From the start of East Capital, we have strived to be dedicated, long-term investors. Our investment teams use their extensive knowledge of local markets, fundamental analysis and maintain regular business connections to shape their investment decisions.
Over the years, our teams have engaged with numerous companies, management teams, regulators, governments and fellow investors.
We've consistently refined our approach to sustainability and ESG, ensuring we can provide sustainable investment products to our clients. This has resulted in a unique and proprietary approach, upheld by our investment teams since 1997.
Our ultimate goal remains unchanged: to make better informed investment decisions and enhance the value of our portfolio companies through active ownership, while contributing to the advancement of sustainability in our investment universe.
Frequent on-the-ground meetings with company owners, management teams and policymakers is an integral part of the investment process, providing us with in-depth local knowledge, access to information and an extensive network. In emerging and frontier markets, a true regional presence is vital to make better-informed investment decisions and monitoring existing holdings.
Diligent research is essential for identifying key performance drivers and correctly assessing risk. We rely on our own research, including risk scenarios and a proprietary ESG analysis, in our investment process.
While we can make some short-term adjustments, we do so without sacrificing the overall long-term focus and the low core turnover of the portfolios. We focus on companies with strong and predictable growth profiles, high and consistent return on equity, high free cash flow and high capital efficiency. Fundamentals matter over time.
We look beyond index compositions and invest by conviction on a company by company basis. Our portfolios typically have a high active share. Our off-benchmark exposure includes allocation to smaller companies, frontier markets and local Chinese A-shares. Smaller companies offer a larger exposure to certain fast-growing sectors responsive to local market dynamics. Frontier markets are in general both faster-growing and less correlated to the developed world than emerging markets. To find meaningful exposure to renewable energy and clean technologies in emerging markets, allocation to local Chinese shares is critical.
Our fundamental bottom-up research process addresses and integrates investment risks and opportunities associated with relevant and material environmental, social and corporate governance factors. We consider good corporate governance as well as environmentally and socially responsible behaviour to be essential in managing a company with the aim of maximising long-term shareholder values.
ESG factors are an important driver of long-term investment returns from both an opportunity and a risk-mitigation perspective. We are enforcing improved ESG standards and strengthening the chain of accountability in portfolio companies through our monitoring capacity and constructive engagement.
Our experience has shown that an engaged and constructive dialogue will more often lead to convincing the company to initiate positive change, while simply exiting the investment achieves nothing. Voting at AGMs/EGMs is another important way for us to communicate our views to the companies and their management.