HSBC GIF Managed Solutions - Asia Focused Conservative Quarterly fund report Q3 2014

Transcription

1 HSBC GIF Managed Solutions - Asia

2 Quarterly market review Volatility picked up in markets in the third quarter as it became clear that policy was diverging between the major economies. A major feature of the quarter was US dollar strength as evidence continued to build that the US economy was performing well; meaning that quantitative easing would soon be finished and interest rate increases for the US are on the horizon. The dollar rose against major and emerging currencies, the biggest mover being the New Zealand dollar which fell 11.35%. Despite the continuing strong economic data, however, US Treasury bond yields were mixed with 5 year maturity yields rising 0.13% while ten year yields fell by 0.04%. In contrast, European and Japanese economic data continued to disappoint, leading to more stimulus measures being announced by the European Central Bank (ECB). In Asia, data was rather mixed with China showing signs of some slowing, though growth of 7.5% year-onyear (yoy) was reported for the second quarter. Towards the end of the quarter, pro-democracy protests in Hong Kong appeared to affect the Hong Kong and China markets adversely. Another feature of the quarter was weakness in many commodity prices with crude oil, for example, falling by around 15%. This fall in commodity prices will cause inflation already at uncomfortably low levels in many countries - to fall further in the coming months. In stock markets, the MSCI World index fell by 2.58% in the quarter, with Asia underperforming. Japan showed good gains of 5.10% for the MSCI Japan index but this was more than offset by the 8.23% decline in the Yen versus the US dollar, while US and European markets were little changed. In Asia, the larger markets of Hong Kong, Singapore, South Korea and Taiwan declined, while there were gains for India, the Philippines, Indonesia and Thailand. Bond market returns were dominated by currency movements such that the Citigroup World Government Bond index fell 3.78% in US dollar terms for the quarter. Asian investment grade and high yield bonds produced small positive returns for the quarter, while emerging markets bonds were generally negative. Overview of historic performance Since Inception 2 (Net) 1 Since Inception 2 (Gross) 31/07/2012 MTD (Net) 1 MTD (Gross) QTD (Net) 1 QTD (Gross) HGIF Managed Solutions - Asia Focused Conservative Note: MTD= Month-To-Date; QTD= Quarter-To-Date 1 Performance Net of Total Expense Ratio (TER). 2 The since inception return is calculated from 15 March 2013 to 30 September Source: HSBC Global Asset Management as at September Data shown is for illustrative purposes only and does not constitute any investment recommendation. Past performance is not indicative of future returns. 2

3 Quarterly performance Managed Solutions Asia Fund was flat in the third quarter after it returned 4.80% in the first half of On a year-to-date basis the fund showed gain of 4.83%. With the disappointing economic data in Europe and Japan, market sentiment significantly turned soured with renewed concerns over global economic slowdown as the quarter drew to a close. Uncertainty lingered on as the FED's Quantitative Easing (QE) stands to finish at the end of October. Profit taking was evident as global equity markets in September erased most gains in the previous two months of quarter. Asian Equity holdings ended with a drop of 1.61%. Markets were demanding for quality investment, weighting on the yields of safe assets. Asian investment grade bond benefited from lower yields, producing 0.97% return. Although the spread of Asian high yields widened on the backdrop of global economic concern, the drop in yields and the interest returns outweighed the upward shift of the spreads. As a result, Asian high yield bond gained 1.75%. The USD strengthened against major and emerging market currencies, causing losses for Asian local currency bond and emerging market local debt, which delivered negative return of 1.33% and 3.56% respectively. Portfolio positioning and activity With higher volatility in markets means it is important to maintain a well-diversified portfolio by a broad range of asset classes, given the fund s investment objective and risk budget. We maintained exposure to investment grade bonds, Asian local currency bonds and high yield bonds and held moderate amount in equities. We added emerging market debts, as it provides reasonable yields and offer good diversification for the portfolio. The divergent economic performance being experienced across the world mean it is important to assess how policy will evolve and how the divergences are likely to be resolved. For example, will the European and Japanese economies begin to perform better, or will the US economy be dragged down by sluggish growth elsewhere, or will the divergences be maintained. The US outlook is most important for Asia as interest rate regimes in Asia are more closely linked to the US. Here it seems clear that although the Fed has pledged to keep interest rates near zero for a considerable time, the economy is performing strongly enough that interest rates will rise at some point. Thus, although ten year US government bond yields of 2.49% compare favourably with those of Germany (0.95%) and Japan (0.53%), there is little value for investors in government bonds. Corporate bonds offer some extra yield and still represent value particularly at shorter maturities, though expected returns are still likely to be in the low single digit region in the coming months. Equities clearly represent the best value for investors over the long term, but are likely to be increasingly volatile as the time for interest rates to rise approaches. The asset allocation strategy in this environment is to maintain a diversified portfolio with exposure to different drivers of return, with a defensive bias. Holding some cash, despite its low return, is appropriate to allow the portfolio to take advantage of any setbacks in prices that may occur. As we move towards the first interest rate increase in the US it is likely that better opportunities will become available to investors. However it may be necessary to adopt an even more defensive posture at some point as asset markets begin to discount a higher level of interest rates. 3

4 Current asset allocation Weightings (%) Asian Investment Grade Bond Asian Local Currency Bond Asian Equity US/HK Government Bonds Asian High Yield Bond 8.82 Global Emerging Market Local Debt 6.92 Cash * 9.58 Total * The cash position includes strategic holding and cash in the underlying asset allocation sleeves pending investment when attractive investment opportunities arise. Source: HSBC Global Asset Management as at September Data shown is for illustrative purposes only and does not constitute any investment recommendation to buy or sell in the above-mentioned asset classes. Past performance is not indicative of future returns. 4

5 Appendix: Overview of investment process The Asia Fund aims to maximize the long-term total return We look for long-term stable returns by investing flexibly in diversified portfolio of asset classes, primarily based in the Asia Pacific ex-japan region The investment process can be described as follows: Return assessment Asset allocation Portfolio construction Risk monitoring Assess risk adjusted total returns available in the different asset classes Make allocations between different asset classes with a minimum exposure of 70% in Asia Pacific (ex Japan) oriented assets Build portfolio through underlying asset classes managed by HSBC investment specialists Review portfolio regularly to monitor asset class and overall portfolio risk Source: HSBC Global Asset Management as at September Data shown is for illustrative purposes only and does not constitute any investment recommendation. Past performance is not indicative of future returns. Risk Disclosure The value of investments can go down as well as up and investors in the funds may not get back the amount originally invested. Changes to currency exchange rates may also cause fluctuations in the value of the funds. The funds invest a proportion of their assets in emerging markets which are, by their nature, higher risk and potentially more volatile than those inherent in some established markets. The proportion of the investment in these markets varies by fund. For a full list of risks, please refer to the Prospectus. 5

6 Disclaimer This document is prepared for general information purposes only and the opinions expressed are subject to change without notice. The opinions expressed herein should not be considered to be a recommendation by HSBC Global Asset Management (Singapore) Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein. It is published for information only and does not have any regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. This document does not constitute an offering document. Investors should not invest in the Fund solely based on the information provided in this document and should read the offering document of the Fund for details. Investors may wish to seek advice from a financial adviser before purchasing units in the fund. In the event that the investor chooses not to seek advice from a financial adviser, he should consider whether the fund in question is suitable for him. Investment involves risk. The past performance of any fund and the manager and any economic and market trends/forecasts are not necessarily indicative of the future or likely performance of the fund. The value of investments and units may go down as well as up, and the investor may not get back the original sum invested. Investors and potential investors should read the Singapore prospectus (including the risk warnings) which is available at HSBC Global Asset Management (Singapore) Limited or its authorised distributors, before investing. Changes in rates of currency exchange may affect significantly the value of the investment. HSBC Holdings plc, its subsidiaries and other associated companies which are its subsidiaries, and including without limitation Global Asset Management (Singapore) Limited (collectively, the HSBC Group ), affiliates and clients of the HSBC Group, and directors and/or staff of any of the foregoing may, at any time, have a position in the markets referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. HSBC Global Asset Management (Singapore) Limited has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. Care has been taken to ensure the accuracy and completeness of this presentation but HSBC Global Asset Management (Singapore) Limited and HSBC Group accept no responsibility or liability for any errors or omissions contained therein. HSBC Global Asset Management (Singapore) Limited 21 Collyer Quay #06-01 HSBC Building Singapore Telephone: (65) Facsimile: (65) Website: Company Registration No R 6