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Aiming to provide long-term capital appreciation by investing primarily in equity or equity-related securities of small and mid-capitalisation companies domiciled in the US or deriving a large proportion of their income from US activities.

We are looking for companies underneath Wall Street's radar, not shooting stars. We firmly believe the tortoise beats the hare.

Mark Sherlock

Fund Manager

High quality

We define quality as durable competitive advantage. Companies that have this often exhibit high market share, industry-leading margins and good cash-flow generation.

Long-term investment

The average holding period is three to five years. This longer-term focus allows the team to take advantage of short-term swings in investor sentiment to identify attractive entry points for investment.

Lower risk

The focus on quality and cash-flow generation gives a degree of downside protection. We believe this provides a relatively low-risk way of accessing this asset class.

Stable returns

Investments in high-quality businesses tend to preserve capital in down markets, thereby lowering risk.

Investment approach

We invest in high-quality companies that we believe possess a durable competitive advantage. We value consistency and stable, growing revenues and cash flow. Over time, we believe that companies that exhibit these characteristics outperform with less risk. Our investment criteria are based on company fundamentals, not macro driven.

US Small and Mid-Cap

We have a watchlist of about 200 companies that meet our quality criteria, which has been built up over the past 10 years and supports timely investment when valuations are appropriate. A detailed company report and cash flow model is produced for each potential investment. We then perform a composition review, an optimisation tool which is run monthly, incorporating quantitative and qualitative data on each of our companies to effectively manage position sizes.

A track record of performance

Small and Mid-Cap stocks have historically provided better returns over time. The Hermes US SMID Strategy, upon which this product is based, has a long track record of outperformance.

Risk management

The majority of risk in our portfolio comes from stock selection – the team’s core competency – and we regularly test for unintended factor risks. Hermes EOS provides us with proprietary data about environmental, social and governance risks that may influence the performance of companies.

US SMID Equity - Strategy introduction

Since inception on 31 October 1987 the Hermes US Small & Mid Cap Companies Strategy has outperformed the Russell 2500 index by 1.09% on an annualised basis as at 30 September 2018. Performance shown is in USD 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.


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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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