HSBC launches India Fixed Income UCITS fund
HSBC Global Asset Management has announced the launch of the HSBC GIF India Fixed Income fund. The UCITS-compliant fund is one of the first of its type offering exposure to a market that is otherwise difficult for international investors to access.
Through use of the Foreign Institutional Investor (FII) licence authorised by the Securities and Exchange Board of India, the new fund will invest primarily in domestic government and corporate bonds denominated in Indian Rupee. The fund can also invest in bonds issued in other currencies that have a strong India connection.
Launching on 20 August 2012, the HSBC GIF India Fixed Income fund will be managed by HSBC Global Asset Management's award-winning Asian fixed income team based across Asia with investment offices in Mumbai, Hong Kong, Taipei and Shanghai. This team, comprising 22 managers and seven analysts, currently manages approximately USD30bn in Asian fixed income. The lead manager on the new fund is Gordon Rodrigues, who joined HSBC in 1994 and is head of Asian rates, foreign exchange and liquidity.
Rodrigues said the Indian fixed income markets are particularly difficult to access for global investors. The fund will therefore use three key access points including a) direct access to the domestic bond market through FII quota, b) indirect access through non-rupee denominated bonds linked to Indian companies or cash hedged back into rupees, c) synthetic exposure to India bonds through structured notes.
The manager will aim to achieve a yield that is consistent with the underlying net yield of the domestic bond market. The fund is likely to contain investment grade and high yield bonds in line with the make up of the universe of Indian fixed income securities available.
Rodrigues said there are several factors that make investing in the Indian fixed income market appealing:
The Indian bond market currently has one of the highest yields available anywhere in the world. The average gross yield in the domestic government bond markets is around 8.38% (HSBC Asian Local Bond Index (16/08/2012).
The Indian rupee is one of the most undervalued currencies globally based on the Purchasing Power Parity (PPP) measure. Even a small reversal could potentially lead to gains for investors with a currency base from a developed country.
Although underdeveloped in relation to the size of India's economy, the bond market is currently sizeable, deep and liquid and has potential to grow substantially in terms of size and opportunity in the coming years. The economy, although facing challenges, could potentially outgrow the developed world.
Returns from Asian fixed income local currency markets, including India, have been strong since the start of 2000. The Indian Government bond market has returned around 7.5% in USD terms on an annualised basis according to the HSBC Asian Local Currency Bond Index.
The fund will form part of HSBC's Luxembourg-based Global Investment Fund (GIF) range, which has funds registered for sale in approximately 30 countries globally. The base currency is US dollars, although the underlying exposure will be to the Indian rupee.
Andy Clark, Head of Wholesale, EMEA, said: "The launch of the Indian fixed income fund reflects HSBC's ability to combine vast expertise and local presence to offer clients exposure to interesting and innovative asset classes."
In 2011 HSBC launched the HSBC GIF RMB Fixed Income fund, offering access to Renminbi offshore bonds. In addition, HSBC Global Asset Management is currently the largest manager of Indian equities with approximately USD6bn under management and is a leader in emerging markets with more than USD140bn invested in this asset class.