Multi-asset strategy outperforms amid market volatility

Volatile equity markets of late have highlighted the importance of holding an adequately diversified portfolio of investments, according to Andy Clark, Managing Director, Wholesale, at HSBC Investments in the UK.

While many equity focussed portfolios would have seen their performance fall since the summer of 2007, a true multi-asset fund-of-funds, which holds a mix of non correlated assets, has posted positive results.

The HSBC Open Global Return fund - a globally-diverse fund which can hold a mix of assets including property, commodities and hedge funds, in addition to traditional asset classes such as equities and fixed interest (bonds) - has posted a positive gain during the recent equity market malaise. This outperformance demonstrates that well-managed multi-asset funds can deliver good performance, irrespective of stock market conditions.

Since inception (30 November 2006) to 29 February 2008, the HSBC Open Global Return fund has posted a 7.72% bid-to-bid gain, compared to the IMA Balanced Managed sector average of 1.83%. This positions the fund as 15th of 113 funds in the balanced managed sector over this period, according to Morningstar. Over the same period the FTSE 100 Index has returned 1.12% and the FTSE World Index gained 3.78%.

Cara MacGregor, co manager on the HSBC Open Global Return fund said the key to the fund’s good performance was the blend of assets within the portfolio. The low correlation of underlying funds meant that when blended together, these delivered strong absolute returns at a time when many equity-focussed funds have struggled - particularly from the summer of 2007 onwards. As at 31 December 2007, the HSBC Open Global Return fund held less than 20% of its portfolio in pure equities. By contrast, the mean equity exposure in the CAPS Pooled Pensions Fund Update (31 December 2007) shows that the average balanced fund held an average weighted exposure of 83.3% in equities (including overseas and UK).

MacGregor said in constructing the portfolio, the management team have a strong bias toward modern asset classes and those funds with an absolute return bias.

Examples of some funds within the HSBC Open Global Return fund that hold modern assets include Schroder Alternative Solutions Commodity, Mellon Evolution Currency Option, and the BlackRock UK Absolute Alpha fund. (These are among the 18-20 underlying funds within the HSBC Open Global Return fund).

Schroder Alternative Solutions Commodity fund: The two man team of Robert Howell and Rodolphe Roche manage this fund on a research driven, long only, globally diversified, unconstrained basis. The fund invests in commodity futures and commodity related equities and provides more diverse exposure than investing in a commodity-related index. Types of commodities include energy, agriculture and metals.

MacGregor says: “At a time when equity markets are falling, many commodity markets are trading at record highs, meaning this asset class offers an important element to a diversified portfolio.”

Mellon Evolution Currency Option fund: This fund is managed by Pareto Investment Management, a subsidiary of BNY Mellon Asset Management specialising in active currency management. The fund, which has a UCITS III structure, daily liquidity and an uncorrelated source of alpha, aims to return 15% gross per annum with a one month Euribor benchmark. To achieve this prescribed target, the manager, Mauricio Boubaci, uses strategies traditionally only available through hedge funds.

BlackRock UK Absolute Alpha fund: Managed by Mark Lyttleton and Nick Osborne, this fund aims to produce a positive absolute return, regardless of the underlying equity market conditions by using both long and synthetic short positions on stocks.

MacGregor says: “These funds have low correlation to equities, instead prioritising return of capital and focusing on absolute return. The combination of adequate asset diversification, a global approach and good manager selection – made possible by an extensive team of more than 40 analysts – means the HSBC Open Global Return fund is well positioned to continue weathering further market volatility.”