Global Sustainable Growth
Global Sustainable Growth aims to provide capital growth by investing in equity securities of companies worldwide which meet our sustainability criteria. The strategy is benchmark unconstrained, however, performance is compared against the MSCI ACWI Index which best represents the strategy’s investment opportunity set.
Global Sustainable Growth is a patient capital, high-conviction (30-50 stock) global equity strategy that believes long term value creation is shaped by a company’s relationships with its stakeholders. We believe that good corporate citizenship is an important driver of long term earnings durability and alpha generation. Sustainability continues to move up the social, political and industry agendas. We believe the direction of travel is clear and the pace is picking up. We remain focused on identifying those businesses that are willing to invest for the long term, for change and to create sustainable business models.
Portfolio management is the responsibility of Katherine Davidson and Charles Somers, with idea generation, stock research being significantly informed by the work of the Global Sector Specialists sitting within the Global Equities team and Schroder’s local equity analysts more broadly. The strategy however represents a close collaboration between Schroders’ Global Equities and Sustainability teams. Collectively, senior representatives from each team are brought together within the Sustainable Growth Investor Group; a group that provides additional scrutiny and oversight of the sustainability characteristics of the fund’s constituents, company interactions and engagement activities.
We believe that:
- Companies that are run for the long-term, taking account of their impact on ALL stakeholders will be able to sustain supernormal growth and returns
- Companies with strong sustainability characteristics achieve better operational performance can maintain long-term structural growth
- Markets are typically poor at valuing long-term growth and non-financial factors
Step 1: Idea generation
Schroders’ GSSs are the primary source of idea generation, focusing on our local analysts’ highest ranked stocks as well as ideas generated from their own analysis and insights. Irrespective of idea source, the GSS assesses the modelling, analysis and ESG assessment of the regional teams based on an independent view of growth- and risk- drivers. The GSS team reframes the investment recommendations relative to global sector dynamics and reflecting a global opportunity set. The investment team also uses a proprietary quant screen aligned to the team’s investment approach to highlight potential investment opportunities. In addition, ideas arising from thematic research and from inter-actions and engagement with company management by Schroders’ Sustainability team can also provide a source of new ideas.
The output harnessed at this stage of the process comprises detailed financial analysis including estimates of long term growth, and a comprehensive analysis of fundamental risk which incorporates a wide range of financial and non-financial risk factors from operational and financial, to strategic and ESG. The view on risk will be informed by the GSSs’ financial modelling, analysis and insight from Schroder’s ESG team, and meetings with company management which are usually attended collectively by the relevant regional equity analysts, These stock recommendations will be characterized by a positive growth gap underpinning an expectation of share price outperformance and a detailed assessment of fundamental risk, including specific ESG analysis.
Step 2: Sustainable growth investable universe
Based on the ideas emanating from Step 1 of the process, the Sustainable Growth Investor Group, a small sub-committee comprising the strategy’s two portfolio managers, a senior member of the Global Equities team and three members of the Sustainability Team meet to discuss the ideas being considered for inclusion by the two PMs. This group meets monthly with a primary aim to offer a proprietary and holistic assessment of a business’s long-term sustainability. In addition, this group will review existing holdings, corporate performance (financial and non-financial) and set objectives for longer term engagement. These discussions are anchored around stakeholder relationships and how they feed into the long-term quality and durability of a company’s business model and from that the degree to which this will support long term earnings growth. The team use its proprietary Sustainability Quotient ‘SQ’ framework developed to ensure companies sustainability characteristics are assessed and evaluated in a systematic way. It is designed to provide a holistic, in-depth assessment of the long-term sustainability of a company’s business model and growth prospects, based on its stakeholder relationships. The analysis is framed around four broad pillars:
- Respect for the environment
- Fair and equitable treatment of employees, suppliers and customers
- Good corporate citizens
- Prudent allocation of capital
This framework is subdivided into 20 questions that give structure to our analysis, shapes further discussion and research. The conclusion of this process seeks to deliver a list of approximately 100 stocks that meet a high bar for inclusion within the portfolio. Another strength of the SQ process is that it allows us to proactively and specifically target our engagement activity.
Step 3: Stock selection
Using the short-listed universe of stocks, portfolio construction is undertaken by our Portfolio Managers. Stocks are bought with anticipation that these will be held for the long term, reflecting the longer term growth trajectory that has been identified. Stocks will be held until forward looking growth estimates have been fully discounted within consensus expectations, or where better opportunities have been identified. A material change in the thesis, or in the sustainability characteristics, will result in a review of our position.
Step 4: Portfolio construction and risk control
Portfolio weights are a function of our SQ analysis, growth gap, level of conviction and appraisal of risk. Our analysis of fundamental risk is dynamic, reflecting a forward-looking assessment of the risks of holding individual stocks and our approach differentiated because it is systematic and brings the appraisal of stock specific risk to the forefront of stock recommendations and the investment decisions of the team. This approach is applied consistently across the team’s assets under management, irrespective of the mandate specifications for any one particular client. Fundamental risk constituents and weights:
– 45% Leverage
– 45% Quality and Sustainability Assessment
– 10% Country Risk.
Risk scores are dynamic and continually reassessed as part of the rigorous and vigorous monitoring and re-appraisal of stocks held be the team for client portfolios. Individual stocks and their weights within a portfolio are based on our level of conviction in the stock, upside potential, fundamental risk assessment and portfolio characteristics and orientation. Our proprietary fundamental risk framework is a critical component for determining the appropriate position size within our portfolios. Stocks with high fundamental risk scores are typically limited to smaller position sizes (all other things equal).
The portfolio managers aim to hold somewhere between 30-50 stocks within the portfolio. Our country and sector allocation are purely a by-product of our bottom-up stock selection process but may be controlled for risk management purposes. The team adopts a “patient capital” approach for the strategy, anticipating portfolio turnover less than 25% per annum, and seeks to maximize risk-adjusted returns over the investment cycle. The strategy will invest across the market cap spectrum with a minimum market capitalization of $200 million and is managed without benchmark constraints.
- A concentrated, unconstrained global growth portfolio of 30-50 sustainable companies seeking to deliver outsized long term returns
- A patient capital approach with low turnover targeting 3-5 year holding period and long term growth
- Our proprietary Sustainability Quotient (SQ) framework allows us to rigorously and systematically assess the sustainability of company business models based on relationships with stakeholders.
- Strategy excludes stocks with material exposure to alcohol, tobacco, controversial and conventional weapons, gambling, adult entertainment, climate change (tar sands and thermal coal), high interest rate lending and human embryonic cloning.
- Targeted engagement focused on promoting more sustainable business practices and changing corporate behavior
- Separate accounts
- Commingled Investment Trust
- Canadian Trust