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Technology White Paper
At first glance, the branded, historic, and defensive consumer staples companies appear as
the diametric opposite of the new, growing, and high-beta companies from the technology
sector. However, we at Fayez Sarofim & Company look beyond conventional wisdom taxonomy
and inspect the fundamental attributes that make up these two sectors. Upon review, the
cash generation characteristics that led to strong, steady consumer staples growth for multiple
decades and resulted in rewarding returns for our clients’ portfolios, in our view, are amply
present for a select group of technology and communication services companies. Our view
is that the growing role of technology products and services in the economy, coupled with
geographic anddemographic growth tailwinds, will lead to long-duration secular growth for
Quality White Paper
Investing in quality companies is rooted in thorough fundamental analysis to assess a company’s
financial strength, growth prospects, profit and income generation and overall stability. While
various definitions of “quality” abound, most companies considered high quality possess similar
attributes in terms of offering consistent profit and income generation, reduced volatility, downside
protection in bear markets, and superior risk-adjusted returns as compared to a market index. In
addition, Fayez Sarofim & Co. believes additional layers of assessment are appropriate and utilizes
its fundamental research capabilities to rate important qualitative factors such as management
quality and shareholder orientation, company business models and strategy, and ESG factors to
enhance its evaluation process of quality companies. We believe an actively managed strategy
provides an aspect of risk management and timeliness not available in passive strategies.
ESG White Paper
The prominence of Environmental, Social, and Governance (ESG) investing has increased significantly
over the past few years. The United Nations Principles for Responsible Investment (“PRI”) was
formed in 2006 to work towards achieving a sustainable global financial system by encouraging
stakeholders to adopt six principles for responsible investment and to collaborate on their
implementation; since its formation, the number of PRI signatories has increased from less
than 63 to over 3,000 while the assets managed by those signatories has increased from less
than $7 trillion to ~$103 trillion as of 31 March 2020. While the popularity of ESG investing
has increased, evidence supporting ESG investing’s contribution to alpha generation or to enhance
risk-adjusted returns as measured by the Sharpe Ratio is inconclusive. Despite the current lack
of signal, this paper hypothesizes that one might exist in the future given an appropriate
investment orientation combined with consistent internal ESG incorporation by the investment
manager. We believe consistent and comparable assessment of ESG factors embedded in a long-term
orientated investment process can produce differentiated risk-adjusted returns.
The above white papers do not constitute an offer of any securities or investment advisory services. Fayez Sarofim & Co. does not represent that the information contained in the white papers is accurate, true or complete, makes no warranty, express or implied, regarding the information herein and shall not be liable for any losses, damages, costs or expenses relating to its adequacy, accuracy, truth, completeness or use. Each white paper is subject to a more complete description and does not contain all of the information necessary to make an investment decision.
The volatility of any indices referenced in the white papers may be materially different from that of Fayez Sarofim & Co.’s products. In addition, Fayez Sarofim & Co.’s holdings may differ significantly from the securities that comprise any highlighted indices.
Any projections, market outlooks or estimates expressed in the provided papers are forward looking statements and are based on certain assumptions. Such projections, outlooks and assumptions should not be construed to be indicative of the actual events that will occur and do not constitute investment advice. Opinions and information included in the white papers were current opinions and information only as of the date thereof or as of the date indicated, and are subject to change without notice. Additionally, while information presented in the papers is believed to be accurate as of the date written and/or derived from sources which Fayez Sarofim & Co. believes to be reliable, Fayez Sarofim & Co. disclaims any and all liability as to the completeness or accuracy of the information contained therein.