The Cundill team’s approach towards responsible investing

Richard Wong

CFA

Senior Vice President, Investment Management, Portfolio Manager, Head of Team

Rami Nasser

MBA,CFA

Associate Portfolio Manager

Philosophy: ESG risk management to protect the value of our investments

As value equity investors, the Cundill team manages money by purchasing what it believes are undervalued, out-of-favour, or misunderstood businesses that they believe have the potential to re-price and generate competitive long-term returns. Key to the team’s investment strategy is identifying companies that are priced below their estimate of fair value. Cundill acknowledges that environmental, social and governance (ESG) risks can negatively impact the value of a company. Therefore, the team integrates ESG risks into their bottom-up security selection process. Companies with significant ESG risks are often seen as lower quality and require a larger discount to fair value to be included in the portfolio. Cundill believes that engaging with investee companies to seek improvement in the management of their ESG risks can improve the overall quality rating of the company and reduce the risk of investment.

"ESG risks can have negative impacts on the value of companies we invest in; we manage for this risk through our rigorous security selection and valuation process.”

Richard Wong, SVP, Portfolio Manager, Head of Team

A disciplined ESG risk management process aims to protect the portfolio from value deterioration. The process consists of 4 steps:

1. All potential investments are assigned a quality score which incorporates ESG factors such as product governance, business ethics, human capital, carbon management, board structure and remuneration. Companies that rank lower (poorer) will face higher expected return hurdles, requiring a bigger discount from Cundill’s estimate of fair value, before the team would consider investing. The team sources ESG research from external providers such as Sustainalytics and S&P Global Trucost.

2. Any company with a poor ESG rating or controversy score from 3^rd party ESG data providers is examined further by the team. The examination requires an internal write-up of the ESG issues that the company faces. This allows the team to verify if the ESG risks are indeed financially material to the investment.

3. Once potential ESG risks are identified, the team monitors the risks and could seek to engage with the respective company to clarify the potential issues further. The team focuses on the plans companies have to manage and overcome their ESG risks. Successful ESG risk management could be a trigger for share price appreciation and generate value for clients.

4. On a quarterly basis, the investment team reviews each company’s ESG risks and controversies. The goal is not only to monitor for changes but to also consider if these changes have an impact (positive or negative) on Cundill’s investment thesis.

Case study

Credit Suisse

In 2021, we made a sell decision in relation to our investment in Credit Suisse due to deteriorating governance issues. Credit Suisse was hit by several scandals and unsound credit risk management. We were also concerned with talent leaving the firm. The team assessed these developments as risks that could impact the fair value of the company materially going forward. The team engaged with company representatives four times throughout 2021 to get updates on management’s plans and progress to improve risk and compliance at the firm. However, the team was disappointed by the slow pace of progress. We believed both ESG risks and financial risks had been increasing which could substantially lower the quality score of Credit Suisse going forward. Hence, the team sold its shares. After the sell decision, the Chairman of Credit Suisse resigned, which further validated the identified governance concerns.

Meet your authors

Richard Wong

CFA

Senior Vice President, Investment Management, Portfolio Manager, Head of Team

The Team is led by portfolio manager Richard Wong, who has extensive experience in fundamental equity analysis and portfolio construction.

Richard joined Mackenzie Investments in 2016 and has more than 25 years of investment experience. Prior to joining Mackenzie Investments, Richard was a Global Portfolio Manager at a Canadian institutional value investment firm with more than $5 billion in client assets. He started his career in the corporate and investment banking group of a major Canadian bank.

Richard has a B. Comm. (Finance) with honours from the University of British Columbia. He is a CFA charterholder.

Rami Nasser

MBA,CFA

Associate Portfolio Manager

Rami’s career in the investment industry began in 2009. He joined Mackenzie in 2018 and was promoted to Associate Portfolio Manager in 2021. Prior to joining Mackenzie, Rami spent two years as an Investment Analyst at one of Canada’s leading high-net-worth investment management firms, where he covered US and Canadian equities. Rami also worked for two years as an Investment Analyst at one of Canada’s leading institutional investment management companies covering small cap Canadian equities. Rami started his investment career on the sell side as a Research Associate covering technology stocks.

Rami has an MBA and a Bachelor of Electrical Engineering from Dalhousie University. He is a CFA charterholder.