For professional investors only

HERMES INVESTMENT SYMPOSIUM

7 March 2018

For professional investors only

UNCONSTRAINED CREDIT

HERMES INVESTMENT SYMPOSIUM 2018

Andrew Jackson, Head of Fixed Income

Fraser Lundie, Co-Head and Lead Credit Portfolio Manager

0

5

10

15

20

1950 1955 1961 1967 1972 1978 1984 1989 1995 2001 2006 2012 2018

Po

licy r

ate

(%

)

Fed BOE Germany (Buba+ECB)

0

0.5

1

1.5

2

2.5

3

200

5

200

5

200

6

200

6

200

7

200

8

200

8

200

9

200

9

201

0

201

0

201

1

201

1

201

2

201

3

201

3

201

4

201

4

201

5

201

5

201

6

201

6

201

7

201

8

iTra

xx M

ain

5Y

/ 3

Y

Weekly Average

Policy rates1 Credit curve steepness2

Cross asset spreads3 Volatility4

Source: 1 Hermes and Reuters as at 15 February 2018. 2 Hermes and Bloomberg as at 2 March 2018. 3 Bloomberg and JPM DataQuery as at 3 March 2018. 4 Hermes and Bloomberg as at 3 February 2018.

Credit market views

2

0

100

200

300

400

500

600

Mar 13 Mar 14 Mar 15 Mar 16 Mar 17 Mar 18

Sp

rea

ds

Primary EUR - CLO BBB Spread to 6M Euribor UK RMBS BBB Euro FL 5 Yr

iTraxx Main iTraxx Crossover

0

20

40

60

0

500

1000

Jul 11 May 12 Mar 13 Jan 14 Nov 14 Sep 15 Jul 16 May 17 Mar 18

Vola

tility (V

ix,

Cro

ssover)

ITra

xx

Cro

ssover

iTraxx Crossover (LHS) iTraxx Crossover Implied Volatility (RHS) VIX (RHS)

Benefits

► Diversified solutions can offer higher risk adjusted returns than

individual sleeves

► Selection and active allocation expertise to source value across

the broad credit universe – exploit illiquidity & complexity premia

► Unconstrained allocation with more tools to tailor outcomes –

risk-adjusted returns, credit quality, duration, risk capital, liquidity,

etc

► Dynamic hedging overlay to manage market exposure and

provide downside protection

Meeting investors’ need for flexible credit solutions

Market context for Multi Asset Credit

3

Market context

► Late cycle credit market conditions

► Threat of rising interest rates

► Material risk of a major correction to financial

markets

► Search for yield and lower risk

equity substitutes

► Regulation and governance structures can

limit investor access to full credit spectrum

► Less traditional credit markets are more

accessible as Bank’s reduce their exposures

► A solution for investors seeking to

outsource their full credit exposure, or

enhance fixed allocations

► Asset allocation determined by skilled

investors with diverse credit expertise

► Alpha generated through high-

conviction, long-only credit selection

► Optimal convexity achieved by dynamic

options overlay

Dynamic credit allocation through the cycle

1 Core long-only strategies. 2 Defined outcomes strategies. 3 Global Investment Grade strategy managed for BTPS and to support our multi-strategy and absolute return products.

Source: Hermes as at 30 November 2017. Targets cannot be guaranteed.

Hermes Unconstrained Credit Strategy

4

Risk

Retu

rn

Target: LIBOR + 3% through the

cycle with low annualised

volatiltiy

Target: investment-grade

benchmark + 1%

Target: high-yield-like returns

with lower volatility

Target: high-yield

benchmark + 1.5%

Target: LIBOR + 5%-

6% through the cycle

Fixed credit

allocations

Dynamic credit

solution Global

HY Credit1

Multi Strategy

Credit

Global IG

Credit

Absolute

Return Credit2

Unconstrained

Credit

Investment process: overview

5

Top-down allocation

►Fundamentals

►Value drivers

►Credit strategy meeting

(fortnightly)

Trade dynamics

►Relative value (name, index)

►Volatility

►Curves

►Skew

►Tactical inter-credit strategies report

(weekly)

Directs bottom-up credit

selection

►Credit score: fundamental,

relative value, ESG

►Security selection

►Position sizing

►Credit company meeting (weekly)

►Sector meeting (monthly)

MACIC MACIC MACIC

► Quality

► Liquidity

► Curve position

► Leverage

1

Credit appetite

► Credit class

composition

► Credit selection

► ESG

2

Strategic asset

allocation

► Options & index

overlay

► Opportunistic

trades

► Duration

3

Tactical asset

allocation

Quarterly Quarterly Weekly

Monitoring feedback from portfolio managers, research teams and the trading desk

►Risk barometer report (weekly)

1 2 3

Applying expertise from across the credit spectrum

MACIC: determining top-down allocations

6

Public Credit

Fraser Lundie & Mitch Reznick

(Team of 12)

Private Credit

Patrick Marshall

(Team of 6)

Public Credit team

Performance review

► Top down and bottom up

review of performance

Current allocations

► Set and review of current

allocations

► Changes agreed and

communicated

New product assessment

► Review and approve potential

new inclusions for the

allocation mix

Allocations calendar

► Review of projections

► Changes agreed and

communicated

Projections

► Credit appetite and tolerance

for risk

► Review of projected returns

and risks

► Subscriptions and

redemptions pipeline

Invitees

Investment oversight

►Head of Investment

Risk

►Head of Risk

Macroeconomics

►Senior Economist

Specialists

►Portfolio

Manager/Analyst on

topical asset classes

or sectors

►Portfolio

Manager/Analyst on new

product or investment

proposal

► Oversees credit allocations

► Informs overlay and hedge positioning

► Discusses individual position concentrations and risk exposures

Asset-based Lending

Vincent Nobel

(Team of 8)

Multi Asset

Tommaso Mancuso

(Team of 6)

Chairman

Andrew Jackson, Head of Fixed Income

► Portfolio Managers provide bottom-up analysis on credit markets to MACIC

1 2 3

Adapting to prevailing credit conditions

Targets cannot be guaranteed. Indicative strategy characteristics subject to change.

Dynamic allocation across credit markets

7

Hybrids

►Convertible

bonds

►Preferred

Global

Financials

►Covered

►Senior

preferred

►AT1, RT1 etc

Options

overlay

►Credit index

options

►Long & short

trades

Hard EM

CreditDM HY Corp

►Secured

►Unsecured

►FRNs

Leveraged

loans

►1st lien

►2nd lien

DM IG Corp

►Secured

►Unsecured

►FRNs

ABS

►ABS

►MBS

►CLO

Top-down allocations determined by MACIC

1 2 3

Target return 3% 5% 4% 4% 4-5% L+5% L+3.5-4% -0.5%

Credit rating BBB BB / B BBB / BB BB B-BBB BB / B BBB / BB N/A

Liquidity Yes Yes Yes Yes Yes Yes Yes Yes

Allocation 15% 40% 15% 15% 5% 10% 10% 10%

► Tactically adjust the portfolio to exploit or manage risks within

the prevailing market environment

► Tailor the risk of the portfolio while limiting turnover of best

trade ideas

► Short-term opportunistic trades

► Manage downside risk by adding convexity through options

overlay

► Manage interest-rate risk

Tactical overlay

Convexity through options

Volatility through options

Tactical credit trades

Duration

Market risk

through indices

Dynamic hedging overlay provides convexity

Tactical asset allocation

8

1 2 3

-15%

-10%

-5%

0%

5%

10%

100 155 193 230 268 305 343 380 418 455 493

P&

L(%

)

Strike 275 Unhedged Strike 350

Description

► Buy out-of-the-money option payers in order to profit if spreads

widen significantly

► Losses limited to the upfront cost

► Tailor convexity through delta hedging and indices

Rationale

► Portfolio – dynamically hedge credit exposure and add

downside convexity while limiting portfolio turn over

► Market – protect against a market sell off

► Option value – exploit changes in options pricing

Illustrative trade: P&L

► Price sensitivity increases as spread reaches and exceeds the

strike price

► Option value is non-linear and a function of spread proximity to

the strike price (delta/gamma), the time to expiry (theta) and

the volatility of the underlying instrument (vega)

► Options with a higher strike price (out of the money) will cost

less but provide less downside protection

Bearish trade: buy option payers

Source: Hermes and City Velocity.

Case study: options overlay

9

Cost of option

1 2 3

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Any investments

overseas may be affected by currency exchange rates. Past performance is not a reliable indicator of future results and targets are not guaranteed. Where the

strategy invests in debt instruments (such as bonds) there is a risk that the entity who issues the contract will not be able to repay the debt or to pay the

interest on the debt. If this happens then the value of the strategy may vary sharply in value or result in loss. The strategy makes extensive use of Financial

Derivative Instruments (FDIs), the value of which depends on the performance of an underlying asset. Small changes in the price of that asset may cause

larger changes in the value of the FDIs, increasing either potential gain or loss.

A dynamic credit-allocation solution aiming to maximise total returns through the cycle

► Unconstrained, high-conviction investment across the global liquid-credit spectrum

► Capturing superior relative value throughout credit markets as investment conditions change

► Outsource credit-allocation decisions to a team of skilled, experienced global credit investors operating within a robust governance

framework

► Alpha generation through issuer and security selection: sourcing high-conviction, bottom-up ideas globally and throughout

corporate capital structures

► Optimal convexity through an options overlay: aiming to protect return-seeking investments from perceived market and macro

risks

► ESG integration and engagement ensures responsibility is embedded in every investment decision

Why Hermes Unconstrained Credit?

10

Andrew Jackson

Head of Fixed Income

Andrew joined Hermes in April 2017 as Head of Fixed Income. He is responsible for leading the strategic development of Hermes ’ credit and direct lending investment teams, and developing a

multi-asset credit offering capable of accessing all areas of the global credit markets for pension funds and other long-term institutional investors. Andrew joined from Cairn Capital where he was

chief investment officer. In this role, Andrew was responsible for the development of the asset management business, which included designing new products and managing the investment

teams, including strategy, portfolio management and research. He has managed assets across the spectrum of global credit and fixed income. He was previously vice president within the

European credit structuring team at Bank of America and has held roles with Fitch Ratings and PricewaterhouseCoopers. Andrew holds a BSc degree in Mathematics & Theoretical Physics from

King College London.

Fraser Lundie, CFA

Co-Head of Credit and Lead Credit Portfolio Manager

Fraser joined Hermes in February 2010 and is lead manager on the Hermes range of credit strategies. Prior to this he was at Fortis Investments, where he was responsible for European high

yield credit. Fraser graduated from the University of Aberdeen with an MA (Hons) in Economics, earned an MSc in Investment Analysis from the University of Stirling, and is a CFA charterholder.

In 2017, Fraser joined the board of CFA UK, a member society of the CFA Institute. Having previously featured in Financial News’s ‘40 Under 40 Rising Stars of Asset Management’, an editorial

selection of the brightest up-and-coming men and women in the industry, in 2015 Fraser was named as one of the top 10 star fund managers of tomorrow by the Daily Telegraph. In 2016,

Citywire Americas named Fraser number one in their global high yield manager review, and InvestmentEurope and Investment Week both named the Hermes Multi Strategy Credit Fund top

global bond fund at their respective 2017 Fund Manager of the Year Awards.

Portfolio managers

CFA® is a trademark owned by the CFA Institute.

As at 31 December 2017.

Biographies

11

APPENDIX

12

Strategy overview

1 Targets cannot be guaranteed. 2 These are internal guidelines for the team, and not absolute limits.3 Further ongoing charges will apply.

Hermes Unconstrained Credit Strategy

13

Performance target1 USD LIBOR + 5%-6% through the cycle

Strategy description ► Unconstrained investing throughout the global liquid-credit spectrum

► Implementing top-down allocations to diverse credit sectors through bottom-up, high-conviction security selection

► Dynamic options overlay provides a defensive hedge and fulfils rebalancing and risk-management functions

Eligible investments Developed and emerging market investment-grade and high-yield corporate bonds, credit-default swaps, loans,

government securities, asset-backed securities, convertible bonds, preferred stocks, credit-index options, interest-rate

instruments and other credit derivatives

Concentration2 Typically 100-150 issuers

Regulatory structure UCITS compliant

Liquidity Daily, open ended

Management fee3 0.65% p.a. of net asset value, payable quarterly. No performance fee

0.40% p.a. founder fee available

Base currency USD, hedged

Portfolio managers Andrew Jackson and Fraser Lundie

3-year (gross)

Since strategy

inception (gross)

Sharpe ratio,

since inception

Hermes Global High Yield Strategy 7.1% 9.2% 1.2

Hermes Multi Strategy Credit

Strategy5.8% 6.1% 1.8

Global High Yield Market 6.7% 7.9% N/A

Hermes Investment Grade Strategy 4.5% 5.4% 1.4

Hermes Absolute Return Strategy N/A 2.8% 1.9

Global Investment Grade Market 3.8% 4.8% N/A

Cumulative performance

USD hedged, returns to 31 December 17

Annualised performance

Returns to 31 December 17

Global investment throughout capital structures with ESG integration

Existing liquid-credit strategies

14

Return target: HY-like

returns, lower volatility

Multi Strategy2

Return target:

USD LIBOR + 5%-6%

Unconstrained Credit Global High Yield1

Return target: benchmark

+ 1.5%

Investment Grade3

Return target:

benchmark + 1%

Absolute Return4

Return target: LIBOR +

3%

-20%

0%

20%

40%

60%

80%

100%

Ma

y 1

0

Se

p 1

0

Dec 1

0

Ap

r 11

Jul 11

Nov 1

1

Fe

b 1

2

Jun

12

Se

p 1

2

Jan

13

Ap

r 13

Au

g 1

3

Nov 1

3

Ma

r 1

4

Jun

14

Oct

14

Jan

15

Ma

y 1

5

Au

g 1

5

Dec 1

5

Ma

r 1

6

Jul 16

Oct

16

Fe

b 1

7

Ma

y 1

7

Se

p 1

7

Dec 1

7

Hermes Global High Yield Credit (USD Synthetic) Hermes Global Investment Grade (USD Synthetic)

Hermes Multi Strategy Credit Hermes Absolute Return Credit

Global High Yield Market Global Investment Grade Market

1 Inception date: 1 June 2010. 2 Inception date: 1 June 2013. 3 Inception date: 1 July 2010. 4 Inception date: 1 June 2015. Source: Hermes as at 31 December 2017. All performance shown is in USD gross of fees. Targets cannot be guaranteed.

High-yield market performance is that of the ICE BofA Merrill Lynch Global High Yield Constrained USD Hedged Index. Investment-grade market performance is that of the ICE BofA Merrill Lynch Global Broad Market Corporate USD Hedged Index.

Global High Yield Multi Strategy Credit Unconstrained Credit Absolute Return Credit

Targeted outcome Outperform the global high-yield

market

Global high-yield-like returns with lower

volatility

Dynamic through-the-cycle credit

allocation for attractive returns

Positive returns, low volatility and low

drawdown

Strategy description Global, long-only approach with equal

focus on issuer and security selection

2/3 of the portfolio invested in high-

conviction, long-only trades worldwide; 1/3

dedicated to defensive trades

Top-down allocation across the global liquid-

credit spectrum, combined with bottom-up,

high-conviction trades and a dynamic

options overlay

Global approach with an emphasis on

income and diversification

Return target Global HY benchmark +1.5% Global HY returns with less volatility LIBOR +5-6% through the cycle LIBOR +3% through the cycle

Risk profile 10% ex-ante tracking error DTS sized for 80% of HY market upside

and 50% of the downside

Varies through the cycle Average IG rating with maximum HY

exposure equalling 50% of NAV

Concentration 80–100 issuers ~ 75 issuers 100-150 issuers 100-150 issuers

Leverage (total) 40% (140%) 100% (200%) 100 – 400% (200 – 500%) 100-300% (200% - 400%)

Non-standard

instruments

N/A Loans (6%), defensive trades (33%) Loans (10%), ABS (15%), options Loans (6%), defensive trades (50%)

Fees 0.65% 0.65% 0.65% 0.55%

Portfolio managers Fraser Lundie, Andrey Kuznetsov Fraser Lundie, Andrey Kuznetsov Fraser Lundie, Andrew Jackson Fraser Lundie, Andrey Kuznetsov

Peer groups Global High Yield funds Global High Yield & Strategic Bond funds Multi Asset Credit & Strategic Bond Funds,

& Directional hedge funds

Absolute Return Credit & Investment Grade

Bond funds

Key characteristics ► Active high yield

► Approach to duration

► Moderate idiosyncratic risk

► High-yield credit with lower substitute

► High idiosyncratic risk

► Moderate asset breadth

► Unconstrained, dynamic credit

allocation solution

► Levered & options overlay

► Lower idiosyncratic risk

► Low-volatility absolute returns

► Investment-grade focus & low

idiosyncratic risk

► Market neutral – low draw down

► Levered

Unconstrained Credit: how it compares

15

Expected average gross portfolio composition

Unconstrained Credit: flexible allocation ranges

16

StrategyIG HY EMD Converts &

prefs

ABS Loans Defensive

trades

Options

overlay

Global High

Yield<10% >80% 10 - 20% 15% 0% 0% 0% 0%

Multi Strategy

Credit33% 66% 10-20% 15% 0% <6% 33% 0%

Unconstrained

Credit25 - 75% 25 – 75% 15 – 25% 15% <15% <10% 0 – 25% 25%

Absolute

Return Credit> 50% 33% 10% 15% 0% <6% 50% 10%

Best-idea selection Other allocations Strategies

ESG INTEGRATION

17

A pricing model for ESG risks

► Proprietary model shows correlations between QESG Scores

and CDS spreads

► Enables us to calculate the marginal price for the ESG risks of

companies

► Anticipate the change in valuations as a company moves along

the ESG Credit Curve

An informative screening tool

► Avoid issuers with tight spreads and low QESG scores

► Favour issuers with wide spreads and high QESG scores

Implied CDS spreads v QESG scores

Anticipating the transitions between ESG and Credit risk

Source: Hermes, Bloomberg as at 28 February 2017. For illustrative purposes only.

Pricing ESG risks: the ESG credit curve

18

80

90

100

110

120

130

140

150

160

100 90 80 70 60 50 40 30 20 10 0

Imp

lied

CD

S s

pre

ad

QESG Score

Exclude, or invest and engage

ESG analysis: Integrated into investment decisions

19

Exclusion: Controversial weapons

Exclusion: severe ESG scores

Engagement level

Spread compensation

Security selection

Position size

Invest

Avoid companies involved in controversial

weapons

Controversial companies with no

desire to improve ESG behaviours

Compensation for ESG risk of companies

seeking to improve ESG behaviours

Consider convexity, fit with mandate and green bonds

Invest and dynamically manage exposure

Exclusion

Investment

Engagement

For illustrative purposes only.

Integral to our credit research

Comprehensive analysis

► Proprietary QESG Scores and insights from Hermes EOS

► Research from Sustainalytics, Trucost, Bloomberg and

MSCI ESG Research

Capturing ESG trends

► Determining whether a company’s QESG Score has

improved, worsened or remained consistent

Comparing ESG rankings

► ‘Traffic lights’ indicate the relative strength of a company’s

ESG practises relative to peers

Hermes EOS

► Analysts in active dialogue with the Credit team

► Hermes EOS and the Credit team hold joint engagement

meetings with companies

Assessing ESG risk at the company level

20

MARKET VIEW

21

► During 2013 ‘taper tantrum’ risk assets and bonds declined together

► ‘Barbell’ strategy is no longer effective

► Long-duration credit yielding too little to offer adequate protection

Declining yields spell bear market trouble Impact of rate shock on US aggregate bond index

Traditional fixed income failing to protect against the downside

Source: Barclays, Haver Analytics, Goldman Sachs Global Investment Research.

Seeking protection in a new bond world

22

Date

US 10-year

government bond

yield

Cumulative total

return during bear

market

September 2000 6% 27%

2007 4.5% 20.8%

2018 2.4% ? 0.0

0.2

0.4

0.6

0.8

1.0

1.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

85 90 95 00 05 10 15

$T

n

$T

n

MV impact of 100 bp rate shock

Fixed income asset class correlation (36m rolling v US Government Bond)

Rising correlations have eroded the impact of diversification

Diversification is an ineffective defence

Source : Hermes Credit Team, Bloomberg and Bank of America-Merrill Lynch as at 31 December 2017.

23

-0.70

-0.50

-0.30

-0.10

0.10

0.30

0.50

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Dec 0

8

Ju

n 0

9

De

c 0

9

Ju

n 1

0

Dec 1

0

Ju

n 1

1

Dec 1

1

Ju

n 1

2

Dec 1

2

Ju

n 1

3

Dec 1

3

Ju

n 1

4

Dec 1

4

Ju

n 1

5

Dec 1

5

Ju

n 1

6

Dec 1

6

Ju

n 1

7

Dec 1

7

R c

oe

fficie

ntR

co

eff

icie

nt

US 7-10 yr Inflation Linked Bonds Investment Grade Corporate Liquid Loans High Yield Corporate (RHS)

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

16

20

17

US 7-10yr Nominal Bonds US 7-10yr Inflation-linked Bonds

US 10yr Breakeven

US bond and equity correlation

(36m rolling v S&P 500 Index)

► Since inception we have dedicated a portion of the Hermes Multi Strategy

Credit Fund and Absolute Return Credit to defensive strategies

US bond and equity correlation

(36m rolling v S&P 500 Index)

The importance of dynamic duration management

Source: Bloomberg as at 31 December 2017.

Risk: duration

24

The correlation between equities and bonds has fluctuated significantly over time between positive and

negative. The correlation between inflation-linked bonds (real rates) and equities shows a more stable

though still variable picture of the long-term correlation between equities and real rates. This correlation is

already firmly in positive territory. The comparison also highlights how much of the negative correlation

between equities and bonds has been driven by the disinflationary environment of the past 25 years.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

1929 1937 1945 1952 1960 1968 1976 1983 1991 1999 2007

Pro

ba

bility

of N

eg

ativ

ely

Corre

late

d R

eg

ime

Corr

ela

tion

Negatively Correlated Regime Positively Correlated Regime

Rolling Correlation (36m)

Source: Bloomberg as at 15 January 2018.

Liquidity has clustered in large capital structures amid booming issuance

Risk: shallow market

25

Liquidity now at 2003 levels. In a falling market, investors unwinding

positions could suffer heavy losses

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

$10,000

$30,000

$50,000

$70,000

$90,000

$110,000

$130,000

$150,000

$170,000

$190,000

$210,000

$230,000

$250,000D

ec 0

1M

ar

02

Jun

02

Se

p 0

2D

ec 0

2M

ar

03

Jun

03

Se

p 0

3D

ec 0

3M

ar

04

Jun

04

Se

p 0

4D

ec 0

4M

ar

05

Jun

05

Au

g 0

5N

ov 0

5M

ar

06

Ma

y 0

6A

ug 0

6N

ov 0

6F

eb 0

7M

ay 0

7A

ug 0

7N

ov 0

7F

eb 0

8M

ay 0

8A

ug 0

8N

ov 0

8F

eb 0

9M

ay 0

9A

ug 0

9N

ov 0

9F

eb 1

0M

ay 1

0A

ug 1

0N

ov 1

0F

eb 1

1M

ay 1

1A

ug 1

1N

ov 1

1F

eb 1

2M

ay 1

2A

ug 1

2N

ov 1

2F

eb 1

3M

ay 1

3A

ug 1

3N

ov 1

3F

eb 1

4M

ay 1

4A

ug 1

4N

ov 1

4F

eb 1

5M

ay 1

5A

ug 1

5O

ct

15

Fe

b 1

6M

ay 1

6A

ug 1

6N

ov 1

6F

eb 1

7M

ay 1

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ug 1

7N

ov 1

7

Ma

rket V

alu

e (b

illion

s)

Dea

ler

Tra

nsa

ctio

ns (

mill

ion

s)

Aggregate inventory US credit securities Market size Global HY (BAML Global Non-Fin High Yield Index)

6.8

6.2

5.2

4.3

3.63.3

2.5 2.4 2.52

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD

Ye

ars

ML Global high Yield Index

Shorter non-call periods can reduce returns

Non-call period erosion

Source: Bloomberg, BAML as at 29 January 2018.

Risk: less upside

26

Under threat: equity-like returns with half

the volatility

Fixed-income skills now as important as

stock picking

Companies set terms as large funds are

forced buyers of new bond issues

14%

56%

30%

Europe US Rest of the world

1998 2017

What about the rest of the world?

Source: BofA Merrill Lynch, Global High Yield Index, as at 31 December 2017.

Opportunity: global issuance

27

Large companies issue bonds in various

markets and currencies, providing

relative-value opportunities for global

investors

Exploit HY and IG investment

opportunities in the US, Europe and rest

of the world

3%

89%

8%

Europe US Rest of the world

For professional investors only. Clients who fall outside of this criteria should not use the information provided in this document for investment decisions. This document does not constitute a solicitation or

offer to any person to buy or sell any related securities or financial instruments; nor does it constitute an offer to purchase securities to any person in the United States or to any US Person as such term is defined under the

US Securities Exchange Act of 1933. It pays no regard to the investment objectives or financial needs of any recipient. No action should be taken or omitted to be taken based on this document. Tax treatment depends on

personal circumstances and may change. This document is not advice on legal, taxation or investment matters so investors must rely on their own examination of such matters or seek advice. Before making any investment

(new or continuous), please consult a professional and/or investment adviser as to its suitability. This document is not investment research and is available to any investment firm wishing to receive it.

Any opinions expressed may change. The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Any investments overseas may be

affected by currency exchange rates. Past performance is not a reliable indicator of future results and targets are not guaranteed. All figures, unless otherwise indicated, are sourced from Hermes. For more

information please read any relevant Offering Documents or contact Hermes.

The main entities operating under the name Hermes are: Hermes Investment Management Limited (“HIML”); Hermes Alternative Investment Management Limited (“HAIML”); Hermes European Equities Limited (“HEEL”);

Hermes Real Estate Investment Management Limited (“HREIML”); Hermes Equity Ownership Limited (“HEOS”); Hermes GPE LLP (“Hermes GPE”); Hermes GPE (USA) Inc (“Hermes GPE USA”) and Hermes GPE

(Singapore) Pte. Limited (“HGPE Singapore”). All are separately authorised and regulated by the Financial Conduct Authority except for HREIML, HEOS, Hermes GPE USA and HGPE Singapore. HIML currently carries on

all regulated activities associated with HREIML. HIML, HEEL, Hermes GPE and Hermes GPE USA are all registered investment advisers with the United States Securities and Exchange Commission (“SEC”). HGPE

Singapore is regulated by the Monetary Authority of Singapore.

Issued and approved by Hermes Investment Management Limited which is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. Telephone

calls will be recorded for training and monitoring purposes. Potential investors in the United Kingdom are advised that compensation will not be available under the United Kingdom Financial Services Compensation

Scheme.

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Disclaimer

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Hermes Investment Management

We are an asset manager with a difference. We believe that, while our primary purpose is to help savers and beneficiaries by providing world class active investment management

and stewardship services, our role goes further. We believe we have a duty to deliver holistic returns – outcomes for our clients that go far beyond the financial – and consider the

impact our decisions have on society, the environment and the wider world.

Our goal is to help people invest better, retire better and create a better society for all.

Our investment solutions include:

Private markets

Infrastructure, private debt, private equity, commercial and residential real estate

High active share equities

Asia, global emerging markets, Europe, US, global, and small and mid-cap

Credit

Absolute return, global high yield, multi strategy, global investment grade, real estate debt and direct lending

Multi asset

Multi asset inflation

Stewardship

Active engagement, advocacy, intelligent voting and sustainable development

Offices

London | New York | Singapore

For more information, visit www.hermes-investment.com or connect with us on social media: