Stewart Investors has identified six global companies that are leading the way to a more sustainable housing sector.
"As the need for housing continues to accelerate globally amid volatile climate conditions, finding solutions to building durable structures and reducing the sector's carbon footprint takes on greater urgency," said Clare Wood, portfolio specialist for Stewart Investors. "We believe that investing in companies that support environmentally conscious home building and maintenance will deliver strong returns to investors. These are companies that supply the industry in a variety of ways, and we believe they are positioned to participate materially in its evolution across market cycles."
According to Stewart Investors, the following six companies (in alphabetical order in each of the three housing-related challenges identified) are contributing meaningfully to sustainable housing:
More Efficient and Sustainable Construction
Ashtead Group: Ashtead is a U.K.-based equipment rental company. Ashtead's business model focuses on rental equipment for the global construction industry, reducing the need for the manufacturing of new equipment and extending the life of existing tools. A Stewart Investors holding since mid- 2024, Ashtead actively reduces its direct carbon footprint, effectively manages waste and water, and drives sustainable practices through its value chain. With significant scale in a large and fragmented market, Ashtead's cash flow has increased 10 percent annually over the past 10 years.
Nemetschek Group: Based in Germany, Nemetschek offers a broad portfolio of software solutions to the construction industry, focused on resource efficiency. Its use of Building Information Modelling (BIM) allows for more precise and efficient planning and construction, minimizing errors and reducing energy requirements. Nemetschek has been a Stewart Investors holding since late 2021. The company's recurrent revenue represents more than 80 percent of total sales, which have risen by 11 percent a year over the five years ended Sept. 30, 2024. Earnings per share have increased 8 percent yearly over that same period.
Resilience to Extreme Weather
Advanced Drainage Systems: U.S.-based Advanced Drainage Systems (ADS) provides sustainable water management solutions that seek to safeguard the environment and build resiliency in communities. As storms increase in frequency and intensity, ADS' water management solutions help reduce flooding, recharge aquifers, improve food security, and mitigate the risk of water scarcity. Given the inadequacy of existing water infrastructure and massive long-term expenditures needed to address the objectives of the U.S. Clean Water Act, ADS, a Stewart Investors holding since early 2023, is well positioned for continued growth. Its revenue has increased by 14 percent over the five years ended Sept. 30, 2024.
Simpson Manufacturing: The products of U.S.-based Simpson seek to make homes and buildings more resilient. The company designs and manufactures products including moment frames, shearwalls, structural connectors, anchors, fasteners, and fiber-reinforced polymers to keep structures safe and strong. These products are increasingly important in the context of climate change and related climate events. Simpson, held by Stewart Investors since the third quarter of 2024, has increased revenue by 10 percent annually over the past 10 years. Stewart Investors believes the pent-up demand for housing and the aging of U.S. housing stock may provide ongoing catalysts for continued growth.
Energy Efficiency
TopBuild Corp.: TopBuild, based in the U.S., installs and distributes insulation and building materials to the U.S. construction industry. Insulation is key to sustainable construction and more efficient energy use. A Stewart Investors holding since mid-2024, TopBuild seeks to unlock the full potential of insulation to improve energy efficiency. With 40 percent market share in the U.S. residential market, TopBuild's revenue has risen by 15 percent and earnings per share by 30 percent yearly, respectively, over the five years ended Sept. 30, 2024.
Watsco, Inc.: U.S.-based Watsco is the largest American distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (HVAC/R). Its goal is to lead the transition to low carbon, high efficiency HVAC units and heat pumps for millions of homes and businesses within its markets. Stewart Investors has held Watsco since mid- 2022. Watsco has increased revenue and earnings per share by 10 percent and 15 percent, respectively, over the five years ended Sept. 30, 2024.
"At Stewart Investors, we have long held that sustainable outcomes and long-term profitability are two sides of the same coin," Wood said. "These companies, and others in our portfolios, exemplify that investment thesis."
Investors can find Stewart Investors' holdings in its Portfolio Explorer tool, which details the investment team's approach, identifies the companies held in the firm's strategies, and explains how these stocks are contributing to sustainable development.
Launched in 2021, Portfolio Explorer was developed to help investors explore strategies, companies, countries and sustainability issues of interest in four views: map, human development pillars, climate solutions and sustainable development goals. Each of the four views contains relevant sub-categories.
The companies highlighted above were gathered from the larger universe of approximately 200 companies held across Stewart Investors' emerging markets, regional and worldwide equity strategies.
Sources:
World Economic Forum for the housing sector contribution to global energy-related carbon emissions:
https://www.weforum.org/stories/2024/01/tackling-embodied-carbon-in-housing-is-the-climate-solution-we-need-right-now/
S&P Capital IQ for select financial data.
About Stewart Investors
Stewart Investors, with more than $20 billion in assets under management as of Sept. 30, 2024, is an active, long-only equity manager and global leader in sustainable investing. It manages a range of worldwide, emerging markets and regional strategies on behalf of institutional and individual clients globally.
Based in Edinburgh, the firm also has offices in London, Singapore, New York and Sydney. For more information, visit: www.stewartinvestors.com.
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