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Stewart Investors Indian Subcontinent Sustainability: June 2020 fund update

Kate Marshall | Tue 30 June 2020

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • Sashi Reddy and David Gait are highly experienced fund managers in Indian and Asian equities
  • Their track record is impressive and they've delivered strong returns ahead of the benchmark over the long run
  • We like the focus on stewardship, sustainability and high-quality companies
  • We have added this fund to our Wealth Shortlist of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

This fund focuses specifically on the Indian Subcontinent, with the aim to provide long-term investment growth. It 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 State Investments in 2007, initially providing analysis and research support to portfolio managers, with a main focus on Indian equities. India has remained his specialist area since.

David Gait has been named 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 good track records in their own right. Reddy also currently runs the Stewart Investors Worldwide Leaders Sustainability Fund, and we feel this is a reasonable workload given the input of other managers and analysts.

Process

Stewart Investors and its fund managers have based their approach on the same investment philosophy that dates back to 1988. The philosophy is founded on stewardship, and the team invests 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. They also invest in smaller companies which are higher risk than their larger counterparts.

At the moment, around three quarters of the fund is invested directly in India. The rest is invested in Bangladesh and Sri Lanka. The managers focus on 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.

Culture

Stewardship and sustainability forms a core part of the 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.

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.

Stewart Investors forms part of First State Investments, which was acquired by Mitsubishi UFJ, a Japanese bank, in 2019. Takeovers can sometimes lead to disruption and corporate change, and there has since been some change within the team, though positively Stewart Investors remains an independent investment team. That said, we will continue to look out for potential further change.

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' longer-term record on this fund is impressive, and it's significantly outperformed the broader Indian stock market over time. Our analysis shows Reddy and Gait have added value through good stock-picking, regardless of the size of the company or what sector it's in. As always, past performance isn't a guide to future returns.

Given the managers' focus on quality companies and their more conservative investment style, 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.

It's been a similar story so far this year, and the fund has held up well during the volatility caused by the coronavirus crisis. That said, it's still lost money like most Indian and emerging markets funds. Our research shows investments in the healthcare and consumer staples sectors have held up particularly well, including Dr Reddy's Laboratories and Dr Lal Pathlabs (healthcare), as well as Marico (consumer goods).

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.

Stewart Inv Indian Subcontinent - performance since launch

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2020

Annual percentage growth
May 15 -
May 16
May 16 -
May 17
May 17 -
May 18
May 18 -
May 19
May 19 -
May 20
Stewart Investors Indian Subcontinent Sustainability 1.2% 29.8% 10.8% 2.3% -18.0%
FTSE India -2.6% 40.1% 4.2% 10.8% -21.2%

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2020

More on Stewart Investors Indian Subcontinent Sustainability, including charges

Stewart Investors Indian Subcontinent Sustainability Key Investor Information

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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