FEDERATED HERMES US SMID EQUITY F GBP

Investment Process

Manager Mark Sherlock’s process involves looking for companies with a durable competitive advantage, a strong balance sheet, cash generation, and capital discipline. Healthy ESG metrics and a talented and visionary management team are other prized assets. Sherlock believes that over the long-term, companies with these characteristics outperform with less risk. As such he takes a bottom-up investment approach rather than being driven by what is happening in the economy. The management team has an investable universe of 2,500 names, which is slimmed down to 800 using quality and financial stability screens. They then carry out a fundamental and qualitative assessment of a company - including visiting them in the US - to see if they have the traits they desire. Stocks that have these strengths then join a watchlist of about 200 companies. A detailed company report and cash flow model is drawn up for each stock and an investment is made once they are trading below intrinsic value. The team then perform a composition review, an optimisation tool run monthly incorporating quantitative and qualitative data on each of its companies, to effectively manage position sizes. The portfolio typically contains around 60 stocks.