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The
Funds
HFAM and HFAME offer clients a new asset
class – shareholder engagement funds. There are
fours sets of funds, the UK Focus Funds and the UK Small
Companies Focus Funds managed by HFAM, the European
Focus Funds managed by HFAME and the Nissay Hermes Stewardship
Fund, focusing on Japan. This fund is managed by Nissay
Asset Management Corporation, a leading Japanese investment
manager, who are advised by HFAM. In addition, HFAM
has a strategic alliance with Relational Investors,
the leading US investment managers with a shareholder
engagement philosophy. Thus, we can offer clients a
shareholder engagement suite of funds covering around
90 per cent of the world’s equity markets.
The stated aim of the funds is to achieve significant
outperformance of the benchmark through being actively
involved with investee companies. The approach taken
by each fund is broadly similar but is adapted to suit
the specific circumstances of the markets in which they
invest. Each Focus Fund portfolio contains only a small
number of stocks and thus has a high tracking error.
Each fund is profiled below.
Hermes UK Focus Fund
The UK Focus Fund is managed by HFAM and was launched
in October 1998. It is Sterling denominated. Companies
in the fund are selected from the FTSE350. Typically
there are between 12 and 20 stocks held in the portfolio.
HFAM’s investment analysis will have identified
a value upside of at least 20 per cent before a company
is included in the portfolio. The tracking error of
the portfolio is normally between 10 and 15 per cent.
The performance target of the UK Focus Fund is to outperform
the FTSE All Share by 5 per cent a year over a three-year
period.
Hermes UK Small Companies Focus Fund
The UK Small Companies Focus Fund is also managed by
HFAM and was launched in March 2002. It is Sterling denominated.
The portfolio companies are selected from a universe
of UK publicly listed companies excluding those in the
FTSE350 and AIM-listed stocks. Typically there are between
10 and 30 stocks in the portfolio. The required potential
upside before a company is included in the portfolio
is higher than for the large company fund because of
the inefficiencies inherent in the smaller company market.
The tracking error of the portfolio is normally between
12 and 18 per cent. The performance target of the UK
Small Company Focus Fund is to outperform the FTSE Small
Cap Index (excluding investment trusts) by 6 per cent
a year over a three-year period.
Hermes European Focus Fund
The European Focus Fund is managed by HFAME and was
launch in February 2002. It is Euro denominated. Companies
in the fund are selected from a universe of approximately
500 non-UK European stocks which are over EUR 100 million
in market capitalisation. Typically there are between
5 and 20 stocks held in the portfolio. HFAME’s
investment analysis will have identified a value upside
of at least 20 per cent before a company is included
in the portfolio. The tracking error of the portfolio
is normally between 10 and 15 per cent. The performance
target of the European Focus Fund is to outperform the
FTSE Europe World Series excluding the UK by 5 per cent
a year over a three-year period.
More information about
HFAME
Nissay Hermes Stewardship Fund
The
Nissay Hermes Stewardship Fund (NHSF) is managed jointly
by Nissay Asset Management Corporation (NAM) in Japan
and HFAM in the UK. NAM provides the equity investment
research and portfolio management services and also
leads the dialogue with portfolio companies, whilst
HFAM provides investment advice regarding stock selection,
reviews the governance aspects and assists with company
dialogue.
NHSF
is a concentrated and actively managed equity fund that
is intended to generate value by running engagement
programmes with its portfolio companies. By proposing
specific improvements, NHSF aims to unlock additional
value in its portfolio. We apply this strategy to all
listed Japanese equities, though liquidity considerations
effectively rule out companies with a market capitalisation
below ¥100 billion. Typically, there are between
12 - 20 stocks held within the fund portfolio. The performance
target for the fund is to outperform TOPIX by 5% p.a.
over a 3-year rolling period. The tracking error of
the portfolio is normally between 6 and 12 per cent.
Relational Hermes
The Relational Hermes Fund is managed by Relational Investors
and was launched in May 2001. Relational Investors’ original
fund (RLIP) was launched in June 1996, making it the
longest running fund of this type that still operates.
The Relational Hermes Fund is US dollar denominated.
The fund invests in US and Canadian public companies,
giving it a universe of approximately 10,000 stocks.
Typically there are between 8 and 12 stocks held in the
portfolio. Relational’s investment analysis will
have identified a value upside of at least 50 per cent
before a company is included in the portfolio. The tracking
error of the portfolio is high. The performance target
of the Relational Hermes Fund is to outperform the S&P
500 Index by an average of 8 per cent a year.
Relational Investors Website
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using the above link you will be leaving the Hermes
website. Hermes is not responsible for the content
of external websites.
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