Exploiting multiple investment styles has enabled the Hermes Global Equity Fund to outperform in 17 of the 21 quarters since its inception, says portfolio manager Louise Dudley.
Fundamental focus: As stock pickers, we measure the attractiveness of an investment by six broad dimensions: valuation, sentiment, profitability, growth, corporate behaviour and capital structure. Our returns in the past five years show that a portfolio with exposure to these styles can generate consistent, long-term outperformance.
Swinging sentiment: The rally that began in March 2009 was led by low-quality stocks which had been previously out of favour. Investors favouring cheap stocks, as identified by the valuation component of our model, were rewarded with strong returns. In each subsequent year, however, companies with strong investor momentum outperformed their less popular peers. Indeed, stocks with favourable sentiment outperformed in all economic sectors from 2011 to 2013.
A different story each year: the difference between the best- and worst-performing stocks in six factors over each calendar year, from 2009 to 2013.
Handling volatility: Companies exhibiting shareholder-friendly corporate behaviour, such as stock buy-backs, also outperformed – particularly in 2011. After three quiet years, growth companies rebounded in 2013. Such volatility in factor returns is one reason why we analyse companies from a broad range of perspectives: this helps to generate consistently positive returns in various market environments and defend against large swings in style.
All-weather outperformance: The Hermes Global Equity Fund delivered a net annualised gain of 14.97% against the 11.98% return of its benchmark, the MSCI World Net index, in the year to 31 January 2014. It returned 15.20% against the index’s 12.86% since its December 2008 inception to 31 January 2014. Returns are in GBP net of fees.
Performance shown is the F share class sterling Accum net of all costs and management fees since seeding on 08 November 2012, prior track record is the Z share class sterling Accum, fee adjusted since inception net of all costs. Inception date of the fund is 05 December 2008. Past performance is not a reliable guide to future performance.This document does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments. The views and opinions contained herein are those of Louise Dudley, Hermes Quantitative Equities, and may not necessarily represent views expressed or reflected in other Hermes communications, strategies or products. The information herein is believed to be reliable but Hermes Funds Managers does not warrant its completeness or accuracy.
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