HSBC Global Investment Funds. Unaudited Semi-Annual Report for the period from 1 April 2009 to 30 September 2009

Transcription

1 HSBC Global Investment Funds Unaudited Semi-Annual Report for the period from 1 April 2009 to 30 September 2009

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3 Unaudited semi-annual report for the period from 1 April 2009 to 30 September 2009 Société d Investissement à Capital Variable (SICAV), Luxembourg 1

4 Information concerning the distribution of shares of HSBC Global Investment Funds in Switzerland or from Switzerland. HSBC Private Bank (Suisse) SA, Quai du Général Guisan 2, case postale 3580 CH-1211 Geneva 3, is the legal representative of the Company in Switzerland and the Company s paying agent. The prospectus, simplified prospectuses, articles and annual and semi-annual reports of the Company may be obtained free of charge upon request from the HSBC Private Bank (Suisse) S.A. A breakdown of all the transactions carried out on behalf of each sub-fund of HSBC Global Investment Funds in the period under review can be obtained, free of charge, from the Company s representative in Switzerland. Information concerning the distribution of shares of HSBC Global Investment Funds in Germany or from Germany. HSBC Trinkaus & Burkhardt AG, Königsallee, D Düsseldorf, is the legal representative of the Company in Germany and the Company s paying agent. The prospectus, simplified prospectuses, articles and annual and semi-annual reports of the Company may be obtained free of charge upon request from the HSBC Trinkaus & Burkhardt AG. A breakdown of all the transactions carried out on behalf of each sub-fund of HSBC Global Investment Funds in the period under review can be obtained, free of charge, from the Company s representative in Germany. No subscription can be received on the basis of financial reports. Subscriptions are only valid if made on the basis of the current prospectus accompanied by the latest annual and the most recent semi-annual report, if published thereafter. Unaudited semi-annual report for the period from 1 April 2009 to 30 September

5 Table of Contents Board of Directors 4 Management and Administration 5 Directors Report 8 Statement of Net Assets as at 30 September Key Figures as at 30 September Statement of Operations and Changes in Net Assets 46 Notes to the Financial Statements 57 Comparative Table of Net Assets 115 Portfolio of Investments and other Net Assets 130 Currency Conversion Table 269 Dealing Days of the Fund 270 Non-Dealing Days of the Fund 271 3

6 Board of Directors BOARD OF DIRECTORS OF THE COMPANY Didier Deleage (Chairman), Chief Operating Officer, HSBC Global Asset Management (France), Immeuble Ile de France, 4, Place de la Pyramide, La Défense 9, Puteaux, France. Thies Clemenz, Chief Operating Officer, HSBC Global Asset Management (Deutschland) GmbH, Königsallee 21/23, D Düsseldorf, Germany. Jennifer Foo Chin Hau Kau Fong, Vice President, HSBC Customer Services, Global Business, The HongKong and Shanghai Banking Corporation Limited, HSBC Centre, 18, CyberCity, Ebene, Mauritius. David Dibben, Chief Operating Officer - Global Fund Ranges, HSBC Global Asset Management Limited, 8 Canada Square, London E14 5HQ, United Kingdom. George Efthimiou, Global Chief Operating Officer, HSBC Global Asset Management Limited, 8 Canada Square, London E14 5HQ, United Kingdom. David Silvester, Head of Global Product Management, HSBC Global Asset Management Limited, 8 Canada Square, London E14 5HQ, United Kingdom. Edmund Stokes, Chief Operating Officer, HSBC Global Asset Management (Hong Kong) Limited HSBC Main Building, 1 Queen s Road Central, Hong Kong. Sylvie Vigneaux, Head of Regulatory and Wealth Engineering, HSBC Global Asset Management (France), Immeuble Ile de France, 4, Place de la Pyramide, La Défense 9, Puteaux, France. 4

7 Management and Administration Registered Office 16, boulevard d'avranches, L-1160 Luxembourg, Grand Duchy of Luxembourg. R.C.S. Luxembourg N B Management Company HSBC Investment Funds (Luxembourg) S.A., 16, boulevard d'avranches, L-1160 Luxembourg, Grand Duchy of Luxembourg. Custodian, Administration Agent, Transfer Agent and Central Paying Agent RBC Dexia Investor Services Bank S.A. 14, Porte de France, L Esch-sur-Alzette, Grand Duchy of Luxembourg. Investment Advisers Halbis Capital Management (USA) Inc., 452 Fifth Avenue, 18th Floor, New York, NY 10018, USA. Halbis Capital Management (Hong Kong) Limited, HSBC Main Building, 1, Queen s Road Central, Hong Kong. Halbis Capital Management (UK) Limited, 8, Canada Square, London E14 5HQ, United Kingdom. Halbis Capital Management (France), Immeuble Ile de France, 4, Place de la Pyramide, La Défense 9, Puteaux, France. HSBC Bank Brazil SA - Banco Múltiplo, Travessa Oliveira Belo, 11-B, Curitiba, Brazil. HSBC Global Asset Management (Singapore) Limited, 21 Collyer Quay, # HSBC Building, Singapore , Singapore. HSBC Global Asset Management (USA) Inc., 452 Fifth Avenue, 18th Floor, New York, NY 10018, USA. HSBC Global Asset Management (France), Immeuble Ile de France, 4, Place de la Pyramide, La Défense 9, Puteaux, France. HSBC Global Asset Management (Deutschland) GmbH, Königsallee 21/23, D Düsseldorf, Germany. HSBC Portfoy Yonetimi A.S., Esentepe Mahallesi, Büyükdere Caddesi, No:128, Sisli, Istanbul, Turkey Sinopia Asset Management (UK) Limited, 8, Canada Square, London E14 5HQ, United Kingdom. Sinopia Asset Management, Immeuble Ile de France, 4, Place de la Pyramide, La Défense 9, Puteaux, France. Sinopia Asset Management (Asia Pacific) Limited, Level 22, HSBC Main Building, 1 Queen s Road Central, Hong Kong. 5

8 Management and Administration (continued) Share Distributors Global Distributor HSBC Investment Funds (Luxembourg) S.A., 16, boulevard d Avranches, L-1160 Luxembourg, Grand Duchy of Luxembourg. Austria and Eastern Europe Share Distributor HSBC Trinkaus & Burkhardt AG, Königsallee 21/23, D Düsseldorf, Germany. Hong Kong Representative and Share Distributor HSBC Investment Funds (Hong Kong) Limited, HSBC Main Building, 1 Queen's Road Central, Hong Kong. United Kingdom Representative and Share Distributor HSBC Global Asset Management (UK) Limited, 8, Canada Square, London E14 5HQ, United Kingdom. Republic of Ireland Distributor HSBC Global Asset Management (UK) Limited, 8, Canada Square, London E14 5HQ, United Kingdom. Republic of Ireland Representative HSBC Securities Services (Ireland) Limited, HSBC House, Harcourt Centre, Harcourt Street, Dublin 2, Ireland. Jersey Representative and Share Distributor HSBC Global Asset Management (International) Limited, HSBC House, Esplanade, St Helier, Jersey, JE1 1HS Channel Islands. Singapore Representative and Share Distributor HSBC Global Asset Management (Singapore) Limited, 21, Collyer Quay, #15-02 HSBC Building, Singapore , Singapore. Swiss Representative and Paying Agent in Switzerland HSBC Private Bank (Suisse) S.A., Quai du Général Guisan 2, Case postale 3580, CH-1211 Geneva 3, Switzerland. Korea Representative and Share Distributor HSBC Korea Ltd, HSBC Building #25, 1-Ka, Bongrae-Dong, Chung-Ku, Seoul, Korea. Distributor for Continental Europe HSBC Global Asset Management (France), Immeuble Ile de France, 4, Place de la Pyramide, La Défense 9, Puteaux, France. Poland Representative and Paying Agent HSBC Bank Polska SA, PL, Pilsudskiego 2,00-073, Warszawa, Poland. 6

9 Management and Administration (continued) Paying Agent in Hong Kong The Hongkong and Shanghai Banking Corporation Limited, HSBC Main Building, 1, Queen s Road Central, Hong Kong. Auditor KPMG Audit S. à r. l. 9, allée Scheffer, L-2520 Luxembourg, Grand Duchy of Luxembourg. Legal Adviser Elvinger, Hoss & Prussen, 2, place Winston Churchill, B.P. 425, L Luxembourg, Grand Duchy of Luxembourg. 7

10 Directors Report Directors Comments The directors present the Semi-Annual Report and Accounts for HSBC Global Investment Funds for year ending 30 September 2009 HSBC GIF Funds Interim Report 1 April 2009 to 30 September 2009 Investment Manager comments regarding the performance during the period. Reserve Sub-Fund HGIF Euro Reserve For the period 1 April 2009 to 30 September 2009, the Fund returned 0.15% (net of fees, Class AC), against a benchmark return of 0.28% (European Overnight Index Average EONIA). During the period the eurozone suffered a recession, while headline inflation remained negative. In this context, the European Central Bank (ECB) decided to cut its refinancing interest rate from 1.25% to 1.00% in early May. As a second measure, the ECB added considerable liquidity to the inter-bank system. As a consequence the excess liquidity pushed the EONIA to a record low level (and well below the eurozone refinancing rate). However, recent data showed that the eurozone managed to exit the recession sooner than had been expected. Real GDP seemed to have expanded again in the third quarter of 2009, after contracting marginally in spring The economic outlook remains uncertain with a poor labour market. The Manager remained cautious during the period and maintained liquidity within the Fund by investing mainly in government bonds. Bond Sub-Funds HGIF Brazil Bond For the period 1 April 2009 to 30 September 2009, the Fund returned 34.00% (net of fees Class AC), against a benchmark return of 36.20% (Brazilian Interbank Rate). During the period, the Brazilian Real appreciated significantly against the US Dollar and other major currencies, on the expectation that the country would be among the first to emerge from the global recession, boosted by resiliant local consumer. The government interest rate was cut by a further 2.50% between March and July. Along with other local measures, such as tax breaks for durable goods and lower reserve requirements, this created a more benign environment for economic activity. Although the base rate was cut, bond yields of the longer end of the curve widened by 0.80% over the period, as the outlook for the economy became more positive. After increasing the duration of the Fund in March, the Manager managed duration tactically reducing it during the rest of the period. The credit quality of the Fund remained unchanged, currently holding around one-third of its in local sovereign bonds with the remainder invested in certificates of deposit issued by top tier local banks. 8

11 Directors Report (continued) HGIF Euro Core Bond For the period 1 April 2009 to 30 September 2009, the Fund returned 13.20% (net of fees, Class AC) against a benchmark return of 5.78 % (Barclays Euro Aggregate). The rebound in credit markets which began at the end of March 2009 was beneficial to the Fund s performance. The fund manager maintained strong confidence in the issuers of the bonds held in the Fund and maintained the exposure to subordinated financial debt holdings which had been a negative for Fund performance last year. The overweight holdings in Tier-1 and Lower Tier-2 corporate bonds which rallied strongly since early 2009 and stock picking in the primary markets, contributed to the Fund s out performance over the period. HGIF Euro Core Credit Bond For the period 1 April 2009 to 30 September 2009, the Fund returned 21.30% (net of fees, Class AC) against a benchmark return of % (100% IBoxx Euro Corporate (RI)). From the second half of March 2009 onwards, the Fund s overweight positions in specific financial subordinated instruments, particularly on Tier 1 debt, and the fundamental investment approach to issuer selection had a positive effect on fund performance. This is explained by increased confidence towards riskier (equity and corporate bonds) and the market starting to differentiate among different bond issuers. These two reasons were the main causes for the sharp rebound in the Fund s performance which also benefited from the generous premiums offered by the primary market. HGIF Euro High Yield Bond For the period 1 April 2009 to 30 September 2009, the Fund returned 44.67% (net of fees, Class AC), against a benchmark return of 52.07% (100% Merrill Lynch Euro High Yield Constraint BB-B(RI)). The Fund s performance could not keep pace with an extremely strong market as its average corporate bond quality was higher than that of the benchmark, while the outperforming holdings during the period were the more speculative from lower quality bond issuers. From a sector perspective the manager maintained an overweight position in Tier 1 subordinated financial debt. This asset allocation contributed positively to the Fund s performance as the asset class outperformed the benchmark strongly. Most of the Tier 1 holdings within the Fund were issued by the stronger European banks and insurance companies. Therefore, the fund benefited only to a limited extent from the tender offers launched by the weaker providers. HGIF European Government Bond For the period 1 April to 30 September, the Fund returned 6.10% (net of fees, Class AC), against a benchmark return of 2.90% (JP Morgan Europe Government Bond). The Fund s performance benefited from the upsurge in investors risk appetite in the second and third quarter of The Fund was positioned partially in long dated peripheral euro sovereigns (mainly Greece, Italy), subsovereigns and private bonds which had positive performance during this period. At the end of May, the remaining positions were taken in private bonds were sold. Subsequently only small tactical bets on duration and curve positioning added performance to the fund. 9

12 Directors Report (continued) HGIF Global Core Plus Bond For the period 1 April 2009 to 30 September 2009, the Fund returned 12.60% (net of fees Class AC), compared with a benchmark return of 11.50% (Barclays Capital Global Aggregate Bond Index). Economic stabilisation, the continuation of fiscal monetary policy and the utilisation of other methods aimed at increasing liquidity in financial markets, had a positive impact. The Fund outperformed its benchmark in a strongly rallying market for corporate bonds. Overweight positions in asset-backed securities, financials and corporate bonds were of benefit to the Fund s performance, as was a small underweight allocation in the US during the early part of the period. HGIF Global Emerging Markets Bond For the period 1 April 2009 to 30 September 2009, the Fund returned 26.20% (net of fees, Class AC), compared with a benchmark return of 22.10% (J P Morgan Emerging Markets Bond Index Global). Out performance was driven primarily by overweight holdings in high yield countries which outperformed the investment grade names over the six months. In particular, investment in Venezuela, Russia, Indonesia and Argentina added to the out performance. Corporate and local market exposure were both increased and contributed to positively. The strategy closed the period fully invested with a similar duration and credit quality relative to the index. HGIF Global Emerging Markets Local Debt For the period 1 April 2009 to 30 September 2009, the Fund returned 29.20% (net of fees, Class AC), compared with a benchmark return of 26.01% (J.P.Morgan Emerging Markets Bond Index Global). The out performance was largely the result of currency gains from the strategy s net overweight currency exposure relative to the benchmark. An overweight in the front-end of the curve (1-3yrs) also positively contributed to performance. The strategy continued to focus on Asian and commodity-linked currencies with strong balance sheets such as Brazil. The strategy closed the period fully invested with an overall duration of 2.39 years vs for the benchmark and a credit quality one grade below the index. HGIF US Dollar Core Plus Bond For the period 1 April 2009 to 30 September 2009, the Fund returned 8.10% (net of fees, Class AC) versus a benchmark return of 5.60% (Barclays Capital U.S. Aggregate Bond Index). Economic stabilisation, the continuation of fiscal monetary policy and other tools aimed at increasing liquidity in financial markets had a positive impact on performance. The Fund outperformed its benchmark in a strong market for corporate bonds. Overweight positions in asset-backed securities, financials and corporate bonds were of benefit to the Fund s performance as was a small underweight position in US bonds early on in the period. 10

13 Directors Report (continued) Equity Sub-Funds International and Regional Equity Sub-Funds HGIF Asia ex Japan Equity From 1 April 2009 to 30 September 2009, the Fund returned 54.20% (net of fees, Class AC) versus a benchmark return of 60.80% (MSCI Asia ex Japan). Equity markets continued the rally that began in March, producing the strongest two consecutive quarterly performances for Asia Pacific markets since The main performance drivers were the efforts of G7 governments to recapitalise their financial systems and stimulate economic growth, the apparent trough of the US recession and China s strong recovery. Stock selection in India and Malaysia contributed to Fund performance, while stock-picking in Korea, China and Hong Kong detracted from performance. The Fund s overweight allocation to Indonesian stocks also added to relative returns. At a sector level, stock selection within the consumer discretionary sector contributed positively to relative Fund performance, while stock-picking in the financial services and IT sectors was negative for Fund performance. HGIF Asia ex Japan Equity Smaller Companies From 1 April 2009 to 30 September 2009, the Fund returned 79.10% (net of fees, Class AC) compared to a benchmark return of 81.50% (MSCI Asia ex Japan Small Cap). Equity markets continued the rally that began in early March, producing the strongest two consecutive quarterly performances for Asia Pacific equities since The main performance drivers were the efforts of G7 governments to recapitalise their financial systems and stimulate economic growth, the apparent trough of the US recession and China s strong recovery. Stock selection in Korea, India and Indonesia contributed to Fund performance, while stock-picking in China and Taiwan detracted from performance. The Fund s overweight allocation to Chinese stocks also added to relative returns. At a sector level, stock selection in the energy and IT sectors contributed positively to relative Fund performance, while stock-picking in the industrials and financial services sectors was a negative for performance. HGIF Asia Pacific ex Japan Equity High Dividend From 1 April 2009 to 30 September 2009, the Fund returned 54.60% (net of fees, Class AC) compared to a benchmark return of 63.61% (MSCI All Country Asia Pacific Ex Japan). Equity markets continued the rally that began in early March, producing the strongest two consecutive quarterly performances for Asia Pacific equities since The main performance drivers were the efforts of G7 governments to recapitalise their financial systems and stimulate economic growth, the apparent trough of the US recession and China s strong recovery. Stock selection in India and China contributed to Fund performance, while stock-picking in Korea, Hong Kong and Thailand detracted from performance. The Fund s underweight allocation to Indian stocks made a negative contribution to relative returns. At a sector level, stock selection in the consumer discretionary sector contributed positively to relative Fund performance, while stock-picking in the consumer staples and industrials sectors detracted from performance. 11

14 Directors Report (continued) HGIF BRIC Markets For the period 1 April 2009 to 30 September 2009, the Fund returned 74.50% (net of fees, Class YC) in US dollar terms compared with a return of 77.04% in the MSCI BRIC index. During this period, India was the strongest performing market, gaining 89.7%, largely on the back of a surprising majority win for the Congress party in the National Election and better than expected economic growth outcomes. Brazil & Russia also gained strongly, rising & 72.20% respectively. China was a relative laggard market, gaining 43.1%. Emerging markets were at the forefront of the rebound in equity prices over this review period amid signs of a stabilising global economic environment, significant government intervention, low interest rates and a sharp improvement in investor risk appetites, resulted in unprecedented fund flows into emerging market equity funds. HGIF BRIC Markets Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 62.60% (net of fees, Class AC) compared to a benchmark return of 63.80% (MSCI BRIC, net total return USD). BRIC equities surged and outperformed the developed markets in the second and third quarters of 2009, which were the best two quarters of return on record. BRIC market performance was driven by an increase in investors risk appetite, lower interest rates, a bullish commodity market and stimulus packages by various governments. Energy and materials stocks were the best sector performers over the period, while defensive sectors (e.g. healthcare, telecoms) underperformed the wider market. In line with Sinopia s quantitative valuation model, the Fund had an underweight allocation to Brazil and overweight positions in China. The country allocation was therefore negative as the MSCI Brazil outperformed thanks to its high concentration of commodity-related. HGIF Climate Change For the period 1 April 2009 to 30 September 2009, the Fund returned 43.67% (net of fees, Class AC) compared to a benchmark return of 41.53% (HSBC Global Climate Change Index TR). As a result of renewed investors optimism after the early March trough, equity markets continued to rebound, investors risk appetite increased and credit markets eased. Meanwhile improved demand prospects, especially from China, boosted commodity prices and crude oil prices surged circa 50%. In this context, more innovative and cyclical segments such as diversified renewable energy and industrial efficiency benefited from increasing risk appetite and credit market easing. These stocks traded at attractive valuations and were popular with bargain-hunters. However, more defensive sectors such as nuclear and integrated power lagged behind. Over the period, stock-picking among solar stocks and bio-energy stocks had a positive contribution to the performance of the Fund. Improved economic conditions and easing credit conditions supported high technology stocks. Governments emphasised their commitment to the climate change theme and favoured further development in this field. HGIF Emerging Europe Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 63.60% in Euro terms (Class AD), compared to a benchmark return of 70.90% (MSCI Emerging Europe 10/40). In terms of Fund positioning, weightings in Russia have been gradually increased towards neutral. Meanwhile the Fund was most of the time underweight in Turkey. On a sector level, the Fund had an overweight allocation to financials and was underweight in energy stocks. The Fund was focused on high quality stocks that had good liquidity. Holdings of second tier stocks were decreased which was somewhat detrimental to performance over the latter part of the period. 12

15 Directors Report (continued) HGIF Emerging Wealth For the period 1 April 2009 to 30 September 2009, the Fund returned 52.15% (net of fees, Class AC) in US dollar terms, compared to a benchmark return of 50.06% (50% MSCI World/50% MSCI Emerging Markets). Although the Fund has performed well, the equity market rally which started mid-march extended as the outlook from major US corporations made investors optimistic about the pace of the economic slowdown. Non-manufacturing Institute of Supply Management data and private consumption in the US were both better than expected while China s industrial production grew at a faster pace than forecast in August (+12.3%). Meanwhile the improvement in second quarter earnings led to upward revisions on companies earnings expectations. The key point was the hope of economic recovery which led to a jump in investor confidence. The Fund outperformed its benchmark with the main contribution coming from stock selection. Despite an underweight in financial stocks, the overweight exposure to emerging banks had a positive impact in relative terms. Stock selection in the healthcare sector was also positive. HGIF Euroland Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 55.56% (net of fees, Class AC), compared to a benchmark return of 43.66% (100% MSCI EMU (EUR) NR). The end of the financial crisis, illustrated by the substantial improvement in the financial sector s profitability, and the clear improvement in the economic environment, driven by the emerging world, have driven equity markets higher. This was initially led by the fall in risk aversion and the second leg of the rally was due to a rise in earnings estimates. Resources and financial stocks led the markets higher whereas telecoms, media and oil stocks lagged behind the rally. During the period, the Fund outperformed the market. Key contributors to Fund performance were found in industrial stocks, energy holdings and banks. The manager selected stocks based on their relative undervaluation when taking into account their future profitability. This led to a reduction of positions in financials and in cyclical stocks in favour of positions in the medium to high profitability companies. The Fund remained overexposed to companies in healthcare, telecoms, media and insurance and underexposed to companies in consumer goods and the utility sectors. HGIF Euroland Equity Smaller Companies For the period 1 April 2009 to 30 September 2009, the Fund returned 52.84% (net of fees, Class AC), compared to a benchmark return of 65.10% (100% MSCI EMU Small Cap (EUR) NR). Early in the period the Fund s growth and pro-cyclical stance, including emerging markets exposure and larger and liquid stocks, led to positive performance, compared to competitors. Strong stock selection in Germany, the Netherlands and Finland were beneficial to performance. However, when investors started to look for more speculative holdings, especially stocks with very small capitalisations, the Fund underperformed its benchmark. However, small cap, illiquid stocks outperformed over the last few months. As the Fund was not facing large redemptions, the manager opted to retain the larger and more liquid stocks. The benchmark changed substantially over the period, as the number of stocks was increased from 300 to 600 stocks and market capitalisation saw a corresponding decrease. 13

16 Directors Report (continued) HGIF Euroland Growth For the period 1 April 2009 to 30 September 2009, the Fund returned 47.17% (net of fees, Class M1D), compared to a benchmark return of 43.66% (100% MSCI EMU (EUR) NR). Relative performance was positive over the period. Despite its strong quality growth orientation, the Fund outperformed its benchmark due to a re-weighting of cyclical growth stocks as economic indicators were falling dramatically earlier this year. Turnover remained relatively modest. As markets returned to more stable levels, the manager took profits on positions that had strongly outperformed and re-invested in more defensive growth names which seemed significantly undervalued. HGIF European Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 39.80% (net of fees, Class P), Compared to a benchmark return of 41.70% (The FTSE World Europe (RI)). The European equity markets started their recovery in early March and continued through this period. In the early part of the period, less negative economic news encouraged the markets. This was later reinforced by corporate results in the second quarter which could be described as reassuring with cost control efforts assisting to stabilise margins across many sectors. Financials, Basic Materials and other cyclicals led the market higher. The fund holdings concentrated on companies with sustainable cash flows and positive balance sheets. While these should be strong investments over the medium term, these were not the stocks that led the market higher. This leadership was provided largely by highly geared and distressed companies. As a result, the fund rise lagged the broader market rise over this period. With the economic situation more stable and corporate margins under some control, the fundamental support for the market is reasonable. The strong rise over the last six months has moved the market valuation close to 15 year averages. In this circumstance, it is likely that market progress will be driven by sustainable earnings growth which should favour the investments in the fund. HGIF European Equity High Dividend For the period 1 April 2009 to 30 September 2009, the Fund returned 53.15% (net of fees, Class AC), compared to a benchmark return of 39.86% (100% MSCI EUROPE (EUR) NR). Among key catalysts of equity performance, many company results were more positive than expected and there was an improvement in the macroeconomic data. On a sector view, financial stocks, and especially banks, delivered the best performance, followed by cyclical stocks. At the bottom of the table were more defensive sectors such as healthcare and telecoms. The slowdown of downward revisions of analysts' expectations was confirmed in the US and Europe. After a difficult period, the dividend theme regained some interest. Stock-picking was a strong positive contributor to Fund performance as were positions in cyclical stocks which are at the start of the cycle (construction, distribution, transport). 14

17 Directors Report (continued) HGIF Global Emerging Markets Elite For the period 1 April 2009 to 30 September 2009, the Fund returned 65.54% (net of fees, Class YC), compared to a benchmark return of 63.21% (MSCI Emerging Markets). Emerging markets performed strongly during 2009 as a reaction to the gradual return of global liquidity into the financial system, improving economic conditions and a higher appetite amongst market participants for risk. As the period began, the Fund had holdings in rising markets although, due to a low level of visibility and conviction in the recovery of the global economy, it continued to hold some defensive positions. The Fund s performance benefited from its overweight exposure to large Asian markets. In India, positions in engineering and leading financials benefited from both positive economic growth and the better than expected national election results in May. Overweight positions in Korean financials and Taiwan technology also contributed positively to performance. Stock selection in Brazil, in the consumer discretionary sector, also added to relative performance. As the review period progressed an overweight in China acted as a drag on performance as China underperformed emerging markets on concerns about government policy. HGIF Global Emerging Markets Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 64.40% (net of fees, Class AC), compared to a benchmark return of 62.40% (MSCI Emerging Markets). Emerging markets performed strongly during 2009 as a reaction to the gradual return of global liquidity into the financial system, improving economic conditions and a higher appetite amongst market participants for risk. As the period began, the Fund had a mild bias for rising markets although, due to a low level of visibility and conviction in the recovery of the global economy, it continued to hold some defensive positions. The Fund s performance benefited from its overweight exposure to large Asian markets. In India, positions in engineering and leading financials benefited from both positive economic growth and the better than expected national election results in May. Overweight positions in Korean financials and Taiwan technology also contributed positively to performance. Stock selection in Brazil, in the consumer discretionary sector, also added to relative performance. As the review period progressed an overweight in China acted as a drag on performance as China underperformed emerging markets on concerns about government policy. HGIF Global Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 38.45% (net of fees, Class AC) in US dollar terms compared with the benchmark return of 40.20% (MSCI World Index ). The global markets registered six months of consecutive gains, led by renewed optimism regarding the pace of economic recovery. Improving housing data, better-than-feared earnings reports and improvement in consumer confidence were among signals that rekindled investors optimism. The active quant strategy based on quantitative models lagged the market as a result of lower quality stocks leading the market rally. The counter performance widened from July when second quarter earning releases in the US markets were seen by investors as an inflexion point for cyclical and distress stocks. The optimism has been assisted by banking sector out performing the markets predictions and some performers coming back into the black amid losses predicted by analysts. The increase in risk appetite translated in strong out performance of high beta, risky stocks. These stocks rank poorly on simple quality metric and struggled during the period. Country allocation contributed positively to the fund performance while the stock selection as well as the sector allocation favouring defensive sectors was detrimental. The underweight position in rallying financial stocks generated significant losses. In terms of equity market exposure, the manager remained cautious over the period. 15

18 Directors Report (continued) HGIF Global Sustainable Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 43.09% (net of fees, Class AC), compared to a benchmark return of 42.30% (MSCI World Index). Stock selection in the materials and in the diversified financial sectors contributed positively to Fund performance, while selection in the energy sector was a negative. The Fund's performance was assisted by an overweight position in the insurance sector and an underweight in the utilities sector. Underweight positions in the diversified financials and banking sectors had a negative effect on fund performance. At the country level, the Fund benefited from overweight positions in France and Denmark, but was disadvantaged by an overweight position in Japan. Market Specific Equity Sub-Funds HGIF Brazil Equity For the period 1 April 2009 to 30 September 2009, the Fund returned % (net of fees for Class AC), compared to a benchmark return of 87.63% (MSCI Brazil 10/40). Rising commodities prices, a set of positive economic data in the US showing signs of market recovery and strong data for China s main macro indicators, all boosted Brazilian equities. The bottom, in terms of macroeconomic conditions, was reached during the first three months of The Brazilian investment position improved month after month. Industrial production, retail sales, formal job creation and wage/credit expansion were the main highlights for the positive momentum of domestic activity. The impressive 1.9% Q-o-Q (7.8% annualised) GDP growth in the second quarter was the final evidence of Brazil s capacity to grow strongly. Moody s granted Brazil an investment grade rating (Ba1 to Baa3), with a positive perspective for future revisions. Strong resilience in consumption (private and government), progrowth policy of lower interest rates and fiscal expansion contributed to Brazil s recovery. The Fund was positioned more towards domestic-linked stocks for valuation reasons, which contributed positively in the second quarter of HGIF Chinese Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 41.40% (net of fees, Class AC), compared to a benchmark return of 49.20% (MSCI China 10/40). Improvements in economic data, encouraged by extensive government stimulus programmes, and increasing liquidity helped share prices to rise. Markets softened towards the end of the period on concerns over government tightening measures and continuing weak exports. Stock selection in the materials and consumer discretionary sectors contributed positively to performance, but was offset by negative stock selection effects in the financials, IT, industrials and energy sectors. Allocation effects were positive in the utilities sector, where the Fund was underweight, but underweight positions in the consumer staples and consumer discretionary sectors detracted from relative Fund performance. HGIF Hong Kong Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 52.80%, (net of fees, Class AC) compared with the benchmark return of 58.00% (Hang Seng (RI) USD). The Hong Kong stock market rebounded strongly from its lows in March as the local economy began to benefit from the various fiscal stimulus packages introduced by governments worldwide. The fund manager progressively increased the Fund s allocation to slightly more risky stocks and reduced the weighting of the defensive holdings. Positive stock selection in consumer discretionary, telecoms services and energy sectors added value. The Fund being overweight in the utilities and underweight positions in selective large local banks, hurt Fund performance. 16

19 Directors Report (continued) HGIF Indian Equity For the period 1 April 2009 to 30 September 2009, The fund delivered a positive return of % (gross of fees, Class AC) during the period under review outperforming the benchmark by approximately 89.10% (IFCI India). The fund performance was positively impacted by the overweight position in Materials and Consumer discretionary. Positive alpha was added by the stock selection in Materials, Information Technology, Financials, Industrials and Healthcare. Our underweight position in Energy added to performance though stock selection had a negative impact. Underweight holdings in Telecoms also added to the performance. The Indian currency appreciated more than 5% during the same period. While the markets have re rated from the lows, the current valuations are in line with the 5 year average trailing price earnings multiples. Earnings growth estimates for the broad market have been upgraded for 5 consecutive months beginning April. The upgrades have been broad based across all sectors. HGIF Japanese Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 16.30% (net of fees, Class AC), compared to a benchmark return of 18.40% (TOKYO (SE) TOPIX). The Topix posted a relief-driven rally mainly due to improved prospects in the US. Export-driven stocks surged at first, then suffered from profit-taking at the end of the period, as the yen strongly rose against the US dollar. Japanese equities were also penalised by weak inflows from investors. Sector allocation results were close to neutral as relative losses were generated by a small underweight allocation in cyclical stocks were more than compensated for by the underweight in financial stocks. Following the manager s Active Quantitative stock selection process, systematically favouring stocks with higher forecasted earnings momentum, lower valuation combined with quality factors which ensure that valuation is linked to the profitability of the company. However the rebound of the market concentrated on low price to book stocks. Negative stock selection concentrated in the IT and the consumer discretionary stocks, contributed negatively to fund performance whilst positive contributions came from the materials and industrials sectors, where reasonably priced stocks with strong earnings momentum outperformed and has a positive effect upon the funds performance. HGIF Korean Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 60.30% (gross of fees, Class AC), compared to a benchmark return of 68.27% (MSCI Korea). Korean markets recovered strongly over the period, as global and regional economic data improved. Effective cost cutting and the weak currency encouraged exporting companies competitiveness and led to improvements in corporate earnings. In the Fund, stock selection in the industrials and materials sectors detracted from relative performance. The Fund had overweight allocations in the consumer discretionary and IT sectors, which added to relative returns over the period under review. Meanwhile, underweight positions in the industrials and consumer staples sectors held back Fund performance. 17

20 Directors Report (continued) HGIF Russia Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 95.90% (net of fees, Class AC), compared to a benchmark return of 92.50% (MSCI Russia 10/40 index). The Russian economy had been one of the weakest in the emerging markets universe but began to show signs of improvement in a number of areas as the period progressed. Although the Russian consumer sector slowed down, it proved to be more robust than other areas, such as industrial production. The Fund has benefited from its weighting in consumer-related sectors such as telecoms, food retail and retail property. However, the key drivers of the Russian market during the period were mostly external to its economy. With the recovery in growth, the demand for oil and raw materials, particularly in Asia, contributed positively to performance. Higher commodity prices and the stronger oil price fed through to the resources sector and to the economy overall. The Fund s positions in materials also contributed positively to the Fund s performance relative to its benchmark. HGIF Singapore Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 83.40% (net of fees, Class AC), compared to a benchmark return of 74.30% (MSCI Singapore (RI)). In line with other markets in the region, Singapore stocks fell to lows in March 2009, as the global financial turmoil weighed on investor confidence, before the market rallied strongly on improved global liquidity, higher investors risk appetite, fund inflows and improving macroeconomic data points. Stock selection was the key out performance driver, with contributions from a recovery in quality small capitalisation stocks such as Ho Bee, Allgreen, SC Global (property developer), Straits Asia Resources (energy, coal), Venture (manufacturing), and an underweight allocation to Singapore Telecom (laggard holding as it is a defensive stock). Asset allocation assisted the Fund s performance as markets recovered, with contributions from energy, manufacturing and the underweight in telecoms, however the allocation to cash held back performance. HGIF Taiwan Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 53.90% (net of fees, Class AC), compared to a benchmark return of 53.98% (MSCI Taiwan). In line with regional markets, Taiwan equities rallied strongly over the period, as improving global economic data combined with optimism that improving relations with China would boost its growth. However, the damage cause by Typhoon Morakot did cause a pull-back in equities in August. Stock-picking in the IT, industrials and financial sectors all contributed positively to relative returns within the Fund, while materials stocks detracted from Fund performance. At an allocation level, the Fund had overweight allocations to industrials and an underweight allocation to consumer discretionary stocks, which all held back relative Fund returns. 18

21 Directors Report (continued) HGIF Thai Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 90.10% (net of fees, Class AC), compared to a benchmark return of 76.30% (Thailand SET). In line with regional markets, Thai stocks fell to lows in March 2009, as the global financial turmoil weighed on investors confidence, before the market rallied strongly on improved global liquidity, higher investors risk appetite, increased fund inflows and improving macroeconomic data. Asset allocation was negative for the Fund overall, over the period, mainly as a result of the drag from the cash allocation in rising equity markets, and a zero allocation to refiners. This was partly offset by overweight positions in property and banks. Stock selection was positive with gains in property developers (Asian Property, Land & Houses, LPN), financial holdings (Kasikornbank, Tisco), and Banpu (coal). It was also helped by underweight positions in stocks which lagged behind (e.g. Ratchaburi, AIS). HGIF Turkey Equity For the period 1 April 2009 to 30 September 2009, the Fund returned % (net of fees, Class AC), compared to a benchmark return of 83.90%. (MSCI Turkey Index). Stock selection was the main contributor to the Fund's outperformance, due to overweight positions in financial and cyclical holdings. Global equity markets started to rebound from the lows seen in March with improvements in macroeconomic data. This was followed by clearer signs of economic recovery during the third quarter of 2009 and led to a sustained positive trend in global equities. The Turkish equity market followed the same course, outperforming many of its global peers. The Central Bank of Turkey continued to cut interest rates beyond expectations, leading government bond yields to fall to single digit levels for the first time in recent history. Despite the ongoing negotiations for a stand-by agreement not having been finalised with the International Monetary Fund, the government has been able to manage investors expectations successfully and kept alive the possibility of an agreement, which has supported the bullish trend in markets. HGIF UK Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 31.50% (net of fees, Class AC), Compare to a benchmark return of 35.70% (FTSE All Share (TR)). The UK equity market started its recovery in March and continued through this period. In the early part of the period, encouraging economic news assisted sentiment. This was later reinforced by encouraging corporate results which could be described as reassuring with cost control helping to stabilise margins across many sectors. Financials, Basic Materials and other cyclicals led the market rally. The fund holdings concentrated on companies with sustainable cash flows and good balance sheets. While these should be strong investments over the medium term, these were not the stocks that led the market higher. This leadership was provided largely by highly geared and distressed companies. As a result, the fund rise lagged the broader market rise over this period. With the economic situation more stable and corporate margins under some control, the fundamental support for the market is reasonable. The strong rise over the last six months has moved the market valuation close to 15 year averages. In this circumstance, it is likely that market progress will be driven by sustainable earnings growth which should favour the investments in the fund. 19

22 Directors Report (continued) HGIF US Equity For the period 1 April 2009 to 30 September 2009, the Fund returned 29.50% (net of fees, Class AC) in US dollar terms, compared to a benchmark return of 34.00% (S&P 500 COMPOSITE (RI)). US equity markets registered six months of consecutive gains, led by renewed optimism on the pace of economic recovery. Improving housing data, positive earnings reports and an improved consumer confidence, rekindled investors optimism. The fund manager s active quantitative strategy lagged behind the market mainly because lower quality stocks led the market rally. This gap widened from July when second quarter earning releases in US markets were seen by investors as an inflexion point for cyclical and distressed stocks. This optimism was exacerbated by the banking sector exceeding the market s expectations, with some banks delivering positive earnings amid losses expected by analysts. The manager s stock selection process, based on a multifactor approach (valuations momentum quality) struggled over the period. The Fund s performance suffered from negative stock selection mainly led by companies reporting the best fundamentals and a sector allocation based on defensive stocks, although there were gains from the IT sector. In terms of equity market exposure, the manager remained cautious over the period as the sources of uncertainty have not yet disappeared, making equities riskier than reflected by low market volatility. HGIF US Index For the period 1 April 2009 to 30 September 2009, the Fund returned 34.00% (net of fees, Class P) in US dollar terms compared with the benchmark return of 34.00% (S&P 500 COMPOSITE (RI)). During this period a number of coordinated efforts by Central banks and governments around the world to provide liquidity, interest rate cuts, financial rescue plans and direct government investments into major financial institutions encouraged market recovery. Over the review period, consecutive monthly gains in the US Markets were driven by indications that the global markets were stabilising, signs of a faster-than-expected US recovery, improving liquidity environment and encouraging quarterly earnings improvements, a result of heavy cost cutting. The low interest rate environment also contributed to a significant improvement in risk appetite, resulting in significant fund flows out of liquidity funds and back into the equity markets. The period has resulted in the most significant half year rally observed in the history of the S&P 500. Over the review period, all Global Industry Classification Standard ( GICS ) sectors posted positive returns. The best performing sector has been Financials, gaining 70.40% while Telecom Services have been the lagging GICS sector, gaining only 9.20% over the same period. Freestyle Sub-Funds HGIF Asia Ex Japan Freestyle For the period 1 April 2009 to 30 September 2009, the Fund returned 56.40% (net of fees, Class AC). Equity markets continued the rally that began in early March, producing the strongest two consecutive quarterly performances since The main drivers were the efforts of G7 governments to recapitalise their financial systems and to stimulate economic growth, the apparent trough of the US recession and China s strong recovery. The Fund benefited from strong stock-picking in India and in China, while stock selection effects were negative in Korea and Hong Kong. At an aggregate level, the Fund was underweight holdings in India, which detracted from relative returns. Stock selection across sectors was positive, with industrials and IT holdings contributing the most. These positive contributions were partially offset by stock holdings in the consumer staples and the financial sectors. 20