Despite underwhelming scores on corporate governance, Samsung is still an attractive bet for an environmental, social and governance (ESG)-oriented portfolio.
‘Before Lee Jae-yong was arrested, the firm had made improvements on the corporate governance side. For the first time, Samsung started paying out the cash it generates to shareholders and initiated acquisitions in the electro cars space,’ Schaffner said.
He added that the company is planning to transform its current capital structure into a proper holding structure.
‘Mr Lee was heading the strategy department. As long as the heads of individual businesses within the company are not affected, we see little downside. The Lee family is a minority shareholder of the firm.’
He added that the second biggest shareholder in Samsung is a Korean national pension fund. Therefore, he doesn’t expect any actions from the government that will lessen his interest in the company.
Schaffner said the financial metrics of the firm also look solid as the company is the market leader in the production of memory chips.
‘Samsung is two or three years ahead of its competitors, and with growing requirements for memory and flash cards in smart phones, the company’s business is growing significantly. It might also benefit from Apple introducing an Oled display in the iPhone 8.’
The fund manager said in general, Asia is leading the way in the emerging markets space when it comes to sustainable companies with attractive returns.
Schaffner doesn’t take country views during the stock-selection process, however, he has the biggest exposure to Asian names, especially in the technology space.
‘Africa, Russia and LatAm are still quite commodity heavy. Now with the rebound in oil prices, some companies are on our radar again, however, many of them invested in such bad projects that they hardly earn their cost of capital.’
He added that the ESG filter means certain companies, such as Petrobras and Gazprom, cannot make the cut in the fund manager’s portfolio.
When it comes to Asian names, the fund manager is invested in Largan Precision and Taiwan Semiconductor.
‘Those companies have their costs in local currency but sell their products in US dollars and should definitely profit from a strong US dollar.’