Explore a new path to performance through societal trends and changing demographics

James Burton  00:00:00
Hello everyone, and welcome to this exclusive Wealth Professional webinar in partnership with NEI Investments and Impax Asset Management. My name is James Burton. I'm Managing Editor of Wealth Professional and I'm delighted to introduce this presentation, which will identify new and evolving investment opportunities that have emerged because of societal shifts and changing demographics for advisors to stay ahead of the curve, it's imperative they understand and capitalize on these trends. Crucially, as you'll hear from our guest presenters, nei investments believes the market is underestimating the growth opportunities presented by these changes. So I look forward to hearing more about these trends, the investment opportunities they present, and importantly, how they might fit into client portfolios. So to that end, it's my pleasure to introduce the following speakers, Amber Fairbanks, Co-Portfolio Manager at Impax Asset Management, Charles French, also Co-Portfolio Manager at Impax Asset Management, and John Bai, SVP and Chief Investment Officer at NEI Investments. But now, before we get going, a couple of housekeeping items, important ones, there will be time for a Q&A at the end to participate. Simply type your questions into the Q&A box, and we'll monitor them as the presentation goes on, and we'll pick out the best ones to ask our guests, don't be shy if you have a question, type it in. Also. This webinar is recorded and will be available on the wealth professional site in the coming days. So without further ado, let me hand over to John Bai to begin the presentation.

John Bai  00:01:37
Thank you so much, James and good day everyone, as James mentioned, my name is John Bai, Senior Vice President, Chief Investment Officer at NEI Investments. And we just want to thank everyone for taking time out of their very busy days to join us today. We have a very exciting thematic to be discussing with you today, in fact, one that's not just built for today's environment, but one that that will move beyond the the mag seven and the mega cap US stocks and into a thematic that we think will benefit investors for years and decades to come. And in fact, actually, we just had the United Nations, the UN PRI, which stands for United Nations principles of responsible investing, conference here in Toronto a couple of weeks ago. In fact, it literally is the world's largest conference on responsible investing. And one of the thematics that kept coming up on most panels was that is just emerging. Is this thematic that we'll be speaking today on social and it's really underappreciated by investors, and so we think that this is a really timely call on that front. So what I'm here to do today is just to set the stage, give an introduction to impacts, asset management, this exciting new solution that we've partnered with them on. And then I will be handing it off to impacts to walk us through how society and the world of work is changing and how this translates into an investment opportunity. And then we'll come back and wrap it up and how this is going to fit into your advisory practice. And so let's get started with the next slide. So next slide please. Okay, thank you. So if you're looking to expand your investment toolkit and explore a new path to performance, then you come to the right place. The new nei global corporate leaders fund may be the solution you're looking for. It was launched on July 15. This new global equity fund is among the first of its kind in Canada. It's an innovative value proposition that's aligned with economic drivers that are projected, as I said, for long term growth, the fund will invest in companies are seeking to lead markets forward by solving today's and tomorrow's societal changes while delivering strong bottom line results. The strategy exploits market inefficiencies through systematic framework that identifies global companies with strong corporate cultures focused on addressing socioeconomic changes, and it will also help diversify portfolio exposures for many Canadian investors, as the fund focuses on long term investment and sustainability themes that have potential to complement other areas of the market as well as sector and this is an important slide as well sector exposures. And finally, sorry, fifthly, it can help attract clients that want to access new and innovative opportunities on the path to a more sustainable economy. And finally, it has a proven investment approach and a manager with impacts asset management who has a track record of performance with funds of similar designs. So next slide please. So here at nei We are thrilled, thrilled, absolutely thrilled to be working with impacts asset management, once again, they're a recognized global leader in sustainable investing with over 25 years. Of investment, experiencing managing opportunities, and also at the forefront of this transition to a more sustainable global economy. So when we were considering new mandates as part of the thought processes, we want to be at the forefront of these emerging trends and opportunities. And so to help facilitate this, we need to have strong partners with expertise and track records of innovative investment products and and so impacts has been that trusted partner for any I in over the years. Just to give you some context and some of the history, we've been working with impacts since January 2016 when we launched the NEI environmental leaders fund. It was a groundbreaking new fund and the opportunity set focused on resource optimization and environmental markets. This fund really quickly became a flagship fund for us, with advisors asking for more of these forward looking solutions, solutions. So in May 2020, we partnered with impacts again on the NEI global sustainable Balanced fund. This is actually the large, the long, the first balanced sustainable balance fund in Canada, and it became a balanced version of the NEI environmental leaders fund that included a diverse leave of fixed income. And we quickly took performance of that balance fund from fourth quartile, the first quartile. Fast forward to 2024. This partnership is ready to embark on a new investment in Journey, another great, groundbreaking mandate with the NEI global corporate leaders fund, proud of this long standing partnership between nei and impacts and the positive impact it's had on Canadian investors who will access forward looking investment opportunities and underestimated trends, differentiated investments with strong long term potential, with strong risk adjusted returns and measurable impact beyond financial returns. And so with that introduction, very, very pleased to turn it over to Impax. Charlie. Over to you.

Charles French  00:07:04
Great. Thanks very much, John for the introduction, and thanks to everyone for their time today. We're very excited about this strategy. We're delighted to be talking to you about it. So Amber and I will talk you through the core framework, the investment proposition, the process, and then spend a bit of time on the portfolio and some some stock examples which which really represent what we're trying to achieve with this framework and process. You know, John covered Impax incredibly well. Earlier, he used a phrase which is is really important to us, trends and opportunities. You know, for us, a key focus of our whole investment team globally, and we operate as an integrated, integrated team is identifying long term structural trends, long term thematics, and trying to find business models that are successful within within that context, obviously, we've got a history in terms of our environmental market strategies. Two or three years ago, building on a lot of our research over the years, we've launched and developed a dedicated social strategy, and again, that just looks at structural opportunities you see, and builds a portfolio around it. So we're delighted to be talking to you about that today. Maybe we could just move on to the next slide. I'll touch base on this quickly. Amber and I, we are the CO portfolio managers strategy. I'm also co CIO at impacts, and it's my particular focus, working with Amber on this, this social strategy, our corporate leaders fund. One thing I'll just highlight is at impacts. We're very much a global team. We have team members around the world, our key office locations, Hong Kong, London and the East Coast of the US. And we've got a great spread of very talented people who all work together and contribute to managing this strategy. So that's a little bit of context about us. Let's just introduce the strategy in a little bit more detail, and then Amber will start to take you through the investment process. This is a global portfolio, unconstrained, long only global equities, relatively concentrated portfolio of 35 to 55 stocks, very diversified in terms of the sectors and the business models, if it gets exposures to so it's not very narrow thematic. It's got exposure to lots of areas in terms of companies that provide structural social solutions, where we think there's really compelling business model opportunities. So we launched the strategy with nei back in July, and we're delighted to be talking to you about it today. So that's an introduction. We'll move forward and talk through maybe we can move to the next slide, and we'll start to talk about the proposition. Amber, over to you. 

Amber Fairbanks  00:09:58
Thanks, Charlie, and thank you guys all so much for joining really excited to be talking about the global corporate leader strategy. So if you look at the philosophy of the strategy, it really has two core tenets. We really believe that growth opportunities coming from long term trends that are shaping society, things like aging population, increasing incidence of chronic disease, even technological transitions and the need for those to be democratized. We believe these long term secular trends are underestimated from a growth opportunity perspective by the market. We also believe that companies that have created cultures that lead to higher levels of innovation adaptation, lead to motivated and productive workers and lead to robust and diversified influences on decision making. We believe those types of companies significantly outperform over the long term, but we also believe the markets typically ignore culture in favor of more easily valued and understood metrics. So we've really built an investment process that we think exploits these market inefficiencies to drive out performance compared to a broad benchmark, while holding a portfolio of companies we think are providing positive social impact. So if we go to the next slide, you can see an overview of our process, and we'll get into a bit more detail. It's subsequent slides, but the first step in our process is just the creation of a universe, both identifying companies whose products and services we think are positively exposed to these long term secular trends, and companies that we think are showing strong cultures, or at least indications of strong cultures. If you think about it from a funnel perspective, this takes a very sizable universe and essentially narrows it down to about 700 companies, and then from there, it's just deep, fundamental research. So it's looking for companies with strong competitive positioning. We want to not just understand whether or not they have a competitive position today, but whether or not they have the ability to grow and maintain that competitive positioning over time. We're also looking really closely at financial structure. I would say the strategy has a very high quality bias. So we're really looking for companies that haven't taken on a lot of balance sheet leverage, that are reinvesting back in their business. We also look to integrate ESG, really to help us better understand risks and opportunities. Where we see the transition to a sustainable economy at impacts, we see that as much more of a need to have than a nice to have. So those companies that are addressing opportunities, we expect to experience economic tailwinds. With regards to risk, we can see how much the value of the market today is tied to intangible assets, to things like brand and reputation. So really protecting that by having robust policies around material ESG risks becomes an indication of how viable the company is and how risky the holding is. Valuation is an incredible important piece of this as well. Typically, we're modeling out three to five years, really, to understand the opportunity set over the long term is we are looking to be long term holders of these companies on behalf of our end client. So we'll invest in company only if it's trading at a significant discount to intrinsic value. So what we end up with is a portfolio of about 35 to 55 securities. We're at 5046 today, really measuring across risk parameters, position sizing and factor and style exposures, to understand that from a portfolio construction and make sure we feel very comfortable with the risks that we're taking in the portfolio. We'll talk a little bit about our sell discipline, but I've learned in this industry, there has to be that balance between confidence and humility. It's important to acknowledge sometimes when you're wrong, to sell it, stock it and move on. We also look to engage with the companies that we're investing in. Obviously no company is perfect, so we're really looking to help companies understand where we see risks to their business model and help them improve over time. So there's just an overview of the four steps in a process. We'll get into a little bit more detail, and I'll hand it back to Charlie to talk about our social taxonomy.

Charles French  00:13:40
Thanks, Amber. So taking a step back, we have a concentrated global equity portfolio of 35 to 55 stocks. Ultimately, we want to find companies that we think are going to be very successful investments over the longer term. And there's many things that make companies successful. But there's two key thoughts we have for you in terms of how we built this process and how it flows through to a portfolio. Firstly, what is the company's business model opportunities? What products and services does it provide? That's the first thing, does a company have an opportunity to grow into the future? And the second thing, which we believe, is underappreciated generally within investment markets, and the lack of focus in terms of analytical effort is around how the company operates, and particularly on the how is the people within it. Ultimately, many investors focus on governance, management. That's incredibly important. But fundamentally within companies, it's the people within companies, it's the culture, it's the workplace environment in terms of generating energy and generating success. So our two components in terms of the frameworks for this strategy, consider both of those, what companies do from a product and services perspective, and then how they manage themselves. With a particular focus on corporate culture, I'm going to talk you through the first. Framework. And this comes back to as John talked about earlier structural trends, identifying business model opportunities, and then in finding the best, the best companies to exploit those, those those thematic factors within investment, we're obviously a sustainable, responsive investment manager at impacts, and we invest like that, because we have such conviction in the structural, long term trends. There's two pillars. We've always thought about, the environmental pillar, the solutions and the opportunities associated with that, but also the social side. And this is, as John mentioned earlier, is underappreciated. We have a huge global society. There's huge amounts of structural challenges, and companies that can provide solutions to address those challenges, we think will be extremely well placed over the longer term. And whilst people, of course, focus on technology, AI, some of the shortest term phenomena, we're particularly interested in demographic factors. They're so predictable, they're so profound, and they're very extended. Here's just an example of some of those structural phenomena, many of them which you'll be very familiar with, of course, something like aging populations around the world. That is a phenomena that's firmly in place and is going to impact all parts of global society. So it's not just a developed market phenomenon. For example, in China, there's going to be 400 million people over the age of 60 within 20 years, that represents a huge structural change in terms of the products and services the economy of the size of China needs other areas, rising incidence of chronic disease again linked into inter aging populations. We need healthcare innovation that provides cure rather than treatment. In terms of better healthcare outcomes. Another example, urbanization. Two thirds the world population are going to live in cities by 2050 that structurally as a huge force in terms of what is needed within cities, in terms of kind of core, core basic needs. So we think about structural phenomena, we think about where the investment opportunities are, and then we build a taxonomy around the companies that provide the relevant products and services. And perhaps we could move on to the next slide, and I'll talk you through our framework. And this ultimately develops a list of a universe of 700 companies around the world which operate in three core pillars, firstly, from a societal perspective, companies that provide basic needs that people can't live without. And here we're most interested in areas with this structural change. So for example, something like nutrition. It's not just about an interest in any food producer around the world. We're interested in companies that provide solutions to increasing the quality of people's diets. There's one and a half billion people around the world that just don't have access to the Core Nutrition, the quality of food that they require. So here, for example, we're particularly interested in ingredients companies, which are improving the profile, the food that everyone eats. So that would be the first pillar, companies that meet basic needs. The second is, once people have what they need to live, it's about providing them with the tools, the access to the products and services that give them financial security. So for example, education and jobs sync incredibly interesting trends around the digitalization of those sectors and some of the business models that providing solutions around employment and education access to finance. Here's an example around particularly interested in developed markets, around long term savings business models providing those products and services. And then in emerging markets, we're particularly interested in companies that provide that early stage access to kind of basic personal products that people need to kind of secure their financial security. So that's the second pillar. And then the third pillar. Once people have that base kind of financial security and economic security, it's about improving their quality of life. And here we're particularly interested in healthcare innovation, but also broader wellness. So for example, something like eye care within wellness. And there's 2 billion people in the world that need some form of eye care, and only half of those people are actually getting access to eye care. So again, that's an area that we're particularly interested in from a taxonomy perspective, and we're invested in an eye care company within within this portfolio. So for us, it's about understanding structural trends around global society and then building a framework, a universe of companies that provide relevant products and services. So that's the first piece of our framework. I'll hand over to Amber to talk around the how the culture within companies.

Amber Fairbanks  00:19:34
Thank you. So as Charlie talked about, we have the taxonomy. We also have this piece of the universe called the impacts corporate culture indicator, which I think is very unique and interesting for us. At its core, company culture really refers to shared attitudes and values and standards and practices that really shape a work environment. It's not some well written mission statement, it's not a list of values, it's not aspirational, but it's really how a company does what it does for its employees. Both in terms of informal behavior in formal systems. It really encompasses the atmosphere of the work place and how employees interact with each other and how they progress towards the company's purpose or goals. I think it's kind of intuitive that when you have a strong company culture that can have a direct financial impact performance on performance. It can drive earnings growth through innovation. You can have more productive employees, higher employee retention, as well as just healthier relationships with customers and suppliers, where you have a bad culture. On the other hand, you can have higher employee turnover. You can have demotivated employees. You can have reputational damage, unethical behavior, and ultimately poor financial performance. The question becomes, as an outsider, how do you possibly ascertain whether or not a company has a positive or negative culture? And I think we've done here is just really interesting. So impacts actually has a history of quantifying behavior through their global women's leadership strategy, which is managed out of the US. We've taken that data and essentially broadened that to incorporate what we think is a measure of corporate culture, using workplace factors. So we've examined all available social data across multiple sources. I think encouragingly, there's a lot more data available which helps us develop this over time. We neutralize that data for things like market cap and adjusted for regional differences, because, as you can imagine, a small cap company in Japan is going to look quite different than different than a large cap company in the US. And then we identified those factors that were most predictive of forward looking stock price performance. So what we do with this indicator, with regards to our process, is essentially, we're scoring every company in our universe across the factors that matter for their region. We then break that into quintiles. And if you go to the next slide, you can see the performance of these quintiles historically on a forward 12 month basis. So this goes data goes back to 2012 So with regards to our process, we're excluding that bottom quintile from our universe, so we can invest in in the top four quintiles. You can see as well just the quantification of culture and how that can lead to stock price out performance over time through the indicators that we're using to evaluate that. So it becomes a tool for us to start to identify companies that are showing indications of strong culture on the idea those who are strongly outperform over time, and then be able to incorporate that in the portfolio. We can also use this as a screening tool to start to identify companies that might be interesting to start to evaluate from a fundamental perspective. So those are really the two core pieces of our universe creation. Companies have to have at least 20% of their revenues aligned to the taxonomy, and typically, most companies in the portfolio have well above 50% but that 20% just gives us essentially the opportunity to identify companies that might be having very impactful products we might not be able to capture more of a pure play, and a company has to be in the top four quintiles of this corporate culture indicators. So both of these tools really tie back to our original philosophy that the markets underestimating the growth opportunities coming from long term, secular trends that are shaping society. We now have the taxonomy, which provides us the framework to identify those companies whose business models will be positively affected. And then we also have this corporate culture indicator tool which ties back to the investment philosophy the market typically ignores culture, but that culture itself is a very strong value creator over time. So from there, once we've identified those companies, from those two tools, we start to do our fundamental work on the companies. What we're really looking for is companies that we have a tremendous amount of confidence with regards to their longer term opportunities, companies that we think are well managed. We tend to agree with Warren Buffet that one of the riskiest things investors can do and is invest in business they don't thoroughly understand. So we really spend a great deal of time just understanding a company's business model in the industry in which they operate, really looking for companies that we think have a strong and enduring competitive advantage. We're also looking, again, very closely, at financial structure, looking for companies that are earning above their cost of capital, companies with solid balance sheets that have shown consistency in their operations. And then our assessment with management is done both qualitatively and quantitatively. On the quantitative side, we can look at things like consistency of revenue growth and margin improvement and return on invested capital, but on the qualitative side, we really have an objective sitting across the table from the management teams, ideally in person at least once a year. This really gives us the opportunity to understand management's vision for the company. We can then benchmark them against that vision over time. At the end of the day, we're really seeing ourselves as owners of these companies on behalf of our end client. We want to invest with the management team that thinks and acts like an owner as well, and on the valuation analysis. You know, our valuation analysis is really only as good as our ability to understand, identify high quality companies and really evaluate the sustainability of profitable growth. So our valuation modeling typically aligns with our ownership mentality. We're looking to model out at least three years, typically. But. Model out at least five to determine whether an investment looks attractive given its longer term prospects, we model across three different scenarios, typically, so we'll have a bull case, a base case and a bear case. That just gives us a range of expected outcomes, but it also helps us stress test the variability in our models. Helps us understand what needs to happen for things to be more positive for the company, or potentially more negative for the company. We think it's really important to understand what can go wrong for a company, not just what can go right. So the resulting product of this research is just a thorough analysis that really helps us understand the quality of the company, understand their position within the industry. Another key piece of our evaluation on the fundamental side is around ESG, and I won't get into too much detail around how we evaluate companies, just to say that something impacts has been doing since inception. So it has a really long history of understanding what's material for a company from a fundamental perspective, understanding how to evaluate those risks and opportunities and integrate that in a way that makes sense in terms of identifying attractively placed companies. So a little bit on portfolio construction. So on the right hand side, you can see how we're looking at it from a position sizing perspective. So our top 10 positions are between three and 5% so typically, at least 30% of the portfolio fall within these positions. This is really where we have the highest level of conviction on the company. We see well managed risks. Typically, they also tend to be quite liquid stock, so that the strategy is fairly small. Today, we are looking to grow and scale this. We want to manage it from day one, as we will when it's at scale. We also typically see the most upside in these top 10 positions. On the flip side, though, our bottom 10 positions are between point five and one and a half percent, so no more than 15% of the total portfolio. Obviously, being a high conviction manager, we like every stock in the portfolio, but these are potentially companies we might see a little bit more business model risk. We just might not have the same level of conviction. There might not be as much valuation upside, or they might be smaller cap stocks. And then, with regards to our sell discipline, if we lose conviction in a stock, we'll sell it out of the portfolio. This doesn't mean if it misses an earnings quarter, we would sell it. In fact, often that's an opportunity for us to add a stock if we see that disconnect between short term concerns and long term value. But again, I think there has to be humility in this industry. You're not always going to be right. Sometimes the best course of action is to acknowledge your mistakes and move on and learn from them. If a stock is no longer attractively valued, we'll sell it out of the portfolio. So when it starts trading at a premium to intrinsic value, if the sustainability profile has changed negatively, or if a better idea is identified, those would all be reasons for us to sell a stock out of the portfolio. So just a couple parameters we have, with regards to portfolio construction, you can see tracking error range that we've given. We've been running about four and a half percent. We also have our maximum position size at 5% really, we just don't want one or two stocks driving all of the performance as well as the risk of the portfolio, that can be quite positive for investors on the way up, but quite risky and quite negative on the way down. With regards to geographic allocation, what we're looking to do here is measure it from a geographic revenue dispersion perspective, which we think is just a better way of understanding geographic risk in the portfolio than if we looked at it from a country of domicile perspective. So we're looking to stay within 10% of their benchmark, which is the MSCI acwi for that. We're also looking to build a portfolio with a similar or lower risk profiles in the benchmark. So we're looking at beta and standard deviation to measure that in the portfolio. Charlie talked about the different themes that we look at with regards to the taxonomy we do want to build and hold the diversified portfolio. So we have committed to investing in at least six of those eight thematic sectors. When we get to the portfolio, you'll see we're invested across all eight. That will likely be something that we see going forward. But again, valuation is going to dictate weights in those different thematic sectors. There's a couple other revenue thresholds that we've set, as well as other parameters that we've set across the portfolio, really just to make sure that we're monitoring and feel comfortable with the risks that we're taking. So with that, I think I will hand it back to Charlie. We can start to talk about the fun stuff, the stocks in the portfolio, and a couple examples.

Charles French  00:29:13
Great. Thanks, Amber. So I'll talk you through a couple of stock examples which really reflect this focus on business models, which we think are really compelling and have a long term structural opportunity. And then secondly, we have great conviction in terms of the people, the management, the workplace culture, and those companies that they can deliver on that opportunity over the longer term. And the two companies I'm going to talk you through do two things. The first one is a company that enhances people's ability to get jobs, and the second one is a company that enhances people's ability to get access to finance, both of them using digital solutions to do that. So the first company, this is a company called recruit. It's. Quoted in Japan. It's a Japanese company, but it also owns HR platforms, employment platforms around the world, including, indeed and Glassdoor, which you'll all be very familiar with. So what does this company do? What its core history is providing recruitment platforms, employment platforms. But what it's been doing, and it's been a total focus of the company for a number of years, is to digitalize effectively how people get jobs. And in some ways, I call this the Uber of recruitment markets. Obviously, Uber is a product and services that we all, we all use, and it digitally matches the demand people want to have a taxi ride, and it digitally matches it well in employment markets, employment markets are incredibly inefficient. There's one statistic that if people take more than three months to get a job, if they lose a job, 40% of people around the world will be below the poverty line, and one of the key issues is employment markets are very there's a huge amount of friction associated with them. And what this company is doing is developing a digital platform that effectively matches between people who want a job and people who are looking to employ people effectively matching digitally the information around the employer and the potential employee, and they have a target over the next five years to reduce from 12 weeks to six weeks the time it takes for people to get a job on their employment platforms. So they are the global leader in digital employment platforms, and that some of the core businesses they have, such as indeed and Glassdoor give them a huge information advantage about trying to develop these solutions. So that's why we think it's very compelling from a business model perspective, really changing for the better employment structures, employment markets. The second thing is, in terms of the way the company is managed, very innovative, very strong workplace culture, very progressive in terms of how it manages its people and how it ensures the right workplace environment. So we have a huge amount of conviction in the company from a management and workplace perspective, really compelling business, strong earnings growth, compelling valuation, and fundamentally providing a solution we think will underpin its growth into the future. So that's recruit which sits within our education and jobs component of our taxonomy. Maybe if we can move on just one more slide I was going to talk you through in the interest of time. Two case studies. This is the second company. This is a company that is digitalizing access to finance. Everyone will be familiar with credit bureaus around the world. This company is one of three key credit bureaus, along with, along with, obviously, Equifax, and is probably its key competitor within credit bureau markets. And what effectively, credit bureaus do is they take data from from people, curate that data and provide it to financial companies to enhance their access to financial products. But around the world, in countries such as the US, the UK, Brazil, where Experian principally operates, there's a huge restriction on what data financial companies can use from a privacy perspective, but what Experian is has developed is effectively a consumer platform which digitalizes access to finance, and what it allows people to do is to upload their own financial information so they are in control of the data they provide. So if people are paying their rent, they're paying their utility bills, they're paying their cell phone bills. That enhances the financial profile of other individuals and greatly enhances their access to finance. So this company is effectively turning credit bureau markets around the world upside down through its digital consumer platform. So very compelling business, providing a really important social solution and structurally underpinning growth within the company. So that's from the what the company does. That's why we think it's so compelling from a product and service perspective. But the second thing, of course, with our framework, with our process, is we want great confidence in the company's ability to deliver on that growth, and this is one of the few companies that we know that actively monitors and tracks its glass door profiles what its own people actually think of the company they work for to ensure that they are creating the right workplace environment. And again, a management team that is incredibly articulate about talking around their own corporate culture. One of the key questions that Amber and I like to ask, and our analysts like to ask companies that we which we meet, is tell us about your workplace culture. Tell us about the cultural environment that you're working within. You find management teams that are incredibly compelling about how they can articulate it, and you find other companies that struggle to talk about it. This is a company that if you ask them about corporate culture, they can talk about it for hours, because it's the heart of who they are, just the kind of company that we want to invest in within the strategy. So there's two companies doing very different things in different sectors in different parts of the world, but we think are incredibly well placed and good examples of corporate leaders. Maybe could just move on to the next slide. Maybe I just this is the top 10. You can have a look at this. I'm just going to make one comment, and that's about Nvidia at the top. Everyone knows what Nvidia does. Everyone knows why Nvidia is proving so successful. The one thing that most people don't know that is if you went back 10 years ago, or even further, and started to look at kind of corporate culture workplace surveys around embedded you would find it at the very top of all surveys. Even today, it's still at the top. But the success of the company is for a variety of factors, but we have no doubt that one of the factors that has driven this company's success is the corporate culture that was embedded in it 1015, years ago, that's driven innovation and ultimately driven the company's success today. So that is a company that's in a high weight within our portfolio, but reflective of this corporate culture component that is so important to us in terms of our stock selection. So there you go. There's some examples, just to give you a flavor for the portfolio, as Amber mentioned, we've got nice diversity in terms of thematic areas that we're exposed to. You can see those on the left hand side, we'll always have exposure to at least six of our eight thematic areas that we're interested in from a social solution perspective. And then the right hand side, you can see our sector all exposure first observation, nice diversity across sectors and industries around the world. It gives us exposures to very different business models, our taxonomy and our opportunity set, but we tend to have a skew towards more consumer facing industries, healthcare, finance, to a degree, technology, consumer staples are important. We tend to have less exposure towards more kind of primary and manufacturing areas, and that's where it complements our environmental strategies incredibly well, because they tend to be more upstream primary and secondary industrial kind of business models. So that's our sectoral exposure. On the right you can see that healthcare, consumer and financials are particularly prominent within within the portfolio, but overall, nice diversification. Maybe we could move on to the next slide. This gives you a sense of the regional breakdown. It's a global portfolio. Ultimately, it's business models, valuation, conviction and securities that will determine where we invest. At the moment, we have a skew towards Europe that's driven by business models and valuations where we think they're most compelling at the moment in terms of the portfolio, but there's full flexibility around our geographic exposures. But generally, we're looking to have diversified exposure to global markets and on the right hand side. From a market cap perspective, we're typically very underweight, kind of mega cap areas. We own Nvidia in the portfolio, one or two stocks of higher market caps, greater than 200 billion. But where we think the most compelling areas are kind of more mid to larger cap business models. That's where we can get exposure to pure business models, which we think have more compelling long term structural opportunities. And I gave you two examples earlier, Experian and recruit so it tends to be the most support for companies in the portfolio, between kind of five to $50 billion that's the typical area that we're most interested in from a from a business investment opportunity. So that's a sense of the portfolio. Maybe we could just move on to the next slide. Maybe Amber, shall I hand over to you, just to maybe give a summary of the of the portfolio in the process, and then we're very happy to take take your questions.

Amber Fairbanks  00:38:56
Yeah, of course. Thank you guys again for your time today. I hope we demonstrated what we're trying to do here, really develop a multi thematic strategy that's identifying companies with strong corporate cultures and those that are positively exposed to long term, secular trends that we really see shaping society for decades to come, just having a very strong fundamental core with regards to how we're identifying companies from a quality perspective, from a fundamental perspective, and having just that deep valuation discipline to build a portfolio that we think is very well positioned to outperform a broader market over a market cycle. So with that, I will hand it back, I think, to James for Q and A, if there is any.

James Burton  00:39:40
Thanks so much Amber. And thank you also to Charles and John, that super interesting presentation that was That was fantastic. So we got about 15 minutes for some questions. So we got some some that have come in. So I'm going to run through them and pick out the best ones. I want to kick things off though, bringing John back into the. Into the fray just as a just as an ad to the presentation here, John you mentioned at the start, the NEI global corporate leaders Fund is a good complement to the NEI environmental leaders fund. So just wonder whether you could expand a little on that.

John Bai  00:40:17
Sure. So maybe what we can do is turn it back to slide 24 I think it's probably a good kickoff point for this. And you know, Charlie went through this on the sector allocation of the fund. And he mentioned that the fund tends to be overweight consumer exposures like healthcare, consumer discretionary, consumer staples. And he did also mention that environmental leaders tends to be a little bit more downstream on the on the producer side, overweight and materials, industrials, technology. And so what you really see here is that that environmental leaders, and you know, the sector exposure between environmental leaders and the global corporate leaders funds offset each other really, really well. I mean, it wasn't, wasn't designed that way, but it's turned out that way. And so we've done a lot of work on how to add global corporate leaders to the NEI portfolios. And so one of the things that we did was we looked at expected rates of return and tracking error to when you add global corporate leaders to a portfolio. And what we found that you know that if we had environmental leaders, and you complement that with global corporate leaders, because of the the non correlation and the more defensive tilts of global corporate leaders, actually, you can actually reduce the tracking error of your portfolio when you combine the two. So really, what that means is one of those free lunches on Bay Street, Wall Street, where you have two funds with with lower correlations that won't impact your expected rates of return, but will actually decrease the risk of your portfolio. So what we found was the perfect area of the lowest part of your tracking error is at a 4060, 40% global corporate leaders, 60% environmental leaders, or 6040, the other way. And that's really where you you get the maximum diversification benefits. So if you do have environmental leaders in your in your in your portfolios, I would, I would recommend strongly that you take a look at the global corporate leaders, because it's, it's an excellent way of reducing, of complementing that portfolio, reducing portfolio risk without, without decreasing your expected rates of return on the portfolio. I don't know Charlie Amber, if you want to say anything more to that, but we found it was actually quite amazing.

Charles French  00:42:46
Nothing to add. John, you covered it very well. We think the two strategies are very, very complimentary, and they balance each other extremely well. And then it allows that focus on on business models and stock selection when you look at them in combination.

James Burton  00:43:00
Great stuff. Okay, just a quick one. Keep the questions coming in. I won't say who it's from, because I know some people like to remain anonymous, so that that helps you type in a question. Then, by all means. So okay, here's the first one, maybe for Charles or amber. I'll let you fight over it. But how do you see India in terms of an investment destination?

Charles French  00:43:26
I'll take that Amber I talked earlier about demographics, and I've always found demographics fascinating to invest in or consider and build into stock Selection throughout, throughout my whole career. And one of the reasons for that is is demographics are so predictable, where, obviously, as investors always trying to think about thematic trends, but some of the thematic trends are unpredictable, and they may evolve in a different direction. The one area of thematics which is totally predictable is demographics. We know, structurally what's going to happen in terms of aging populations or rising kind of middle income cohorts within particularly within emerging markets. And that's why we find India such a fascinating and interesting company from an investment perspective, particularly in those kind of more consumer facing areas, because we know it's structural. It's there. It's easy to evidence that this huge rising tide of kind of middle income cohorts within India that need access to different products and services. So we have one exposure in the portfolio at the moment in terms of to India directly, which is HGSE bank, still relatively low penetration of financial services with India a rising need for kind of base financial products. And this is a company incredibly well run, strong culture, great history of success in terms of managing the growth of its business. And so again, HCFC bank ties into some of those consumer forces, some of the structural opportunities within. India, but we also have access indirectly through some of the companies we own. We actually own Colgate within this portfolio. And everyone thinks immediately, oh, it's dental it's dental products. What people don't realize is that actually about 40% of Colgate business is actually exposed to emerging markets and there again, as people evolve into middle income cohorts, they demand different products. They demand or evolve kind of dental products, which is incredibly important to kind of general hygiene and health. So we have exposure to India, both directly and continue to be very interested in opportunities, actually companies based in headquarters in India, but also getting exposure indirectly through some of the companies and their global businesses. So a couple of examples there, directly and indirectly.

James Burton  00:45:47
Okay, moving on to the next one. Is the focus on culture, just an enhancement of the original governance review of the management team. IE, a well managed company will have a good workplace culture.

Amber Fairbanks  00:46:05
I can hop in on that one. I think that's part of it. Obviously, when you have a good management team, they've set a culture, they've set policies that make people feel empowered. But if you look at kind of the metrics that we're looking at, it goes well beyond just looking at governance. We're looking at things like turnover. We're looking at the outputs of a good culture. We're looking at things like the management of human capital, percentage change of women in management year over year. All of these become not just, you know, management telling you that they have a great culture, but actually the proof points that there is a great culture on the idea that over time, this leads to significant financial value. So I think if you look at how a lot of people look at governance, it's typically, is there separation of chairman and CEO and board independence that becomes something that is very quantifiable and very easy to understand. We've essentially broadened that well beyond what we think is a measure of governance to really get to the heart of what we think corporate culture is, Are people happy in their jobs, on the idea that if they are, they'll be motivated, they'll be productive. Is there diversity on the management team, on the idea that then you have robust influences on decision making, all of that becomes far broader, in my opinion, than just kind of a broadening out of governance metrics.

James Burton  00:47:20
Okay, thanks, Amber, great answer, moving into sort of the fund and the risk, essentially, how do you manage currency risk, given the global nature of the fund?

Charles French  00:47:40
So we look at it. So you saw earlier, there was a slide there which shows what our geographic exposure is, but that's from a listing perspective. That's where the companies are listed in So, for example, recruit the company I talked about in Japan earlier. The largest component of its economic exposure is the US also experience. So we we find it much more relevant from a risk management perspective, from portfolio construction perspective, to look at the underlying revenue exposure of companies, profits exposure from a regional perspective. And that's where we typically don't as a loose guideline. And you can see it actually one of the pages we tend to look at kind of 10% plus or minus on a regional exposure from an economic perspective in terms of revenue exposure, and that is to moderate currency or macro exposures within the portfolio. There you go. That's that geographic allocation point there. So, so we look to have a diversified global portfolio. We don't, we do look at risk factors in the portfolios, and one of them we're always looking keeping an eye on is currency risk. We don't want currency risk to be a significant factor in the portfolio. That's not where we believe we add value. We believe we add value in terms of security selection.

James Burton  00:48:55
Great. Thanks, Charles. You mentioned video there got my journalistic alarm bells ringing, which was, which is interesting earlier, just on that theme, and perhaps, you know, broadening that that out a bit. Are there any specific companies or sectors in addition to what you mentioned earlier, that you're particularly bullish or bearish on right now?

Amber Fairbanks  00:49:19
I can take that. I think AI has obviously been a hot topic lately, and so it's interesting to think through the implications of AI. Obviously, there's the direct enablers of AI, like Nvidia. And AI in itself, we think can have huge societal benefits with regards to personalized medicine and education. Hence, it's positioning in a social portfolio, but it also becomes really important, in our opinion, to think about the ramifications of AI from a job creation and job loss perspective, right? Because you have AI taking some jobs, but they're creating new jobs, so you have to have up skilled workers. So we own companies like Walters Kluwer, for example, which provides on the job at continuing education so people can keep improving. Being at their job and keeping it we own companies like recruit as well, which obviously keeps people in jobs because they use data analytics to ensure a good match between the employee and the employer. We own companies like Duolingo, which John and Charlie know my favorite company to talk about with my 735 day streak, they're actually harnessing AI and using it to make a better product, with regards to their language learning app. And I think that that's kind of the next frontier in AI is really thinking through you have the enablers, and that's been something that's been well played with regards to companies like Nvidia, but it next step becomes, who's going to benefit from Ai? Who's going to be hurt from AI? And I think we have a lot of companies that we think will be strong beneficiaries of the implementation of AI in their products. Like Duolingo, for example, we're also thinking about things like cybersecurity, because now there's a tremendous amount of data out there, so companies like Palo Alto become important with regards to protecting users' privacy and protecting their data. So a lot of different ways to play AI. It's a fun topic to talk about because it's just exciting, in my opinion.

James Burton  00:51:03
Yeah, absolutely great answer. Amber, thanks so much. Just just moving on then. So, you know, focus bit on sort of the market conditions. And you know how that changes? And obviously, is a big consideration for advisors, big stressor for their end client. You know, how does, how does the fund adapt? Well, how do you adapt? I should say the fund strategy given changing marketing conditions.

Charles French  00:51:32
Yeah, we, I mean, we were ultimately driven by long term security selection and business models we have great conviction in and we're comfortable with evaluations and the overall risk reward profile of companies. So that's that's always where we're going to focus. We obviously want to have a diversified and balanced portfolio, the exposures to different sectors and different geographies, different types of business models. So that's always what's going to dominate, how we build the portfolio. But we do, of course, want to be macro aware, not macro driven. We're not like trying to take, you know, strong economic views or strong market views. We're trying to build a broad and diversified portfolio that we think over medium or longer term time frames will perform well, of course, over maybe shorter to medium term time frames. Markets get may extended, they get more sold off. We may be aware certain macro factors, which may, may means we slightly evolve the portfolio to be a little bit more defensive or less defensive at times. It may mean we slightly skew in terms of sector exposures. But fundamentally, it's stock selection, longer term stock selection and building a broader, diversified portfolio that we're focused on, rather than positioning around near term macro phenomena, where we don't think where we that's where we add value. It's very much at the company business model level.

James Burton  00:52:53
Great stuff. Thanks, Joe. I appreciate that. And thank you all for asking some additional questions there. I appreciate it. I just want to hand back to John. He's got some some final thoughts and information for everyone.

John Bai  00:53:08
Thank you, James, I almost forgot. So thank you very much for the the impacts portfolio management team for today's presentation at nei we're thrilled to be partnering with impacts once again, bringing another forward looking investment solution to Canadian investors. Before we close, we wanted to touch on the many roles that the NEI global corporate leaders fund could play in your portfolio. It starts as a global equity allocation, high conviction, differentiated, thematic and opportunistic in nature. It serves as an allocation to innovation that we just talked about. So thanks James for asking the question on the world in transition, as well as transformative technologies, healthcare, connectivity, AI, automation and many of the thematics that Amber talked about, you can also leverage it as a building block that can complement core solutions, climate solutions, and address potential sectoral or regional gaps in your portfolio. And as I mentioned earlier, particularly if you have the environmental leaders fund. And finally, you can position it as a sustainable solution with a focus on measurable impact and a societal lens that's a natural compliment to any solutions with an environmental lens. So next slide, we'll have the fees on this slide. And so finally, on this slide, here's the fund codes and pricing. As you can see, the pricing is calibrated to offer value in this category. And so with that, very happy to hand it back to James, our moderator. Thank you very much for tuning in.

James Burton  00:54:41
Thanks, John, that's a great way to end. Charles Amber, John, thank you so much for a great presentation, and of course, most importantly, thank you everyone for joining us and taking the time out of your day. On behalf of me and everyone at World Professional I hope you found this informative and enjoyed the presentation, and see you next time. Enjoy the rest of the day.

Amber Fairbanks  00:54:59
Thank you,

John Bai  00:55:01
Thanks everyone.

Charles French  00:55:02
Thank you. Bye.