RC Brown Engagement Statement
The Financial Conduct Authority (FCA) published a policy statement (PS19/13) on 31 May 2019 introducing new requirements to improve shareholder engagement and increase transparency around stewardship which implemented the provisions of the amended Shareholder Rights Directive (SRD II). These requirements came into effect on 10 June 2019 in relation to those companies managing portfolios made up of shares traded on a regulated market. Separately, the Financial Reporting Council (FRC) published a revision to the 2012 edition of the UK stewardship code.
Both SRD II and the Stewardship Code 2020 aim to promote effective stewardship and long-term investment decision making by enhancing the transparency of asset manager investment and engagement strategies. We have taken the decision not to set out a detailed engagement policy as we believe it is more appropriate for large institutional managers and pension funds rather than the discretionary services we provide to retail clients.
Although we are opting out of the wider terms of SRD II and the Stewardship code, this should not be interpreted as evidence of a lack of sound stewardship. Our investment philosophy and process is detailed on our website and is repeated below.
Investment philosophy and process
We believe in managing risk by maintaining broad diversification in our portfolios both at stock and asset level. By design our portfolios are more diverse than many of our peers thereby lowering portfolio risk without impairing performance.
We know our limitations and only invest directly in areas where we are close to the market and have significant expertise; this is largely confined to UK equities.
Starting from an informed overview of global markets and the current position in the economic cycle we aim to be always moving into areas that are coming into favour with investors and reducing investment in areas that are beginning to look expensive when compared with the expected return.
Unlike many of our competitors we have particular expertise and access to the “wholesale markets”. The attractions of buying stock at a discount to the prevailing market price when additional capital is raised, or when a large stockholder sells shares for reasons that are unconnected with the fortunes of the company are plain to see.
Our access to the wholesale markets provide our clients with direct access to the growing number of Initial Public Offerings (IPO’s) that are not marketed to the general public.
We are discerning and disciplined investors and only invest in listed companies that have a viable business plan and a record of cash generation. We are valuation aware and will not overpay for growth or get sucked in to cheap stocks with low growth prospects.
In the context of this process and given the fact we are never holders of what could be considered as significant positions in any one company’s shares we have determined not to simply vote for every AGM resolution irrespective of its level of importance. Rather we have identified a number of circumstances in which we would look to directly engage and vote.
When we vote, our aim is to always consider its effects on our clients’ interests first. The following list, which is not exhaustive, covers the types of matters on which we are given an opportunity to have our say and to which we pay particular attention:
- Matters which might change the investee company’s financial position, operations or dividend;
- Requests by the company to approve large purchases / sales of assets or to approve takeovers or mergers;
- Changes of Directors and Auditors;
- Requests to change the nature of the business or its capital structure;
- Related party transactions, which may cause a conflict of interest between shareholders and management;
- We also closely scrutinise the remuneration plans of the company where they have the potential to harm its future sustainability, or dilute our clients’ ownership and other matters which might impact the value of the assets owned.
- Where we believe environmental, social and governance factors are not being duly considered and not at a level of importance and disclosure we would expect from a listed company.
In general, however, we have a preference for supporting management, wherever appropriate