HSBC Global SRI Life Fund outperforms mainstream equities

A globally-diverse pension fund which combines a Sustainable Responsible Investment (SRI) screen and quantitative stock selection process has outperformed mainstream equities over the three years since launch.

Over three-years, to end August 2007, the HSBC Global SRI Life fund, managed by SINOPIA, the quantitative specialist of the HSBC Group, has posted a 52.45% gain, net of fees (60bp per year), according to figures from HSBC Investments (UK) Ltd. (Figures are quoted total return, in sterling, cumulative over 36 months to 30 August 2007. Time period for performance calculation is based on first full 36 months of available performance data).

This represents a significant outperformance when compared to the 44.74% return in the MSCI World Index over the same period. (Past performance is not a guide to future performance.) The three-year net annualised performance of the fund equates to 15.09%, compared to 13.12% from the MSCI World Index (figures quoted on the same basis as above).

There are two elements which have contributed to the outperformance of the HSBC Global SRI Life fund.

The first is the SRI screening process provided by Innovest Strategic Advisers. Innovest screens the MSCI World Index to identify “best in class” companies. These are companies that have historically performed better than their peers within a particular industry sector, in terms of Environmental, Social and Governance (ESG) issues. These are used as leading indicators for management quality and long-term financial performance.

Using these measures, Innovest ranks companies on a relative scale of AAA to CCC. The HSBC Global SRI fund can invest in any company within the MSCI World Index which is ranked A or higher by Innovest. This provides a universe of around 600 stocks.

The second contributor to outperformance is SINOPIA’s active quant process, called MERIT (Multifactor Enhanced Return Investment Technique). This process aims to identify stocks with attractive valuations and positive momentum.

According to Jean-Francois Schmitt, Chief Executive of SINOPIA UK, an attribution analysis conducted by SINOPIA has determined that 25% of the fund’s outperformance resulted from the SRI screen and 75% from the MERIT process.

Simon Blanch, Manager, Institutional Pooled Pensions, at HSBC Investments in the UK, said the HSBC Global SRI Life fund enables pension savers to benefit from investing a globally diverse range of companies which are committed to long-term sustainable economic growth.

He said: “This performance shows that it is possible for investors to benefit financially, with the peace of mind that their money is invested in a sustainable and responsible manner. This also dispels the myth that there is necessarily an opportunity cost associated with SRI investment.”

The HSBC Global SRI Life fund has enjoyed interest from Defined Contribution (DC) plans and fund platforms due to the appeal of the SRI criteria, along with demonstrated strong performance from a global equity portfolio. .

Blanch said the HSBC Global SRI fund is part a range of funds offered by HSBC Investments in the UK that use the MERIT approach. Others include HSBC Life UK MERIT Fund, which aims to outperform the FTSE All Share Index, and the HSBC Life Global MERIT Fund, which seeks to outperform global equities (as represented by a composite benchmark). The MERIT funds are managed by Nils Jungbacke, of SINOPIA.