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EUROPEAN ALPHA EQUITY

Aiming to achieve long-term capital appreciation by investing primarily in a diversified portfolio of equity and equity-related securities with a European bias (including Russia and Turkey) quoted or traded on Regulated Markets.

Our high-conviction stock selection exploits the power of change over the long term

James Rutherford

Head of European Equities

Truly active

Our high-conviction approach results in a portfolio with very different stock weightings to those of the benchmark, generating a consistently high active share.

Power of change

Markets behave as if change has a short-term and linear effect on a business. However, companies can see long-term, exponential outcomes. This mismatch creates an enduring market inefficiency.

Enduring quality growth

We look for companies with a persistent competitive advantage underpinned by franchise value, balance sheet strength and revenue generation, putting them in control of their own destiny.

Proven record

Portfolio manager James Rutherford has been managing European equity portfolios for more than 20 years. This experience has helped underpin the strategy's outperformance since inception1.

Investment approach

Change is systematically under-appreciated by investors. Most stock analysis is linear, but in reality we live in a non-linear world. As a consequence, change can lead to dramatic geometric expansions in stock valuations, as changes persist for longer than most investors expect.

We take a bottom-up approach to investing, with stock selection the key driver to returns and the dominant source of relative portfolio risk. Our emphasis is on identifying companies or industries undergoing longer-term structural change. Even when a stock decision has a strong thematic element, the fundamental qualities of the company take precedence, and stocks only enter the portfolio on their own merit.

Focus on long-term growth

Our high-conviction approach ensures that stocks are only bought when there are clear insights into factors that will generate positive change in the business and that will persist over time.

Markets generally value companies in a short-term and linear fashion. We look for companies that can deliver long-term compounding growth to their shareholders.

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  1. 1Since inception on 18 June 2007 the Hermes European Alpha Strategy has outperformed the FTSE All World Europe Index by 2.53% on an annualised basis as at 30 September 2018. Performance shown is in EUR and is gross of fees. A full GIPS disclosure report is available on the latest strategy factsheet.

Past performance is not a reliable indicator of future results and targets are not guaranteed

Related Articles

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Techtronic: Drilling deep into the supply chain Company overview Techtronic Industries is one of a number of consumer discretionary or industrial manufacturing companies within our portfolio. We consider these companies to be, from an engagement perspective, ideal investments as each has multiple touch points with different SDGs. Techtronic is a Hong-Kong listed company focused on the US consumer market, with predominantly Chinese manufacturing operations for its power tools and floor-care products, principally sold under its Milwaukee brand. •Market capitalisation: $10bn •Leadership: Joseph Galli Jr, CEO; Horst Julius Pudwill, Chair •Operational scope: Hong Kong-listed with a majority Asia-based workforce, but principally a US sales market. Investment case The attraction of the stock is its exemplary innovation record, which has resulted in it rapidly taking market share in the industry verticals it has chosen to target. This was evident to us in a recent visit to the global R&D centre of Milwaukee – one of the most impressive company visits that Hamish Galpin, Lead Manager of the Fund, has undertaken in his 29 years as a professional stock picker. From a financial perspective, if the company delivers on its aims of releasing innovative products, achieving further increases in market share and expanding into new markets, it should sustain a strong growth profile for a number of years to come. The stock has a similar margin and return profile to its larger and better-known competitor, Stanley Black and Decker, and we believe its slightly higher return on equity and price-to-earnings ratio are justified by the track record and quality of the business.

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