WSJ: Federated Hermes Can Fly
The Wall Street Journal's "Heard on the Street" column features the brief, "Federated Hermes Can Fly as High Rates Linger." They tell us, "Cash is pouring into money-market funds. That hasn't translated into a stock boost lately for one of the biggest managers of those vehicles, Federated Hermes (FHI). But an alignment may come when investors least expect it. After hundreds of billions of dollars of inflows in 2023, money-market funds have hit new records at over $5.5 trillion in assets as of mid-August, according to the Investment Company Institute. Federated, with a share of over 7% of the money-market mutual fund market as of the second quarter, has been a big beneficiary: Its money-fund assets have risen more than $30 billion through the first half of the year, to a record high of $509 billion. The company's net income was up 25% year-over-year in the second quarter." The article continues, "Yet its shares are down 4.5% this year. A couple of things may help explain the disconnect. For one, the Securities and Exchange Commission is adopting new regulations intended to make money-market funds more resistant to destabilizing runs that necessitate bailouts. Then there is also uncertainty about how much more growth could be in store for money-market funds. Second-quarter net inflows in that category at Federated, though solid, fell short of consensus analyst expectations, according to Visible Alpha." The WSJ adds, "Investors may be overly worried. For one, the SEC's toughest measures are primarily aimed at institutional prime and municipal funds, or funds that cater to big investors and hold corporate or municipal debt. As of earlier this year, those represented roughly $10 billion out of Federated's half-a-trillion in the asset class. Other changes are anticipated to have overall small impacts on retail funds' yields. By the same token, it isn't as if individual investors -- who have been huge drivers of money-fund flows this year -- are likely to suddenly draw back from money funds at the first sign of rates' peak. Individuals are typically late to react to rising rates, and to falling rates. Federated also has a big business in fixed-income funds that should benefit when investors start seeking out duration to try to lock in higher yields, making the recent rise in long-term bond yields a potential benefit, too. If the interest-rate cycle isn't done with Federated Hermes, then investors shouldn't be either."
