Reassessments completed for Alquity funds
by Liz Rees, Impact Analyst, The Big Exchange
Square Mile have carried out their independent annual assessment for the 3 Alquity funds we offer on The Big Exchange: Alquity Asia, Alquity Future World and Alquity Indian Subcontinent. All have retained their bronze medals and we have produced a brief update for you on their investment approach, along with an example of a stock held in each portfolio.
A forward-looking approach to impact investing
Alquity is a boutique asset management firm, specialising in Emerging Markets, with a mission to connect investors with their investments and social progress to deliver better outcomes for everyone.
All the Alquity funds follow common investment principles. They are constructed in a responsible manner, contributing to long-term development, the transition to a net zero economy, and progress towards the UN Sustainable Development Goals.
ESG (Environmental, Social, and Governance) analysis is a core part of the investment process and includes ‘Red Flags’, to exclude controversial activities or poorly behaving companies, and Key Progress Indicators (KPIs) which encourage great companies to do even more.
The managers believe that shortcomings in governance and regulation in emerging economies mean ESG can add significant value, identifying well-run businesses that can deliver sustainable returns. They therefore engage closely with companies on material ESG issues, and all the funds score 3 out of 3 for positive influence, as well as 2 out of 3 for impact evidence, in our assessment.
The philosophy that ‘doing good’ should drive financial success is reinforced by the firm donating a minimum of 10% of their management fees to development projects in the regions where they invest. The Alquity Transforming Lives Foundation supports charities and social enterprises with grants to help develop fairer, more sustainable economies, focused on the poorest communities.
Alquity Asia
The fund’s focus is on long-term themes, in particular urbanisation and demographic trends. The portfolio is most aligned with SDG 9 (Industry, Innovation, and Infrastructure) and the biggest industry exposures are to semiconductors, tech hardware and food and beverages.1 The main country weightings are in China, representing 40% of the portfolio, and India at 14%. However, opportunities are also found in the frontier markets of ‘New Asia’ such as Vietnam, Bangladesh, and Sri Lanka, further diversifying the portfolio.
A top 10 holding is Century Iron & Steel which makes the pins and jackets for offshore wind towers and will manufacture the towers as well from next year, in conjunction with a Danish company. The company benefits from the drive towards decarbonisation in Taiwan, which is necessary to meet the country’s target of 50% lower emissions by 2050 vs 2005.2
Alquity Future World
This fund takes an unconstrained, high conviction and diversified approach, taking advantage of the long-term drivers of sustainable growth in both emerging and frontier markets across Asia, Latin America, and Africa. The portfolio has its largest country weightings in China, Taiwan and India but also offers exposure to Brazil, South Africa, and Saudi Arabia. The main industry exposures are to banks, semiconductors, and software whilst the fund is most aligned with SDG 9 (Innovation. Industry and Infrastructure).1
The fund has a holding in Delta Electronics1, a Taiwanese technology hardware company and market leader in power supplies and energy saving solutions. Products include power supplies for computers, data centres, and telecommunications as well as electric vehicle energy solutions for battery charging. In addition, Delta also provides power management solutions with environmental certification such as Taiwan Green and Eco Label, and US Energy Star.
Alquity Indian subcontinent
This Fund taps into dynamic opportunities across the Indian Subcontinent with a focus on long-term investment themes driving growth in the ‘New India’. The country has a young and fast-growing middle-class population and Prime Minister Modi’s government has an ambitious economic reform agenda. The fund offers exposure to software and services (14% of the portfolio), diversified financials (12%) and household products (14%).1 It is most aligned with SDG 3 (Good Health & Wellbeing).
Around 7% of the portfolio is invested in Housing Development Finance Corporation Limited (HDFC), a major provider of mortgages in India. HDFC aims to improve the residential housing stock and promote home ownership, thus having a positive impact on society and environment. The company was founded to tackle the housing shortage in India and HFDC set up the H T Parekh Foundation, to commemorate the legacy of its founder. The Foundation implements initiatives to build an inclusive society where vulnerable communities can transform their lives.
1 Sources: Fund factsheets @ June 2021 and Big Exchange Impact Assessment July 2021
2https://www.ieta.org/resources/Resources/Case_Studies_Worlds_Carbon_Markets/2016/Taiwan_Case_Study_2016.pdf
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