Global Small Cap Equity

Investing for the long term in high-quality small caps

Reasons to invest

High quality

We believe long-term investment in high-quality companies generates excess returns over market cycles and also provides downside protection in adverse conditions.

Focus on stock-specific risk

We aim to outperform through stock picking rather than sector and geographical exposures.

Long-term

Our usual holding period of three to five years allows us to participate in the secular growth characteristics of many small-cap stocks, and exploit typical market short-termism.
ASIA EX-JAPAN EQUITY[Icon] ESG integration: We incorporate ESG and engagement into our investment process, drawing on the resources of EOS at Federated Hermes, our leading stewardship team. [Icon]Track record: The Strategy ranks among the best performing Asian equity funds since inception, but has a significantly differ-ent composition to its peers[1]. GLOBAL EMERGING MARKETS SMID[ICON] Long-term track record: The Strategy builds on the award-winning success of our Global Emerging Markets Strategy, which the team has managed since 2008.[ICON] Responsible owner: We invest in companies as an active owner and partner. This means we maintain a regular dialogue and encourage strong environmental, social and governance (ESG) practices. GLOBAL EMERGING MARKETS [ICON] Responsible owner: Investing in companies throughout cycles as an active owner and partner, we maintain a regular dialogue and encourage strong environmental, social and governance (ESG) practices.[ICON] Quality and safety: Buying quality companies at a discount can provide a margin of safety in a volatile asset class. GLOBAL EQUITY[ICON] ESG integration: Companies with a good or improving ESG track record are favoured. Our leading stewardship team, EOS, provides best-of-breed engagement insights.[ICON] Risk management: Proprietary risk management tools enable the team to monitor and neutralise macroeconomic risks before they impact returns. GLOBAL EQUITY LOW CARBON[ICON] ESG supports long-term returns: Companies managing their ESG risk have historically outperformed, while those that are improving can generate greater shareholder value in the future.¹[ICON] Risk management: Proprietary risk management tools enable the team to monitor and neutralise macroeconomic risks before they impact returns. GLOBAL SMALL CAP [ICON] Responsible owner: We are an active owner and partner. In practice, this means we maintain a regular dialogue with the companies we own and encourage strong ESG practices.[ICON] Extensive experience in the asset class: The international business of Federated Hermes has managed regional small cap strategies since 1987. SDG Engagement High Yield Credit· [ICON] Investment strength: Since 2004, we have delivered attractive high yield credit returns through relative-value investing across the capital structures of companies worldwide.· [ICON] Engagement depth: Our dedicated engagers are supported by EOS at Federated Hermes, a leading global steward-ship team, and the pioneering Responsibility Office. Unconstrained Credit [ICON] Experienced team: A skilled, integrated team with a strong record of implementing relative-value credit strategies since 2004.[ICON] ESG integration: Our investment process incorporates Federated Hermes’ leading ESG integration and engagement insights. US SMID [ICON] Responsible owner: We are an active owner and partner. In practice, this means we maintain a regular dialogue with the companies we own and encourage strong ESG practices.[ICON] Extensive experience in the asset class: The international business of Federated Hermes has managed regional small-cap strategies since 1987.

Responsible owner

We are an active owner and partner. In practice, this means we maintain a regular dialogue with the companies we own and encourage strong ESG practices.

Extensive experience in the asset class

Federated Hermes Limited has managed regional small cap strategies since 1987.
Hamish Galpin

We aim for above-benchmark returns for below-benchmark risk.

Hamish Galpin
- Director, Head of Small and Mid Cap, Lead Manager of Global Small Cap

Why Global Small Cap?

The Global Small Cap strategy was launched in July 2011 to invest in smaller companies in developed markets. Our approach – developed over our 30 years – is consistent through the economic/investment cycle, and has, in the past, delivered good risk-adjusted returns.

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We believe a long-term focus is an important factor in generating alpha from small caps: such an approach is necessary to capture the market-share-gain phase of successful smaller businesses, and to take advantage of market short-termism.

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As a founding member of the UN PRI, ESG has always been at the heart of our ethos. Today we continue to be a key proponent of stewardship and, through our dedicated business, EOS at Federated Hermes, we have one of the largest stewardship teams of any asset manager globally.

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How we invest

Focusing on quality
Concentration of risk on stock selection
Acting on ESG

Investment philosophy

We believe:

  • Positive risk-adjusted returns are most consistently generated by concentrating risk on stock selection and not seeking to generate returns by taking regional and sector positions.
  • In investing in high-quality stocks. Having an element of growth alongside quality is important, as this is what can differentiate a good company from a good investment.
  • A longer holding period (three-to-five-years) allows us to capture the market-share-gain phase of successful small cap businesses and the ‘stronger-for-longer’ returns that high-barrier-to-entry businesses tend to enjoy. It also enables the strategy to take advantage of market short termism.
  • A long-term holding period facilitates the ‘running of winners’. In our opinion, this approach is the major contributor to long-term value generation in the strategy.
  • In concentrating the portfolio as much as possible, though not to such an extent that individual stock risk is too great.

Investment process

The first stage of the process is to reduce the investment universe from c.4,200 stocks to a shortlist of 200-250 names. Management meetings are a particularly important source of ideas. No stock will be included without our having met or spoken with the company’s management. Although we make use of broker research, analyst meetings and industry journals, approximately 80% of our research is proprietary.

We write a detailed report for each stock, outlining the investment case together with the investment risks. The report usually concludes with full valuation analysis and an assessment of intrinsic value. Reports are peer reviewed and valuations are undertaken by the regional managers. The most important part of the valuation process is the construction of a long-term (usually 10-year) discounted cash flow (DCF) model for each company. We assess risks associated with a company’s approach to ESG issues, and we incorporate the implications to the investment case into our decision-making process.  

The manager targets a portfolio of 50-70 stocks. This is sufficient to achieve sector and regional neutrality while concentrating risk on stock selection.

Investment philosophy

Team

6030, 6048
Hamish Galpin

Hamish Galpin

Director, Head of Small & Mid Cap, Lead Manager of Global Small Cap, Federated Hermes Limited

Mark Sherlock

Mark Sherlock, CFA, FCA

Head of US Equities, Lead Portfolio Manager

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