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21264   hsbc gif european equity absolute return fund presentation ucits retreat nov 2011 final v3
 

21264 hsbc gif european equity absolute return fund presentation ucits retreat nov 2011 final v3

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    21264   hsbc gif european equity absolute return fund presentation ucits retreat nov 2011 final v3 21264 hsbc gif european equity absolute return fund presentation ucits retreat nov 2011 final v3 Presentation Transcript

    • HSBC GIF European Equity Absolute Return HSBC Global Asset Management For professional clients only November 2011
    • Executive summary
      • A market neutral, beta neutral fund with a low correlation to the market (-0.10 since inception)
      • Invests in developed European equities (Eurozone, UK, Switzerland and Scandinavia)
      • Targets 8-10%* annual returns based on approximately 6-8%* volatility
      • UCITS III Registered Fund, offering daily liquidity
      • Team have an average of 15 years of investment experience, including 7 years of market neutral investing
      Source: HSBC Global Asset Management as at 31 October 2011. * The objectives or limits do not constitute a commitment from the asset manager. **Any performance information shown refers to the past and should not be seen as an indication of future returns.
    • Performance and portfolio characteristics - EUR Institutional Share Class Actual performance: HSBC GIF European Equity Absolute Return since inception Source: Bloomberg as at 31 October 2011. Benchmark – 1 month euribor; Any performance information shown refers to the past and should not be seen as an indication of future returns. * * High water mark for the fund was set on 14th September 2011
    • Fund performance – EUR Institutional Share Class Fund performance during negative months for MSCI Europe since April 2010
      • The fund has historically provided down side protection and generated positive returns
      Source: HSBC Global Asset Management and Bloomberg as at 31 October 2011 Any performance information shown refers to the past and should not be seen as an indication of future returns. -12% -9% -6% -3% 0% 3% 6% May-10 Jun-10 Aug-10 Nov-10 Mar-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Return % MSCI Europe HSBC GIF European Equity Absolute Return
    • Our investment approach The theory Source: HSBC Global Asset Management as at 31 October 2011.
      • Companies invest capital to generate future cashflows
      • Determined by two things:
        • How quickly can the company grow its revenues
        • It’s Return on Invested Capital (“ROIC”)
      • Market prices rarely reflect fundamentals correctly, with prices driven instead by expectations and sentiment
      • As a result prices are much more volatile than fundamentals, creating valuation anomalies
      • We aim to capture these valuation anomalies through our long and short stock selections
    • Investment process overview Source: HSBC Global Asset Management as at 31 October 2011. These objectives do not constitute a commitment from the asset manager. Investment Screen Continuous assessment of portfolio positioning including monitoring of portfolio volatility, beta, gross and net exposures Volatility and drawdown risk management as inputs into gross and net exposure Risk reporting from independent risk team
      • Construct portfolio from investment ideas
      • Individual stock weights driven by matrix of:
      • Risk limits (sector, gross and net exposure)
      • Beta neutrality (at bucket and overall level)
      • Sector diversification
      • Country diversification
      Extensive company financial statement analysis for all companies Population of bespoke analyst templates with normalised and clean company financial data Build up of proprietary database (currently 8 years worth of normalised data)
      • Quantitative
      • model ranks stocks based on profitability and valuation metrics:
      • ROIC (High for longs, low for shorts)
      • EV/EBIT (Low multiple for longs, high for shorts)
      • Qualitative discretionary “veto” review designed to capture exogenous stock specific risks
      Risk Management Portfolio Construction Output: Database of normalised company info Output: Individual stock ideas Output: Portfolio Output: Assessment of Portfolio Positions Fundamental Analysis
      • Balance sheet adjustments try to reflect fully the financing of the business and aid comparability :
        • Derivative Liabilities (used to hedge financial debt)
        • Averaging effect on Debt (eg retailers seasonal patterns)
        • Customer advances (driven by full order book, is cyclical)
        • Discounted liabilites (eg nuclear)
        • Other liabilities (eg operating leases)
        • Minorities’ put
        • Minimum liquidity
        • Tax losses carry forward (recoverable)
        • Effect of stock options (cash and book value)
        • Accumulated amortisation (acquired intangibles)
        • Goodwill written off (not amortised,UK pre 98)
        • Goodwill impairment
      Example Company Template Source: HSBC Global Asset Management. For illustrative purposes only Wherever there is a P&L adjustment, we have a corresponding adjustment for the Balance Sheet (and vice versa) Fundamental Analysis Investment Screen Portfolio Construction Risk Management
      • Revenues are adjusted for transformational acquisitions/disposals during the year
      • Published operating profit adjustments try to normalise earnings and aid comparability :
        • Add back amortisation of goodwill
        • Adjust for extra-ordinary gains / asset disposals
        • Remove “one-off” restructuring BUT replace with “normalised” number
        • Reverse R&D capitalisation where accounting is aggressive
        • Hedging benefits (due to one-off legacy positions)
        • Customer advances (driven by full order book, is cyclical)
        • Pension expense (distinguish between operational costs and financing costs)
        • Other (eg petroleum tax)
        • Associate earnings
        • Minorities
      Example Company Template Source: HSBC Global Asset Management. For illustrative purposes only Wherever there is a P&L adjustment, we have a corresponding adjustment for the Balance Sheet (and vice versa) Fundamental Analysis Investment Screen Portfolio Construction Risk Management
    • Fundamental analysis in practice Example: Norwegian oil-service company (potential long position)
      • Ranking and Description:
        • Top decile ranking, EV/EBIT 7.2x, ROIC 15%
        • An oil service company that provides seismic survey data for E&P companies
      • Accounting Basis:
        • Highly profitable in terms of P/L but cash flow appears erratic
        • Potential risks of over-investing in building the data library without securing future client sales, leading to mismatch between revenue and cash-flow streams
      • Our Stock Analysis Adjustments:
        • Be more conservative than the company would like in terms of cash costs of building the data library
        • The same method of adjustment applied to all of its peers
        • P/L amended to account for the potential cash flow risks
      • Conclusion:
        • After adjustment of financial statements, now a mid-ranking stock : EV/EBIT 9.0x, ROIC 13%
      As reported Source: HSBC Global Asset Management as at 31 October 2011. The material contained in this presentation is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments. EV/EBIT ROIC 7.2 x 15% Company Norwegian oil-service company EV/EBIT ROIC 9.0 x 13% Adjusted
    • Investment screen Normalised company accounting data drives quantitative ranking model
      • The accounting adjustments clean and normalise the data that drives the stock ranks
      • The stock universe is segmented on the basis of the normalised profitability (ROIC)
      • The long portfolio is chosen from stocks in the high-ROIC segments with relatively cheap valuations (EV/EBIT) while the short portfolio is formed by stocks in the low-ROIC segments with expensive valuations
      Stocks ranked by ROIC High ROIC stocks ranked by EV/EBIT High ROIC stocks considered for long book Low ROIC stocks considered for short book High EV/EBIT stocks form short positions Low EV/EBIT stocks form long positions Source: HSBC Global Asset Management as at 31 October 2011. These objectives do not constitute a commitment from the asset manager. 1. Stock 2. Stock 3. Stock 4. Stock 5. Stock … High Low 1. Stock 2. Stock 3. Stock … High Low Low High 1. Stock 2. Stock 3. Stock … Low ROIC stocks ranked by EV/EBIT
    • Investment screen in practice Stock veto examples
      • Acquired a loss-making peer at zero cash cost
      • B/S almost unchanged in cash terms
      • Yet rev up by more than 50% with guarantee of large service contracts -- P/L impact hard to quantify
      • Hence material upside risk
      Portfolio Candidate Review of Facts Ex-Ante Performance Excluded from long portfolio
      • Recent IPO, too short a history to judge the quality of return
      • Potential aggressive revenue booking
      • Hence material downside risk
      Excluded from short portfolio Source: HSBC Global Asset Management as at 31 October 2011. The material contained in this presentation is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments. 16x EV/EBIT / 7% ROIC European IT services Potential short candidate 12x EV/EBIT / 40% ROIC European Jeweller Potential long candidate VETO VETO
    • Portfolio construction Construct optimal long/short portfolio within defined trading limits
      • The portfolio typically holds 80 -100* positions with more short positions than longs
      • The preference is for a portfolio of equally weighted positions (Uppal et al. 2006) but there are multiple constraints due to:
        • Gross/Net exposure limits
        • Beta neutrality
        • Sector diversification
        • Country diversification
      Portfolio Gross Exposure Breakdown**
      • We perform a simultaneous quadratic minimisation to create an optimal portfolio with the multiple constraints
      • This approach uses a “penalty function” to penalise the positions which do not contribute to diversification and risk management
      • As a result, a model derives optimal portfolio given matrix of constraints
      Source: HSBC Global Asset Management as at end October 2011. *The objectives or limits do not constitute a commitment from the asset manager. **Please note that the target portfolio and information associated with it are given for illustrative purposes only in the current market conditions. The material contained in this presentation is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments .
    • Risk management Defined risk limits
      • The portfolio is constructed taking the following risk limits into consideration*
      Source: HSBC Global Asset Management as at 31 October 2011. *Please note that the target portfolio and information associated with it are given for illustrative purposes only in the current market conditions. The material contained in this presentation is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments. Factor Limit Typical range Gross Exposure 0% to 250% 160% to 180% Sector Exposure -10% to 10% -9% to 9% Country Exposure -20% to 20% -10% to 10% Net Beta Exposure -15% to 15% -10% to 10% Net Exposure -20% to 20% 0% to 15% Single Name Exposure -6% to 6% -4% to 4% Diversification 80-100 stock names Volatility 20% 5% to 8%
    • Appendix 1: Performance and portfolio characteristics
    • Fund performance – EUR Institutional Share Class During two sustained down periods for the market we have generated returns 16 April 2010 – 31 August 2010 MSCI Europe down -6.16%; Fund up 5.60% 1 June 2011 – 30 September 2011 MSCI Europe down -22.35%; fund up 7.13% Source: HSBC Global Asset Management and Bloomberg as at 31 October 2011. Any performance information shown refers to the past and should not be seen as an indication of future returns. For the entire performance track record please refer to slide 18. For up periods in the market since inception of the fund please see page 22. 85 90 95 100 105 110 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Returns (rebased to 100) Fund Market 75 80 85 90 95 100 105 110 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Returns (rebased to 100) Fund Market
    • Fund performance - EUR Institutional Share Class But this is not driven by a negative beta bias or a net short exposure Daily Beta Exposure since inception Daily Net Exposure since inception Source: HSBC Global Asset Management and Bloomberg as at 31 October 2011. Any performance information shown refers to the past and should not be seen as an indication of future returns.
    • Fund performance – EUR Institutional Share Class And during an up market our returns are uncorrelated with the market
      • Performance of the fund is uncorrelated with the market illustrating our market neutral approach
      • A number of stock specific events did not help the portfolio during this period
        • One of our shorts, Bulgari, was subject to a takeover bid from LVMH at a 50% premium
        • Micro focus a technology company fell 34% when the finance director resigned
        • RWE/E.ON, both integrated nuclear generators were negatively affected by the Japan earthquake
      • At the same time quantitative easing saw a wall of cheap money chasing heavily debt-laden cyclicals, some of which we held in our short portfolio
      • As we have seen in the subsequent market correction in Q3 2011, these gains have been reversed, showing the advantage of our hybrid investment process
      • An example of this is shown on the left – Alcatel Lucent, has had an incredible ride in 2011 but is back where it started
      1 September 2010 - 31 May 2011 MSCI Europe up 11.30% Source: HSBC Global Asset Management and Bloomberg as at 31 October 2011. Any performance information shown refers to the past and should not be seen as an indication of future returns. For the entire performance track record please refer to slide 18. For down periods in the market since inception of the fund please see page 20. Daily Returns Fund vs MSCI EU * y = -0.0142x - 0.0003 -0.80% -0.60% -0.40% -0.20% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% -3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00% Fund MSCI EU
    • Fund performance - EUR Institutional Share Class Our risk management process has added value to the process
      • Active management of the gross exposure has ensured the gross has been higher when the portfolio is working well and lower during more challenging periods
      • Blue circles highlight the fund has run a gross exposure consistently over 150% when the portfolio has been performing well
      • Amber circle highlights that during a challenging phase for the strategy the gross exposure was being run closer to 100%
      Source: HSBC Global Asset Management and Bloomberg as at 31 October 2011. Any performance information shown refers to the past and should not be seen as an indication of future returns.
    • Performance and portfolio characteristics S ector exposure Gross sector exposure Net sector exposure Source: HSBC Global Asset Management as at 31 October 2011.
    • Performance and portfolio characteristics Country exposure Gross country exposure Net country exposure Source: HSBC Global Asset Management as at 31 October 2011.
    • Appendix 2: Investment team and fund capabilities
    • Investment team Average of 15 years’ investment experience
      • Vis Nayar, Lead Fund Manager
      • Vis has been working in the industry since 1988. He joined HSBC Markets in 1996, and has been managing quantitative hedge fund products since 2002. Prior to this he worked as a Structured Products Manager for HSBC Asset Management. Vis holds a BSc in Electrical Engineering from Imperial College, University of London and a Masters in Finance from London Business School. He is also a CFA charterholder and qualified as a Chartered Accountant (ACA) in the UK.
      • Tian Qi Chen, Fund Manager
      • Tian Qi joined HSBC in June 2006 as an intern. During the period, he worked with the Global Tech Alpha Fund. In October 2006, he joined the European Alpha Fund as a research analyst. Prior to joining HSBC he was a senior analyst at Euromonitor, a FMCG business consultant. Tian Qi has a B.A. in Finance from Peking University, a M.B.A with distinction from London Business School. He is a CFA charterholder.
      • Michael O’Mara, Senior Fund Manager
      • Michael joined HSBC in October 2002. He started his career as a sales trader and market maker at Oddo Securities from 1991 to 1997. He then worked as a sales trader at CCF Securities in Paris from 1997 to 2000. Prior to joining HSBC he was a generalist European analyst at Bessent Capital in London. Michael has a B.A. in English and Economics from Boston College, a M.B.A. from Stern School of Business (New York University), and is a CFA charterholder.
      • Jakob Nordestedt, Senior Fund Manager
      • Jakob Nordestedt joined HSBC in June 2010 as a fund manager in the European Alpha Fund. Prior to joining HSBC he was a senior Equity Sales at ABG Sundal Collier, one of the leading Nordic investment banks, where he concentrated mainly on industrial coverage. He holds BSc. and MSc. degrees in Business and Administration from Jönköping International Business School.
    • Investment vehicle
      • Fund type and domicile UCITS III Luxembourg SICAV part of the HGIF range
      • Launch Date April 2010
      • Base Currency: EUR
        • Hedged Share Classes in CHF, USD, GBP, SEK and JPY
      • Liquidity Daily
      • Minimum Investment
        • Institutional Share Class USD 1,000,000
        • Retail Share Class USD 5,000
      • Fee Structure
        • Institutional Share Class 1.0% Fixed, 20% Performance Fee over benchmark*
        • Retail Share Class 1.5% Fixed, 20% Performance Fee over benchmark*
      *EUR: 1 month EURIBOR, USD: 1 month USD LIBOR, GBP: 1 month GBP LIBOR, CHF: 1 month CHF LIBOR, JPY: 1 month JPY LIBOR, SEK: 1 month SEK LIBOR.
    • Key strengths The portfolio managers have an average of 15 years investment experience, and 7 years in long/short. This includes specific experience of running both quantitative and qualitative market neutral strategies. Experienced team Distinct view on the fundamental metrics that best evaluate stocks in the current market environment, generating a non-consensus, non-momentum portfolio that is uncorrelated with the market. Non-consensus philosophy Individual stock ideas are implemented within a robust and clearly defined process. Risk management forms part of the portfolio construction. Robust investment process Greater transparency for investors and daily liquidity via UCITS III structure. Transparency & liquidity In-depth qualitative financial statement analysis and adjustments fed into a quantitative model that ranks companies based on profitability and valuations. Disciplined hybrid approach
    • Contacts
      • For further information on the HSBC GIF European Equity Alpha Fund please contact:
      • James Hogan , Product Specialist
      • Email: james.hogan@hsbc.com
      • Phone: + 44 207 024 0592
      • Mobile: + 44 758 440 2904
    • Important information
      • This presentation is intended for Professional Clients only and should not be distributed to or relied upon by Retail Clients.
      • The contents of this presentation are confidential and may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose.
      • The material contained herein is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments.
      • HSBC Global Asset Management (UK) Limited has based this presentation on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC Global Asset Management (UK) Limited and HSBC Group accept no responsibility as to its accuracy or completeness.
      • This presentation is intended for discussion only and shall not be capable of creating any contractual or other legal obligations on the part of HSBC Global Asset Management (UK) Limited or any other HSBC Group company. Care has been taken to ensure the accuracy of this presentation but HSBC Global Asset Management (UK) Limited accepts no responsibility for any errors or omissions contained therein.
      • This presentation and any issues or disputes arising out of or in connection with it (whether such disputes are contractual or non-contractual in nature, such as claims in tort, for breach of statute or regulation or otherwise) shall be governed by and construed in accordance with English law.
      • The views expressed above were held at the time of preparation and are subject to change without notice.
      • Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target.
      • The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested.
      • Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up.
      • Any performance information shown refers to the past and should not be seen as an indication of future returns.
      • To help improve our service and in the interests of security we may record and/or monitor your communication with us.
      • There are additional risks associated with specific alternative investments within the portfolios; these investments may be less readily realisable than others and it may therefore be difficult to sell in a timely manner at a reasonable price or to obtain reliable information about their value; there may also be greater potential for significant price movements.
      • HSBC GIF European Equity Absolute Return fund is a sub-fund of the HSBC Global Investment Funds, a Luxembourg domiciled SICAV. UK based investors in HSBC Global Investment Funds are advised that they may not be afforded some of the protections conveyed by the provisions of the Financial Services and Markets Act 2000. HSBC Global Investment Funds is recognised in the United Kingdom by the Financial Services Authority under section 264 of the Act. The shares in HSBC Global Investment Funds have not been and will not be offered for sale or sold in the United States of America, its territories or possessions and all areas subject to its jurisdiction, or to United States Persons. All applications are made on the basis of the current HSBC Global Investment Funds Prospectus, simplified prospectus and most recent annual and semi-annual reports, which can be obtained upon request free of charge from HSBC Global Asset Management (UK) Limited, 8 Canada Square, Canary Wharf, London, E14 5HQ. UK, or the local distributors. Investors and potential investors should read and note the risk warnings in the prospectus and relevant simplified prospectus.
      • This presentation is approved for issue in the UK by HSBC Global Asset Management (UK) Limited, who are authorised and regulated by the Financial Services Authority.
      • www.assetmanagement.hsbc.com/uk
      • Copyright © HSBC Global Asset Management (UK) Limited 2011. All rights reserved.
      • 21264 10/11/FP11-1704