Presenting the Federated Hermes Global Emerging Markets Equity Fund
FOR PROFESSIONAL INVESTORS ONLY
However, the Federated Hermes Global Emerging Markets Equity Fund has a long track record within the region, having been launched in December 2008, and with the current team having managed the fund since March 2012.
In this Fund in Five, we speak to lead portfolio manager Kunjal Gala, to look at the fund from five angles and see why volatility is leading to investment opportunities.
Asset class
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Process
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Differentiator
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Team
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Goals
IMPORTANT INFORMATION
Investing in global emerging markets has been a volatile ride over the past two years.
“The five main areas we see opportunities coming from are consumption, technology, infrastructure investments, healthcare and financial services,” he adds.
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In terms of valuations, he adds that on any price metric chosen, emerging markets are currently trading on a 30-40% discount.
“The volatility in emerging markets has always been high and we don’t see a reason why this will come down,” he says. “And because these are often not priced correctly, there will always be buying opportunities in the region.”
A combination of rising global inflation, China’s zero-Covid policy and geopolitics in the US have led emerging markets to underperform developed markets in the past two years, says Gala. However, premised on the view that inflation and the US dollar may have peaked, and the fact central banks are set to become less hawkish, he adds the conditions are set for these headwinds to become tailwinds for the region in the next 12 months.
“While today the portfolio is positioned in quality stocks with a growth bias, we are beholden to neither growth nor value, meaning we have flexibility to invest where we believe the best opportunities are,” says Gala.
Investing in 40-60 holdings, he says the best way to add value for investors is through an investment process that integrates top analysis with bottom-up fundamental stock selection, augmented by ESG analysis and engagement.
“Emerging markets are undergoing rapid change: urban development and technological revolutions are increasing standards of living and creating a growing middle class,” he says. “Trends such as digitalisation, electrification, biotechnology and cyber security present exciting opportunities to identify the winners of structural change.”
Gala says the investment philosophy driving the fund is primarily focused on the longer-term, or secular drives that are evolving both globally and within emerging markets, and ignoring the short-term noise that often emits from the region.
ESG analysis and engagement is also integrated into the investment process, with no company being analysed for inclusion if there are any ESG red flags or major controversies.
* As at 28 Feb ’23
Fund size*
£3.57BN
60
Current holdings*
41.37%
Concentration of top 10 holdings*
“We don’t buy a stock just because it is cheap, for us everything revolves around fundamental research,” he says.
Another primary differentiator, he adds, is that the investment process is not designed to chase short-term cycles or momentum where the risk of bad timing and the loss of permanent capital is “high”.
“Because of our size we can invest across the market spectrum and we find a lot of misplacing opportunities in the small- and mid-cap space,” he says.
Gala says one of the key things that marks out the Federated Hermes Global Emerging Markets Equity Fund as being different to its peers is its all-cap philosophy meaning it’s not just restricted to large-cap stocks.
No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. RWC Partners Limited is authorised and regulated by the Financial Conduct Authority.
Based in London, the total global emerging markets team is comprised of 11 investment professionals, and Gala says the key characteristic is how diverse it is. “Several of the team have grown up and worked in emerging markets before relocating to London, so we have people who speak the local language and have local insight, which is absolutely necessary to invest in and cover emerging markets,” he says.
Kunjal Gala joined Federated Hermes in February 2012 as a senior analyst on the emerging markets team on Asia ex Japan. In January 2020, he became co-manager for all the portfolios managed by the global emerging markets team and was subsequently named lead manager in September 2020.
Vivek Bhutoria joined Federated Hermes in September 2019 as a senior analyst in the global emerging markets team, becoming co-portfolio manager in January 2022.
Chris Clube joined in 2018 as an investment analyst on the global emerging Markets team and became co-portfolio manager in November 2022.
“This is a fund of best-in-class companies and industry leaders who have pricing power, who just happen to be listed in emerging markets,” says Gala. “Many of these companies are globally competitive, meaning it is a portfolio investors might want to consider as part of their global equity allocation.”
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The investment goal of the Federated Hermes Global Emerging Markets Equity Fund is to deliver mid-to-high single-digit dollar returns over an investment cycle, which Gala says could be three-to-five years, or five-to-seven years’ long.
Since team inception until 28 Feb 2023, the fund has generated a cumulative return of 102.28% versus the benchmark MSCI Emerging Markets Net, which is 61.20%.*
*Source: Federated Hermes, Federated Hermes Global Emerging Markets Equity Fund as of 28 Feb 2023. Fund performance shown is valued at midday, the benchmark is valued at close of business. Performance shown is the F share class Sterling Accumulating net of all costs and management fees. Past performance is not a reliable indicator of future performance.
The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Any investments overseas may be affected by currency exchange rates. Past performance is not a reliable indicator of future results and targets are not guaranteed. Investments in emerging markets tend to be more volatile than those in mature markets and the value of an investment can move sharply down or up. The fund has environmental and/or social characteristics and so may perform differently to other funds, as its exposures reflect its sustainability criteria. For professional investors only. This is a marketing communication. This document does not constitute a solicitation or offer to any person to buy or sell any related securities, financial instruments or products; nor does it constitute an offer to purchase securities to any person in the United States or to any US Person as such term is defined under the US Securities Exchange Act of 1933. It pays no regard to an individual’s investment objectives or financial needs of any recipient. No action should be taken or omitted to be taken based on this document. Tax treatment depends on personal circumstances and may change. This document is not advice on legal, taxation or investment matters so investors must rely on their own examination of such matters or seek advice. Before making any investment (new or continuous), please consult a professional and/or investment adviser as to its suitability. All figures, unless otherwise indicated, are sourced from Federated Hermes. Whilst Federated Hermes has attempted to ensure the accuracy of the data it is reporting, it makes no representations or warranties, expressed or implied, as to the accuracy or completeness of the information reported. The data contained in this document is for informational purposes only, and should not be relied upon to make investment decisions. Federated Hermes shall not be liable for any loss or damage resulting from the use of any information contained on these pages. All performance includes reinvestment of dividends and other earnings. Federated Hermes Investment Funds plc (“FHIF”) is an open-ended investment company with variable capital and with segregated liability between its sub-funds (each, a “Fund”). FHIF is incorporated in Ireland and authorised by the Central Bank of Ireland (“CBI”). FHIF appoints Hermes Fund Managers Ireland Limited (“HFMIL”) as its management company. HFMIL is authorised and regulated by the CBI. Further information on investment products and any associated risks can be found in the prospectus, the fund supplements or the key investor information documents/key information documents, the articles of association as well as the annual and semi-annual reports. In the case of any inconsistency between the descriptions or terms in this document and the prospectus, the prospectus shall prevail. Details of the Manager’s Remuneration Policy and Sustainable Policies are available on the Policies and Disclosures page at https://www.hermes-investment.com/ie/hermes-ireland-policies-and-disclosures/, including: (a) a description of how remuneration and benefits are calculated; and b) Sustainability related policy and disclosures. These documents are available free of charge (i) at the office of the Administrator, Northern Trust International Fund Administration Services (Ireland) Limited, Georges Court, 54- 62 Townsend Street, Dublin 2, Ireland. Tel (+ 353) 1 434 5002 / Fax (+ 353) 1 531 8595; (ii) at https://www.hermes-investment.com/ie/; (iii) at the office of its representative in Switzerland (ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich www.acolin.com). The paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. Box, CH-8024 Zurich. The information provided herein does not constitute an offer of the Fund in Switzerland pursuant to the Swiss Financial Services Act (“FinSA”) and its implementing ordinance. This is solely an advertisement for the Fund pursuant to FinSA and its implementing ordinance. The costs for hedged share classes will be higher than the costs for non-hedged share classes. Refer to the prospectus or offering documents before making any final investment decisions and consider all fund characteristics and not just ESG characteristics. Issued and approved by Hermes Fund Managers Ireland Limited (“HFMIL”) which is authorised and regulated by the Central Bank of Ireland. Registered address: 7/8 Upper Mount Street, Dublin 2, Ireland, DO2 FT59. HFMIL appoints Hermes Investment Management Limited (“HIML”) to undertake distribution activities in respect of the Fund in certain jurisdictions. HIML is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. Telephone calls may be recorded for training and monitoring purposes. Potential investors in the United Kingdom are advised that compensation may not be available under the United Kingdom Financial Services Compensation Scheme.
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