The basic premise of Ausbil's philosophy is that stock prices ultimately follow earnings and earnings revisions. We believe that the market places excessive emphasis on the current situation and does not sufficiently take into account the likelihood of future changes to the earnings profile of individual companies and sectors. Ausbil seeks to bias the portfolio toward companies with strong earnings and quality management with capabilities to deliver those earnings. Ausbil believes proprietary and in-depth ESG analysis, as an integral component of fundamental stock research, can play a significant part in that process.
In our view, ESG integration in fundamental stock research provides for better informed investment decisions for our investments and our clients. ESG factors may directly impact a company's earnings and the way a company manages key ESG risks can also be seen as a proxy for management quality. Engagements on ESG issues is an essential component for all funds. In addition, Ausbil has a number of specific mandates that combine ESG integration with a screened universe based on individual client requirements. Ausbil's investment research process is based on four stages: macroeconomic analysis, sectorial analysis, stock selection and portfolio construction. As part of that analysis, relevant ESG risks and opportunities - captured by Ausbil's proprietary ESG research produced by a dedicated ESG Research Team - are considered and integrated in each phase.
Ausbil's dedicated ESG Research Team produces proprietary ESG research where key outputs include stockspecific ESG scores and detailed ESG stock summaries, which are key inputs in the Investment Team's stock summaries. The ESG stock summaries include an ESG SWOT analysis with a list of key ESG-related risks and opportunities that may have a material impact on earnings or Ausbil's view on earnings sustainability and / or management quality. Stock analysts and ESG research analysts work closely together at a sector based and stock level to assess ESG-related impacts on earnings drivers, earnings outlook, valuation and investment view and ultimately the investment recommendation. At the portfolio construction phase, Ausbil's ESG research provides for an overlay as it allows the portfolio construction committee the option of tilting a portfolio to reflect a thematic. For stocks that are not covered by Ausbil's ESG Research Team, e.g. some microcap companies in the Microcap Fund and companies in the Global Small Cap Fund, the Microcap Fund Team includes ESG research (particularly on corporate governance) as part of the fundamental stock research process.