Endeavour World: capital growth with less of the volatility of equities
Investment Objective: To target capital growth with less of the volatility of global equities as measured by the MSCI All Country World index, over rolling five year periods.
Comparator Benchmark: the IA Flexible Sector peer group average
Investment Philosophy: We believe structural operational advantage is the driver of companies’ long-term growth potential and we strive to identify this across all industry sectors in world markets. We recognise growth equity investments can often come with too much volatility on their own, making it an uncomfortable ride for many investors and forcing them to give up on their long-term investment plans in the inevitable moments of acute market stress. We seek to reduce much of that volatility by combining growth investments with diversifying exposures to less and negatively correlated investments that may afford some downside protection and reduce volatility in times of market stress.
Investment Process: We value a number of features that companies possess when they have this structural operational advantage and which lie at the heart of our confidence in their long-term leadership and profitability: they tend to be the leaders in their product categories, and this means they have probably invested consistently in that leadership, are efficient cost managers and consequently able to set prices and defend those prices for superior margins and profitability in the form of operating leverage and free cashflow. Ultimately these performance metrics drive higher returns on capital employed amongst portfolio holdings than their industry peers and this in turn then drives further investment and sustains further leadership.
Fund investments are divided into three uniquely concentrated sleeves of highly differentiated equity investments: defensive equities with typically stable industry profiles; cyclical leadership equities more exposed to the business cycle; and secular longer-term growth equities. Exchange traded funds (max.10%) with underlying exposure to government bonds and precious metals combine with unhedged exposures to ‘safe haven’ foreign currencies such as the US dollar, Japanese Yen and Swiss Franc that typically afford downside protection in episodes of market stress and instability.
The Endeavour funds have always historically valued the responsibility and sustainability by which company management teams have guided their corporate strategies for the broadest stakeholder interests they prioritise across their operations. Thinking about their customers as well as their shareholders, employees, communities, suppliers and the social purpose they fulfill by their very existence, these are just some of the principles and qualities of business culture the Endeavour investment managers prize very highly when looking for the durability and dependability of their investments.
Environmental, Social, Governance
The Fund’s investment managers do not seek to explicitly identify companies with the highest claims to Environmental, Social and Governance rankings and exclude all other companies. They do however value companies that work hard at these issues in the general course of their business operations because it is prudent and often right, and probably the best thing to do for the interests of the broadest group of stakeholders, including but not exclusive to shareholders.
The Endeavour Fund does not negatively screen for ESG investments based on a sense of historical or subjective ethical judgement, to avoid for example alcoholic drinks companies in the traditions of Victorain temperance societies in the industrialised heartlands of the Victorian Empire, or tobacco, fossil fuel and armaments manufacturers. Rather the starting point for the managers is that companies set their goals and responsibilities prioritising the interests of the widest stakeholder community within both the word and the spirit of the law and, with pragmatism, should set the standard in their sectors for how they go about it.
The managers of the Endeavour World Equity Fund use research support from third party providers such as Morningstar and Sustainalytics for insights into company standards across a broad range of key sustainability metrics. These agencies have rated the Endeavour funds highly ever since inception of their ratings services.
Energy
The managers of Endeavour do invest in the energy sector but we avoid businesses retaining their legacy coal assets. The oil and gas sector is not considered as unethical or uninvestable per se. Far from it, it would in our opinion actually be unethical to withhold capital investment from an industry that is today the mainstay of affordable energy and the basis of 100 years of relief from poverty and improved living standards for billions of people around the world.
However, the energy companies we invest in should also rightly be expected to be progressively shifting their operations towards cleaner fuels and investing in the development of the next generation of sustainable, renewable energy sources and committing to the optimal and credible timelines to do it in the best interests of all stakeholders.
This includes the acknowledgement by the IPCC, the International Panel on Climate Change, that the global economy has an interest in utilising the cleanest fossil fuels for baseload power supply for at least a part of the next generation.
Snacks & Sodas
It is the view of the managers of the Endeavour Fund that it is not all carbonated drink and snack food makers who contribute to the inexorable rise in obesity and diabetes rates globally.
Some businesses are leading the way with healthier ingredients, lower sugar content and replacement products and in educating their customers into new consumption habits.
We prefer to seek out and back the leaders in the Snacks & Sodas business too.
Tobacco
The managers do not invest in the tobacco industry.
While the products are legal to consumers, the managers believe the industry is generally of little utility to society and the companies themselves admit to their products shortening normal life expectancy.
The managers of Endeavour happen to believe this to be not a very sustainable business model long-term and would go so far as to suggest tobacco products would quite possibly be made illegal if it wasn’t for the aggressive lobbying and tax revenues harvested from the industry by governments all over the world.
Alcohol
Gambling and alcohol may be considered unethical by some, on principally religious grounds, but in moderation the managers of the Endeavour Fund believe they can be a welcome right to enjoy for mature self-determining adults.
They have throughout recorded history typically tended to play a traditional significant role in social cohesion though not without the risks of abuse and as such should always warrant careful regulation and ongoing education.
Armaments
The managers do not invest in defence and military hardware manufacturers. Instead we see the manufacture and provision of armaments as better placed in departments of government. In and of themselves they may not be considered unethical investments as defence capability in our opinion has always played a vital part in the framework of international peace.
That said, some defence companies and some defence products supplied to some countries and regimes may well be considered unethical, in the managers’ opinion, and on ethical grounds alone may be precluded from mainstream public market investment.
Inclusion informs a broader perspective
Diversity of people and cultures, perspectives and talent is always a good thing for any business and is increasingly to be expected as a base requirement for businesses with their own increasingly diverse markets and customers.
However, setting pejorative quotas for diversity in company leadership may not, in the managers’ opinion, be entirely constructive for companies to answer to, facing as they already do tremendous challenges in the market for talent and recognising the obvious advantages diversity brings to breadth of thinking, innovation and understanding.
Almost needless to say, the managers of the Fund would abhor the thought of any of their investments being involved in modern slavery or pornography.
The managers go to reasonable lengths to ensure the required standards in investee companies, bearing in mind the Fund is relatively concentrated, overwhelmingly large market-capitalised, very well covered by market analysts, and forensically scrutinised by sustainability industry research providers whose analytics and ratings are woven directly into the Endeavour investment process.
A Philosophy of Stewardship
We are fortunate in western democratic countries to have the structures of government, institutions and accountability to trust that what is legal in our societies is broadly and increasingly – and ultimately – ethical.
We believe our investment and corporate engagement process makes a modest but relevant contribution to that evolution, a philosophy of stewardship perhaps more than a policy of purist exclusion.
Endeavour naturally appears to capture a lot of sustainability characteristics: by country and by capitalisation, by dividend and by growth, by conviction and by success, the Endeavour Fund appears to have captured more ESG factors than over 90% of the Morningstar rated fund universe in the years since their rating service was launched in 2015 (source: Morningstar, Tellsons, Sustainalytics).
Probably one of the most naturally sustainable funds available in a much-greenwashed market today, it is rather ESG that seems to have found Endeavour.
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