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Meet the Manager: Henry Biddle

Insight
3 April 2024 |
Sustainable
In our latest instalment of ‘Meet the Manager’, Henry Biddle, Portfolio Manager on the Sustainable Global Equity and US SMID Equity strategies, explains what he loves about his job, why he considers himself a quality investor, and the one thing that would make him check his inbox on holiday.

What’s your role at Federated Hermes?

I’m a portfolio manager on the US Equity Strategy and on the Sustainable Global Equity Strategy.

How did you get started in your career?

I started off straight out of university, training as an accountant with Deloitte. I did that for four years, as I wanted a broad base within financial services to work out exactly what I wanted to do. After that, I became more interested in markets and worked on the sell side, covering diversified financials, before joining Federated Hermes in 2012 to work on the US Small and Mid-Cap Strategy.

How would you characterise your style as an investor?

I look for companies that have clear moats and durable competitive advantages – so, something that makes them unique. That means they can ‘beat the fade’ and generate returns over a long period of time, and that can come in a variety of different forms. It could be a technological lead or an advantaged asset, for example, or it could be relationships with customers. Something that means they’re better than their competitors and tends to lead to them generating higher margins and winning market share over time.

What do you enjoy the most about your current role?

I love my job, but there are two aspects that I really like. One is the market, and having that as a constant, ever-present backdrop is something I really enjoy. I check the market in the evenings, when I’m on holiday – I’m addicted to that and it’s something I love having as a backdrop. Finding new ideas and thinking about how they will behave in certain environments and trying to find businesses that can win over a market cycle – it’s something I find exciting. On a day-to-day basis, I love the variation my role offers. From researching a name, writing a report, building a model, talking to investors; there’s a lot of variety, and I enjoy that mixture.

What’s special about investing in sustainable global equities, and why should investors consider adding an allocation to their portfolios?

There’s no doubt that investment has changed over the last 15 years, and businesses have to account for their externalities to a far greater degree. You’ve seen that change driven by an evolution of consumer preferences and regulation, and it’s accelerating. Businesses that are on the wrong side of the line are seeing their cost of capital go up and businesses that are getting it right and have the products and services that embrace the change are the ones that are going to flourish.

What’s special about it is finding those businesses that have found the ‘secret sauce’ in their particular industry. Be that an HVAC1 company that has the lowest emissions and is taking market share, or a healthcare company that has a particular product which is market leading and addressing many of the challenges that an ageing population creates. So, that changing macroeconomic backdrop creates opportunity and the sustainable lens is the right one through which to look at the market over the next decade.

On the one hand, there's a cyclical recovery at play which you want exposure to, and then, secondly, it's that idea of what's working here and now in those accelerating structural trends.

What are the strengths of the Sustainable Global Equity team?

The Sustainable Global Equity team has many strengths but the ones I’d bring out are expertise and diversity of thought.

We’ve got a deep bench, with three portfolio managers who have varied experience across markets and different types of investing over the last 20 years. We’ve also got a rich pool of analysts who have specific expertise in niche areas of sustainable investing. Bringing that expertise around energy transition or around parts of healthcare, when you’re mapping out particular thematic areas in which to invest, is valuable.

In terms of diversity of thought there are different types of investors within the team and different ways of thinking that mean we have people who prefer the long duration gamechanger-type names, which typically a more ‘growthy’. But we also have people who are looking more at transitioning businesses that often trade on lower multiples. That creates diversification within the portfolio, which allows it to weather different market environments.

Given the current market and macroeconomic backdrop, how should investors position themselves in the coming months?

Clearly we’re entering a different environment than the one we’ve been in for the last five years. You can see that in the current base case 3% interest rates scenario, that’s very different to the environment we saw during the pandemic and the low-rate environment prior to that. To me, that points to quality as a characteristic which has the potential to outperform because you want businesses that can generate their own cash and have pricing power to offset inflation.

So, I think that’s the sort of backdrop from a style perspective that I would favour in that environment. I think here and now, there’s no doubt that the economic clouds are receding, and it looks more likely that we are heading for a soft landing and that global growth will likely pick up in the second half of the year. That means you want to be investing in a strategy that can fully take part in that.

Elsewhere, we’re seeing accelerating trends in certain areas of the market. In technology, around AI, you’re seeing businesses starting to monetise that in a pretty powerful way. Again, I think you want to be invested behind that. And it’s the same for healthcare. Current medical advancements are enabling drug development that can deal with the growing needs of an ageing demographic. That’s creating opportunities, and demand is growing, and the ability to serve that demand is accelerating.

On the one hand, there’s a cyclical recovery at play which you want exposure to, and then, secondly, it’s that idea of what’s working here and now in those accelerating structural trends. So, those are the two angles I’d have within any portfolio and which we’ve got within the sustainable strategy.

When you're considering making an investment, what key metrics or attributes do you look for the most?

I think the key attribute from a qualitative perspective is that idea of an economic moat or a durable competitive advantage, something which allows that business to beat its competitors and ‘beat the fade’ and continue to earn those returns over time without their market position being upended. What metrics do I look for? I think typically high returns and free cash flow generation and margins that are superior to competitors would be the sort of quantitative metrics that flow from that qualitative characteristic.

Same question as above, but for exits from the portfolio, what would trigger a sale or an exit of a holding?

We tend to sell positions for three reasons. The first: you’ve got a better idea. The second is valuation. And the third (and most important) reason is if the investment thesis has broken down for some reason. Dare I say it, if you’ve got it wrong or more likely the economic moat around the business is narrowing and something’s changing which means that the business is no longer in as good a position as it was when you made that initial investment.

When that’s the case, we’ll get out of the name really quite quickly and that’s, I think, something we’ve got better at across the strategies that I work on over time. Being stricter with ourselves and testing that thesis again and again.

There must be times of intense activity if the market moves. Is that a trigger to look at those watchlist names?

Yes. A movement in interest rates might enable your ability to get into a name that is more interest sensitive. Typically, we’re long-term investors across both strategies (US SMID and Sustainable Global Equity), but there’s no doubt that volatility creates opportunities across both. And really, that’s where having a watchlist of names comes in handy because you’re able to move quickly and be nimble. We have a relatively institutional process that I would say is thorough, but you can add this sort of capability to move as and when the market allows you, with a volatile backdrop.

What are your interests outside of work?

I have a young family, so I spend a lot of time either ferrying my children around or doing fun things with them. From a personal perspective, I enjoy any racket sport. So, I’m into my tennis and squash, and I do also like golf.

To learn more about Sustainable Global Equity, please click here.

To learn more about US SMID Equity, please click here.

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