What’s your role at Federated Hermes?
I’ve been with Federated Hermes since 2010 and I’m a portfolio manager in the European Equities team.
How did you get started in your career?
I didn’t know what I wanted to do after university, but my housemate was certain he wanted to be an accountant, which I thought sounded like quite a respectable job. So, I joined the graduate trainee programme at Ernst & Young and qualified as a Chartered Accountant.
Around that time, the CFROI valuation methodology became very fashionable, and the investment banks wanted to hire accountants to make the adjustments to the financial statement, so that’s how I ended up at CSFB (Credit Suisse First Boston).
What do you enjoy the most about your current role?
I love learning about companies and how their product innovations and business strategies give them a competitive advantage. I really enjoy coming up with new investment ideas and it’s very satisfying when those calls come good as the market catches up with your way of thinking.
How would you characterise your style as an investor?
I take my inspiration from Wayne Gretzky, the ice hockey player. When asked why he was so good, he said that he skates to where the puck is going to be.
So instead of looking at where a company is now, I look to where I think they’ll be in the future and whether I think the shares are going to look cheap at that time.
I take my inspiration from Wayne Gretzky, the ice hockey player.
When you’re considering making an investment what key metrics or attributes do you look for the most?
The implications of structural change are generally underappreciated by the market. For a company to grow, either the market has to grow, or their competitive position has to improve – and ideally, I would like to see both – so understanding the dynamics of the market is very important.
I also need to consider how my thinking is differentiated to the market because if everybody already agrees on the outcome then it’s probably already reflected in consensus forecasts and valuation.
As an accountant, I would certainly say the numbers are important, but they aren’t as important as the underlying story. Numbers are the output, not the input.
Same question as above but for exits from the portfolio: What would trigger a sale or an exit of a holding?
The ideal case is that everything we predicted comes to pass, the shares perform really well to reflect that, and then we can sell for a big profit.
But the reality is usually less clear-cut than that. The story will evolve over time and things will happen that we weren’t able to predict – both on the positive and negative side.
When that happens, we have to consider whether the investment thesis remains intact. A good discipline we have is to ask ourselves whether we would want to buy the shares if we didn’t already own them.
What are the strengths of the European Equities team?
James Rutherford, the head of the team, and myself have over 60 years of combined investing experience and we’ve worked together for over 15 years. This experience means that we’ve invested (and outperformed) in a lot of market environments, so there’s not much that would cause us to panic.1
Everybody in the team is a generalist, and that’s by design, because the world is interconnected and we want to see the opportunities in those connections.
The third point I’d make is more of a strength for our investment capabilities overall. The investment floor is very collegiate. We aren’t siloed and there are lots of discussions and idea-sharing. That’s not just with the other equity teams but also with the other asset categories like credit, real estate, private equity, and private lending.
Given the current market and macroeconomic backdrop how should investors position themselves in the coming months?
We invest our clients’ money in companies that we believe will be strong players in their respective fields in the future. I can’t say whether they’ll do particularly well in any given quarter, but I have a high degree of confidence that they’ll do well over the long-term. We also won’t buy anything just because it ‘looks cheap’ – the fundamentals have to stack up.
For investors deciding between fund managers, I would say the same advice applies. Go with the person whose long-term vision and values you have faith in. They won’t be able to guarantee outperformance in a given quarter but over the long-term they should deliver.
What’s special about investing in Europe? Why should investors consider adding an allocation to their portfolios?
One expression that we’re fond of is that ‘the market is not the economy’. European GDP growth has been relatively anaemic compared to India and China’s economies over the last five to ten years. Yet, over that same timeframe, the European market has performed just as well as their stock markets.
The reason that’s happened is because European companies tend to be very international in their exposures. If you look at the largest companies, representing the top 50% of the MSCI Europe Index2, they get about a third of their revenues from Europe, a third from America, and a third from Asia. So, what’s happening in their respective industries is more important for their fortunes than what’s happening in their home economy.
So, when you invest in Europe, it’s a statement that you believe Europe is a good place to develop companies. And fundamentally, equities are a natural hedge against inflation – when you pay higher prices for good and services, the company supplying them is getting more revenue.
In a Citywire survey of fund allocators, European Equities was the area they least wanted to allocate to for this year3. This is an opportunity because the best time to invest is when the asset is unloved or underappreciated, especially if it’s unjustified.
What are your interests outside of work?
I can’t get out on my motorbike as much as I’d like to anymore, so I get my adrenaline rushes from videogames where it doesn’t hurt as much if you get it wrong. We also have a young Labrador who I chase around to keep me fit.
The other thing I’m passionate about is mentoring young people from disadvantaged backgrounds looking for a career in financial services. I was the first in my family to go to university and I didn’t have any real understanding of the corporate world, so for me to get to where I am now involved a lot of good luck beyond the hard work. I want to help others make it more about working hard than getting lucky.
To find out more about our Sustainable Europe and Europe ex-UK strategies, please visit our website.
And, for further insights on Europe, please read our recent take note: ‘It’s time to take a chance on Europe’.
1 Past performance is not a reliable indicator of future performance.
2 Bloomberg / Federated Hermes, as at March 2023.
3 Citywire Amplify, ‘Where more than 400 fund selectors expect to allocate’, as at 6 March 2023.