HSBC Openfunds top quartile performance and S&P A rating
The HSBC Open Global Return and HSBC Open Global Distribution funds have celebrated their third year anniversaries by achieving top quartile performance since inception and by being awarded A ratings from Standard & Poor's Fund Services.
Launched 30 November 2006, the £130m HSBC Open Global Return fund and £260m HSBC Open Global Distribution fund are globally diversified, multi-asset, multimanager portfolios. In addition to holding assets such as equities and bonds, the funds also hold specialist asset classes such as physical and listed property, absolute return strategies, currency funds, gold, and physical commodities. Exposure to these asset classes is achieved via funds or other instruments that specialise in these areas.
The main difference between the two funds is that the HSBC Open Global Distribution fund has a high income objective (currently yielding 4.4%). HSBC Open Global Return aims for capital growth and income.
Both funds, managed by Nicholas Pothier, of HSBC Global Asset Management's Multimanager team, are not managed relative to the peer group. However, their strong performance since inception does highlight the benefit of true diversification, coupled with tactical asset allocation and skilled fund selection.
For example, HSBC Open Global Return fund has delivered a net total return of +10.1% over the past three years, whilst HSBC Open Global Distribution has posted a +4.1% return. This compares favourably to the IMA Cautious Managed peer group average of -2.2% over the same three year period (to 30 November, 2009, source Lipper Hindsight). Both funds are positioned in the first quartile of the performance league tables.
Typically, the long term average asset allocation of HSBC Open Global Return would be some 30% equities and 30% bonds, with the remaining 40% being invested in the more specialist asset classes. HSBC Open Global Distribution would be tilted towards income producing assets so as to meet the yield objective.
However, the manager does have the discretion to take tactical decisions. For example, over the course of 2008, the cash position in both funds was raised substantially and exposure to risky asset classes was reduced. This achieved the desired aim: preservation of capital. Throughout 2009, the manager has progressively reduced these cash positions to successfully capture the rally seen in many asset classes.
Pothier attributes strong performance since inception to the natural benefits of thorough diversification, both geographic and across various asset classes. Careful selection of the underlying funds has been critical, and this is an area where the multimanager team at HSBC has an edge due to the depth and quality of the analyst team.
He said: "The past three years have certainly been volatile, including both the tail end of an equity bull market and the credit crisis. We expect a multi-asset strategy to achieve relatively smooth returns throughout the cycle, and to provide good capital preservation relative to less diversified strategies, and this is indeed what has been delivered."
Pothier said although tactical asset allocation naturally changes portfolio emphasis from time to time, the portfolios also have longer term satellite themes. An example of one such satellite theme is gold.
He said: "Rather than our position being a bet on gold we view this as a portfolio hedge against the extreme outcomes of significant inflation or deflation. History shows that gold performs well in both scenarios". The Open Global Return fund gains exposure to gold via a physical gold ETF and the Blackrock Gold & General fund.
Another important theme held since inception has been the environment. This is because companies working in the areas of environmentally friendly energy, clean water and waste disposal will benefit from a growing awareness of these issues and the increase in supportive legislation. This theme has been captured via the Impax Environmental Markets fund, which has strongly outperformed world equity markets over the period.
Global emerging markets exposure is also a long term thematic position that has been extremely beneficial to the Open Global Return fund. Funds such as First State Global Emerging Markets Leaders and JPM Emerging Markets Alpha Plus have been very effective at capturing the emerging markets theme, Pothier adds.
Among more recent moves in the portfolios, Pothier has trimmed exposure to corporate bonds, an area that has performed well since exposure was increased in April. The manager remains positive on this asset class, but said it was sensible to take some profits after the yield spread had narrowed. Concurrently, exposure to property has been increased, with an emphasis on UK physical holdings.
Elsewhere, Pothier has introduced listed infrastructure as a theme into the HSBC Open Global Distribution fund via the specialist RARE Infrastructure Value fund. This asset class is relatively defensive, typically producing an attractive yield, while capturing the thematic drivers behind infrastructure in both developed and developing markets.
"Compared to other types of listed equity, infrastructure provides a far more predictable income stream, making it more stable and defensive," he said.
In its report, awarding A ratings to the funds, Standard & Poor's Fund Services said the funds draw on a large team of fund analysts (some 46 analysts located throughout the world) with impressive levels of experience and global reach. This resource, together with sound strategic and tactical asset allocation, has culminated in the delivery of such strong performance since inception, the reports say.