Search this website. You can use fund codes to locate specific funds

Authors

  • January 8, 2019
    Fixed Income
    After navigating through Q3, which historically tends to be a difficult quarter, several common themes are beginning to emerge across US money centre banks. Our thesis on the sector remains intact, with fundamentals continuing to improve despite pressure on revenues. Citigroup was the standout this quarter, but Bank of America lagged. Several years of the so-called zero interest rate policy are taking a toll on net interest incomes for the sector and forcing the banks into aggressive rounds of cost cutting. Regulation and oversight remains the main driver of industry fundamentals, credit profiles and spread movements. Senior and T2 issuances will likely increase on Orderly Liquidation Authority and Total Loss Absorbing Capital (TLAC) needs. We believe increased loss absorption capital will be positive for our bonds. P&Ls: Reported profitability did range from 7% of return on equity at Bank of America to 12% at Wells Fargo, which had the help of an outsized $0.9bn of equity gains Soft mortgage banking trends came to us as no surprise given further tightening of mortgage standards in the first half of the year, as well as lower volumes. We will be watching these mortgage lending standards closely, as mortgages represent a little less of 70% of US consumer debt and could be drag on GDP growth forcing the US Federal Reserve to keep rates lower for longer.
  • November 25, 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].
  • October 17, 2018
    Fixed Income
    European economic data provides a veritable pick ‘n’ mix for market pundits - there’s something there for the most optimistic and the most pessimistic. The likely truth is somewhere in between, but central bankers are faced with some awkward choices.
  • September 17, 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.
  • September 5, 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, we 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.
  • June 25, 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.
  • June 20, 2018
    Fixed Income
    As our Global High Yield, Global Investment Grade, Multi-Strategy and Absolute Return Credit strategies hit key milestones in June, we assess how they have performed since inception. The strong performance of our diversified range of high-conviction strategies since their inception has been driven by our dynamic approach to global credit: we focus on relative-value investing across the capital structures of issuers worldwide. This has resulted in an impressive track record of outperformance through market cycles (see Figure 1). To achieve this, we employ one investment process across our suite of strategies. It combines top-down allocation across the global liquid-credit spectrum with bottom-up, high-conviction security selection enhanced by ESG analysis.
  • September 14, 2017
    Fixed Income
    An improbable level of calm in markets has compelled investors to capitalise on low levels of volatility. Here we assess why they should actively manage risks in high-yield credit. It is important to look beyond the headline indicators of risk. Stubbornly low yields and low volatility in recent years have compelled yield-seeking investors to increase their allocations to high-yield bonds. This year the volatility of high-yield credit has fallen below that of investment-grade credit (see Figure 1). But there is no reason to believe that low volatility is the new normal. Even though market conditions are stable, investors should appreciate the latent risks.
  • August 14, 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.
  • August 10, 2017
    Fixed Income
    The 27.79% return of Hermes Multi Strategy Credit for the four years since its inception was driven by the team’s global, unconstrained approach1. Fraser Lundie, Co-Head of Hermes Credit and Senior Portfolio Manager, explains how the team has combined high-conviction investments with defensive strategies to perform strongly in a period that included the taper tantrum, high-yield sell offs, oil-price volatility and the vote for Brexit.
  • June 13, 2017
    Fixed Income
    The 27.79% return of Hermes Multi Strategy Credit since its June 2013 inception has been driven by implementing our global, unconstrained approach1. The Strategy, which has grown to over $1bn in AUM, aims to generate strong gains from our best credit ideas while minimising downside risk through a dedicated exposure to defensive strategies. Importantly, the portfolio experienced far less volatility than the global high-yield market amid market and macroeconomic shocks, producing a Sharpe Ratio of 1.83.