GEMS SMID is an under researched market that presents the opportunity to find hidden gems.
Being able to identify inefficiently priced stocks at the lower end of the market cap spectrum gives a margin of safety in a volatile asset class.
ESG factors are incorporated into our bottom-up investment analysis for a comprehensive view of risk and opportunity.
A concentrated portfolio with a high active share, invested with a long-term perspective.
The portfolio invests in companies that can generate sustainable long-term growth, resulting in attractive long-term shareholder returns.
The strategy focuses on smaller and medium-sized companies in global emerging markets.
Analyst coverage of the SMID market in these regions is limited, financial disclosure is less extensive and management teams are less experienced and poorly served by financial advisers. This presents the opportunity to dive deep into financial fundamentals, informed by ESG, to find hidden gems. On average, smaller companies generate more revenue domestically. This makes them better positioned to capitalise on the rising middle class in some emerging markets while simultaneously reducing exposure to deglobalisation. Finally, as Bloomberg data shows, emerging market SMID companies are trading at one standard deviation below the ten-year average on P/E and Price-To-Book.
In our experience, domestic emerging market SMID investors often focus too much on short-term developments and news flow. The long-term nature of the strategy, and its focus on structural growth opportunities instead of transient stock-price movements, enables the team to look through short-term market fluctuations and seek compounding returns that deliver outperformance for investors.
The Strategy invests in stocks that typically trade within a market capitalisation range of $100m and $14bn with the potential to generate attractive long-term capital appreciation, resulting in sustainable long-term shareholder returns. Holdings are selected on their fundamental long-term merits and held in position sizes that reflect the expected upside, level of conviction, liquidity of the shares, risk factors, ESG characteristics and valuation.
ESG integration has been embedded in the GEM team’s process since 2011, and the new strategy will continue to implement ESG analysis in the investment process. Working with the engagement specialists in Hermes’ stewardship and engagement team, Hermes EOS, the team raises ESG concerns with companies, which provides them with a deeper understanding of the business, its challenges and ways in which better ESG practices can improve the company and increase value for shareholders.
Gary Greenberg
CFA, Head of Global Emerging Markets
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Gary Greenberg, who joined Hermes in September 2010, is Head of Hermes Global Emerging Markets.
Prior to this, he was managing partner at Silkstone Capital and Muse Capital, both London-based hedge funds he co-founded and managed in 2007 and 2002, respectively. From 1999 through 2002 he was executive director at Goldman Sachs in New York and London, where he co-headed the emerging markets product for GSAM and served on the global asset allocation and European stock selection committees. From 1998 to 1999 he was managing director at Van Eck Global in Hong Kong and New York, where he was the lead portfolio manager for international equities and ran the Hong Kong office. From 1994 through 1998 Gary was chief investment officer at Peregrine Asset Management in Hong Kong, managing and supervising global and regional equity, plus fixed income funds. In the early years of his career he was a principal of Wanger Asset Management in Chicago, where he co-founded and co-managed the Acorn International Fund, which grew to $1.4bn under his tenure. Gary holds an MBA from Thunderbird School, a BA from Carleton College and is a CFA charterholder.
In 2017, the Hermes Global Emerging Markets Fund was named best emerging markets fund for the second year in a row at the Investment Week Fund Manager of the Year Awards, best emerging markets fund by InvestmentEurope, and best emerging markets group by Citywire Deutschland. Gary was named best manager for emerging markets equity by Citywire UK.
Kunjal Gala
Co-Portfolio Manager
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Kunjal Gala joined Hermes in 2012 as part of the Emerging Markets team, focused on Asia ex Japan. He joined from Her Majesty's Government, where he worked from October 2008 as an assistant director in The Shareholder Executive, the in-house portfolio management and corporate finance arm of the UK Government. Prior to this he was a senior financial analyst at Morgan Stanley Investment Banking from December 2004, responsible for both business development and execution of M&A and strategy mandates within the consumer products coverage banking team. Previously he worked for Thomas Cook (India) in the management information systems division (September 2003), and PricewaterhouseCoopers in the Assurance and Business Advisory Service (August 2001). Kunjal has a Bachelor of Commerce from Mumbai University and is a qualified Chartered Accountant from the Institute of Chartered Accountants in India.
Elena Tedesco
CFA, Co-Portfolio Manager - ESG Strategies/Senior Analyst, CEEMEA
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Elena Tedesco joined Hermes EOS in 2002 and later joined the Hermes European Focus Fund as an investment analyst. She moved to the Hermes Emerging Markets team in 2007, initially covering Latin America and later focusing on EMEA. She is the co-portfolio manager for the Hermes Global Emerging Markets ESG strategy (positive impact ESG portfolios). Prior to joining Hermes, Elena was an analyst at Deminor, a Belgium-based independent research boutique, now part of ISS. Elena holds a degree in Economics and Business Administration, a postgraduate degree in EU Law from LUISS University, a Master's degree in European Economic Affairs from the College of Europe, and is a CFA charterholder.
