Investment Week, Lauren Mason, 15 March 2021
Federated Hermes has launched a new Sustainable Global Equity fund, which will be the first product within its new Sustainable suite of portfolios.
Harriet Steel, head of business development and executive board director at the firm, said even Federated Hermes’ “deeply embedded” focus on ESG investing (the company first began engaging with UK companies to improve corporate governance in 1983) could not prepare it for the “massive acceleration of interest” the industry has seen in such products over the past five years.
“If I look back to just a few years ago, the client audience that was interested in sustainable investing and ESG was a small handful of European institutional investors; as far as the wealth management channel was concerned, it was not even in their vocabulary in many cases,” she told Investment Week.
“At the time, ESG was seen as sustainability, and vice versa. But now, and especially with the onset of the pandemic last year, the landscape has very much shifted and wealth managers want to know how they can identify different objectives.”
Despite the new reclassification, the concept of categorising different types of ‘do good’ investing is not a new one for Hermes, which has been creating bespoke solutions for clients for several years.
“Given that we have been at this for rather a long time, we felt now was the right time to really broaden this access and improve clarity for investors as they begin re-evaluating their portfolios,” Steel added.
In terms of the new categories, the head of business development described the Active ESG suite as the “first and foundational pillar” within the three ranges, of which the Sustainable and Impact portfolios were created as further additions due to increased client demand for greater specificity.
She added the best way to distinguish between impact and sustainability is to consider “mission” and “intentionality” versus “values”.
“With impact investing you can quantify the difference you are making, whereas with sustainability you are capturing values and you are slightly less constrained in terms of how you invest,” she explained.
“Impact investors have a very specific mission that intentionally focuses on the positive transformation of companies. Within sustainability, the investor can say they have a set of environmental values they want to capture with the aim of having a lighter carbon footprint than the benchmark, so it is broader.”
Sustainable Global Equity
The first new product to be added into these new suites is the firm’s Sustainable Global Equity fund, which from today (15 March) is the first product to populate Federated Hermes’ Sustainable category.
The vehicle, which will have a concentrated portfolio of between 30 and 50 companies, will be headed up by Martin Todd, who has co-managed the £88m Federated Hermes European Alpha Equity fund alongside James Rutherford since 2013.
He also co-manages the firm’s £392m Global Impact Opportunities Equity fund alongside Ingrid Kukuljan, which since he took to its helm in November 2019, has achieved a top-quartile total return of 27.2%, compared to its MSCI AC World benchmark and IA Global sector average’s respective gains of 18.6% and 21.2%, according to data from FE fundinfo.
Lead manager Todd will work alongside Kukuljan as co-manager, who is head of impact and sustainability at Federated Hermes, on the new mandate. He will also be assisted by US equities portfolio manager Henry Biddle, who will serve as deputy manager.
“The fund, which will be a thematic portfolio, has dual objectives – it is about sustained capital growth as well as having very specific sustainability values represented in its objectives,” Steel explained.
“It will focus on four key themes: environmental preservation; social inclusion; health and wellbeing and efficient production and resource usage; then look for the ESG leaders within those themes.
“The managers will use their own proprietary measures for assessing these stocks as well as use exclusions to help frame those objectives.”
The fund will have an OCF of 0.45%.
In terms of what the future holds for Federated Hermes’ new fund categories, some products have automatically been moved into them as part of the firm’s reclassification process.
According to Steel, however, there is a distinct possibility for further impact, sustainable, and active ESG strategy launches.
“Part of the design for this was to frame our future product strategies and development in a way that will meet our clients’ objectives,” she said.
“I would say watch this space. But everything we do from now will be tied back to this categorisation and this framework.”