Why would you describe this fund as a 'one to watch' and how could the strategy work in investors' portfolios?
In recent years, Mark Mandel and I have had growing interactions with clients focused on whether there's a better way to balance return and responsibility when investing for the long term. Specifically, clients asked how environmental, social and governance (ESG) factors should be incorporated in portfolios. These discussions revealed significant and growing demand for investing with an emphasis on stewardship.
The Wellington Global Stewards Fund is a global large-cap equity fund that we believe should be core to any investor's portfolio. Global Stewards is distinguished from other strategies by its very long investment horizon. We believe that you should use a long-term lens to analyse companies that consistently generate strong returns on capital and take a long-term view by investing in the future of the business and prioritising sustainable growth over short-term gains. We evaluate companies using a 10-year investment horizon, which matches the strategic planning horizon of the world's best companies. This long-term mindset is intrinsically linked to ESG and stewardship.
We have observed that many funds that focus on ESG tend to look like growth funds masquerading as sustainability funds. The Wellington Global Stewards Fund is not an index tracker or closet tech fund. It has a high active share and is differentiated from the broad market. The portfolio is constructed to reduce country, sector and factor biases so that the main drivers of risk and return are idiosyncratic.
As a result, we believe the Wellington Global Stewards Fund can play several roles in client portfolios:
- A large-cap global core portfolio with well-diversified exposure across industries, countries and factors.
- Downside mitigation or lower-volatility exposure, given our high-quality, lower-beta profile.
Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
The Wellington Global Stewards Fund's objective is to generate excess returns against the MSCI AC World Index by investing responsibly, and to achieve net-zero carbon emissions in alignment with the Paris Agreement. We give equal consideration to fundamental merit (high ROE businesses) and corporate stewardship, over an extended time horizon. We rely on portfolio construction to enhance the odds of success, emphasising stock selection as the primary source of risk and return while minimising unintended biases. Ultimately, we seek to provide a concentrated, well-balanced, lower-risk core portfolio comprising large-cap stocks from around the world that investors can confidently own for the long term.
We do not rely on screens or ESG ratings to limit our investment universe. We view our Global Stewards approach as a positive inclusion ESG integration approach, meaning every investment candidate must meet our high bar for inclusion in this concentrated portfolio. To narrow our opportunity set, we start with a universe of the world's largest and most liquid stocks. This predisposes us towards high-quality, lower-beta stocks than the overall market. The companies in this universe are mature and generally have secure competitive positions, above-average ESG profiles and long track records of sustainable financial returns. That said, we can't guarantee that a company in a position of strength today will remain successful in the future, which is why company engagement is key to our process. These companies tend to be leaders in their field, with thousands of employees and millions of customers. They can therefore have a large positive impact on the communities where they operate. After rigorous analysis, we construct a concentrated portfolio of stocks that meet our high bar for inclusion based on fundamental (ROE) and stewardship criteria.
The Wellington Global Stewards Fund is a portfolio manager-driven investment approach managed by Mark Mandel and me. We have nearly 60 years of combined investment experience. We leverage the research and insights from the broad range of resources at Wellington, interacting extensively with our ESG research analysts, sustainability team, global industry analysts, equity research analysts and portfolio managers across the firm's offices around the world. These resources provide tremendous support to our research efforts by offering differentiated insights and viewpoints based on their areas of expertise. Additionally, Wellington Management's size allows us to easily access companies' management and board members, enabling us to engage with and develop strong relationships with companies in the portfolio.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
While the Wellington Global Stewards Fund is not managed as a thematic investment approach, the past year has put a spotlight on how companies approach stewardship. We are convinced that the health pandemic represents a seminal moment for sustainable investing. We organised an extensive list of questions to help us understand how companies are navigating the crisis financially and how they are balancing the needs of all stakeholders. We carefully track company responses to the crisis across global large-cap stocks, evaluating companies on their capital allocation decisions and the wide range of actions taken to protect employees, customers, suppliers and communities during this difficult period.
We believe our company engagements are very relevant for evaluating long-term shareholder value. Companies' actions in this crisis will be remembered for a long time. Their ability to hire, rehire and retain talent will be shaped by reputations developed now, and brand loyalty will be built or lost based on how customers are treated.
We want to emerge with our shareholder capital in the hands of the companies best positioned to benefit from a rebound in business overall, and best positioned to capitalise on new opportunities and reshuffled market shares. We also want to ensure that shareholder capital is in the hands of responsible companies, and there is no better time than a crisis to test a company's commitment to long-termism and its resolve to prioritise all stakeholders.
We have been inspired by the actions that our companies have taken in the pandemic, for example:
- A bank offered all 5 million Singapore customers complimentary COVID-19 insurance coverage.
- A retail company increased paid sick leave for full-time and part-time workers, doubled overtime pay and pulled all N95 masks from shelves and donated them to those on the front line.
- A health care company collaborated with the Gates Foundation to accelerate the development, manufacture and delivery of vaccines, diagnostics and treatments for COVID-19.
We believe that leadership that invests in the future and strengthens bonds with all stakeholders makes companies more resilient, more integral and therefore more valuable over time.
Capital: Investment markets are subject to economic, regulatory, market sentiment and political risks. All investors should consider the risks that may impact their capital, before investing. The value of your investment may become worth more or less than at the time of the original investment. The Fund may experience a high volatility from time to time.
Currency: The value of the Fund may be affected by changes in currency exchange rates. Unhedged currency risk may subject the Fund to significant volatility.
Concentration: Concentration of investments within securities, sectors or industries, or geographical regions may impact performance.
Emerging Markets: Emerging markets may be subject to custodial and political risks, and volatility. Investment in foreign currency entails exchange risks.
Equities: Investments may be volatile and may fluctuate according to market conditions, the performance of individual companies and that of the broader equity market.
Hedging: Any hedging strategy using derivatives may not achieve a perfect hedge.
For professional or institutional investors only. This material and its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase, shares or other securities. Investing involves risk and an investment may lose value. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed are those of the author(s), are based on available information and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients.
Except where registered for public sale, Fund units are offered only to qualified or professional investors on a basis that it does not require the registration of the Fund for public sale. The Fund only accepts professional clients or investment through financial intermediaries. Please refer to the latest Key Investor Information Document (KIID), the Fund offering documents for further risk factors, pre-investment disclosures, and the latest annual report (and semi-annual report) before investing. KIIDs are available in the official languages of each country in which the Fund is registered for sale (please visit www.wellington.com/KIIDs). Wellington Management Funds (Luxembourg) and Wellington Management Funds (Luxembourg) III SICAV are authorised and regulated by the Commission de Surveillance du Secteur Financier and Wellington Management Funds (Ireland) plc is authorised and regulated by the Central Bank of Ireland.
In the UK, this material is provided by Wellington Management International Limited (WMIL), a firm authorised and regulated by the Financial Conduct Authority (FCA) in the UK.