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.
Sustainability, at its heart, concerns the durability of growth and returns. It’s what makes a great company stay great. This strategy seeks to invest in truly responsible companies that are managed for the long term, with stakeholder interests at heart. We believe that companies with these qualities give them the ability to consistently deliver outsized growth over time. We also believe that the market is often short-term focused and persistently underestimates the long term growth of these quality businesses, providing a rich source of alpha for patient investors.
We believe that:
- Companies that are run for the longterm, 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 interactions 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: Stock selection
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 & International Equity 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. This framework shapes further discussion and analysis. The conclusion of this process seeks to deliver a list of approximately 60-80 stocks that meet a high bar for inclusion within the portfolio.
Step 3: Portfolio construction and risk control
Using the short-listed stocks, portfolio construction is undertaken by our Portfolio Managers. A stock’s upside potential, downside risk (including ESG factors) and level of conviction around the presented investment thesis determines the position size of each stock. The portfolio managers aim to hold somewhere between 30-50 stocks within the portfolio. 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. 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
- Proprietary ‘SQ’ framework to systematically assess companies’ relationships with stakeholders and sustainability characteristics
- 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
- Patient capital approach targeting 3-5 year holding period and long term growth
- Targeted engagement focused on promoting more sustainable business practices and changing corporate behavior
- Separate Accounts
- Commingled Vehicle