First 50 Funds Interview: Stewart Investors Asia Pacific Leaders David Gait & Sashi Reddy

17 April 2018

Moneywise’s Helen Knapman talks to David Gait (pictured above) and Sashi Reddy, fund managers of First 50 Fund Stewart Investors Asia Pacific Leaders.

What is the fund?

Sashi: The fund invests in companies that are involved in the Asia Pacific region, excluding Japan. Our aim is to generate absolute returns in the long term – we’re benchmark agnostic and risk for us is all about not losing our clients’ savings.

You say Japanese firms are excluded, but you have about 5% in Japan. Why?

David: We look for companies that have most of their work in Asia Pacific, excluding Japan, but these can be listed anywhere in the world. Where a company is listed is becoming meaningless – it’s where it operates.

Sashi: We’re not trying to find Japanese firms that only operate in Japan. Unicharm is a Japanese-listed company we invest in that makes sanitary products and nappies, but half of its profits and even more of its revenues come from outside Japan.

What do you look for when buying companies?

Sashi: The fund wants to invest in leaders. So we look for companies with a minimum market cap pre-float of around £1.5 billion dollars, with good track records. We try to buy quality companies. For us, that means quality of financials, quality of franchise, and quality of management.

David: We also look for companies that follow a sustainable development path. It could be about using more renewable energy, more efficient transport or better use of packaging. Diabetes, for example, is an Asian problem now, so if you’re in the food business, you need to ensure products are part of the solution.

How often do you buy and sell?

Sashi: Our ideal time frame is to buy and hold for ever, but this is never the case. We start with a 10-year outlook when searching for companies. But the holding period tends to be closer to fi ve years, as markets are a bit irrational and share prices can go up a bit too much, at which point the right thing to do is to sell some shares. We would also sell when the governance or franchise is broken and there is no way a company will come back.

At the other end of the scale, gloom in the market allows us to buy more shares [at a better price]. The fund has about a 20% annual turnover.

David: The fund tends to hold 40 to 60 stocks. We like our top 10 positions to equate to 40% of the portfolio.

What have you recently been buying?

Sashi: We’ve been adding over the past few years to IT services companies in India because they’re reasonably valued, high-quality businesses.

David: These include Tata Consultancy Services, Tech Mahindra, and Mahindra & Mahindra. We’ve also been adding to Unicharm in Japan and we’ve been building our position in President Chain Store in Taiwan, which runs 7-Eleven store franchises. A lot of retailers have struggled to migrate their business to the 21st century, but these 7-Elevens have migrated into becoming community hubs – half 7-Eleven and half post office, where you can also pick up online shopping. It is relatively exposed to food and sugar, so we spend a lot of time talking to the managers about improving this – for example, by rolling out an organic fruit and vegetable trial. Our role as shareholders is to challenge the companies we invest in.

What have you been selling?

Sashi: We’ve sold out of Ezion – a small company in the oil and gas services industry as the franchise was quite poor and the balance sheet was not in good shape.

What’s next for the Asia Pacific region?

Sashi: There are roughly 3.5 billion people in the region who don’t have access to basic services, so there’s a lot of potential for economic development.

Why has the fund underperformed against the benchmark lately?

Sashi: There may be times when we underperform relatively against the benchmark – usually when markets rise too quickly or show signs of a bubble – as we will not keep up with this. But for us, it’s not about underperformance on the way up, but looking after the money we’ve made when markets go down.

Has the fund changed since its former manager, Angus Tulloch, left in 2016?

David: The short answer is no; it’s business as usual. I’d worked for 20 years with Angus, so everything I know about investment I’ve learnt from him – it would be strange if we took a new direction. When you hand the baton from one person to the other, you would expect to see some small changes as we’re not robots doing the same thing as each other, but it’s only a two or three company difference.

Sashi: The only philosophical difference was gold. The fund had a big exposure to gold mining companies. That was a sector we sold out of because we feel that it’s not the best thing to mitigate against high inflation.

What’s your top tip for a beginner investor?

Sashi: Try to take a long-term view, choose your companies very carefully – for every good there are at least nine bad – and pick managers carefully. Do your research into which companies you are giving your money too.

Stewart Investors Asia Pacific Leaders: Key stats

Launched: December 2003
Fund size: £8243.1 million
Number of holdings: 43
Yield: 1%

Source: Stewart Investors Asia Pacific Leaders factsheet, 31 January 2018

The duo behind the fund

David Gait is responsible for leading the Stewart Investors Sustainable Funds group and generating investment ideas across all sectors in emerging and developed markets. David joined the company

in 1997. He holds an MA in Economics from Cambridge University and an MSc in Investment Analysis from Stirling University.

Sashi Reddy joined Stewart Investors in August 2007. He is responsible for generating ideas across the Stewart Investors Sustainable Funds group. Sashi worked at Irevna Research, an Indian equities research house from 2005 to 2007. He has an engineering degree from the National Institute of Technology, Trichy, and an MBA from the Schulich School of Business, York University in Toronto.

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