Federated Hermes sees renewed potential in US small- and mid-cap stocks as investors focus on the countrys largest technology names. Mark Sherlock, head of US equities, says SMID valuations have shifted sharply, moving from a historic premium to a discount of about 20% to the S&P 500. This change, he notes, creates a window for investors willing to look beyond mega-caps.
He manages the $1.1bn Federated Hermes US SMID strategy, which targets roughly 2,500 companies valued between $1bn and $30bn. According to Sherlock, concerns linked to past trade policies and fatigue around the Magnificent Seven have overshadowed signs of improvement. A more supportive policy backdrop, along with expectations of Fed easing, could set the stage for early-cycle conditions similar to the post-financial-crisis period.
Why SMIDs stand out
Stronger fundamentals help the case. Sherlock points to lighter analyst coverage and higher domestic exposure as advantages over large caps. US consumers remain resilient thanks to steady employment, low fixed mortgage rates and rising wages.
Artificial intelligence adds another layer of opportunity. One example is Axon, the funds largest holding, which uses AI to speed up police reporting. Software and industrial names such as Tyler Technologies also support long-term growth. Over the past five years, the strategy returned 49.8%, ahead of similar funds.
Activity and investor view
Share activity around Federated Hermes has been mixed. Sound View Wealth Advisors trimmed its stake earlier this year, while CEO Saker Anwar Nusseibeh sold shares in November. Even so, the firm beat earnings expectations last quarter and continues to pay a regular dividend. Analysts maintain a moderately positive outlook, with price targets near recent levels.
October brought another development, as Federated Hermes added more than 114,000 shares of MGP Ingredients. That increase lifted its position to 1.1 million shares, reflecting confidence in the beverage companys undervalued profile.
