Page 31 - Investment Advisor July/August 2022

Fixed Income Manager of the Year

Federated Hermes
Federated Hermes Total Return Bond Fund

iversification was the key to
DFederated Hermes Total Return
Bond Fund’s success last year. The fund,
which received the 2022 Envestnet
Asset Manager of the Year Award in the
Fixed Income category, outperformed
both the Bloomberg Aggregate Bond
and Bloomberg US Universal bench-
mark indexes, achieved an 18-basis point
return and placed in the top quartile
of Morningstar’s intermediate core-plus Jerome Conner Chengjun (Chris) Wu
bond fund peer group last year, accord-
ing to Envestnet analysts. Title: Manager Title: Manager
“Our strategy was all about diver- Years with firm: 20 Years with firm: 16
sification, as we always try to gener-
ate alpha from multiple sources that Years in financial services: 26 Years in financial services: 16
include duration management, sector
allocation, yield curve strategy, curren- Investment/asset class focus:
cy management as well as securities Fixed Income In the portfolio, Conner said, “we
selection,” Vice President and Senior shortened the duration relative to the
Portfolio Manager Chengjun (Chris) Wu Asset management firm: benchmark and as rates have gone up
said. “We have different trades in the Federated Hermes significantly in 2022, that was the larg-
portfolio and we try to make sure those Year firm founded: 1955 est positive contributor to our perfor-
trades are as diversified, as uncorrelated Number of employees: 1,962 mance in the first quarter.”
as possible. So that’s our secret sauce.” During periods of Fed rate-hiking
The fund, Wu said, “has one goal — to AUM as of March 31, 2022: cycles, the Treasury curve usually flat-
generate strong, risk-adjusted returns. It $631.1 billion tens, so managers positioned the portfo-
has been our strategy for decades, and lio by underweighting shorter securities
this strategy over different market cycles has helped us gen- and overweighting longer securities, Conner noted.
erate a consistent, competitive performance, without taking “As fixed income managers, we think that inflation and
excessive risks.” the corresponding response from the Federal Reserve are the
Although the 2021 strategy remained the same, the “market greatest risk for the markets. The Fed, as 2022 has progressed,
just allowed us to capture stronger performance,” Wu explained. has become more hawkish throughout that time,” including
“Most of our trades worked extremely well. That includes a recently announced 50 bps rate increase and plans to draw
shorter duration management, tactical yield curve strategy, and down its balance sheet, Conner added. “We think that quanti-
overweight to high-yield, investment-grade corporates, bank tative easing was supportive for risk assets, and that’s why we
loans, trade finance and allocation to TIPS — Treasury Inflation- think this quantitative tightening that the Fed is going to go
Protected Securities. They all had positive contributions last year.” through is going to be negative for risk assets.”
Jerome Conner, vice president and senior portfolio man- The fund has gone underweight in its investment-grade
ager, added that the team took advantage of the “reopening corporate allocation, its high-yield allocation and its emerging
trade” in the second half of 2020 and into 2021 by being over- market allocation and has reduced its exposure to bank loans.
weight in the credit sectors. In addition to underweighting its benchmark duration, the
Coming into 2022, fund managers expected interest rates fund is neutral to the yield curve and to the U.S. dollar.
would become a more dominant factor in generating returns, Wu suggested that clients increase cash allocations in their
Conner said, citing inflation data and the Federal Reserve’s portfolios, noting that cash yield may exceed 2% by the year-
acknowledgment that inflation wasn’t transitory and it would end. “For the first time in a long while, cash may be a reason-
start removing its accommodative monetary policy. able alternative for investors to consider,” he said. — DWB

JULY/AUGUST 2022 INVESTMENT ADVISOR 29