Federated Hermes achieves shareholder approval related to the Federated Hermes MDT Large Cap Growth ETF
Rhea-AI Summary
Federated Hermes, Inc. (NYSE: FHI) announced that shareholders of the Federated Hermes MDT Large Cap Growth ETF (NYSE: FLCG) have approved changing the fund from a diversified to a non-diversified company. This change, effective September 16, 2024, aims to provide greater long-term flexibility in executing the fund's investment objective, particularly when individual issuer weightings in the Russell 1000® Growth Index exceed diversification limits.
The fund, which seeks long-term capital appreciation by investing in large-cap U.S. companies with higher forecasted growth values, will maintain its active management approach. This change is not expected to substantially affect the fund's investment objective but will enable the adviser to continue using the fund's quantitative model more effectively.
Positive
- Shareholder approval obtained for changing the fund's classification, potentially allowing for more flexibility in investment strategy
- The change aims to provide greater long-term flexibility in executing the fund's investment objective
- No substantial change expected in the fund's pursuit of its investment objective
Negative
- Transition from diversified to non-diversified status may increase concentration risk for investors
Insights
The approval to change Federated Hermes MDT Large Cap Growth ETF (FLCG) from a diversified to a non-diversified company is a strategic move with subtle implications. This shift allows for greater flexibility in portfolio construction, potentially enabling the fund to take larger positions in high-conviction stocks. However, it's important to note that this could lead to increased concentration risk.
The change is particularly relevant given FLCG's focus on the Russell 1000® Growth Index. As mega-cap tech stocks have grown to dominate this index, the fund's ability to mirror these weightings was likely constrained by diversification requirements. This move may allow FLCG to more closely align with index weightings when desired, potentially improving its ability to capture market trends.
For investors, this could result in higher return potential but also increased volatility. It's a delicate balance between opportunity and risk that warrants close monitoring of the fund's future performance and risk metrics.
This diversification policy change for FLCG is a nuanced development in the ETF landscape. While it might seem technical, it's actually a significant shift in the fund's potential risk-return profile. The move to non-diversified status gives the fund managers more leeway to overweight high-conviction positions, which could amplify both gains and losses.
Interestingly, this change aligns FLCG more closely with the current market reality, where a handful of large-cap growth stocks have outsized influence. It potentially allows the fund to better capture market trends without being constrained by diversification limits. However, investors should be aware that this could lead to higher tracking error relative to the broad market.
From a competitive standpoint, this move could help FLCG differentiate itself in the crowded large-cap growth ETF space. It's a bold strategy that may appeal to investors seeking more active management within an ETF wrapper.
The change was approved by written consent in lieu of a shareholder meeting and no proxy or solicitation was necessary. The change will take effect on or about Sept. 16, 2024.
The Fund pursues its investment objective, in part, by utilizing an actively managed large cap growth approach by selecting most of its investments from companies listed in the Russell 1000® Growth Index (the "Index"), although the Fund is not designed to track the overall composition or returns of the Index. The approved change to the Fund's diversification classification is intended to provide the Fund with greater long-term flexibility in executing its investment objective at times when the weightings of individual issuers in the Index exceed the diversification limits under the Investment Company Act of 1940. The change in diversification policy is not expected to substantially affect the Fund's pursuit of its investment objective, rather enabling the Fund's adviser to continue actively managing the Fund's investment strategy using the Fund's quantitative model.
Investors can view fund and portfolio information in the Products section of FederatedHermes.com/us.
Federated Hermes, Inc. (NYSE: FHI) is a global leader in active, responsible investment management, with
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Certain statements in this press release, such as those related to the effective date of the policy change, the intended purpose behind the diversification policy change, and the intended effect of the policy change on the Fund's principal investment strategies, constitute or may constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Fund to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Any forward-looking statement, and the Fund's level of business activity and financial results, are inherently subject to significant business, market, economic, competitive, regulatory and other risks and uncertainties, many of which are difficult to predict and beyond the Fund's and its investment adviser's control. Risks and uncertainties could vary significantly depending on various factors, such as market conditions, investment performance and investor behavior. Other risks and uncertainties include the risk factors discussed in the Fund's registration statement, including its prospectus and statement of additional information, as filed with the Securities and Exchange Commission. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and none of the Fund, its investment adviser, or any other person assumes responsibility for the accuracy and completeness, or updating, of such statements in the future.
For more complete information, visit FederatedHermes.com/us or contact your investment professional for summary prospectuses or prospectuses. You should consider the fund's investment objectives, risks, charges and expenses carefully before you invest. Information about these and other important subjects is in the fund's summary prospectus or prospectus, which you should read carefully before investing. Prospectuses are available by calling Federated Hermes at 1-800-341-7400 or by visiting FederatedHermes.com/us.
Fund shares are bought and sold on an exchange at market price (not NAV) and are not individually redeemed from the Fund. However, shares may be redeemed at NAV directly by certain authorized broker-dealers (Authorized Participants) in very large creation/redemption units. Investors purchasing and selling at market price may pay brokerage commissions which will reduce returns. Market price returns are based on the official closing price of an ETF share or, if the official closing price isn't available, the midpoint between the national best bid and national best offer ("NBBO") as of the time the ETF calculates the current NAV per share. NAVs are calculated using prices as of 4 p.m. Eastern Time.
Federated Securities Corp., Distributor
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SOURCE Federated Hermes, Inc.
FAQ
What change did Federated Hermes (FHI) announce for its MDT Large Cap Growth ETF?
Why is Federated Hermes (FHI) making this change to the MDT Large Cap Growth ETF?
How will this change affect the Federated Hermes (FHI) MDT Large Cap Growth ETF's investment strategy?
When will the diversification policy change for Federated Hermes (FHI) MDT Large Cap Growth ETF take effect?
