors Indian Subcontinent Sustainability Key Investor Information
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