The Stewardship Fund is an international equity fund which aims to achieve growth through investing only in companies which meet certain ethical criteria. As an equity fund this fund has a potentially high return but also a very high risk profile given the risks inherent in inverting in equities. The fund can be volatile over short to medium term periods.

The fund outperformed its benchmark, the MSCI World NR (EUR) Index, which fell by 2.5%. The fund also outperformed over one year compared to the benchmark.Attribution Summary

The fund outperformed the benchmark during the quarter, helped by both asset allocation and stock selection. The portfolio benefitted from overweight positions in both information technology and financials, as well as a zero-weight position in energy. Strong stock selection was especially beneficial for the fund, with performance helped by consensus-beating quarterly results from Mettler-Toledo, PayPal, ING, and Suez. Japan Exchange Group also contributed strongly to performance on account of an investor rotation into diversified financials, helped by an increased share buyback from Japan Exchange. Holding back relative performance were companies reporting results that fell short of market expectations. These included Tractor Supply, MEDNAX, SVB Financial, and Toray Industries. On a regional basis, the fund was helped by being underweight in North American equities, as well as the overweight exposure in both Europe and Japan.

Key activity

During the quarter, the fund manager did not initiate any new positions. However, we added to Xylem, a water infrastructure and technology company. They also increased holdings in a number of financial stocks, including Prudential, Japan Exchange, Intercontinental Exchange, and US Bancorp, although they reduced their exposure to Japan Exchange later in the period following a sharp bounce in the share price. Among disposals, they sold a small holding in Tomra Systems after its share price also performed strongly. They also exited MEDNAX following a profit warning that suggested further cost pressures and limited visibility as to when they can expect improvements. Finally, they reduced the holdings in a number of technology and automation companies following strong performance.

Positioning & outlook

Despite a number of disappointing US economic readings towards quarter-end, the Federal Reserve raised rates and reaffirmed plans to begin unwinding its balance sheet in the second half of the year. Should progress be made by the US administration to deliver economic stimulus (tax reform and infrastructure spending) then this could lead to a further acceleration in growth prospects and corporate profitability. In Europe, consumer confidence and business sentiment continues to improve. In Japan, near-term earnings prospects appear robust and we maintain our view that latent value on Japan's cash-laden corporate balance sheets should continue to be unlocked. (30th June 2017)

1.125% pa of fund assets. Please refer to policy conditions for policy charges.