Hi, I'm Tom Banks, and I'm a Portfolio Manager at Federated Hermes.
Are there opportunities for investors in international developed markets?
Over the last year or so, our analyst team has been able to find quite a few new opportunities as a result of the market volatility. So where are we finding these opportunities? The first sector that comes to mind is the European luxury goods space. This is a sector that's very unique to Europe. These companies have been around for over 100 years, with centuries or more of brand equity. This creates a moat around the business. The companies also do a very good job controlling how much production comes to the market, and this creates a supply and demand imbalance and gives these companies very strong pricing power. This has created a flywheel where the strong pricing power leads to high margins and, overall, over the last decade or so, total shareholder returns have been well above the industry norm for the consumer goods industry. Another sector that has a lot of the same attributes as luxury goods is spirits. A lot of people don't realize this, but the three largest spirits companies in the world are all listed in international markets. The largest spirits company is in China. The second largest spirits company is in the UK. And the third largest spirits company is in France. Finally, one area that, on a more recent basis, we've been finding some new ideas is renewable energy. And no surprise, as Europe's been on the forefront of the fight against climate change, a lot of these ideas have come from Europe. Take, for example, this company that we invested in that's based in Portugal. They are the leading wind farm operator in the United States. Another company we invested in is headquartered in Finland, and they are the dominant player in renewable fuels, with close to an 80% market share. Finally, we invested in a company that's based in Norway, and they are the market leader in making vending machines that recycle plastics. This company is working with governments all around the world to solve the problem of how do we eliminate plastic going into our water streams? As you may have heard, Federated Hermes has made a big push into ESG investing, and within our international equity groups, our portfolios are ESG integrated. This has helped us uncover some fantastic, long-term, secular growth companies that are also doing well for the environment.
Disclosure: Views are as March 12, 2021 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Past performance is no guarantee of future results. Diversification does not guarantee a profit nor protect against loss. International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards. Prices of emerging-market and frontier-market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets. Small company stocks may be less liquid and subject to greater price volatility than large capitalization stocks. There is no guarantee that considering ESG (environmental, social, governance) risks will be a successful investment approach. Federated Global Investment Management Corp. 21-10038 (3/21)