Fund Complex: Sit Mutual Funds
Management Company: Sit Investment Associates, Inc.
Funds Affected: Sit ESG Growth Fund
Sustainable Investing Strategy: ESG Integration
The fund’s stock selection process also takes into consideration environmental, social and governance (ESG) screens from third-party providers that rank companies within an industry or sector based on several ESG characteristics, or the adviser’s own analysis of a company’s ESG practices if such ranking is not available or the adviser believes the available ranking is not accurate. The ESG screens utilize comparative weighted rankings of company ESG issues by sectors based on company and industry-specific factors, which assess a company’s sustainability policies, management systems and performance. Generally, the adviser deems a company to have strong ESG practices when its industry ranking is in the top 50th percentile. ESG factors often require a subjective analysis and are subject to change. Environmental factors may include, for example, human capital concerns, product safety, workplace diversity and employee welfare. Governance factors may include, for example, corporate governance concerns, business ethics, sustainability policy and public policy concerns.
Sit Funds Reporting and Disclosure:
Annual Report 6/30/2018. The fund reported that its Class I generated a return of +10.57% in the twelve-month period ended June 30, 2018 (Class S: +10.37%) compared to the MSCI World Index return of +11.09%. In general, the slight underperformance was attributed to an average cash balance north of 2.5% along with the holdings in the retail sector and the Euro Area.
The fund reiterated its focus on environmental, social and corporate governance (ESG) practices, but otherwise offered no commentary or insights into which ESG factors are considered and how ESG considerations impacted stock holdings. Nor did the fund offer any observations regarding ESG impacts or outcomes.
About Sit Investment Associates:
Founded by Eugene C. Sit in 1981, this Minneapolis, Minnesota-based privately owned investment management firm manages total assets in the amount of $13.7 billion (as of 9/30/18) for institutional and individual investors. Roger J. Sit serves as Chief Executive Officer and Global Chief Investment Officer. He leads a team of 19 global equity investment professionals and 17 fixed income investment professionals.
In addition to the firm’s institutional roster of corporate foundations and organizations, employee savings plans, and profit sharing plans, also offered are private investment funds and fourteen mutual funds. These include the Sit ESG Mutual Fund that was added in 2016. The fund’s investment strategy is to invest in companies the firm believes have strong environmental, social and corporate governance (ESG) practices. At $5.9 million in net assets as of 11/30/2018, Sit is ranked 112th out of 123 firms currently offering explicitly designated sustainable mutual funds or exchange-traded funds (ETFs)/exchange traded notes (ETNs).
The firm’s investment philosophy in its own words is summarized, as follows:
Sit Investment’s equity investment philosophy targets growth-oriented opportunities. Generally, Sit looks to invest in companies with the potential to increase earnings at a faster rate than the representative economy and market index.
- The firm believes that earnings growth is the primary determinant of superior long-term returns.
- Sit considers itself to be opportunistic investors, believing in high and consistent growth companies as well as conservative and cyclical growth companies.
- Portfolios are managed on an active basis, concentrating investments in the best growth opportunities at the most reasonable valuation levels.
Fixed Income Management
Sit Investment’s fixed income philosophy stresses the consistent attainment of superior risk-adjusted returns using a conservative investment management approach with:
- Investment grade securities
- Special emphasis on interest income
- Significant stability of principal value
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