Sustainable development in Europe (2023)

Strategy Update: Q2 2023

Update of the European Sustainable Development Strategy: April 1 - June 30, 2023

To measure a company's performance prospects, we must try to understand the context in which it operates. Seen through the abstract lens of news, the world usually appears deeply chaotic, hostile, unstable, and unfathomable. The world may consist of all these things, but all these things are not the only context in which companies operate. We need a different, better frame of reference.

The more uncertain the political economy context and market conditions are, the more carefully and carefully we look at what we can best understand: companies and how well they cope with the specific challenges they face and expect. Changes in the political economy and financial markets naturally affect companies, but their leaders deal with manifestations of these phenomena in the practical realities of employees, customers, supply chains, manufacturing plants, distribution channels and regulators.

Quarterly results were mixed. Encouraging results and positive prospects contributed to the growth of the company's share priceJerome Martins(Portugal: Consumer Goods), a leading supermarket company in Poland.Scientific Judges(UK: Industrials), serial buyer of specialist scientific instrument companies. ANDAtlas Copco(Sweden: Industrials), manufacturer of compressors, vacuum technology and industrial assembly.

Higher performing companies are includedCarl Zeiss Meditec(Germany: Health Care) - a maker of ophthalmic devices and microsurgical visualization technology - fell after the company confirmed slower growth in China due to waves of Covid infections and lockdowns earlier in the year.Sartoriusa(Germany: Health Care), a supplier of laboratory and drug development technologies, has issued a profit warning as sales decline as biopharma customers run out of inventories during the pandemic. ANDALK-Vine(Denmark: Health Care) - a world leader in allergen immunotherapy treatment - which fell as first-quarter data showed less growth in tablet sales in Europe.

The portfolio was expanded by two new companies.Assa Abloy(Sweden: Industrials) is a world leader in locks, doors and intelligent security systems. It operates in fragmented end markets where success depends on gaining and maintaining trust. Electromechanical, digital and automated access systems help save energy and regulate airflow and temperature in buildings. While sales are tied to the real estate cycle, significant revenues from secondary market upgrades and other services help smooth out the overall revenue and margin profile.

Systemy EPAM(US: Information Technology) is an Eastern European IT services company founded by a company that helps accelerate digital transformation and increase the productivity of its clients. EPAM is known in its field asdeveloper developers. The outstanding platform engineering and software development skills of its employees, most of whom work in Eastern Europe, as well as a complete consulting-design-engineering-operations model have enabled it to build long-term relationships with leading companies in over 35 countries around the world.

We continued building the position of, among others, in companies acquired in the first quarterDiscoverIE(UK: Industrials) serial buyer of electronics design and manufacturing companies. ANDTeqnion(Sweden: Industrials), serial buyer of a wide range of specialist industrial and technology companies. We also increased the number of several farms as their valuation became more attractive, including:Alfen(Netherlands: Industrials), supplier of charging stations for electric vehicles and solutions for smart grids and energy storage. ANDTechnologie Infineon(Germany: Information Technology), supplier of semiconductors for the automotive, industrial and energy management sectors.

We sold outSystemy Tomra(Norway: Industrials), which produces technologies for automated recycling, sorting and resale. These technologies could fall to the bottom of spending priority lists if economies fall into recession. At current valuations, we believe Tomra may struggle to generate an adequate rate of return over the next decade. It seems reasonable to invest capital in other portfolio companies.

The main reason for limiting positions was valuation concernsTecan(Switzerland: Health Care), manufacturer of laboratory automation equipment.Eliza(Finland: Communication Services), market leader in telecommunications and digital services in Finland. ANDInficon(Switzerland: Information Technology), manufacturer of specialist gas detection equipment and sensors.

We are looking for exceptional company leaders with flexible franchises and solid balance sheets - companies that can thrive in good times and bad. We strive to hold companies that together can help make the portfolio more resilient to a range of rapidly changing market environments. The goal of consistently good performance in all circumstances will never be achieved, but we strive to ensure consistency across as many different market environments as possible. We believe this is the best way to achieve good overall results in the long term.

Company information source: Stewart Investors investment group and company details. Information about shares does not constitute an offer or solicitation to undertake any investment activity. Portfolio data shown is from representative accounts of the strategy shown above. These new disclosed investments concern holdings with a portfolio weight of more than 0.5%. It does not constitute a recommendation or solicitation to purchase or invest in any fund. Differences between restrictions, currency or fees for certain representative accounts and those of a similarly managed fund or assignment will affect performance.

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Stewart Investors Quarterly Client Update, Q2 2023

April 1 - June 30, 2023

Risk factors

This material is a financial promotion of the Stewart Investors Sustainable Funds Group strategy - Sustainable Development Asia-Pacific and Japan, Sustainable Development Asia-Pacific Leaders, Sustainable Development Asia-Pacific, Sustainable Development Europe, Sustainable Development Europe (without UK), Sustainability in Global Emerging Markets, Sustainability in Global Emerging Markets, Sustainability in the Indian Subcontinent, Sustainability Globally and Sustainability of Global Leaders - and is exclusively for UK, Swiss and EEA business customers and customers business in other countries where it is legal.

In the EU/EEA and Switzerland, the European Strategy (former UK) is only available to investors through a separate mandate account.

An investment involves certain risks, such as:

The value of investments and any income from them may go down as well as up and are not guaranteed. Investors can get back much less than the initial amount invested.
Emerging markets risk: Emerging markets tend to be more sensitive to economic and political conditions than developed markets. Other factors include greater liquidity risk, restrictions on investment or transfer of assets, failure/delay in settlement and difficulties in valuing securities.
Indian subcontinent risk: although India has experienced rapid economic and structural growth, investing there may involve increased risk of political and governmental intervention, potential constraints on capital allocation for strategy, and legal, regulatory, economic and other risks, including greater liquidity risk, investment constraints or relocation assets, failure/delay in settlement, and difficulties in valuing securities.
Area specific risk: Investing in a specific region may be riskier than investing in different countries or regions. Investing in more countries or regions helps to spread the risk.
Exchange rate risk: strategies invest in assets denominated in other currencies. Changes in exchange rates will affect the value of the strategy and may result in losses. Exchange control decisions by governments may affect the value of the Strategy's investments and may cause the Strategy to defer or suspend stock acquisitions.
Concentration risk: Sustainability strategies for European sustainability leaders and global leaders mentioned in this material invest in a relatively small number of companies, which may be riskier than a strategy that invests in a large number of companies.
Smaller companies are at risk: investments in smaller companies can be riskier and more difficult to buy and sell than investments in larger companies.

The specific securities or companies depicted are intended only as an example of an investment strategy and should not be construed as investment advice or a recommendation to buy or sell any securities.

If you have doubts about the suitability of our strategies for your investment needs, please seek investment advice.

Investment philosophy

We are administrators: Our role is to use society's capital in a productive way, in accordance with our Hippocratic Oath
We're in it for the long haul: We measure our time horizon in years, not weeks, and we value companies on this basis
We only invest in companies that contribute to a more sustainable future: As owners, we engage constructively to help companies on their way to sustainable development
We only invest in high-quality companies: We are looking for companies with a great culture, strong franchises and solid finances
We believe capital preservation is important for capital growth: We define risk as the possibility of permanent loss of the client's capital

Investment objective

Generate attractive long-term risk-adjusted returns by investing in high-quality stocks that are particularly well-positioned to contribute to and benefit from sustainable growth.

Full Quarterly Client Update >>

Strategy update: Q1 2023

Update of the European Sustainable Development Strategy: January 1 - March 31, 2023

The geopolitical and macroeconomic environment wanders from one crisis to another.

This time last year, it looked like Covid might be under control and bottlenecks in the supply chain were easing. Then war broke out in Europe, energy and food prices skyrocketed and various problems appeared in the supply chain. We have entered a new era of rising interest rates and inflation, which has led to significant market turmoil. The "macro shock" of the quarter was driven by bank failures (and, again, bailouts) in both the US and Europe.

Against this backdrop, the strategy's performance in the quarter was satisfactory, partly due to limited exposure to bank equities. We have long been unconvinced about the prospects of most traditional developed banks, and this strategy ranks moderately only in smaller banks operating at the national or regional level and characterized by good financial quality. they includeBank Landbobanku Ringkjøbing, a Danish specialist bank,Handelsbanken, a conservative Swedish bank andCommercial bank, the third largest bank in the Czech Republic. Since the beginning of the strategy, positions in these banks have been relatively small, and we significantly reduced our exposure to Ringkjøbing Landbobank earlier this year due to valuation concerns.

The quarter's results were strengthened by the company's good resultsDuchy(UK: Information Technology), manufacturer of precision instruments and controls.Technologie Infineon(Germany: Information Technology), manufacturer of semiconductors for the automotive, industrial and energy management sectors. ANDDeutsche Post DHL Group(Germany: Industrials), the world's largest provider of logistics services.

Companies that have delays in implementation are includedRoche'a(Switzerland: Health Care), a manufacturer of biologics for cancer and rare diseases that has struggled with several failed drug trials. ANDDiaSorin(Italy: Health Care), a manufacturer of immunology and molecular diagnostic equipment, which underperformed due to a larger-than-expected decline in Covid-related sales and delays in launching new products.

We have added three new companies to the portfolio.Nexans(France: Industrials), manufactures electrical wiring and provides services related to the generation and transmission of wind and solar energy. Nexans is the world's largest producer of vertically integrated cables and has direct access to copper cathodes and the ability to recycle copper more efficiently. This competitive advantage will become even more important if copper shortages continue in the world.

We have also initiated positions at two relatively small companies that are frequent buyers of specialist private enterprises vizDiscoverIE(UK: Industry) andTeqnion(Sweden: Industry). DiscoverIE focuses on acquiring electronics design and manufacturing companies, while Teqnion acquires a variety of industrial and technology companies. We tend to like stocks that buy series because they offer exposure to a wide range of niche businesses and provide attractive risk/return characteristics due to their diversified revenue streams.

We sold outDegree(UK: Industry),Beer ref. no(Sweden: Industry) andNIBE industry(Sweden: Industry) all for valuation purposes. Beijer Ref distributes HVAC and refrigeration technology, while NIBE Industrier sells heat pumps and other sustainable solutions. Both were beneficiaries of the positive sentiment surrounding green incentives, and valuations became increasingly uncomfortable. Diploma is a distributor of gaskets, controllers and other components and its valuation has also been extended. Listing on the stock exchange and simultaneous sale of three industrial companies was purely accidental. We don't make domain decisions or do top-down benchmarking. each investment decision is based on a bottom-up assessment of the quality of each individual company and its valuation.

This quarter, we increased the number of farms with more reasonable valuations. These includedAlfen(Netherlands: Industrials), manufacturer of charging stations for electric vehicles and smart grid technology. ANDRoche'aIDiaSorinboth mentioned. We cut tooTecan(Switzerland: Health Care), manufacturer of laboratory automation equipment.Vitec software(Sweden: Information Technology), a collection of leading software companies andBank Landbobanku Ringkjøbing(Denmark: Economics), all for valuation purposes.

As always, we remain committed to the long term and make sure the portfolio is as resilient as possible. We believe that the best way to achieve this goal is to manage a diversified portfolio of high-quality companies with strong and conservative financials, excellent management and sustainable development.

Strategy update: Q4 2022

Update of the European Sustainable Development Strategy: October 1 - December 31, 2022

We entered 2022 with a portfolio of leading, high-quality sustainability companies with strong management teams, stable cash flows and secure balance sheets.

However, this was not enough to protect itself from a difficult investment environment marked by geopolitical uncertainty, an energy crisis, soaring inflation and a devastating war.

Many investors have moved away from high-quality healthcare, technology, and small and mid-caps to companies in the traditional sectors of energy, resources, and banking. It was painful for the strategy and the results in 2022 were disappointing. In retrospect, the portfolio should be more diversified and less exposed to companies with high valuation multiples.

Our main focus throughout the year was to improve portfolio diversification and defensiveness. For this purpose:

Started and created positions in three new financial services companies (Admiral's group: United Kingdom,Handelsbanken: Sweden iCommercial bank: Czech Republic); two consumer companies (Beiersdorfa: Germany andUnilever: United Kingdom); company providing telecommunications services (Eliza: Finland); tool (energy service: Switzerland); IT company (Bechtle'a: Germany); and material company (Sika: Switzerland).
Sold by two top-rated tech companies (alfalfa IP: UK iASML: Netherlands); three industrial enterprises (Kardex: Switzerland,Schindler: Switzerland iHotel: Denmark); consumer discretionary company (Mr Spex: Germany); healthcare company (Philips: Netherlands); and utility company (Ørsted: Dania).
We have proactively reduced our exposure to other higher-rated companies that we believe were vulnerable to adjustments, includingTechnologie Infineon(Germany: information technology),Nemechek(Germany: information technology),Spirax-Sarco engineering(UK: Industry),Empty(Norway: Industry),Adyen(Holland: IT),Reasonable(Germany: Industry) andSFS(Switzerland: Industry).
After good streaks and extended valuations, he realized profits on some companies, e.gNIBE industry(Sweden: Industry),Vitec software(Sweden: IT),Alfen(Netherlands: Industry),Beijer Nr ref(Sweden: Industry) andJerome Martins(Portugal: consumer staples).

In the fourth quarter, we took advantage of attractive valuation opportunities to increase our exposure to several holdings, includingDeutsche Post DHL Group(Germany: Industry),Beiersdorfa (Germany: Consumer staples), Inficon(Switzerland: information technology),Indutrade(Sweden: Industry),Sartoriusa(Germany: Healthcare),Roche'a(Switzerland: Healthcare),Alcon(Switzerland: Healthcare),Carl Zeiss Meditec(Germany: Healthcare) iUnilever(UK: Consumer Staples). We've reduced some of our contact with diagnostics by reducing the items insideTecan(Switzerland: Healthcare) ibioMérieux(France: Healthcare) and some of our most expensive industrial products from Nibe, Tomra and Beijer Ref.

We believe the portfolio is more robust as a result of these changes. Overall (sector-level) exposure to technology and industry is lower than it was 12-18 months ago, healthcare exposure about the same, and financial and consumer exposure slightly higher.

We are more and more excited about the possibilities that lie ahead of us. We are fortunate to have slightly increased our cash level and look forward to growing positions in some of Europe's highest quality and best sustainability companies at more reasonable valuations.

Strategy Update: Q3 2022

Update of the European Sustainable Development Strategy: July 1 - September 30, 2022

The fall in share prices of most portfolio components this year has been painful.

We maintain a good mix of high-quality companies with excellent profitability, strong cash flow potential, high liquidity and safe balance sheets. If the portfolio consisted of a collection of boats, we believe that the view below the surface of the stormy sea would show solid hulls and secure anchors and ropes.

The economies of most European countries seem to be heading towards recession. Geopolitical tensions are escalating. Decades of short-sighted energy policy are catching up with most European countries. The prices of most things are rising. Interest rates are rising. Debts grow. Pressure on financial liquidity seems more and more likely. The pressure on the company's profits is increasing. There are no miracles in the box of central bank magic tricks.

Although the quarter started with a classic slump, it was no surprise that stock prices rebounded in September. Our main goal was the same as last quarter: trying to improve portfolio diversification and defensiveness. We replaced two companies, reduced exposure to twelve, and added eight holding companies. As a result of these changes, the cash position of the portfolio ended at a lower level than in the previous quarter, but is still growing. This situation may persist in the coming months.

We sold the rest of the sharesHotel(Denmark: Industry) andØrsted(Denmark: Utilities). Both investments were mistakes. Both are well run businesses but have difficulty booking orders. Both should have a bright future ahead of them, while at the same time they are very sensitive to regulatory dynamics and fluctuating input costs. The longer we held them, the longer our list of unknown-unknowns grew. Other investment ideas seem more likely to yield a satisfactory return over the next decade.

Unilever(UK: Consumer Staples) andHandelsbanken(Sweden: Finance) have been added to the portfolio. Unilever is a global, cash-generating, dividend-paying consumer goods giant. It owns over 400 brands. Almost 3.5 billion people in 190 countries use its products every day. The company has not performed particularly well since fending off a takeover attempt by Kraft-Heinz in 2017. While we are generally skeptical of activist intervention, we believe the involvement of Nelson Peltz's Trian Group could create opportunities for useful change at Unilever.

Handelsbanken is a full-service bank with a decentralized and customer-centric operating model. In its 150-year history, it has survived four major banking crises. During the severe banking crisis in Sweden in the early 1990s, it was the only bank not rescued or nationalized. During the 2008 global financial crisis, it was a net lender to peer banks and the Swedish (central) Riksbank.

Handelsbanken has emerged stronger and more flexible from the difficult period of restructuring and reorganization that has taken place over the past five years. We believe it will continue to improve under the leadership of CEO Carina Åkerström.

In the center we cut out the seatsEmpty(Norway: Industry),Tecan(Switzerland: Healthcare),NIBE industry(Sweden: Industry) andDegree(UK: Industrials), among others during the relative increase in stock prices at the beginning of the quarter. We have created positions in companies that we have recently added to the portfolio -Admiral(UK: Finance),Eliza(Finland: Communication Services),Beiersdorfa(Germany: Consumer Essentials),energy service(Switzerland: Utilities) iCommercial Bank(Czech Republic: Economy) - and also addedjudges Scientific(UK: Industry) andALK-Vine(Denmark: Health).

We are long-term investors. We understand that patience pays off in many different ways. We are also trained on how to invest in crisis situations. As valuations become more attractive, we are more excited to add new companies to our list of favourites. We will do our best to balance excitement and patience as we take advantage of the opportunities that lie ahead.