kames global sustainable equity fund - kamesconference.co.uk

Kames Capital Investment Conference Kames Global Sustainable Equity Fund

Ryan Smith – Head of ESG Research Craig Bonthron – Investment Manager, Global Equities

What do we mean by sustainability?

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►  27-year commitment to responsible investing

►  Currently manage £2.45 billion (€2.73 billion) in specialist ethical funds

►  Named Best Ethical Investment Group at the 2015 Sustainable Investment awards hosted by Investment Week

►  UN PRI signatory since 2008

  Overarching Approach to Responsible Investment A+   Active Equity Ownership A+

Kames’ responsible investment credentials

Exchange rate €/£ is 1.113757, as at 31 October 2016. . *UNPRI A+ rating indicates that Kames are ranked in the top 10% of signatories

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Kames are in the top 10% of global responsible investors*

Introducing the Kames Global Sustainable Equity Fund

1 Performance aim is based on the B share class (institutional share class) which carries an AMC of 0.75%. 2 Source: Lipper as at 31 October 2016. NAV to NAV, noon prices, income reinvested, net of ongoing charges, excluding entry or exit charges. Fund: Kames Global Sustainable Equity Fund B (Acc) EUR. Source for Benchmark: Lipper. Benchmark is MSCI AC World TR (EUR). Past performance is not a guide to future performance.Years’ experience as at 31 October 2016.

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Good stock picking leads to strong risk-adjusted returns

Craig Bonthron Investment Manager, Global Equities 15 years’ experience

Neil Goddin Head of Equity Quantitative Analysis 18 years’ experience

Ryan Smith Head of ESG Research 16 years’ experience

Launch date §  21 April 2016

Performance aim §  To outperform MSCI ACWI TR index by 3% after fees over rolling 36 months1

§  Performance since launch, relative return -3.09%2

Clear and objective sustainability approach

§  Transparent, repeatable sustainability process

§  Aim to actively identify sustainable stock specific winners

§  Stewardship and engagement on behalf of clients

Sustainability influences conviction

§  Genuine integration of sustainability into the investment process

§  Process encourages stock selection and increased conviction of highly sustainable companies

§  Investment process utilises the best global ideas from entire equity team

Stock picking drives performance

§  >90% active share

§  Targeting 80% stock specific risk

§  Typically 35 – 45 stocks

Investment process overview

*In sample data collected since launch of the screen. See appendix.

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Genuine integration of sustainability generates alpha

Portfolio construction - maximise stock specific risk

Large and liquid opportunity set

Proprietary sustainability screen

Stock level fundamental and sustainability analysis

Proprietary alpha generating investment screen*

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

0

1

2

3

4

5

6

Wha

t - s

usta

inab

le p

rodu

cts

How - sustainable practices Leader Improver

Immature Innovators High quality heroes

Destructive delinquents Best of the baddies

What do we mean by sustainability?

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As at 7 November 2016

Purchased 21 April 2016

170

180

190

200

210

220

Apr 16 May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16

US$

Investment process in action

Source: FactSet as at 24 November 2016 in local currency terms.

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Environmental Social Governance

Climate change

Resource efficiency

Enviro solutions Demographics Productivity Wellbeing Rights Oversight Disclosure

P P P P P P P

Company meetings and confirmatory macro data 1

Fundamentals analysis

Valuation and technical analysis

Sustainability process

Kames screen 2

3

4

5



8


Climate change

Resource efficiency


P P P P P

Purchased 21 April 2016

60,000

65,000

70,000

75,000

80,000


Yen¥

Automation theme research generated idea 1




Kames screen 2

3

4

5

Purchased 3 June 2016

100

110

120

130

140

150


AUS$


9


Climate change

Resource efficiency


P P P P P P P P P


Searching for a sustainable Healthcare stock 1




Kames screen 2

3

4

5

Kames Global Sustainable Equity Fund Breakdown

Source: FactSet as at 9 November 2016 excludes cash of 2.0%.

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Sustainable stock picking leads to a quality growth output

[CATEGORY NAME], 59.2


Sustainability positioning (%)

[CELLRANGE], [VALUE]


[CELLRANGE], [VALUE] [CELLRANGE

], 32.3

[CELLRANGE], 7.0

[CELLRANGE], 8.9


Style (%)


Source: FactSet as at 9 November 2016 excludes cash of 2.0%. For the region split, 6.6% of the portfolio has not been classified.

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Region positioning (%)





Market-cap (%)

Regionally balanced with alpha generated across the market cap scale

Tactical performance headwinds

Source: FactSet as at 9 November 2016

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Recent outperformance of unsustainable sectors led by low quality

81.2

64.4

-29.7

57.8

102.8

62.1

92.8

-2.6

-50 -30 -10 10 30 50 70 90 110

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

MSCI AC World 5 year total return (%)

0.7

-2.0

6.8

5.9

-2.5

3.9

9.4

12.0

-4 -2 0 2 4 6 8 10 12 14

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

MSCI AC World 3 month total return (%)

2,100

2,150

2,200

2,250

2,300

2,350

2,400

2,450

2,500

2,550

2,600

02 Sep 16 16 Sep 16 30 Sep 16 14 Oct 16 28 Oct 16 11 Nov 16

Yen¥

25

26

27

28

29

30

02 Sep 16 16 Sep 16 30 Sep 16 14 Oct 16 28 Oct 16 11 Nov 16

US$

Investing cyclically and sustainably


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Trimble Komatsu Product score 2 3

Kames sustain score 66/100 73/100

Sustain research Improver Laggard

Kames rank 1 2

Business model Tech solution provider Commodity equipment

Sales peak to now -5% -20%

Peak PE and EPS 24 x $1.58 16 x 173.5 Yen

Current PE and EPS 20 x $1.17 24 x 98 Yen

Managing risk by thinking sustainably

►  27-year commitment to responsible investing

►  Demonstrable active stewardship on behalf of clients

►  Differentiated global sustainable equity product –  Sustainability as part of fundamental analysis

–  Investing in sustainability ‘leaders’ and ‘improvers’

–  Utilising best global ideas from entire equity team

–  Portfolio conviction reflects view on sustainability

Kames Global Sustainable Equity Fund

*UNPRI A+ rating indicates that Kames e are ranked n the top 10% of signatories

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Kames are in the top 10% of global responsible investors*

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Appendix


Source: FactSet as at 9 November 2016 excludes cash of 2.0%. For the stock specifics split, 6.6% of the portfolio has not been classified.

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Internet Software & Services, 10.9

Electronic Equipment Instruments & Components, 6.2

Software, 4.8

Semiconductors & Semiconductor Equipment, 5.8

IT Services, 3.2

Industrials, 19.5 Health Care, 12.6

Consumer Discretionary, 12.5

Financials, 9.8

Consumer Staples, 5.9

Energy, 3.1 Materials, 2.9

Utilities, 0.8

Sector positioning (%) Stock specifics - business model driver

Distribution dominator 24.3

Essential enabler 23.5

Cost leader 14.0

Brand curator 13.3

Fly trap 5.4

Balance sheet arbitrage 4.6

High value data 4.2

Patent moat 2.3

Portfolio positioning – top 10

As at 7 November 2016

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Blending sustainable conviction with investment conviction

Top 10 Stock specific Sustainability quadrant Sustainability QI Kames sustainability Weight

Alphabet Distribution dominator High quality hero Largest purchaser of wind power in the US Improver 4.4%

Facebook Distribution dominator Immature innovator Solar drone provides internet access to remote regions of the world Improver 4.3%

Taiwan Semiconductor Cost leader High quality hero Sector leading water efficiency – a typical ‘fab’ requires 4.8m gallons of water/day Leader 4.1%

Keyence Essential enabler Immature innovator Sales representatives do not have an entertainment budget, which is unheard of in Japan Improver

3.4%

First Republic Bank Institutional IQ Destructive delinquent 90% of loans written since 1985 were originated by bankers still at First Republic Improver 3.2%

Vantiv Distribution dominator Immature innovator Sector leading customer data security Improver 3.2%

Hang Seng Bank Flytrap High quality hero ‘World’s strongest bank’ (Bloomberg) Leader 3.0%

Teleflex Distribution dominator High quality hero 17.5% of US GDP spent on healthcare Improver 2.8%

Kone Essential enabler High quality hero Current product suite is 75% more efficient than 2008 Leader 2.8%

Inditex Brand curator Best of the baddies Most sustainable multi-channel retailer Leader 2.7%

25%

50%

100%

200%

400%

800%

1,600%

Jan 06 Jan 08 Jan 10 Jan 12 Jan 14 Jan 16

1st quintile

3rd quintile

4th quintile

5th quintile

2nd quintile

Kames Screen – consistent alpha generation since 2005

As at 31 October 2016, logarithmic scale. * Includes rolling 3 month periods

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Improving the stock pickers’ batting average

Time period Quintile (%)

1 2 3 4 5

1 Year 8.3 6.5 6.5 5.9 5.5

3 Years 39.3 17.2 10.8 3.1 -12.9

5 Years 157.9 87.2 60.6 33.6 -12.6

Since Inception (1 Jan 2006) 907.0 317.7 161.2 58.6 -37.1

Longest losing streak 3 months Longest winning streak 20 months

% Lost -32%

% Won 129%

No. of losing streaks ≥ 3 months* 2

No. of winning streaks ≥ 3 months* 68

Considers financial strength, cash flow and technicals

►  Voting and engagement –  Membership of the UK Investment Association Corporate

Governance & Engagement Committee

–  FRC UK Stewardship Code signatory since launch (Tier 1 signatory)

–  Voting & engagement process incorporates the views of the corporate governance team, portfolio managers & CIO

Active stewardship on behalf of clients

As at September 2016

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Kames are long-term leaders in active ownership

Fund houses back boards 90% of the time

1 November 2015

74.8% 81.3% 78.4% 73.7% 68.1% 57.7%

9.1% 8.5% 8.8% 6.7% 8.8%

17.4%

16.1% 10.2% 12.8% 19.6% 23.0% 30.1%

2011 2012 2013 2014 2015 1H 2016

Kames voting activity

Votes For Votes Abstain Votes Against

0 50

100 150 200 250 300 350

1H 2010

2H 2010

1H 2011

2H 2011

1H 2012

2H 2012

1H 2013

2H 2013

1H 2014

2H 2014

1H 2015

2H 2015

1H 2016

Kames engagement activity

Basic Moderate Extensive

0%

10%

20%

30%

40%

0

5

10

15

20

25

75 to 100 50 to 74.9 25 to 49.9 0 to 24.9 Not rated

Sustainalytics ESG rating distribution

No. companies % of portfolio

Portfolio sustainability – independent view

Source: MSCI ESG Manager and Bloomberg as at 7 November 2016

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A concentrated portfolio investing where ratings agencies often don’t

0%

5%

10%

15%

20%

25%

0

3

6

9

12

AAA AA A BBB BB B Not rated

MSCI ESG rating distribution

No. companies % of portfolio

ESG risks…but also ESG alpha opportunities greatest in emerging markets

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Note – Mandatory (M), voluntary (V), comply or explain (CE), recommended (R) 1 – Friede, Busch, Bassen (ESG & Corporate Financial Performance: Mapping the global landscape) Source: MSCI ESG Manager as at 7 November 2016

2012 2013 2014 2015 2016 2017 2018 Hong Kong – Implementation of ESG Guide (CE)

Japan – Japan Stewardship Code (V)

Japan – Japan Corporate Governance Code (M) Taiwan – CSR reporting for select companies (M)

China –Environmental disclosure for all listed companies (R) South Korea – CG guideline by KSE and FSC Stewardship Code (planned)

Malaysia – Listed companies with market cap >RM2bn to issue sustainability report by FY16 (M) Hong Kong – From 2017, listed companies to report environmental KPI’s (CE) Taiwan – Listed companies with capital >NT$10bn to issue CSR report by FY17 (M)

Malaysia – Listed companies with market cap < RM2bn to issue sustainability report by FY18 (M) Singapore – By 2018, primary-listed companies to report (M) four core requirements, including board responsibility and relevant reporting framework (CE)

0

20

40

60

80

North America Developed Europe Developed Asia/AUS/NZ

Developed (total) Emerging Markets

ESG & performance links across regions1

Posiitive (%) Negative (%)

0

40

80

120

160

0

400

800

1,200

1,600

AAA AA A BBB BB B CCC

MSCI ACWI MSCI EM

Emerging market ESG ratings MSCI ACWI (rhs) versus MSCI EM (lhs)

For Professional Clients only and not to be distributed to or relied upon by retail clients.

All data is sourced to Kames Capital unless otherwise stated. The document is accurate at the time of writing but is subject to change without notice. Past performance is not a guide to future performance. Outcomes, including the payment of income, are not guaranteed. This document is accurate at the time of writing and is subject to change without notification.

Opinions expressed represent our understanding of the current and historical positions of the market and are not a recommendation or advice. Opinions should not be relied upon by non-professional investors.

Data attributed to a third party (“3rd Party Data”) is proprietary to that third party and/or other suppliers (the “Data Owner”) and is used by Kames Capital under licence. 3rd Party Data: (i) may not be copied or distributed; and (ii) is not warranted to be accurate, complete or timely. None of the Data Owner, Kames Capital or any other person connected to, or from whom Kames Capital sources, 3rd Party Data is liable for any losses or liabilities arising from use of 3rd Party Data.

The Fund is notified/registered for sale in: Ireland; UK; Guernsey; Jersey; Spain; Italy; Switzerland; Austria; Germany; Belgium; Malta; Luxembourg; the Netherlands, Portugal and Sweden.

Kames Capital plc is authorised and regulated by the Financial Conduct Authority.

Important information

FPID: 2016/24849

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kames global sustainable equity fund - kamesconference.co.uk

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