US SMID Equity
Investing in a diverse portfolio of high-quality US smaller companies
Reasons to invest
High quality
Long-term
Lower risk
Responsible owner
Extensive experience in the asset class
Strategy overview
We are looking for quality companies underneath Wall Street’s radar, rather than shooting stars. We focus on compounders.
Why US SMID Equity?
The strategy was launched in September 2012 to invest in small- and mid-cap US companies. Our approach – developed over our 30 years – is consistent through the economic/investment cycle, and has, in the past, delivered good risk-adjusted returns.
The strategy is deliberately long-term focused, with a three- to five-year average holding period. We believe this is an important factor in generating alpha from small- and mid-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.
As a founding member of the UN PRI, ESG has always been at the heart of our ethos. Today we continue to be a key proponent of stewardship and, through our dedicated business, EOS at Federated Hermes, we have one of the largest stewardship teams of any asset manager globally.
How we invest
Investment philosophy
We believe:
- Quality should be at the heart of the investment process. Ownership of companies with a durable competitive advantage can provide better downside protection and generate higher compound returns over time.
- In holding a stock long enough for the company to achieve its potential. Capital appreciation occurs not only from the elimination of a discount to intrinsic value, but also from intrinsic-value growth itself.
- That positive risk-adjusted returns are best and most consistently generated by concentrating risk on stock selection and not seeking to generate returns by taking regional and sector positions.
Investment process
- Meeting with management,
- Our watchlist
- Screening.
The criteria used to define quality are:
- Durable competitive advantage
- Sustainable growth
- Management integrity, talent and vision
- Strong balance sheet
- Cash generation
- Capital discipline
Research is generated internally and supplemented with information from sell-side brokers. When a potential investment has been identified, we will write a detailed report on the company, outlining the investment case together with the risks. The report analyses a company’s competitive advantages, the industry structure, the management and the company’s corporate and social responsibility record. We also perform our own ESG research at the stock level, actively incorporating ESG factors in their assessment.
The portfolio is constructed with between 40-70 holdings. Position sizes are determined with reference to fundamental risk, quantitative risk, upside to target price, contribution to tracking error and liquidity.
Team
Mark Sherlock, CFA, FCA
Head of US Equities, Lead Portfolio Manager
Henry Biddle, CFA, ACA
Portfolio Manager, US SMID, Federated Hermes Limited
Michael Russell, CFA
Director, Co-Portfolio Manager, US SMID, Federated Hermes Limited
Product information
For the latest performance and vital information – including prices, key facts, identifiers and ratings
Our Purpose
To deliver Sustainable Wealth Creation
Like all our investment capabilities, Federated Hermes US SMID aims to deliver Sustainable Wealth Creation: the generation of wealth through investments that enrich investors, society and the environment over the long term.
Our business provides three equally powerful pathways to achieving this aim. Federated Hermes US SMID features in the Active ESG route.
Responsible, active investing for long-term performance.
- Financial objective
- Best-practice integration of ESG analysis and engagement insights
- Some capabilities may enforce exclusions that reflect Portfolio Managers’ investment views
- Delivery of sustainable outcomes through effective stewardship
US SMID Equity
Thematic and values-based approaches for sustainable outcomes.
- Financial and sustainability objectives
- Best-practice integration of ESG analysis and engagement insights
- Exposure to sustainability themes
- Exposure to ESG leaders and industry exclusions that reflect sustainability values
- Delivery of sustainable outcomes through effective stewardship
Mission-led investment strategies to create positive impact.
- Financial and impact objectives
- Best-practice integration of ESG analysis and engagement insights
- Focus on companies generating impact or undergoing positive transformation
- Some capabilities may enforce exclusions that reflect defined sustainability values, impact considerations, or both
- Delivery of sustainable outcomes through effective stewardship
