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UNCONSTRAINED CREDIT

Dynamic multi-sector credit investing throughout market cycles.

By combining unconstrained, high-conviction credit selection with a hedge against adverse market conditions, we aim to maximise long-term total returns.

Andrew Jackson & Fraser Lundie

Co-Managers

Unconstrained

Unconstrained, high-conviction investment across the global liquid credit spectrum.

Alpha generation

Alpha generation through issuer and security selection: sourcing high-conviction, bottom-up ideas globally and throughout corporate capital structures.

Superior relative value

Capturing superior relative value throughout credit markets as investment conditions change.

Optimal convexity

Optimal convexity through an options overlay: aiming to protect return-seeking investments from perceived market and macro risks.

Credit expertise

Outsource credit-allocation decisions to a team of skilled, experienced global credit investors operating within a robust governance framework.

ESG integration

ESG integration and engagement ensures responsibility is embedded in every investment decision.

Hermes unconstrained credit strategy

  • Top-down oversight

    The Multi Asset Credit Investment Committee meets every month and determines top-down, dynamic credit allocations throughout market cycles.

  • Bottom-up skill

    Bottom-up credit selection is implemented through intensive fundamental credit analysis that includes pricing in ESG risks.

  • Downside defence

    High-conviction, bottom-up positions in liquid-credit markets are shielded using simple index options to hedge against down markets.

  • Full spectrum

    The strategy aims to exploit opportunities in developed and emerging markets, corporate and government bonds, derivatives, asset-backed securities and credit-index options.

Pricing ESG risk in credit markets

There is plenty of evidence showing that poor environmental, social, and governance (ESG) behaviours can lead to the erosion of a firm’s enterprise value. This has implications for both equity and credit investors. As a result, our investment analysis has historically considered ESG risks alongside more traditional operating and financial risks. However, until now it has been challenging to price ESG risks in a similar way to these core credit risks. In order to analyse ESG risks with greater precision, we have developed a pricing model to capture the influence of these factors on credit instruments. Read more here.

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US homebuilders - on strong foundations? US homebuilders have been hurt this year by concerns that rising interest rates could keep buyers at bay. But, as the sector continues to report strong demand for new housing, Fraser Lundie, Co-Head of Credit and Anna Chong, Credit Analyst, Hermes Investment Management ask: is the backdrop for US homebuilders favourable? The recent rise in interest rates – coupled with expectations of further rate hikes from the US Federal Reserve – has weighed heavily on US homebuilders this year: investors fear higher mortgage rates will weaken demand. But despite talk of a slowdown, industry fundamentals are still supportive of US homebuilders. Strength in the economy and labour market have boosted demand for housing. In Q2, US economic growth enjoyed its best performance in almost four years, increasing at an annualised rate of 4.2%, while unemployment remains low at 3.9% and job creation is solid. In July, employers added 157,000 jobs. Moreover, homebuilders’ recent robust earnings results demonstrate that demand has not been impacted by rising mortgage rates, with many reporting strong orders – an indicator of future revenue for homebuilders. Tight existing home inventory should also spur demand for new builds. Meanwhile, in a post-earnings call with analysts last month, Toll Brothers’ Chief Executive Douglas Yearley pointed to a structural shift towards the new-home industry – with buyers wanting to “create a one-of-a-kind custom home” rather than live in existing homes.

Sales Contacts

Dan Churchouse, Director - UK Wholesale
Clive Selman, Head of UK Wholesale