Presenting the Federated Hermes Asia ex-Japan Equity Fund
Since launch in November 2012 the Federated Hermes Asia ex-Japan Equity Fund ranks among the best-performing Asian equity funds despite stylistic headwinds.
Jonathan Pines, portfolio manager of the Federated Hermes Asia ex-Japan Equity Fund, provides a snapshot of the five key attributes of the fund.
IMPORTANT INFORMATION
We look at the portfolio from five angles to see how it has achieved this and why investors should be considering Asia within their portfolios.
Asset class
1
2
Process
3
Differentiator
4
Team
5
Track record
While volatility in Asia tends to be higher than the rest of the world, Pines says the region is home to lots of different markets, all with different characteristics, and therefore tends to always at least be one area that offers attractive opportunities in absolute terms.
* Excluding formal firm-wide and fund-level exclusions
One area the Federated Hermes Asia ex-Japan Equity Fund is overweight is China. With the Hang Seng Index currently trading on a price index multiple of around 9 times on a forward-looking basis, Pines says valuations in the country are close to an all-time low relative to the rest of the world.
“There’s a huge amount going on in the world geopolitically that has contributed to the rise in volatility, but risk often gives rise to opportunities,” says Pines.
Given that Asia also tends to be a less efficient region, Pines says a cheap valuation at the benchmark level implies a wealth of opportunities for stockpickers to generate good returns over the long term. “Paying a low price is one way to improve the odds of doing well from an investment over time.”
Fund size as at 30 June ’23
NEXT
1 NOV ’12
Launch date
£2,623M
At the core of the investment process behind the Federated Hermes Asia ex-Japan Equity Fund is to buy stocks cheaply relative to value irrespective of their quality. “We are philosophically indifferent to buying a $50,000 Ferrari or a $5,000 Ford. They are both great deals.”
“We are contrarian investors,” says Pines. “Often the stocks we buy are attractively priced because news flow has recently been negative, and the companies have underperformed.”
The team takes the risk of permanent capital loss far more seriously than other risks such as volatility or departure from the benchmark. He says the biggest positions are in companies the team believes offer an asymmetric payoff between risk and reward and somewhat limited absolute downside. He says he believes it is probably partly for this reason that historically the fund has had an especially strong tendency to outperform in down markets.
Investing in approximately 60 companies (typical range 50-60), Pines describes the fund as being high conviction with the top 10 holdings accounting for 40% of the portfolio.
Typical holding periods are between 18-24 months.
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.
Pines says the two aspects that differentiates the team from its peers is first that it is prepared to go up and down the quality spectrum depending on where the opportunities are. This means that in addition to looking for top-quality companies, they will also buy lower-quality names if they are “sufficently cheap”. Second they are contrarian, often buying stocks that for one reason or another are out of favour and in the opinion of the team too cheap as a result.
According to Morningstar data, Pines says the fund is an outlier versus its largest peers when it comes to the market cap of the companies invested in (large cap vs megacap) and value-versus-growth (far more value) positioning.
“The quality of the companies in the portfolio is currently approximately in line with our benchmark but we are multiple standard deviations cheaper and we thus believe we are well positioned, even if value does not outperform growth prospectively,” he says.
Working closely with Federated Hermes’ EOS, Pines says the fund also factors in ESG considerations within its stock-selection process, with the focus placed on engagement.
Lead manager Pines has 24 years’ industry experience and has worked at Federated Hermes for 14 years, managing the Federated Hermes Asia ex-Japan Equity Fund since launch.
Working alongside Pines is deputy portfolio manager Sandy Pei, who rejoined the company in July 2013 and has 14 years of industry experience; Maggie Sun, who joined the company in February 2016; Dean Brown, who joined the Asia ex-Japan team in March 2019; and Jia Xu, who joined at the start of 2022.
Pines says: “We have had a stable team and we work well together, with team members broadly sharing the same stockpicking philosophy, but also bringing their own insights and perspectives.”
Three of the team are also Mandarin speakers, which Pines adds is also an advantage – especially given the large weighting of China in the benchmark, and current opportunity set.
The fund is ranked first-quartile within its sector, according to Morningstar since launch to 30 June 2023, with an annualised return of 11.23% versus the benchmark (MSCI AC Asia ex-Japan IMI Net) return of 6.62%.*
Pines says: “While evidently the fund has not relied on value outperforming growth to outperform, it would be nice if we had a ‘value tailwind’ rather than a ‘growth headwind’ for a change.”
Rolling year performance (%)
Past performance is not a reliable indicator of future results. Prior to 26 June 2020, Federated Hermes Asia ex-Japan Equity Fund was named Hermes Asia ex-Japan Equity Fund. Performance not available for all of the above period. 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 since seeding on 5 December 2012, prior track record is the Z share class Sterling Accumulating, fee adjusted since inception net of all costs. Subscription and redemption fees are not included in the performance figures.
* Source: Federated Hermes, Federated Hermes Asia ex-Japan Equity Fund Class F GBP Accumulating as at 30/06/23
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DISCLAIMER
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. 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.
