HSBC Investments launches emerging market debt funds

HSBC Investments is to launch two new emerging market debt (EMD) funds by late June; HSBC Global Emerging Markets Local Debt Fund and HSBC New World Income.
Both will be among the first of their type available to investors via a collective fund format.

The funds will be managed by Peter Marber and his team at Halbis, the fundamental active asset management specialist of the HSBC Group, using strategies that have been successfully utilised by the team for many years via institutional segregated accounts. Both are part of the HSBC Group’s flagship Luxembourg-based Global Investment Funds (GIF) SICAV, which is registered for sale in 30 countries and has UK distributor status. Institutional and retail share classes are available.

The HSBC GEM Local Debt Fund aims to outperform major local market benchmarks by 3% per annum. It differs from traditional EMD funds in that its investible universe consists primarily of emerging market sovereign and corporate debt that is denominated in local currency. By contrast, most traditional EMD funds invest almost exclusively in dollar-denominated assets (referred to as hard currency bonds).

Marber said: “Local currency EMD is a young and relatively under-researched area that has expanded rapidly in recent years. Local currency EMD already exceeds hard currency EMD four-fold by market capitalisation, and offers plenty of potential to exploit market inefficiencies as well as capture appreciating currencies..”

The HSBC GEM Local Debt Fund uses flexibilities permissible under UCITS III. Allocation to local currency EMD will not fall below 60%, thereby limiting exposure to hard currency bonds to 40%. The fund also seeks good regional diversification, with a maximum of 20% of the fund invested in any single country, with more rigid restrictions applied to lower-rated countries. The opportunity set is further enhanced through allocations to corporate EMD, although exposure is strictly limited to a maximum of 3% per credit issuer.

HSBC New World Income has an absolute return objective of Libor plus 5% per annum over the long term, with modest volatility. In managing this fund, Marber and his team will employ an unconstrained investment approach, meaning that investment decisions are not influenced by any EMD benchmark weightings. The fund, which also uses full UCITS III powers, invests across the full spectrum of the EMD universe (more than 40 countries), rotating through both hard and local currency bonds. Exposure to emerging market equities is also permitted, but will not exceed 10% of the portfolio. The fund will actively use derivatives, both to control risks and express investment views. HSBC New World Income carries a performance fee.

In both funds, Marber and his team will derive ideas using a combination of top down, macro thematic research and fundamental analysis of preferred instruments.

Marber said the new funds will offer an innovative take on an asset class that has traditionally been overlooked by investors.

He said: “By combining these innovative approaches to the already exciting emerging market debt asset class with a highly experienced team and HSBC's unparalleled local expertise, we expect these funds can provide a valuable addition to a portfolio in potentially enhancing returns and reducing volatility.”

HSBC is at the forefront of emerging markets investing, with some US$63 billion assets under management worldwide (as at 31 March, 2007). Marber, who has more than 20 years emerging markets investment experience, joined HSBC's Halbis when Atlantic Advisors, an emerging markets debt specialist boutique he founded in 1999, was acquired in 2005 by HSBC.

The core investment team has worked together for more than 15 years and has a long and successful history of investing in a wide variety of EMD strategies including local currency EMD and total return strategies. Two new recent appointments bring the number in the team to nine. In addition, the team is supported by a network of local asset management teams comprising 54 members in 10 countries.