GEMS SMID is an under researched market that presents the opportunity to find hidden gems.
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Being able to identify inefficiently priced stocks at the lower end of the market cap spectrum gives a margin of safety in a volatile asset class.
ESG factors are incorporated into our bottom-up investment analysis for a comprehensive view of risk and opportunity.
A concentrated portfolio with a high active share, invested with a long-term perspective.
The portfolio invests in companies that can generate sustainable long-term growth, resulting in attractive long-term shareholder returns.
The strategy focuses on smaller and medium-sized companies in global emerging markets.
Analyst coverage of the SMID market in these regions is limited, financial disclosure is less extensive and management teams are less experienced and poorly served by financial advisers. This presents the opportunity to dive deep into financial fundamentals, informed by ESG, to find hidden gems. On average, smaller companies generate more revenue domestically. This makes them better positioned to capitalise on the rising middle class in some emerging markets while simultaneously reducing exposure to deglobalisation. Finally, as Bloomberg data shows, emerging market SMID companies are trading at one standard deviation below the ten-year average on P/E and Price-To-Book.
In our experience, domestic emerging market SMID investors often focus too much on short-term developments and news flow. The long-term nature of the strategy, and its focus on structural growth opportunities instead of transient stock-price movements, enables the team to look through short-term market fluctuations and seek compounding returns that deliver outperformance for investors.
The Strategy invests in stocks that typically trade within a market capitalisation range of $100m and $14bn with the potential to generate attractive long-term capital appreciation, resulting in sustainable long-term shareholder returns. Holdings are selected on their fundamental long-term merits and held in position sizes that reflect the expected upside, level of conviction, liquidity of the shares, risk factors, ESG characteristics and valuation.
ESG integration has been embedded in the GEM team’s process since 2011, and the new strategy will continue to implement ESG analysis in the investment process. Working with the engagement specialists in our stewardship and engagement team, EOS, the team raises ESG concerns with companies, which provides them with a deeper understanding of the business, its challenges and ways in which better ESG practices can improve the company and increase value for shareholders.
Kunjal Gala
Lead Portfolio Manager, Global Emerging Markets, Federated Hermes Limited
Kunjal Gala
Lead Portfolio Manager, Global Emerging Markets, Federated Hermes Limited
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Kunjal joined in February 2012 as a senior analyst on the Global Emerging Markets team focused on Asia ex-Japan. He became co-portfolio manager for pooled products and segregated mandates in September 2016. In January 2020, he became co-portfolio manager for all portfolios managed by the Global Emerging Markets team and was subsequently named lead portfolio manager in September 2020. Kunjal joined from Her Majesty's Government, where he worked from October 2008 as an assistant director in The Shareholder Executive, the in-house portfolio management and corporate finance arm of the UK Government. Prior to this he was a senior financial analyst at Morgan Stanley Investment Banking from December 2004, responsible for both business development and execution of M&A and strategy mandates within the consumer products coverage banking team. Previously he worked for Thomas Cook (India) in the management information systems division (September 2003), and PricewaterhouseCoopers in the Assurance and Business Advisory Service (August 2001). Kunjal has a Bachelor of Commerce from Mumbai University and is a qualified Chartered Accountant from the Institute of Chartered Accountants in India.
Vivek Bhutoria
CFA, Co-Portfolio Manager, Federated Hermes Limited
Vivek Bhutoria
CFA, Co-Portfolio Manager, Federated Hermes Limited
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Vivek joined in September 2019 as a senior analyst in the Global Emerging Markets team, focusing on idea generation across the Asia ex-Japan region. In January 2022, he also became co-portfolio manager for the Federated Hermes Global Emerging Markets Equity Fund. Vivek’s previous experience spans both the buy side and sell side. Prior to joining, he was a senior analyst with NN Investment Partners (formerly ING Investment Management) in the global emerging equity team. Vivek also worked at Deutsche Bank and BNY Mellon Asset Management covering emerging markets equities. Vivek began his career in accounting and held positions with PricewaterhouseCoopers and Ernst & Young. Vivek has a Master of Commerce degree from Mumbai University. He is a qualified Chartered Accountant (ACA) from the Institute of Chartered Accountants of India and a CFA charterholder.
