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Insight - Q1 2018

Latest perspectives and firm updates for the institutional community

Home / Insight Newsletter Q1 2018

It is hard to believe we are now ten years on from the start of what turned out be to be the Global Financial Crisis and thirty years on from Black Friday, yet equity markets have returned to new highs and bond yields to all-time lows. So what has changed?

One thing that has certainly changed is how much impact our investment decisions are having on the environment and society around us. Across the world, the question being asked by clients is no longer “Why should we include ESG into our strategy?” but “Why shouldn’t we include ESG?”, many clients are now actively seeking ways to sustainably invest their assets to deliver outcomes beyond performance.

Our Global Emerging Markets equity strategy consider ESG issues as an essential part of their process and in this quarter’s edition of Insight, the Head of Hermes Emerging Markets, Gary Greenberg, provides his outlook for the asset class for 2018. Social impact is also covered in the paper from Hermes EOS looking at the consideration of human rights of indigenous people. Our Senior Economist Silvia Dall'Angelo looks at the outlook for inflation globally. Finally, Tommaso Mancuso of our Multi Asset team shares his research on the role of fixed income in multi-asset portfolios and draws some fascinating parallels between the 60’s and now and challenge sour beliefs around the Efficient Frontier.

As ever, if you would like more information on any of the topics covered or on Hermes then please contact us.

Latest insights

Emerging Markets

The tailwinds have arrived: Our 2018 outlook for emerging markets

Two years ago, we argued that 2016 was a year…

Learn more
Social

When companies and indigenous peoples collide

Learn more
Macro Economics

Searching for the Phillips curve: the puzzle of missing inflation

Learn more
Multi Asset

Balanced Portfolios: Safer without bonds?

Learn more

Updates

Business Update

aum-graphic-311217

  • In December we announced the launch of the Hermes Impact Opportunities Strategy, which will be managed by Tim Crockford, and supported by a team of four. The Hermes Impact Opportunities Strategy will be leveraging expertise from across the business, including global and regional equity teams.
  • The Hermes SDG Engagement strategy was launched in January and will be managed by Hamish Galpin.  The Strategy aims to generate strong investment returns while creating positive impacts on society through engagements focused on the United Nations Sustainable Development Goals (SDGs).
  • In December Hermes acquired The Co-op Group’s entire share interest in the sites and buildings within their NOMA Joint Venture (JV). NOMA is Manchester’s most significant urban regeneration scheme and the largest development project in North West England.
  • At the beginning of February this year Hermes Investment Management moved to new offices at 150 Cheapside. Based in the heart of the City, and totalling 46,000 square feet, 150 Cheapside will now be home to 400 members of staff.

Please note the total AUM figure includes £5.8bn/US$7.8bn/€6.5bn of assets managed or under an advisory agreement by Hermes GPE LLP (“HGPE”), a joint venture between Hermes Fund Managers Limited ("HFM") and GPE Partner Limited. HGPE is an independent entity and not part of the Hermes group. £125.8m/US$170.1m/€141.7m of total group AUM figure represents HFM mandates under advice. Source: Hermes as at 31 December 2017 with the exception of one portfolio totalling £9.9m/US$13.4m/€11.1m valued as at 30 September 2017, and one portfolio totalling £2.7m/US$3.6m/€3.0m valued as at 30 June 2017.

People

  • In January Eoin Murray, Head of Investment, joined the Hermes Executive Committee. The Hermes Executive Committee is responsible for setting the strategic direction of the business and ensuring the objectives agreed with the Board are met.
  • Hermes also appointed Amit Mehta as Director and Senior Asia Analyst in its emerging markets team. Based in London, Amit will report into Gary Greenberg, Head of Emerging Markets.

Stewardship

  • Hermes Investment Management wins ESG manager of the year award for second year running at Financial News annual Asset Management Awards, Europe.

Performance

Hermes Performance to end of December 2017

  Three months One year Three years Five years Since inception
High Active Share Equities
Asia ex Japan (Inception: 01/01/10, USD) 8.37 45.74 16.96 17.90 16.72
Benchmark (MSCI AC Asia ex Japan IMI) 8.46 40.54 10.31 7.74 6.94
Relative -0.10 5.20 6.65 10.15 9.78
           
Global Emerging Markets (Team inception: 30/06/11, USD) 7.69 48.29 14.56 11.47 7.96*
Benchmark (MSCI Emerging Markets IMI) 7.74 37.28 9.39 4.84 3.00
Relative -0.04 11.01 5.17 6.64 4.96
           
Global Equity Core (Inception: 01/12/07, USD) 5.81 24.02 10.77 13.69 6.51
Benchmark (MSCI Developed World) 5.51 22.40 9.26 11.64 5.01
Relative 0.31 1.62 1.51 2.05 1.50
           
Global Equity Screened ESG (customised exclusion list) (Inception: 01/09/12, USD) 5.87 22.33 10.52 13.54 13.73
Benchmark (MSCI World) 5.51 22.40 9.26 11.64 11.95
Relative 0.36 -0.07 1.26 1.90 1.77
           
Global Equity ESG (best ideas) (Inception: 01/05/13, USD) 5.73 23.98 10.53 12.00
Benchmark (MSCI ACWI) 5.73 23.97 9.30 9.46
Relative 0.00 0.01 1.24 2.55
           
European Alpha (Inception: 14/06/07, EUR) -0.68 8.70 9.00 9.75 5.22
Benchmark (FTSE All World Europe) 0.92 10.96 7.95 9.81 2.95
Relative -1.59 -2.26 1.04 -0.06 2.27
           
Europe Ex-UK (Inception: 08/08/08, EUR) 0.52 20.66 13.90 13.27 10.08
Benchmark (FTSE World Europe Ex UK TR) -0.35 13.01 9.01 11.17 6.59
Relative 0.88 7.65 4.89 2.10 3.48
           
Eurozone (Inception: 01/08/13, EUR) 0.72 16.74 11.92 11.53
Benchmark (MSCI EMU) -0.55 12.47 8.84 9.92
Relative 1.27 4.26 3.07 1.62
           
US SMID (Team inception: 28/02/09, USD) 5.80 12.24 11.63 15.09 20.66*
Benchmark (Russell 2500) 5.24 16.81 10.07 14.33 19.17
Relative 0.56 -4.57 1.56 0.76 1.48
           
Global Small Cap (Inception: 01/07/11, USD) 8.54 23.17 12.67 14.13 12.86
Benchmark (MSCI World Small Cap Index) 5.32 23.19 11.78 13.69 10.70
Relative 3.22 -0.01 0.89 0.44 2.16
           
US All Cap (Inception: 01/06/15, USD) 6.07 18.66 11.66
Benchmark (Russell 3000 Index) 6.19 20.46 10.81
Relative -0.12 -1.80 0.85

Past Performance is not an indicator of future results.

*Team inception

Source: Hermes as at 31 December 2017. Performance shown is in base currency, gross of fees. Returns over one year are annualised. Relative returns are calculated on an arithmetic basis. 

Hermes Performance to end of December 2017

  Three months One year Three years Five years Since inception
Specialist Fixed Income
Global High Yield Bonds
(Inception: 01/06/10, EUR)
1.07 8.02 5.62 6.38 8.40
Benchmark (Merrill Lynch Global High Yield
Constrained (euro hedged))
0.04 5.82 5.25 4.79 7.14
Relative 1.03 2.20 0.37 1.60  1.26
           
Multi Strategy Credit
(Inception: 01/06/13, USD)
0.97 6.34 5.76 6.08
Benchmark (N/A)
Relative (N/A)
           
Absolute Return Credit
(Inception: 01/06/15, USD)
0.63 3.81 2.80
Benchmark (N/A)
Relative (N/A)
           
Global Investment Grade Bonds
(Inception: 01/07/10, GBP)
0.93 5.85 4.17 4.17 5.40
Benchmark (Merrill Lynch Global Broad
Market Corporate excluding sub-Financial
100% Hedged GBP)
0.87 4.59 3.43 3.55 4.75
Relative 0.06 1.27 0.74 0.62 0.65

 Past Performance is not an indicator of future results.

*Team inception
Source: Hermes as at 31 December 2017. Performance shown is in base currency, gross of fees. Returns over one year are annualised. Relative returns are calculated on an arithmetic basis. 

Hermes Performance to end of December 2017

Hermes Infrastructure

Manage £4.3 billion* across a managed account programme, segregated accounts and a pooled vehicle

Performance p.a. since inception at 30 September 2017  
Hermes Infrastructure Fund I 11.4%
UK Retail Price Index 2.5%
FTSE 100 Total Return Index in GBP 10.1%

*As at 30 September 2017. AUM includes NAV plus unfunded commitments.
Source: Hermes Infrastructure, Bloomberg. Performance as at 30 September 2017 since inception of HIF I (21 December 2011) net of underlying manager fees, gross of Hermes Infrastructure fees. Past performance is no guarantee of future results. Returns over one year are annualised.

Hermes GPE

Private equity fund investment

  • 25 year fund track record (1992–2017)
  • $6.8bn committed in 250 funds with 153 GPs worldwide, generating returns of 1.6x and 13.0% IRR2,3

Private equity co-investment

  • 16 years track record (2001–2017)2
  • $2.6bn committed to 177 private equity co-investments with 87 GPs worldwide2
  • Gross 1.8x and 23.0% IRR on 73 realised investments2

Past Performance is not an indicator of future results.

2 As at 30 September 2017.
3 Net of all underlying GP fees. Based on USD metrics. 

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Hermes 5 Year Rolling Performance to end of December 2017

  31/12/16
to 31/12/17
31/12/15
to 31/12/16
31/12/14
to 31/12/15
31/12/13
to 31/12/14
31/12/12
to 31/12/13
Equities
Asia ex Japan  45.74 8.25  1.41  9.74 29.75
Global Emerging Markets 48.29  9.37 -7.31 3.81 10.30
Global Equity Core 24.02 9.46 0.13 5.55 32.38
Global Equity Screened ESG  22..33 9.47 0.82 6.30 31.46
Global Equity ESG  23.98 6.43 2.34  4.66 -
European Alpha  8.70 1.14 17.78 0.32 22.59
Europe Ex UK  20.66 1.68 20.43 1.83 23.92
Eurozone 16.74 2.20 17.50 5.88  -
US SMID  12.24 21.31  2.17  6.12 36.79
Global Small Cap  23.17 13.95 1.91 -1.50 37.45
US All Cap  18.66 12.84 - - -
           
   31/12/16
to 31/12/17
 31/12/15
to 31/12/16
31/12/14
to 31/12/15
31/12/13
to 31/12/14
31/12/12
to 31/12/13
Specialist Fixed Income
Global High Yield Credit  8.02  11.18  -1.90 5.53  9.59
Multi Strategy Credit  6.34  10.08  1.05 6.11 -
Absolute Return Credit 3.81 3.42 - - -
Global Investment Grade Bonds 5.85  5.91 0.84 8.38  0.12

Past Performance is not an indicator of future results.

Net Performance and GIPs disclosure is available here.

UK Institutional Contact Information

Mark Miller + 44 (0)20 7680 2205 mark.miller@hermes-investment.com
Consultant Relations

Doug Anderson

Tom Rutter

+ 44 (0)20 7702 6127

+ 44 (0)20 7680 2346

douglas.anderson@hermes-investment.com

tom.rutter@hermes-investment.com

Business Development

James Lucas

Siman Thind

+ 44 (0)20 7702 6169

+ 44 (0)20 7680 3741

james.lucas@hermes-investment.com

siman.thind@hermes-investment.com

Client Relationship Management

Gareth Davies

Anna Roberts

+ 44 (0)20 7680 2136

+ 44 (0)20 680 2222

gareth.davies@hermes-investment.com

anna.roberts@hermes-investment.com