Fisher Investments (FI)[i], including its subsidiaries Fisher Investments Europe Limited, Fisher Investments Japan, and Fisher Investments Australasia Pty Ltd., take an active approach to equity ownership rights and responsibilities, founded on the principle that we are a fiduciary. We manage the assets entrusted to us in accordance with the return objectives and risk tolerances specified by our clients in the interests of the ultimate beneficiaries of those assets.
The principal means by which we fulfill this obligation is research, in particular deep fundamental research into the drivers of performance across countries, sectors and individual companies. Research drives our approach to stewardship as it does with all other aspects of investment.
This document sets out how we implement this approach in relation to each of the principles of The UK Stewardship Code published by the Financial Reporting Council in September 2012.
Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
We consider sound corporate governance in the companies in which we invest to be of central importance in creating and sustaining long-term shareholder value. Our policy is set out in this document.
As a fiduciary, we seek to place the interests of our clients first and to avoid conflicts of interest, including those that arise from voting or engagement issues. FI’s Investment Policy Committee (IPC) maintains full responsibility for all voting activity. However, because many proxy issues fall into well-defined, standardised categories, we utilise ISS, an independent, third-party proxy voting service, as a resource in making informed proxy voting decisions. ISS maintains a comprehensive set of United Kingdom Proxy Voting Guidelines, which incorporate minimum corporate governance standards. ISS then applies these standards to evaluate a wide range of corporate governance issues—including meeting attendance, outside directorships, board member independence, and other factors that can affect director performance.
If the views of the IPC vary from ISS as applied to corporate governance standards, we vote shares in alignment with our view of the best interests of our clients—and not necessarily with management. Voting decisions are on the basis of our internal evaluation in each case and may rely on our own company specific research or other outside research group—in addition to the views of ISS.
Our experience shows stewardship concerns are usually best resolved by direct, confidential contact with company officials—whether at the board or management level as appropriate. The IPC’s escalation of an issue beyond that point depends on the materiality of the issue, the responsiveness exhibited by the company to past communications, and our assessment of whether such engagement is in the best interests of our clients. Depending on the issue, the IPC may at its option engage in additional meetings with company management, intervene in concert with other institutions on the issue, or meet with appropriate members of a company’s board.
As a United Nations Principles for Responsible Investment (UNPRI) signatory, FI considers environmental, social and governance (ESG) issues throughout our investment and portfolio construction process. The IPC determines the materiality of the ESG considerations as they pertain to countries, industries or individual stocks with the assistance of FI’s Capital Markets and Securities Analysts.
Fisher Investments evaluates and integrates ESG factors at multiple stages throughout our investment and top-down portfolio construction process.
ESG issues are among many drivers considered by Fisher Investments’ Capital Markets Analysts and IPC when developing country, sector and thematic preferences. Governmental influence on public companies, environmental legislation, environmental issues, and market reforms impacting private property, labour and human rights are among multiple ESG factors considered for all of our clients when deciding our country and sector/industry allocations and shaping an initial list of prospective portfolio positions.
FI’s IPC determines the materiality of the ESG considerations as they pertain to countries, industries or individual stocks with the assistance of FI’s Securities and Capital Markets Analysts. Our resources are prioritised based on the largest sector and regional weights and the ESG issues we view as most material to the overall portfolio’s relative performance. These ESG factors are incorporated into our sector and country weight preferences as well as individual stock selection. Our investment strategy and positioning reflects our outlook over the next 6-12 months. Determinations on the materiality of ESG factors by the IPC, as with market forecasting, is generally assessed over this same timeframe given the vast variability of outcomes associated with ultra-long term economic projections.
Securities Analysts perform fundamental research on the list of prospective investments to identify the securities with strategic attributes most consistent with our top-down views and with the best strategic advantages relative to their defined peer group. The fundamental research process involves reviewing and evaluating a range of ESG factors with the IPC prior to purchasing a security. These factors include, but are not limited to, shareholder concentration, corporate stewardship, environmental liabilities and unforeseen human or labour rights controversies among many others. In situations where we believe ESG issues violate a client mandated ESG/SRI policy or present an inordinate risk to a company’s operational or financial performance, or if we believe they present undue headline risk to share price performance, we would choose not to invest in that company.
The stock selection process presented herein is for illustrative purposes only. It should not be assumed that it represents, on its own, the sole method used to make investment recommendations.
A material contribution of our portfolio’s relative performance is derived from our sector, country, style and thematic decisions. As such, we do not expect ESG restrictions to materially impact expected risk or return characteristics of the strategy as we are typically able to find suitable replacements representing our higher level views in the event a portfolio candidate or position is removed for ESG reasons. In many cases, we believe our ESG research capabilities enhance portfolio value to clients—particularly in instances where we reduce exposure to countries, industries, and securities with material negative ESG risks.
Principle 2: Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
Since inception, Fisher Investments has been 100% Fisher-family and employee-owned. As a fiduciary, we seek to place the interests of our clients first and to avoid conflicts of interest, including those that arise from voting or engagement issues. Fisher Investments has adopted a Compliance Policies and Procedures Manual, which includes our Code of Ethics and Policy Regarding Personal Securities Transactions. These documents define the appropriate standards of professional conduct employees are expected to follow as a condition of their employment with the firm by addressing topics including, but not limited to:
Employee, proprietary and client discretionary trading;
Outside business activities and investments; and
Gifts and gratuities.
We actively seek to avoid situations involving potential conflicts of interest by closely monitoring our business practices and reminding employees of their fiduciary responsibilities both when they join the firm and reviewed through annual compliance training.
We have strict procedures in place to help ensure that our fiduciary responsibility to our clients is maintained. Access employees may not engage either directly or indirectly in any personal securities transactions without the prior written approval of Fisher Investments, with specific exceptions that are delineated in the our Joint Code of Ethics and Personal Trading Policy. The Compliance Department carries out new hire and annual compliance training that covers our policy prohibiting insider trading as well as personal trading policies.
Our compliance program is designed to comply with applicable rules and regulations to help prevent violations of securities laws, to detect any violations should they occur, and to correct any violation as necessary. The Compliance Program is implemented through a Compliance Manual and Supplements, procedures designed to implement such compliance policies, training to the business units, and review and oversight of FI’s activities by the Compliance Department and senior management. We have adopted written policies and procedures designed to set standards for the firm, its employees, and its businesses. These policies are reasonably designed to detect and prevent any violations of regulatory requirements and our policies and procedures. Every manager is required to be responsible for and monitor those individuals and departments he or she supervises to help detect, prevent, and report any activities inconsistent with our procedures, policies, and high professional standards.
Should a potential fiduciary breach be detected, the situation is promptly escalated to the Law and Compliance Department and members of Senior Management for review and resolution, as applicable.
Our policies and procedures for managing conflicts of interest in relation to corporate governance issues are contained in our Proxy Voting Policy and Procedures which are described further below and available upon request to clients and prospective clients.
Principle 3: Institutional investors should monitor their investee companies.
Monitoring the companies in which we invest on behalf of clients is an integral, ongoing part of our top-down research process. As a top-down manager, FI’s IPC utilises the firm’s global research platform—with a trained staff of Capital Markets Analysts and Securities Analysts—for monitoring of portfolio companies in two ways. The first is to identify significant macro-economic and political drivers of equity returns—where risks tied to stewardship can become apparent at the industry and country level. The second is to identify at a securities level company behaviour contrary to the long-term interests of shareholders—where risks tied to governance and sustainability can occur.
Specific to investee companies, our monitoring includes consideration of the effectiveness of their boards and committee structures, other governance questions (including any departures from The UK Corporate Governance Code), and risks arising from social and environmental matters—where our research suggests that these issues are likely to be material to the risks and returns of investing in the company. We may attend general meetings of companies in which we invest where appropriate and practical, though we prefer making direct contact with company managements and boards, where appropriate, to discuss relevant stewardship concerns. We are generally not prepared to become insiders and in all of our engagement activities we take care not to receive any material non-public information about the company.
ESG factors of portfolio holdings are continuously monitored and issues are elevated to the IPC when appropriate.
Our Capital Markets Research (Top-Down) Analysts monitor how ESG issues may affect high-level portfolio themes. We monitor key social policies driving wealth creation and economic growth, including infrastructure investment, tax policy, free trade, property rights and government reform. Political factors affecting these social policies are integral to our top-down analysis (e.g., election cycles, legislative gridlock, etc.), and we remain aware of regulatory risk. Additionally, environmental factors may influence our Capital Markets research. Our analysts monitor advancing energy efficiency (within Industrials and Technology companies), nuclear power risks, resource extraction implications (e.g., labour strikes and resource nationalisation) and litigation risk tied to environmental impact among others.
Our Securities Analysts continually monitor existing holdings as part of the ongoing research process and will elevate meaningful deterioration or improvements of various ESG factors at the company level. Additionally, we use MSCI ESG Research to assist in elevating severe controversies at the company level including but not limited to child labour, environmental concerns, bribery etc. Analysts also utilise various data sources such as MSCI ESG Manager, Bloomberg, and Factset to monitor any holdings that violate a client’s restrictions after we purchase the position, such as business involvement in specific industries (gambling, weapons, alcohol, tobacco, etc.).
The Portfolio Guidelines Compliance (PGC) Team is responsible for global sanctions monitoring. Sanctioned entities are identified by subscribing to notices from various regulatory bodies. We also retain outside legal counsel and employ third party vendors such as MSCI to notify us of any changes or updates to sanctions. Sanctioned companies and countries are added to restricted lists in our order management system (Eze OMS). Any trades for companies that are identified as sanctioned are rejected.
Principle 4: Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
FI holds meetings with management as necessary to discuss any pertinent issues we feel are critical to analysing the firm or better understanding peers or relevant industry factors. Information uncovered during engagement as part of our fundamental analysis can impact our investment decisions and stock determinations.
FI does not generally take an activist role. Instead, we tailor our investment approach based on the particular governance, social and environmental guidelines requested by the client. However, we do occasionally engage with companies as part of our fundamental analysis and also to clarify or express concerns we may have regarding ESG/SRI issues we believe present at the firm or industry level. Further, we will engage with management on proxy voting issues, particularly where ISS is in disagreement with management.
The IPC determines when and how we escalate stewardship concerns with investee companies. Our experience shows stewardship concerns are usually best resolved by direct, confidential contact with company officials—whether at the board or management level as appropriate. The IPC’s escalation of an issue beyond that point depends on the materiality of the issue, the responsiveness exhibited by the company to past communications, and our assessment of whether such engagement is in the best interests of our clients. Depending on the issue, the IPC may at its option engage in additional meetings with company management, intervene in concert with other institutions on the issue, or meet with appropriate members of a company’s board.
Principle 5: Institutional investors should be willing to act collectively with other investors where appropriate.
If dialogue with management has failed to achieve the desired outcome and we wish to retain the investment in the company concerned, we consider carefully whether taking further action is likely to improve shareholder value.
We will collaborate with other institutional investors in engaging with companies when we believe that doing so is likely to advance clients’ interests, is consistent with our firm's policies and procedures and is permissible under applicable laws and regulations.
Principle 6: Institutional investors should have a clear policy on voting and disclosure of voting activity.
We take proxy voting very seriously and have long devoted substantial research and management time and resources to ensuring we make good voting decisions. We use our best efforts to exercise our clients’ proxy rights and routinely cast our clients’ votes in the UK unless otherwise directed.
The IPC maintains full responsibility for all voting activity. However, because many proxy issues fall into well-defined, standardised categories, we utilise ISS, an independent, third-party proxy voting service, as a resource in making informed proxy voting decisions. ISS maintains a comprehensive set of United Kingdom Proxy Voting Guidelines, which incorporate minimum corporate governance standards. ISS then applies these standards to evaluate a wide range of corporate governance issues—including meeting attendance, outside directorships, board member independence, and other factors that can affect director performance.
If the views of the IPC vary from ISS as applied to corporate governance standards, we vote shares in alignment with our view of the best interests of our clients—and not necessarily with management. Voting decisions are on the basis of our internal evaluation in each case and may rely on our own company specific research or other outside research group—in addition to the views of ISS. We typically do not tell the company in advance of our intention to abstain or vote against management: doing so may expose our investment professionals to unhelpful pressure which can impede effective discharge of their responsibilities on behalf of clients. We regard the exercise of proxy votes on behalf of our clients as a confidential matter between our clients and ourselves. We disclose proxy votes publicly only to the extent that we are required to do so by law—notably, in relation to US mutual funds.
Outside of the UK, legal and practical hurdles sometimes stand in the way of our best efforts. For instance, certain countries restrict trading in shares around the dates when votes are due to take place. We may decide that the disadvantages of such restrictions outweigh the benefits of voting and choose not to exercise our rights on any particular occasion. On the other hand, some jurisdictions may not allow sufficient time or information to be made available to let us come to a considered judgment on which way to cast our ballot, or we may simply not have the legal status to vote.
Principle 7: Institutional investors should report periodically on their stewardship and voting activities.
We keep records of our proxy voting activity and provide regular reports to clients for whom we have the authority to vote upon request as part of a systematic portfolio reporting process. We have an in-house team handling these client reporting requirements. We can generally provide reporting on some extra-financial/ESG aspects as part of our standard reporting, and are pleased to customise reporting whenever possible. Our latest Responsible Investment Transparency Report (https://www.unpri.org/signatories) is publically available on the UNPRI website.
In summary, Fisher Investments, including its subsidiaries Fisher Investments Europe Limited, Fisher Investments Japan, and Fisher Investments Australasia Pty Ltd., as fiduciaries are committed to putting the best interests of our client’s first, whilst incorporating our responsibilities as a signatory of the United Nation’s Principles of Responsible Investments (UNPRI) and our commitment to this Code in our investment approach as we boldly pioneer tomorrow’s investment solutions today.
For more information please email Tom Fishel at: email@example.com
[i] FI is an investment adviser registered with the Securities and Exchange Commission in the United States. As of 30 April 2018, FI and its subsidiaries managed over £71 billion. All assets as of 30 April 2018 in this document are preliminary and subject to final reconciliation of accounts. FI and its subsidiaries consist of four business units—Fisher Investments Institutional Group, Fisher Investments US Private Client Group, Fisher Investments International Private Client Group, and Fisher Investments 401(k) Solutions Group. The Investment Policy Committee (IPC) is responsible for all investment decisions for FI’s strategies, including strategies that FI manages as a delegate of an FI subsidiary.
Founded in 1979, Fisher Investments is an independent, fee-only investment adviser with $93 billion under management.* Fisher Investments maintains four principal business units, Fisher Investments Institutional Group, Fisher Investments Private Client Group, Fisher Investments 401(k) Solutions Group and Fisher Investments International Group, which serve a global client base of diverse investors. The clients of Fisher Investments and its affiliates include over 175 large institutions and over 50,000 high net worth individuals. Founder and Executive Chairman Ken Fisher’s “Portfolio Strategy” column for Forbes ran from 1984 through 2016, making him the longest continually running columnist in the magazine’s 90+ year history. He has also authored several New York Times bestsellers on finance and investing. (*As of 12/31/2018. Includes Fisher Investments and its subsidiaries.)