Our team meets with the management of hundreds of companies across the US, UK, Europe and Asia-Pacific each year to gain direct investment insights.
Long-term investment in high-quality stocks generates excess returns over market cycles and also provides downside protection in adverse conditions.
We aim to outperform through stock picking rather than sector and geographical exposures.
Our usual holding period of three to five years allows us to participate in the secular growth characteristics exhibited by many small-cap stocks, and to exploit typical market short-termism.
Hermes has managed regional small-cap strategies since 1987 and this experience determines the approach now applied by the global fund.
We aim to exceed the return of the benchmark on a three-year rolling basis. We invest in smaller companies in developed markets (North America, Europe, Australia, New Zealand, Japan, Hong Kong and Singapore). The strategy is benchmarked against the MSCI World Small Cap Index.
Focusing on the quality of companies is a core element of our philosophy. We employ a multi-factor appraisal methodology which looks for and evaluates characteristics such as a durable competitive advantage and sustainable growth. As a result, the strategy aims to generate a high return on equity and high stability of returns compared to the benchmark. Our strategy is deliberately long-term focused. This is, we believe, 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.
Stock ideas are sourced from Hermes’ regional small-cap portfolios. This effectively narrows the universe from more than 4,200 stocks to about 250. We undertake a large number of company meetings and overseas trips each year to find new ideas and monitor existing holdings. Each potential investment is peer-reviewed, with the lead manager ultimately determining stock selection and portfolio construction. The fund consists of 50-70 stocks, which helps to ensure that we focus on the best companies and generate a high active share.
We aim to concentrate as much risk as possible in stock selection – our core competence – while maintaining low exposure to sector and geographical risk as this, we believe, generates superior risk-adjusted returns.
We evaluate each company for evidence that they meet the criteria of quality, and their individual merits are discussed at regular stock review meetings. It is not necessary for any one investment to fully satisfy all of the criteria, but they must be perceived to be sufficiently strong on an overall basis. A quality score derived from this assessment contributes to our portfolio construction process.
Past performance is not a reliable indicator of future results and targets are not guaranteed.
Hamish Galpin
Director, Head of Small & Mid Cap, Lead Manager of Global Small Cap
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Hamish is the Head of the Small & Mid Cap team, which he has led since its creation in 2007. He has been at Hermes since 1995, when he joined as co-manager of the UK smaller companies strategies; he served as lead manager from January 1997 to April 2010. Since the founding of the team, Hamish has gradually assumed a more global perspective, with oversight of the holdings across all of the team's strategies, and he is now lead manager of the Global Small Cap strategy. He has a background in credit, having started his career in the energy and natural resources division of NatWest Bank, and later moving to Bankers Trust as a credit analyst covering European corporates. He has a BEng (Hons) in Civil Engineering from Nottingham University and is a former director of the Hermes Group (DB) pension scheme. Hamish also sits on the Hermes Governance Group, which monitors the Hermes (DC) pension scheme.
Mark Sherlock
CFA, FCA, Lead Portfolio Manager, US SMID
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Mark joined the Hermes US SMID team in February 2009 as co-manager of the Hermes US SMID Cap strategy and became lead manager in October 2013. He was appointed as Head of US Equities in October 2017. Mark initially joined Hermes in 2005 as an analyst and fund manager on the UK Focus Fund. Prior to this, he was an investment analyst at Rio Tinto Pension Fund, where he had responsibility for the small- and mid-cap portion of the portfolio. Mark qualified as a Chartered Accountant with PricewaterhouseCoopers in 2002. He has a degree in Politics from Durham University, is a CFA charterholder and a Fellow of ICAEW.
Richard Lake
Global Small & Mid Cap
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Richard joined Hermes in 1997, starting as an analyst on the European Large Cap team before moving to the Hermes Small & Mid Cap desk to co-manage the European smaller company strategies. He is now responsible for European stock selection for the Global Small Cap strategy. Richard started his career at Axa Equity & Law Investment Managers covering European ex-UK equities. He has a degree in Economics from Leicester University.
Stephen Martin
Director, Global Small & Mid Cap
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Stephen joined Hermes in March 2005 to support the launch of the Nissay Hermes Stewardship Fund and moved to Hermes Small & Mid Cap at the beginning of 2009 to establish a Japan Small & Mid Cap strategy. His role has since broadened to include analysis of developed Asian markets for the Global Small Cap strategy. His investment career began at Equity and Law in 1987 as a UK equity analyst; he joined United Friendly to cover Japanese equities in 1989. After serving as head of Japan there and at Royal & Sun Alliance Investment Management from 1991 to 1999, he switched to Pan-European Equities in 2000. He was head of institutional equities at Isis from 2002 until its merger with F&C in 2004. Stephen holds a degree in Philosophy, Politics & Economics from the University of Oxford.
