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Investing 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.

GEMS SMID is an under researched market that presents the opportunity to find hidden gems.

Gary Greenberg

Lead Portfolio Manager

Quality and safety

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 integrated

ESG factors are incorporated into our bottom-up investment analysis for a comprehensive view of risk and opportunity.

Truly active management

A concentrated portfolio with a high active share, invested with a long-term perspective.

Small- and mid-cap (SMID)

The portfolio invests in companies that can generate sustainable long-term growth, resulting in attractive long-term shareholder returns.

Strategy overview

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.

Bottom-up stock selected and ESG integrated with explicit top-down analysis

Investment philosophy and process

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 Hermes’ stewardship and engagement team, Hermes 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.


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