Meet the fund managers: Sticking by ESG as it falls out of fashion
In this weekly series, investment reporter Elliot Gulliver-Needham sits down with a fund manager for a Q&A. This week, we’re hearing from Yolanda Courtines, manager of the Wellington Global Stewards fund.
What makes the fund stand out from its competitors?
We have 35 to 45 names in the portfolio, with a history of high returns on capital, because we think that’s the best measure of a good business.
We build that confidence with the second core pillar to our strategy, which is stewardship, and that can help tilt the odds in favor of high returns on capital being perpetuated into the future.
The strategy has a really low turnover and a very long term time horizon. We want to hold names for over 10 years, and we only sell a name when there’s a breakdown of either of these two pillars, a breakdown in our confidence in returns, or a breakdown in our confidence on stewardship.
We focus very much on sustainability and the oversight that a company has of its value chain from raw material stage through end of life, and we’re looking for a real stakeholder mindset in the way that a company is building and driving its business.
We really do think we’re doing something different than other funds in the market, and I think a lot of that comes from that long termism, so that 10 year time horizon really changes the names that you end up investing in.
We’re not so focused on what the next hot dot is going to be, in terms of the macro indicators or the market shifts or politics. We’re really thinking about is there a core business that is making all of the right long term decisions for returns to be sustained going forward.
What is the worst mistake you’ve made while managing the fund?
If I think about where we’ve occasionally strayed, it’s when we focus too much on deciding that while a name meets our high bar, maybe we’re pushing it a little bit further into the portfolio.
Maybe it’s a result more of portfolio construction than really a strong conviction on returns and stewardship, and those few names that have made us say ‘this gives us a more rounded and balanced portfolio’ have not always worked out as well.
I think the other issue is in this market environment, we’re seeing a lot of pressure to react to all these current trends around AI and the like. There are certainly names that are flying in the market at the moment, so keeping that discipline in the short term, we think will be the right thing over time, but there is some pain associated with that.
How has the fund shifted and evolved over its lifetime?
So we are sustainability focused, and ESG has certainly been in the crosshairs.
But I think what we try to do is be extremely authentic and not let these market shifts influence how we go about defining what sustainability means for us, holding a really high bar for stewardship and for returns.
There is a nuance that feeds into the portfolio around the difficult trade-offs that need to be made around some of these themes, whether that’s the energy crisis in Ukraine, and whether you favour energy affordability versus the energy transition.
We try to be very much attuned to those shifts over time, so the composition of the portfolio and where we’ve been overweight has also evolved as a function of the market.
What are the biggest changes you’ve seen throughout your time in the industry?
Early in my career, I was investing in financials during the Global Financial Crisis, and that was a period of time where there was this belief that the discount rates for Europe and the US were sort of eight per cent into perpetuity, and there was no risk in discount rates.
We’re in a much more volatile world today, and where we’re always trying to second guess what the next hot stock might be, the next macro indicator, the next driver, whether it’s interest rates or inflation or political change.
So I think what I really firmly believe in the way that we approach this strategy, is that I have no edge in guessing the next macro move. I have no edge in defining more than the next person who’s going to win a next election.
But what I can do is go through and really assess the leadership and engage actively with the management of these companies, especially the boards of these companies, because boards are there to ensure succession planning into the next generation, and when you engage with them, you can really get a sense of which of those companies are the most resilient and the most adaptable in the face of this volatility.