A strong culture
Employers who act as good stewards for their staff can keep employees motivated and engaged, even during challenging times, which can help increase retention and lower recruiting and training costs. We think this remains an underestimated source of resilience and stability but one that is increasingly critical given persistent labour and skill shortages.
Investor confidence and stability
Having access to stable funding streams is a structural advantage in an era of diminishing credit and higher rates. Companies with good stewardship have typically achieved preeminent leadership in their markets and have a record of delivering strong shareholder returns, thereby instilling investor confidence, which leads to a decreasing cost of capital and helps ensure continued access to funding.
In combination, we think these assessment criteria offer a valuable framework to measure resilience with the quality of stewardship as a common denominator. It doesn’t mean that the companies that we identify as “good stewards” are immune to hiking rates, pricing pressures and labour shortages. However, they tend to display more resilience and adaptability thanks to a robust business model. Typically, they are leaders within their market segment and have healthy balance sheets along with strong governance and culture.
Where to find these good stewards?
Companies with these attributes can be found across industries and geographies as illustrated with some examples from our own portfolio:
- We think this logistics real estate provider is favourably positioned versus its industry in today’s higher-rate environment due to its limited funding needs, ample capital for opportunistic investments and a growing income stream from value-adding services. In addition, the company is in a position where it can keep raising rents to fair value despite a more challenging economic backdrop.
- We believe this leading home improvement retailer has dealt well with the rising cost of capital and is reinvesting its high returns in its stakeholders. Notably, the company has decided to accelerate investment in its workforce, raising wages across the board. This was a proactive move by the retailer, based on a recognition that happier and more engaged employees create a better customer experience.
- In our view, this financial services provider offers the resilience of a strong balance sheet and conservative lending practices, a result of it having had to become increasingly efficient over the long term due to the persistent low-rate environment in Japan. As well as ensuring it is positioned for a less restrictive yield curve policy in its domestic Japanese market, the bank has a strong focus on its shareholders and improving the quality of its capital allocation in an environment of rising rates.