Hermes Investment Management, the £33.6 billion manager, today announces that it plans to launch a Global Emerging Markets SMID (small- and midcap) strategy, subject to regulatory approval.
Building on the success of the Hermes Global Emerging Markets Strategy, which has outperformed its benchmark by an annualised 6.4% and 4.7% over the past five- and three-year periods1, this new strategy will be managed by Gary Greenberg, Head of Emerging Markets, alongside Kunjal Gala, Co-Portfolio Manager. (Note: Past performance is not a reliable indicator of future results).
Gary Greenberg, Head of Emerging Markets, explains the potential for investors in the SMID space: “Perhaps unsurprisingly, analyst coverage of the SMID market in developing markets is limited, financial disclosure is less extensive and management teams are less experienced and poorly served by financial advisers. This presents our team of analysts with the opportunity to deep dive into financial and ESG research to find hidden gems. On average, smaller companies generate more revenue domestically2 making them better positioned to capitalise on the rising middle class in some emerging markets whilst simultaneously reducing exposure to a potential global trade war, aimed at the exporters. Finally as Bloomberg data shows, emerging market SMID companies are trading at one standard deviation below the ten year average on P/E and Price-To-Book3.”
Focused on SMID stocks, the Hermes Global Emerging Markets SMID Strategy aims to invest in companies that generate attractive long-term capital appreciation, resulting in sustainable long-term shareholder returns. The strategy aims to invest in stocks that typically trade within a market capitalisation range of $100m and $14bn. All holdings will be selected on their fundamental long-term merits and held in position sizes that reflect the team’s level of conviction, the liquidity of the shares, risk factors, environmental, social and governance (ESG) characteristics and valuation.
ESG integration has been embedded in the team’s process since 2011, when Gary Greenberg became Lead Portfolio Manager of the Hermes Global Emerging Markets Strategy and this new strategy will continue to implement ESG analysis in the investment process. Working with the engagement specialists in its stewardship and engagement team, Hermes EOS, the team will raise ESG concerns with companies. These discussions provide the team with a deeper understanding of the business, its challenges and ways in which better ESG practices can improve the company and increase value for shareholders.
Gary Greenberg, Head of Emerging Markets, continues: “In our experience, emerging market investors often focus too much on short-term developments and news flow. The long-term nature of the strategy, and its focus on structural growth opportunities instead of transient stock-price movements enables the team to look through short-term market fluctuations and seek compounding returns that deliver outperformance for investors.”
The strategy and corresponding UCITS vehicle are currently in process of seeking regulatory approval and the launch will be announced in due course.
The value of investments and income from them may go down as well as up, and you may not get back the original amount invested.
1 Source: Hermes as at 31 March 2018. Relative performance is denominated in US Dollars and is net of fees. Benchmark: MSCI EM Index Net.
2 Source: Numeric Investors LLC, MSCI and Worldscope as at 31 December 2016
3 Bloomberg, July 2018