Combining stock fundamentals and ESG change
Objective: aiming to achieve capital appreciation by investing in worldwide equity securities with favourable ESG
"A disciplined investment process with environment, social and governance factors at its core does not just provide a 'feel-good factor'; it can improve returns.1"
Why Hermes Global Equity?
- Consistency: aiming to beat the benchmark each quarter and by 2-3% every year, this product has outperformed in nearly all market environments since its 2008 inception.2
- Customisability: our investment approach can be easily tailored to meet your specific risk, reward and ESG requirements.
- ESG integration: companies with a good or improving ESG track record are favoured. Hermes EOS provides best-of-breed ESG intelligence.
- Fundamental focus, systematic execution: companies are systematically analysed to identify those with the best time-tested fundamental characteristics, overlaid with a bottom-up sense check.
- Style agnostic: analysing companies from a broad range of perspectives helps to generate positive returns in various market environments and defend against large swings in style.
- Risk management: proprietary risk management tools enable the team to monitor and neutralise the impact of macroeconomic risks. Portfolio stress tests provide forward-looking views of the potential impacts.
Investment approach
We like stocks with robust financial statements, competitive strength and a proven ability to consistently beat revenue and earnings expectations. Ideally, these companies should also be guided by impressive management teams, mitigate ESG risks and appear cheap relative to peers. But very few stocks embody such an ideal investment. So we identify those with the most attractive combinations of characteristics in every market environment.
Systematic analysis
A systematic model, capturing the same data as a fundamental investment analyst, assesses the attractiveness of every stock in the investment universe each day. The metrics used to select stocks are justified by both economic reasoning and statistical effectiveness, and have a long-term focus that leads to low portfolio turnover. They are grouped by valuation, sentiment, growth, profitability, corporate behaviour and capital structure. This model creates an optimised portfolio that aims to maximise risk-adjusted returns.
Risk management
The portfolio is subjected to two levels of risk analysis. First, MultiFRAME, our proprietary risk-management system, assesses top-down market risk. It has the flexibility to stress-test the portfolio, interpret how it would respond to different market environments and measure its exposure to any quantifiable risk. Second, we perform a bottom-up ‘sense check’ to ensure that the model has accurately assessed the nuances of each potential investment. At this stage, the ESG Dashboard, another proprietary tool, alerts us to stock-specific environmental, social and governance risks not typically covered in fundamental analysis of companies.
1. ESG investing: Does it just make you feel good, or is it actually good for your portfolio?, by Hermes Global Equities, published January 2014
2. Since inception on 01 May 2013 the Hermes Global Equity ESG Strategy has outperformed the MSCI ACWI Net index by 2.67% on an annualised basis as at 31 March 2017. Performance shown is in USD and is gross of fees. A full GIPS disclosure report is available on the latest strategy factsheet.
Past performance is not a reliable indicator of future results and targets are not guaranteed.