Combining stock fundamentals and ESG change
Objective: aiming to achieve capital appreciation by investing in worldwide equity securities with favourable ESG
"A disciplined investment process with environment, social and governance factors at its core does not just provide a 'feel-good factor'; it can improve returns.1"
Why Hermes Global Equity ESG?
- Strong foundation: the team’s Global Equity strategy, which provides the core investment process of the Fund, has outperformed the global developed markets since its inception in December 20072.
- Disciplined approach, fundamental oversight: portfolio stocks are analysed using time-tested fundamental factors in a systematic process and are reviewed in depth by the team.
- ESG can make money: our research shows that the worstgoverned companies persistently underperform, proving that ESG investing does more than make you feel good: it can make you money1.
- Positive change identified: companies with a good or improving ESG track record are favoured. Hermes Equity Ownership Services (Hermes EOS) provides best-of-breed ESG intelligence.
- Risk management: proprietary risk management tools enable the team to monitor and neutralise macroeconomic exposures before they impact returns.
We like stocks with robust financial statements, competitive strength and a proven ability to consistently beat revenue and earnings expectations. Ideally, these companies should also be guided by impressive management teams, mitigate ESG risks and appear cheap relative to peers. But very few stocks embody such an ideal investment. So we identify those with the most attractive combinations of characteristics in every market environment.
A systematic model, capturing the same data as a fundamental investment analyst, assesses the attractiveness of every stock in the investment universe each day. The metrics used to select stocks are justified by both economic reasoning and statistical effectiveness, and have a long-term focus that leads to low portfolio turnover. They are grouped by valuation, sentiment, growth, profitability, corporate behaviour and capital structure. This model creates an optimised portfolio that aims to maximise risk-adjusted returns.
The portfolio is subjected to two levels of risk analysis. First, MultiFRAME, our proprietary risk-management system, assesses top-down market risk. It has the flexibility to stress-test the portfolio, interpret how it would respond to different market environments and measure its exposure to any quantifiable risk. Second, we perform a bottom-up ‘sense check’ to ensure that the model has accurately assessed the nuances of each potential investment. At this stage, the ESG Dashboard, another proprietary tool, alerts us to stock-specific environmental, social and governance risks not typically covered in fundamental analysis of companies.
1. Since inception on 01 May 2013 the Hermes Global Equity ESG Strategy has outperformed the MSCI ACWI Net index by 2.55% on an annualised basis as at 31 December 2017. Performance shown is in USD and is gross of fees. A full GIPS disclosure report is available on the latest strategy factsheet.
2. ESG investing: Does it just make you feel good, or is it actually good for your portfolio?, by Hermes Global Equities, published January 2014
Past performance is not a reliable indicator of future results and targets are not guaranteed.