Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

It’s safe to say that David Gait, lead manager of the Stewart Investors Asia Pacific Leaders Sustainability Fund, is excited about the prospects for the Asia Pacific region and the opportunities it presents his fund. He sees here “huge growth opportunities, very robust economies, and high catch-up potential.”

Those opportunities look particularly appealing right now. Much of Asia was ‘first in, first out’ of the pandemic. Countries like China are demonstrating robust bounce backs since COVID first struck. The case for Emerging Markets, in which the fund allocates just over half its portfolio, looks strong as risk appetite returns.

The fund’s approach to these opportunities, and its sustainability focus, are two reasons why Tom Stevenson, investment director here at Fidelity, has included it as one of his five ISA fund picks for 2021.

To learn more about the manager’s approach, and his outlook for the market, Tom recently caught up with David Gait.

Leading companies, strong market potential

The fund looks to leading companies - large to mid-caps, none with a market value less than $1 billion - across the Asia Pacific (excluding Japan) region to deliver long-term capital growth. As Gait explains, this fund is all about “the combination of companies and the growth potential of the region.”

To most investors, the latter will come as no surprise. Asia has long demonstrated exciting growth potential. It’s the former, the “wonderful companies” available here, that Gait is particularly excited about. He feels “very spoilt” investing in the region, particularly in India and China, where he sees a multitude of high-quality companies emerging.

That’s not to say that Gait is excited about every company he sees. He acknowledges that while there are many high-quality offerings, there are plenty of lower quality as well.

For that reason, he sets high investment thresholds. Before he invests in a company, he looks for three things:

First, quality of management. He’s very concerned about entrusting investors’ capital to teams he can’t trust: as such, management is “absolutely essential” to him. He explains: “Most of our job is spent building up a picture of the overall quality of a management team.”

Next, he looks at quality of business. Here he reiterates his long-term perspective: “We don’t want businesses that are going to thrive for three months. We’re looking for the long term - we want to know what happens when things go wrong.”

Third is quality of financials. In his eyes, financials are particularly important in this region: “Things often go wrong in Asia, and the companies that come out stronger the other side are often the ones that have the financial resources.”

These principles ring true throughout his management, regardless of market conditions. When asked about when the fund is likeliest to outperform, he says “we set out to thrive in the long run.”

As such, his fund is unlikely to shoot the lights out in momentum or bounce-back markets, when fundamentals become less important. Gait is not bothered about different styles like growth and value, or about riding the latest investment wave. He’s more interested in delivering reliable, sustained returns over the long term.

Sustainable focus

Also key to Gait’s stock picking process is his sustainability focus. Specifically, he likes companies which exhibit characteristics of “social usefulness”.

Sustainable, or ‘ESG’ investing, is in vogue right now, but Gait was about 15 years early to the party. Since he started managing the fund in 2005, he’s maintained that sustainability is “key to delivering long-term returns and reducing risk when investing in the region.” Again, a long-term focus is key here.

He recognises that many Asian countries are heading along a different development path from other developed economies. In his mind, that’s good and bad: it “throws up a lot of headwinds for companies that are poorly positioned for sustainability challenges but also a lot of tailwinds for companies that are able to deliver progress in terms of sustainability.”

He sees such “tailwinds” in traditional areas like energy efficiency or carbon reduction, as well as broader areas like healthcare and poverty and inequality alleviation. Companies that provide solutions to these problems can make for strong investment opportunities.

As such, he values social usefulness not just from an ethical perspective, but also as a way to alleviate risk and bolster long-term returns. It’s the same focus that drives his entire investment philosophy.

Find out more about the Stewart Investors Asia Pacific Leaders Sustainability Fund here.

Important information

Investors should note that the views expressed may no longer be current and may have already been acted upon. The Stewart Investors Asia Pacific Leaders Sustainability Fund invests in overseas markets so the value of investments can be affected by changes in currency exchange rates. The fund also invests in emerging markets which can be more volatile than more developed markets. The fund invests in a relatively small number of companies so may carry more risk than funds that are more diversified. The fund may use derivatives to reduce risk or to manage the fund more efficiently. Select 50 is not a personal recommendation to buy or sell a fund. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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