Emma Wall: Hello and welcome to the Morningstar Series "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Lewis Grant, Manager of the Hermes Global Equity Fund.
Hi Lewis.
Lewis Grant: Hi there.
Wall: So, I am going to start by congratulating you really because we are all at the 1st December and so far year-to-date the fund is up 25%. How have you done it?
Grant: Thank you. Well really it's our tried and tested method. Its, looking for high quality companies at an attractive price. Looking for companies that can tick all of the boxes and not getting too vetted about one exciting idea. But using diversification, looking for the negatives in the investment, making sure you avoid mistakes and just finding those good solid companies that can keep performing and investing for the long term.
Wall: If you look at what has done well this year. It's basically the opposite of what went well last year. So presumably, the things that you've avoided this year because it says much about avoiding the mistakes. Are those things that started to look pretty well valued this time last year.
Grant: That’s absolutely right. First half of this year was all really about the bond proxies continuing, looking for those companies that offered some yield, high quality companies come to that little bit of growth. Companies that investors felt they could rely on, but the valuations were just getting increasingly stretched. And we get a little bit nervous about that. So, while we did participate in some of these companies paying a steady dividend.
We were really focused on the valuations and by not getting too excited about companies with 1% dividend, trading on a 30 times multiple which too many people did, we avoided that second half of the year when these bond proxies really underperformed and the last few weeks when interest rises have become almost certain and those companies have done terribly.
Wall: I know you don’t like things that become almost certain, because you like to diversify and hedge the bets. But that interest rate certainty is fueled a lot by the idea that we're going to get inflation both in the U.S. and in the U.K. Is inflation something that you are going to look avoid in the next 12 months?
Grant: I think that’s true. I mean again, we don’t like to focus on one idea too much. We're definitely very conscious that companies that are sensitive to wage rises, companies that are looking to import into the U.S. in particular these companies could struggle. So, we are trying to avoid companies that are inflation sensitive without letting our portfolio become a single negative inflation bet.
Wall: So, looking then at the other negatives in the market that you are perhaps trying to avoid and indeed the opportunities over the next year. How are you positioned going into 2017?
Grant: Well, there are few obvious things that seem to have come out of the Trump victory in the U.S. The banks for example, will do very well with rising interest rates and lower regulation. But one of the areas we're really looking at is climate change. Now a lot of people are talking negatively about climate change following the U.S. election and I can absolutely understand why. But climate change is a long term phenomenon.
The solutions to climate change will transcend in its four or even eight years. So actually these stocks have underperformed because they are sensitive the rise of fossil fuels and President Trump. Actually, renewable energy names are now very, very attractive and I actually think this is a buying opportunity for some of the renewable names.
Wall: Lewis, thank you very much.
Grant: Thank you.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
