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Hermes US SMID Equity

Elite Rated by FundCalibre

The fund invests in US small and medium-sized (SMID) companies valued between $1bn-$20bn. The managers look for quality business with minimal debt in industries with barriers to entry, or that provide products or services that cannot be easily replicated.

Company Description

Hermes Investment Management is owned by the BT Pension Scheme, one of the largest schemes in the UK. It has 11 specialist teams and is one of the market leaders in responsible investment advisory services. Awarded the Elite Equities Provider rating in 2017, Hermes manages money for clients in more than 20 countries across the UK, North America, Asia and beyond.


Fund Manager

Mark Sherlock was originally co-manager on the fund when it launched in September 2012 and he became lead manager in October 2013. He joined Hermes in 2005, having previously worked for PwC and Rio Tinto. Co-manager Michael Russell was a portfolio manager at Nomura Asset Management and BlackRock prior to joining Hermes in 2014. He has around 20 years investment experience. Supporting them is one of the largest US small and mid-cap equity research teams in London.


Companies with strong ‘moats’ and consistent cash flows - often in quite dull business areas - are what we look for: these can generate great compound returns for clients over time.

Mark Sherlock - Fund Manager

The Investment Process

The team starts by looking at the Russell 2500 index and removing any companies with high debt, those that need a lot of spending to grow and those whose products and services can be easily replicated. From a remaining ‘watchlist’, they will then look at the quality and consistency of earnings before assessing valuations. This is done with an in-house tool that tests investment rationale for companies, even in difficult environments. They will want to see the potential for at least a 20% increase to the current share price. Both before and after investment, the team will regularly travel to the US to ensure they meet and engage with company management.


The fact that the fund invests in a focused number of smaller and medium-sized companies should naturally push it up the risk spectrum. However, Mark favours quality stocks with consistent earnings and low debt, and as such the fund has historically fallen less than its index in down markets. The fund also does not make large bets on particular industries, preferring to focus on picking individual companies.

Our Opinion

Against a market notoriously difficult to beat, Mark has built an enviable track record, outperforming the average US equity fund and the index consistently over the years. The team’s lower risk approach to an otherwise higher risk investment area is grounded by a solid and understandable process with sensible constraints, but enough flexibility to give the fund a great opportunity to excel.

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