Global Emerging Markets ex-China Equity

A sub-fund of the Federated Hermes Global Emerging Markets Equities strategy investing across emerging markets except for China.

Reasons to invest

Truly active management

A concentrated portfolio with a high active share, invested with a long-term perspective.

Multi-cap

Investing across the market-cap spectrum.

From top to bottom

A top-down framework to identify countries with conditions supportive of growth. And bottom-up analysis to discover quality companies trading at attractive valuations.
ASIA EX-JAPAN EQUITY[Icon] ESG integration: We incorporate ESG and engagement into our investment process, drawing on the resources of EOS at Federated Hermes, our leading stewardship team. [Icon]Track record: The Strategy ranks among the best performing Asian equity funds since inception, but has a significantly differ-ent composition to its peers[1]. GLOBAL EMERGING MARKETS SMID[ICON] Long-term track record: The Strategy builds on the award-winning success of our Global Emerging Markets Strategy, which the team has managed since 2008.[ICON] Responsible owner: We invest in companies as an active owner and partner. This means we maintain a regular dialogue and encourage strong environmental, social and governance (ESG) practices. GLOBAL EMERGING MARKETS [ICON] Responsible owner: Investing in companies throughout cycles as an active owner and partner, we maintain a regular dialogue and encourage strong environmental, social and governance (ESG) practices.[ICON] Quality and safety: Buying quality companies at a discount can provide a margin of safety in a volatile asset class. GLOBAL EQUITY[ICON] ESG integration: Companies with a good or improving ESG track record are favoured. Our leading stewardship team, EOS, provides best-of-breed engagement insights.[ICON] Risk management: Proprietary risk management tools enable the team to monitor and neutralise macroeconomic risks before they impact returns. GLOBAL EQUITY LOW CARBON[ICON] ESG supports long-term returns: Companies managing their ESG risk have historically outperformed, while those that are improving can generate greater shareholder value in the future.¹[ICON] Risk management: Proprietary risk management tools enable the team to monitor and neutralise macroeconomic risks before they impact returns. GLOBAL SMALL CAP [ICON] Responsible owner: We are an active owner and partner. In practice, this means we maintain a regular dialogue with the companies we own and encourage strong ESG practices.[ICON] Extensive experience in the asset class: The international business of Federated Hermes has managed regional small cap strategies since 1987. SDG Engagement High Yield Credit· [ICON] Investment strength: Since 2004, we have delivered attractive high yield credit returns through relative-value investing across the capital structures of companies worldwide.· [ICON] Engagement depth: Our dedicated engagers are supported by EOS at Federated Hermes, a leading global steward-ship team, and the pioneering Responsibility Office. Unconstrained Credit [ICON] Experienced team: A skilled, integrated team with a strong record of implementing relative-value credit strategies since 2004.[ICON] ESG integration: Our investment process incorporates Federated Hermes’ leading ESG integration and engagement insights. US SMID [ICON] Responsible owner: We are an active owner and partner. In practice, this means we maintain a regular dialogue with the companies we own and encourage strong ESG practices.[ICON] Extensive experience in the asset class: The international business of Federated Hermes has managed regional small-cap strategies since 1987.

Responsible owner

Investing in companies throughout cycles as an active owner and partner, we maintain a regular dialogue and encourage strong environmental, social and governance (ESG) practices.

Quality and safety

Buying quality companies at a discount can provide a margin of safety in a volatile asset class.

Risk mitigation

Emerging markets are volatile, and the team considers macro factors in the asset allocation, thereby avoiding complex parts of the asset class. The team weighs up the outlook for emerging market inflation, competitiveness, and currencies, allowing it to mitigate risks in emerging market investing to the best extent possible.

Emerging markets ex-China offers exposure to consumption, resource and technology themes

More than half of the world’s population lives in emerging markets ex-China representing about one fifth of global GDP. Beyond China, most emerging markets benefit from positive demographics, an expanding middle class, developing digital sectors and significant opportunities in infrastructure. 

In addition to the secular drivers of consumption and technology, emerging economies ex-China control huge reserves of key commodities, such as green metals, that are vital for the transition to net zero. While macro challenges remain in a few areas, overall vulnerabilities are limited, and ongoing reforms are likely to strengthen the case for emerging markets ex-China in years to come.

GEMs ex-China aims to mitigate any geopolitical and ESG risks related to China while benefiting from the vast growth potential across emerging markets.

Kunjal Gala
Lead Portfolio Manager, Emerging Markets

Why GEMs ex-China Equity?

Emerging markets are undergoing rapid change: urban development and technological revolutions are increasing standards of living and creating a growing middle class. Trends such as digitisation, electrification, biotechnology and cyber security present exciting opportunities to identify the winners of structural change.

Local emerging market investors typically look out six to 12 months, and thus are more oriented to news flow, quarterly earnings and short-term catalysts. As a result, companies can be mispriced due to transitory issues. This can create opportunities for investors who are able to focus on the long term. We are long-term oriented, which aligns us with company management.

We seek to take advantage of short-term weakness in high-quality companies or mispricing in average companies. While today the portfolio is positioned in quality stocks with a growth bias, we are beholden to neither growth nor value, meaning we have the flexibility to invest where we believe the best opportunities are.

How we invest

Fundamental approach
Seeking discounts to intrinsic value
ESG integration

Investment philosophy

We believe:

  • Structural changes in the world economy are transforming emerging markets.
  • The winners that emerge from this transformation will be efficient and sustainable businesses.
  • This is a long-term trend requiring a long-term approach.
  • Quality companies trading at attractive valuations, in countries with conditions supportive of growth, provide the best investment opportunities.
  • Investing in lower-quality, significantly mispriced companies can be a catalyst for the realisation of value.
  • The best way to add value for investors is through a process that integrates top-down analysis with bottom-up fundamental stock selection, augmented by ESG analysis and engagement.

Investment process

Ideas are generated from a variety of sources, including meetings with company management, our global network of contacts, broker research, industry analysis and quantitative screens.

A proprietary quantitative model ranks companies on valuation, quality, and momentum factors. This screen assigns favourable scores to quality companies with a stable shareholder base and a strong management team. We identify approximately 200 companies for a watchlist.

We pay particular attention to the following investment criteria:

Quality
Value with catalysts
Margin of safety
Structural drivers
Avoiding unsustainable sections
Proven business models
Moats/defensible franchises
Structural drivers
Strong balance sheet
High ROE
Moats/defensible franchises
Good governance
Consistency of, and improvements in, revenue and earnings
Large discount to intrinsic value
P/B justified with strong or improving ROE
Improving revenue, margins, cash flow generation
Low PEG ratios
Stable/improving regulation
An improving cycle or, at least, the trough of a cycle

We seek to establish a company’s financial health and long-term prospects. We model financial forecasts (one- and five-year earnings), cash flow and balance sheet. We combine this with the analysis of operational, financial and ESG risk factors to estimate the intrinsic value of the company.

We believe concentrated portfolios are best equipped to maximise risk-adjusted returns. Typically, we hold 40-60 companies in a portfolio, with the top 20 holdings accounting for more than 60% of the portfolio.

Team

5890, 6002, 5854

Chris Clube

Co-portfolio manager, Emerging Markets ex-China, Federated Hermes Limited

Vivek Bhutoria

Vivek Bhutoria, CFA

Co-Portfolio Manager, Federated Hermes Limited

Kunjal Gala

Head of Global Emerging Markets, Lead Portfolio Manager, Federated Hermes Limited

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