Federated Hermes, Inc. (NYSE:FHI) Q1 2022 Earnings Conference Call April 29, 2022 9:00 AM ET

Company Participants

Chris Donahue - President & CEO

Tom Donahue - CFO

Saker Nusseibeh - CEO, International Business

Debbie Cunningham - CIO

Ray Hanley - President

Conference Call Participants

Patrick Davitt - Autonomous Research

Bill Katz - Citigroup

Robert Lee - KBW

Ken Worthington - JPMorgan

Operator

Good day, ladies and gentlemen, and welcome to the Federated Hermes Q1 2022 Analyst Call and Webcast. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Ray Hanley, President of Federated Management Company. Sir, the floor is yours.

Ray Hanley

Good morning, and welcome. Thank you for joining us today. Leading today's call will be Chris Donahue, Federated Hermes’ CEO and President; and Tom Donahue, Chief Financial Officer. And joining us for the Q&A are Saker Nusseibeh, the CEO of the International Business of Federated Hermes, Federated Hermes Limited, and Debbie Cunningham, our Chief Investment Officer for money markets.

During today's call, we may make forward-looking statements, and we want to note that Federated Hermes’ actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris?

Chris Donahue

Thank you, Ray, and good morning. I will review Federated Hermes’ business performance over the quarter, and Tom will comment on our financial results. Looking first at equities for Q1, total net redemptions were $78 million, down from the prior quarter’s $2.7 billion. Equity separate account net sales were a positive $80 million, while equity funds had net redemptions of about $158 million, each showing improvement from the prior quarter. Notably, the domestic strategic value dividend strategy had Q1 net sales of about $933 million, with both the fund at $442 million, and the SMA at $490 million, producing solid net sales. We saw positive net sales in 18 equity fund strategies, including several international equity strategies, such as Asia ex-Japan, SDG engagement, international equity, international strategic value dividend, global equity ESG, impact opportunities.

Back on the domestic side, the MDT small cap core fund also produced $127 million in that sale. Not surprisingly, net redemptions were concentrated in growth strategies, reflecting difficult market conditions for these activities. With inflation concerns prevalent, the area of focus of our equity business include asset classes and strategies that have responded well in the past inflationary periods. These include dividend income, international, emerging markets, and value strategies. The Q1 sales improvements were concentrated in these categories. Our equity performance at the end of the first quarter, compared to peers, was solid. Using Morningstar data for the trailing three years at the end of Q1, 61% of our equity funds were beating peers, and 39% were in the top quartile of their category. Now, for the first three weeks of Q2, combined equity funds and SMAs had net redemptions of $109 million. We had 21 equity funds with positive net sales in the first three weeks of April, including the strategic value dividend, the international strategic value dividend fund, global equity ESG impact opportunities, and international equity.