Focus on governance risk in stock selection enhances returns
Fund has beaten its benchmark since inception
This month, the Hermes Global Equity Fund marks five years of strong outperformance and announces its greater emphasis of environmental, social and governance (ESG) issues within its investment process.
The Fund has delivered an annualised return of 15.9% per annum* compared with the benchmark (MSCI World Net) return of 13.4%. Furthermore, it has earned top quartile rankings* in the IMA Global Equity sector, to 30 November 2013.
The investment team, led by Geir Lode, employs disciplined, fundamental analysis via their proprietary stock-selection model, which replicates the approach taken by traditional investors whilst avoiding common behavioural biases.
The output of the model is used to inform the decision making of the team, who combine the models systematic analysis with their assessment of a company's risk profile. Research recently undertaken with Hermes Equity Ownership Services (Hermes EOS) shows that well governed companies have consistently outperformed the most poorly governed companies from the end of 2008 to November 2013. This finding resulted in an assessment of corporate governance being included within the teams stock selection model.
Geir Lode, Head of Quantitative Equities at Hermes Fund Managers, said: The fifth anniversary of the Hermes Global Equity Fund is a great milestone and we are very proud of our performance. Moreover, we have always believed in the importance of identifying companies at risk due to poor corporate governance, and are excited by the greater inclusion of ESG considerations within our process. Our increasing focus on this has been crucial to our success over the past five years. Having undertaken research with Hermes EOS, we have found statistically significant evidence that well-governed companies have tended to outperform their poorly-governed peers since the end of 2008. While ESG risks were already considered in our decision making, we now have enough evidence on the efficacy of governance to include it as an important measure of corporate behaviour within our stock-selection model. We're confident that it strengthens our ability to deliver high risk-adjusted returns.
Previously known as the Hermes Quant Global Equity Fund, the Fund's name change came into effect on 2nd December 2013.
The objective of the Fund is to achieve long-term capital appreciation by investing primarily in equity securities which are components of the MSCI World Index, or companies listed in the countries referenced in this index.*
Source: Hermes based on F Share Class, net of fees in GBP. As at 05 December, 2013 unless otherwise stated.
Portfolio perspectives on ESG risk