Fast reading
- Short duration credit strategies typically focus on a singular region and currency. However, a global remit can offer a broader range of alpha sources and the ability to exploit currency pricing discrepancies.
- At Federated Hermes, our global short duration team draws on a wealth of experience and is integrated within the broader fixed income department, further reinforcing its global knowledge and reach.
Short duration strategies are typically constructed around a single geographical region and currency. However, in our opinion, a wider range of opportunities can be unlocked with a global remit encompassing various time zones and multiple currencies.
Short duration strategies – focused on credit of up to three years in duration – operate a step further along the yield curve compared to money market funds, yet retaining many characteristics of liquidity products, including the ability to navigate risk.
Short duration credit can potentially offer both higher yields and greater potential returns than cash and money markets because of its longer maturity profile, while the short-term focus helps to shield investors from longer-term uncertainties.
In the likely event that ongoing geopolitical turmoil – on top of the ever-present risk of idiosyncratic events – drives market volatility in the coming months (and years), the case for the asset class is likely to remain strong into the medium term, and beyond.
A global approach
The Federated Hermes Global Short Duration Strategy invests across investment grade, sovereigns and corporates, trading in multiple currencies (including the US dollar, the euro and sterling) allowing an element of arbitrage to capitalise on opportunities that may arise between currencies, maximising overall returns.
Fluctuations in inflation data across the world has exacerbated divergence in monetary policy at leading central banks – creating opportunities for a global investor.
Our Strategy incorporates global ‘building blocks’ – covering various asset classes – to structure and balance the portfolio and generate a competitive advantage in terms of performance (see Figure 1). The Strategy’s investment universe encompasses around 23 countries (including emerging markets [EM], which encompasses more than 80 sovereigns as well as best-in-class corporates) to more effectively source alpha.
Figure 1: Global building blocks
Currency advantage
The Strategy’s global approach also allows the team to leverage so-called ‘home bias’. It’s well-documented that many investors are more comfortable with credit issued in their domestic currency – which can sometimes be more expensive on a relative basis.1
A company’s assets can be priced differently depending on the currency it is denominated in. An issue by a US bank, for example, may be cheaper to buy in euros rather than dollars. On the other hand, an issue by a French bank may be cheaper to buy in dollars rather than in euros and then hedge back.
The Strategy has access to a wide range of products from around the world and is able to track these nuances and arbitrage any differences to maximise overall returns.
The Strategy’s global approach also allows the team to leverage so-called ‘home bias’.
A global team
Federated Hermes Global Short Duration Strategy is run by teams based in the US and the UK that have more than 100 years’ combined experience of successfully running global ultrashort, US short duration and securitised asset strategies.
Ihab Salib, Senior Portfolio Manager, has managed global short duration portfolios – both UCITS and segregated accounts – for more than 25 years for Federated Hermes.
Nick Tripodes, Head of Low Duration/Structured Products, has worked at Federated Hermes for more than three decades and has been an analyst and portfolio manager on the US dollar low duration strategies for 22 years.
Other members of the team include John Polinski, who is focused on European credit research, Andrew Lennox who is responsible for European ABS research and Yulia DI Mambro covers emerging markets corporate research.
The team is integrated within the broader fixed income team at Federated Hermes and is able to draw on a broad range of expertise to support international investment, which strengthens the global remit at the heart of the short duration strategy.
Global Short Duration - the what, the why and the when
BD016088
