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  • 25/11/2018
    Fixed Income
    Hermes Investment Management, the $46.9 billion manager, has announced the appointment of Nachu Chockalingam as Senior Emerging Market Debt Portfolio Manager. Based in London, Nachu reports into Fraser Lundie, Co-Head of Credit. The appointment is representative of the firm’s approach to providing current and prospective clients with access to all areas of global credit markets. Nachu will help manage the performance and risk of existing emerging market allocations across all liquid credit strategies. This includes the Hermes Unconstrained Credit Fund, which was launched in May 2018 and has since raised $386 million[1].
  • 17/09/2018
    Fixed Income
    US homebuilders have been hurt this year by concerns that rising interest rates could keep buyers at bay. But, as the sector continues to report strong demand for new housing, Fraser Lundie, Co-Head of Credit and Anna Chong, Credit Analyst, Hermes Investment Management ask: is the backdrop for US homebuilders favourable? The recent rise in interest rates – coupled with expectations of further rate hikes from the US Federal Reserve – has weighed heavily on US homebuilders this year: investors fear higher mortgage rates will weaken demand. But despite talk of a slowdown, industry fundamentals are still supportive of US homebuilders. Strength in the economy and labour market have boosted demand for housing. In Q2, US economic growth enjoyed its best performance in almost four years, increasing at an annualised rate of 4.2%, while unemployment remains low at 3.9% and job creation is solid. In July, employers added 157,000 jobs. Moreover, homebuilders’ recent robust earnings results demonstrate that demand has not been impacted by rising mortgage rates, with many reporting strong orders – an indicator of future revenue for homebuilders. Tight existing home inventory should also spur demand for new builds. Meanwhile, in a post-earnings call with analysts last month, Toll Brothers’ Chief Executive Douglas Yearley pointed to a structural shift towards the new-home industry – with buyers wanting to “create a one-of-a-kind custom home” rather than live in existing homes.
  • 25/06/2018
    Fixed Income
    As the Hermes Global High Yield, Global Investment Grade, Multi-Strategy and Absolute Return Credit strategies hit key milestones, Fraser Lundie CFA, Co-Head of Credit at Hermes Investment Management, explains how a rigorous investment process has allowed them to weather volatile storms. Marking new milestones This month, our Global High Yield Credit, Multi-Strategy Credit and Absolute Return Credit capabilities mark their eight-, five- and three-year anniversaries, respectively and in July, our Global Investment Grade Strategy will celebrate its eight-year anniversary. These four strategies have the following aims: 1. Global High Yield Credit: generate a high level of income by investing primarily in a diversified portfolio of high-yield bonds. Since its May 2010 inception, it has consistently delivered top-quartile return.
  • 14/08/2017
    Fixed Income
    On Thursday the VIX closed at its highest level since November after months of benign and complacent market conditions. In the intermittent period of market calm, investors have been turning to high-yield bonds in the low-yield, and seemingly low-risk environment. However, Fraser Lundie, Co-head of Credit at Hermes Investment Management, believes these investors have stretched themselves to take on potentially outsized levels of risk and should look to actively manage the size of these allocations as market conditions evolve. Fixed income investors have been operating in extraordinary conditions. While yields remain stubbornly low, the upside is that realised risk appears to have similarly declined. In recent months, the volatility of high-yield credit has been lower than that of investment-grade credit, which has maintained a relatively consistent level of volatility since the financial crisis (see chart). Stretch risk allows us to identify assets that trend in one direction for a considerable period of time, suppressing headline volatility to a reduced level, and giving an impression that an asset is less risky than is actually the case.
  • 14/12/2016
    Fixed Income
    Lower-for-longer interest rates, stagnant inflation and muted growth have prompted yield-seeking credit investors to buy longer durations and rely on diversification for protection. With the evidence supporting this defensive strategy diminishing, an alternative approach is needed. Years of record-low interest rates and stunted inflation have caused dangerous trends to develop in the credit markets. Rising correlations across asset classes have numbed the protective power of diversification, while the hunt for yield has driven credit investors towards longer, riskier durations. We believe that a failure to mitigate these risks amounts to a threat to capital. The widespread bond sell-off in the days following the election of Donald Trump further emphasised the precariousness of global fixed-income markets. With US interest rates now expected to rise further and inflation to pick up, the assumptions that have long governed credit investing are weakening. We see a pressing need to employ an alternative defence.