High-Yield Strategy Portfolio) a Portfolio of Federated Hermes Managed Pool Series (Formerly, Federated Managed Pool Series)
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A nnual Shareholder Report December 31, 2020 Ticker FHYSX Federated Hermes High Yield Strategy Portfolio (formerly, Federated High-Yield Strategy Portfolio) A Portfolio of Federated Hermes Managed Pool Series (formerly, Federated Managed Pool Series) Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee CONTENTS Federated Hermes High Yield Strategy Portfolio................................................................................................ 1 Management’s Discussion of Fund Performance ............................................................................................ 1 Portfolio of Investments Summary Table ..................................................................................................... 4 Portfolio of Investments .......................................................................................................................... 5 Financial Highlights ................................................................................................................................ 7 Statement of Assets and Liabilities ............................................................................................................. 8 Statement of Operations ......................................................................................................................... 9 Statement of Changes in Net Assets........................................................................................................... 10 Notes to Financial Statements................................................................................................................... 11 Report of Independent Registered Public Accounting Firm............................................................................... 15 Shareholder Expense Example ................................................................................................................. 16 High Yield Bond Portfolio ............................................................................................................................ 17 Management’s Discussion of Fund Performance ............................................................................................ 18 Portfolio of Investments Summary Table ..................................................................................................... 21 Portfolio of Investments .......................................................................................................................... 22 Financial Highlights ................................................................................................................................ 37 Statement of Assets and Liabilities ............................................................................................................. 38 Statement of Operations ......................................................................................................................... 39 Statement of Changes in Net Assets........................................................................................................... 40 Notes to Financial Statements................................................................................................................... 41 Report of Independent Registered Public Accounting Firm............................................................................... 45 Shareholder Expense Example ................................................................................................................. 46 Board of Trustee and Trust Officers ................................................................................................................ 47 Evaluation and Approval of Advisory Contract................................................................................................... 50 Liquidity Risk Management Program – Annual Evaluation of Adequacy and Effectiveness .............................................................................................. 53 Voting Proxies on Fund Portfolio Securities ...................................................................................................... 54 Quarterly Portfolio Schedule ........................................................................................................................ 54 Management’s Discussion of Fund Performance (unaudited) The total return of the Federated Hermes High Yield Strategy Portfolio (the “Fund”), based on net asset value for the 12-month reporting period ended December 31, 2020, was 6.04%. The total return of the Fund’s shares consisted of 6.19% current income and -0.15% of depreciation in the net asset value of the Fund’s shares. The total return of the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (BBHY2%ICI), 1 a broad-based securities market index, was 7.05% during the same period. The Fund’s total return for the most recently completed fiscal year reflected actual cash flows, transaction costs and other expenses which were not reflected in the total return of the BBHY2%ICI. During the reporting period, the most significant factors affecting the Fund’s performance relative to the BBHY2%ICI were: (1) the allocation among industry sectors and (2) the selection of individual securities. MARKET OVERVIEW The dominant theme impacting the high-yield2 market during the period under review was COVID-19 and its impact on the U.S. and global economies. As the seriousness of the virus became apparent in the early part of 2020, riskier assets such as high-yield bonds plummeted in value especially in the early part of March.3 As protective measures were put in place leading to a reduction in cases and deaths, the high-yield market began a powerful recovery rally aided by substantial monetary and fiscal policy stimulus. While virus cases surged as the reporting period came to an end, the financial markets continued to rally as vaccines were approved late in the period and distribution had begun. The virus and its economic impact led to tremendous economic volatility with the 2nd calendar quarter seeing a record GDP decline followed by a record surge in activity in the 3rd calendar quarter. Also, the reduction in economic activity and disagreements among global producers resulted in lower oil prices which pressured the energy sector of the high-yield market especially in the first half of the year. Overall, default rates spiked higher in response with energy issuers experiencing the greatest uptick in distress. The impact of these factors can be seen in the movement of the yield spread between the Credit Suisse High Yield Bond Index4 and U.S. Treasury securities of comparable maturities, which began the period at 414 basis points (bp), declined to 388 bp in mid-January 2020, skyrocketed to over 1,400 bp in late March 2020 before declining to end the period at 431 bp on December 31, 2020. Within the high-yield market, major industry sectors that substantially outperformed the overall BBHY2%ICI during the reporting period included: Midstream, Banking, Home Construction, Wireless Communications and Food & Beverage. Major industry sectors that substantially underperformed the overall BBHY2%ICI during the reporting period included: Oil Field Services, Leisure, Independent Energy, Cable & Satellite and Restaurants. From a credit quality perspective, the “BB”-rated sector led the way during the reporting period with a total return of 10.03% followed by the “B”-rated sector with a total return of 4.59% and the “CCC”-rated sector with a total return of 2.27%. SECTOR ALLOCATION The Fund was negatively impacted by its sector allocation relative to the BBHY2%ICI. This was mainly the result of being in an underweight position to the Independent and Integrated Energy sectors in the second quarter of 2020. While Independent Energy was an underperformer across the entire period under review, it was a major outperformer in the second quarter led by several companies that were downgraded from investment-grade at the end of March and entered the BBHY2%ICI at very depressed prices. These issuers substantially rebounded in early April after entering the high-yield index and were not owned by the Fund during that period of substantial outperformance. The Fund was also negatively impacted by its cash position especially in the April rally. The Fund also had an underweight position to the strong- performing Food & Beverage and Banking sectors. The Fund was positively impacted by its underweight position to the poor-performing Service sector and its overweight positions to the outperforming Technology and Healthcare sectors. Annual Shareholder Report 1 SECURITY SELECTION The Fund’s security selection had a modest negative impact on performance relative to the BBHY2%ICI. Security selection in the Independent Energy, Retail, Media & Entertainment, Food & Beverage, Automotive and Chemicals negatively impacted performance. Specific high-yield issuers held by the Fund that negatively impacted performance relative to the BBHY2%ICI included: Party City, Callon Petroleum, SESI LLC, Oasis Petroleum and EP Energy. While the Fund did purchase securities of Occidental Petroleum, Continental Resources and Western Midstream during the period, it had underweight positions to these issuers when they had the substantial recovery early in April mentioned above. The Fund did benefit from positive security selection in the Oil Field Services, Aerospace & Defense, Cable & Satellite and Packaging industry sectors. Specific high-yield issuers held by the Fund that positively impacted