As our Global High Yield, Global Investment Grade, Multi-Strategy and Absolute Return Credit strategies hit key milestones in June, we assess how they have performed since inception.
The strong performance of our diversified range of high-conviction strategies since their inception has been driven by our dynamic approach to global credit: we focus on relative-value investing across the capital structures of issuers worldwide. This has resulted in an impressive track record of outperformance through market cycles (see Figure 1).
To achieve this, we employ one investment process across our suite of strategies. It combines top-down allocation across the global liquid-credit spectrum with bottom-up, high-conviction security selection enhanced by ESG analysis.
Figure 1: Liquid credit cumulative performance
Source: Hermes as at 31 May 2018. The performance of Hermes Multi-Strategy Credit and Hermes Absolute Return Credit is shown in USD, gross of fees. The performance of the Hermes Global High Yield Credit and Hermes Global Investment Grade strategies is hedged to USD, gross of fees.
The credit strategy meeting establishes an appetite for credit risk by assessing market fundamentals and valuations and determines how to best allocate it across geographies, sectors, rating categories, credit curves and issuer capital structures. These top-down allocations direct our bottom-up credit selection, which is implemented through intensive fundamental credit analysis that includes pricing in ESG risks.
Our dynamic approach, therefore, enables us to identify securities that provide the most value across the capital structure based on our view of the macro environment, market structure and global valuations.
This month, our Global High Yield Credit, Multi-Strategy Credit and Absolute Return Credit capabilities mark their eight-, five- and three-year anniversaries, respectively. And in July, our Global Investment Grade Strategy will celebrate its eight-year anniversary. These four strategies aim to:
Since the launch of these strategies, we have invested through tumultuous episodes including the taper tantrum, China slowdown in 2015, oil price turbulence, continuation of monetary policy normalisation by the US Federal Reserve (Fed) and periods of geopolitical uncertainty including the Brexit vote, the election of Donald Trump as US President, and most recently US-China trade tensions.
Challenging periods in which our credit capabilities have delivered on their mandates include:
Our dynamic approach to global credit has driven strong risk-adjusted returns across our diversified range of high-conviction strategies, as evidenced by their Sharpe ratios3, despite macroeconomic and technical market shocks (see figure 2 and 3).
Figure 2: The performance of our strategies since inception
|Strategy||Inception date||Three-year cumulative returns (gross, USD)||Since inception cumulative returns (gross, USD)||Since inception Sharpe Ratio|
|Global High Yield||1 June 2010||25%||91%||1.2|
|Multi-Strategy Credit||1 June 2013||15%||30%||1.6|
|Investment Grade||1 July 2010||15%||47%||1.3|
|Absolute Return||1 June 2015||7%||7%||1.5|
Source: Hermes as at 31 May 20184.
Although geopolitical risks, US dollar strength, and continued monetary polciy normalisation by the Fed are the key forces at play in the current investment landscape, Hermes Credit will continue to identify strategic and tactical opportunities as it focuses on generating alpha and preserving capital.
Figure 3: Liquid credit net annualised returns
|Strategy||31/05/17 to 31/05/18||31/05/16 to 31/05/17||31/05/15 to 31/05/16||31/05/14 to 31/05/15||31/05/13 to 31/05/14|
|Global High Yield||2.42%||12.21%||-1.66%||3.36%||10.83%|
|Absolute Return Credit||1.04%||3.55%||0.70%||-||-|
Source: Hermes as at 31 May 2018. Performance shown is in USD, net of fees5.