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FOR PROFESSIONAL CLIENTS ONLY
HSBC GIF CIVETS fundNovember 2011HSBC GLOBAL ASSET MANAGEMENT
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CIVETS Market Overview Investment Case
The CIVETS countries have large and young populations, reasonably sophisticated financial systems and maturing equity markets. The markets have a combined population of about 600 million with an average age of 27
Structural reforms, sector regulations and improvements in the investment environment have provided a more favourable business environment
Each has a relatively diverse and dynamic economy without the extreme dependence on external demand or commodity exports that characterises some parts of the emerging world
The CIVETS countries passed the test of global financial and economic crisis successfully
Economic fundamentals are sound, and indicators show a 5.5% GDP growth average for 2010 and forecast 5% for 2011 according to the IMF
Most CIVETS countries show relatively low levels of public and corporate debt as well as rising Foreign Direct Investment (FDI)
As a group, these markets also have the advantage of economic and geographic diversity: three from EMEA, two from Asia and one from Latin America, some are exporters, other manufacturers.
We believe all are well positioned to benefit from fast rising domestic consumption
Source: IMF Report September 2011.
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CIVETS Market Overview The next Tigers?
Source: IMF Report September 2011, data as at end of December 2010.. *GDP per Capita growth from 2000 to 2010.
Median GDP Growth GDP per Capita Public Debt FDI**
Age Forecast 2011 Growth (%)* (% of GDP) Inbound (US$ bn)
Colombia 27.1 4.9 153.2% 54% 76Indonesia 27.6 6.4 273.7% 35% 73Vietnam 27.4 5.8 192.2% 43% 47Egypt 24.8 1.2 78.1% 105% 66Turkey 27.7 6.6 145.2% 58% 181South Africa 24.4 3.4 139.7% 28% 125
Fast-growing young populations
Strong GDP per Capita growth rates relative to Developed Markets (DM)
Mostly low levels of Public debt
Rising Foreign Direct Investment (FDI)
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Source: S&P, data as of September 2011
Moving towards investment grade asset class 1990 and Current Credit Ratings
S&P Rating 2010Colombia BBB+
Indonesia BB+Vietnam BBEgypt BB+Turkey BB+
South Africa A
Emerging Markets countries have been consistently upgraded over time. In the 90’s most countries were rated B+ but now the asset class is moving towards investment grade (BBB)
1990 rating 2010 rating
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CIVETS – Strong performance
Source: MSCI end of October 2011
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MSCI CIVETS Index USD Net TR MSCI BRIC Index USD Net TR
MSCI Emerging Markets Index USD Net TR MSCI Frontier Markets Index USD Net TR
30 September 2011 2006 2007 2008 2009 2010 YTD 2011CIVETS 46.8% -49.6% 85.0% 30.5% -15.3%BRIC 52.9% 56.1% -60.3% 88.8% 7.3% -27.7%Emerging Markets 29.2% 36.5% -54.5% 74.5% 16.4% -23.5%Frontier Markets -10.8% 38.6% -55.4% 7.0% 19.0% -18.7%
30 September 2011 1 Month 3 Month 6 Month 1 Year 3 Years 5 YearsCIVETS 5.5% -14.1% -12.4% -14.6% 46.5% 79.4%BRIC -16.8% -26.3% -29.8% -25.2% 1.5% 12.2%Emerging Markets 17.4% -23.2% -24.8% -18.1% 11.9% 13.1%Frontier Markets -2.1% -8.0% -15.3% -15.7% -18.7% -36.2%
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Investment Philosophy
There is a strong relationship between valuation and profitability within the GEM universe.
Valuation outliers tend to correct over time.
Concentrating overweight positions within valuation outliers and ignoring mainstream “fairly valued” stocks will enhance returns.
Fundamental analysis to validate profitability is essential and adds significant value.
We believe that…...
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Profitability (RoE)
Valu
atio
n (P
/B)
Stock UniverseOverweights
For illustrative purpose only.
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Investment Process Overview
Stock Analysis
Continuous assessment of portfolio positioning.
Monitoring of volatility and beta on portfolio and position basis.
Ensure adherence to regulatory and fund specific guidelines
External risk monitoring
Implement investment ideas.
Determine optimal position size based on identified inflection points, liquidity and volatility.
Use of limits on stock exposure to control risk
Target weighted percentile ranking of portfolio (top third)
Capture snapshot of CIVETS equities universe, viewed through return on capital and valuation metrics.
Establish percentile ranked list of stocks within universe for both non-financials and financials.
Verify data validity.
Begin with 1st
percentile ranked stock.
Key issues:• Corporate
governance• Growth shock or
cost of capital issues
• Balance sheet• Underlying ROE
drivers• Dynamic
businesses versus static numbers
Risk MonitoringPortfolio Construction
Output: Ranked stock list
Output: Individual stock ideas
Output:Portfolio
Output:Assessment of
Portfolio Positions
Universe Analysis
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Risk Control Defined Risk Limits
The portfolio is constructed taking the following risk limits into consideration
*Against benchmark. ** includes but not limited to: Mexico, Nigeria, :Philippines, Thailand, Malaysia and Saudi Arabia. Where liquidity does not allow investments in equities the fund may also invest in Fixed Income Investments (eg. Sovereign debt) up to 10%. In order to access certain markets, the fund may also invest in P Notes. Source: HSBC Global Asset Management ; September 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 – For illustrative purpose only
Factor Limit Typical Range
CIVETS Single Country Exposure * -10% to +10% -5% to 5%
Total non-CIVETS Country Exposure** 25% 0% to 25%
Number of Countries Unconstrained 6
Sector Exposure Unconstrained -
Single Stock Exposure 10% 1% to 4%
Number of stocks - 40-60
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Risk Control Benchmark
The internal benchmark for the fund is the MSCI CIVETS Countries Capped Index
The benchmark is rebalanced monthly, and individual country weights are capped to 25%*
Benchmark weightings as of May 2011 are shown below:
*The remaining countries are weighted according to their free float adjusted market capitalizations applicable to foreign investors as a percentage of the remaining non-capped weight (i.e., original weight divided by the difference of 100 minus the total capped weight). Intra-month, each security’s weight will fluctuate according to market movements. IPOs or similar events, with no link to an existing constituent, will trigger the same rebalance outcome as the above mentioned “QIR” driven rebalance. Source: MSCI and HSBC Global Asset Management ; September 2011 The MSCI CIVETS Countries Capped index is the fund's current benchmark, which may change and is not detailed in the fund's prospectus. This benchmark is indicative only and is not guaranteed in any way.
Country Market CapM USD
MSCI CIVETS Index
MSCI CIVETS CountriesCapped Index
Colombia 29.8 6% 17%
Indonesia 86.9 18% 25%
Vietnam 2.8 1% 2%
Egypt 14.4 3% 7%
Turkey 51.9 11% 24%
South Africa 285.7 61% 25%
Total 471.6 100% 100%
Benchmark
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Fund Characteristics
Country weightings Country weightings relative to Benchmark
Source: HSBC Global Asset Management 31st October 2011
South Africa28.8%
Turkey25.3%
Indonesia23.4%
Colombia11.1%
Cash2.5%
Vietnam2.1%Egypt
6.7%
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Fund Characteristics
Sector weightings
Source: HSBC Global Asset Management 31st October 2011
Sector weightings relative to Benchmark
Industrials10.2%
Consumer Discretionary
9.8%
Telecom Services
8.5%
Cash2.5%
Utilities1.9%
Consumer Staples1.6%
Energy14.5%
Materials16.3%
Financials34.1%
Other0.7%
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Fund Characteristics
Top 10 Holdings Top 5 & Bottom 5 relative weighting
Source: HSBC Global Asset Management 31st October 2011
Company Weight (%) Top 5 and Bottom 5 Relative weight (%)Ecopetrol Sa 7.07 Indo Tambangray 2.50Sasol 4.63 (*) Anglo American 2.44Bk Rakyat 4.45 Bk Rakyat 2.28P.T. Astra Intl 4.15 Exxaro Resources 2.20Bancolombia Sa 4.03 Sasol 2.18T Garanti Bankasi 3.85 (**) Turkcell Iletisim Hizmetleri A.S. -1.94Telekomunikasi Ind 3.09 (**) Akbank -2.24Indo Tambangray 3.02 (**) Gpo De Inversiones -2.33Turkiye Halk Banka 2.96 (**) Central Asia -2.88Bk Mandiri 2.91 (**) Mtn Group Ltd -2.94
(*) Stock is not included in Benchmark (**) Stock is not held by Portfolio
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Fund Performance
Source: HSBC Global Asset Management 31st October 2011
The fund was launched on May 17th. Since inception, the fund has outperformed in relative terms.
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HSBC GIF CIVETS AC MSCI CIVETS Index USD Net TR
1M 3M 6M 1Y 3Y 5Y4.00 -8.92 N/A N/A N/A N/A5.52 -8.98 N/A N/A N/A N/A
31 October 2011HSBC GIF CIVETSBenchmark
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Investment Team
Douglas Helfer (MA, MBA), Lead Portfolio ManagerDouglas Helfer joined HSBC in January 2006 as Senior fund Manager – EMEA. He was previously at F&C Emerging Markets where he was responsible for Eastern European, Middle Eastern and African investments and ran their Russia fund. He joined F&C in 1996. Prior to this he worked at Brunswick and Clifford Chance. Douglas started his career working for the US Embassy in Moscow in 1988. He speaks fluent Russian. Douglas has a BA in Soviet and Eastern European Studies from the University of Colorado, an MA in Russian Studies from the University of London and an MBA in Finance from City University Business School.
Andrew Brudenell (MSc, CFA), Portfolio ManagerAndrew Brudenell (London) is a Portfolio Manager in the Frontier Emerging Markets team, and has been working in the industry since 1997. Prior to joining HSBC in 2007, Andrew worked as a US Fund Manager at Scudder Investments in New York and at Deutsche Asset Management in London. He holds an MSc from the London School of Economics (UK) and is a CFA charterholder.
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HSBC Global Investment Funds (GIF) CIVETS fundKey Features
Legal Structure: Sub-fund of HSBC Global Investment Funds (GIF), UCITS III
Fund domicile: Luxembourg
Lead Portfolio manager: Douglas Helfer
Investment company: HSBC Investment Funds (Luxembourg) S.A.
Investment Advisor: HSBC Global Asset Management (UK) Limited
Reference Index: MSCI CIVETS Countries Capped Index
Management Fee (Class A): 1.75%
Management Fee (Class I): 0.875%
Minimum Investment (Class A) US$ 5,000 or its equivalent
Minimum Investment (Class I) US$ 1,000,000 or its equivalent
Performance Fee: None
Initial NAV: USD 10.00
Liquidity: Daily
Target Launch Date: 17 May 2011
Currency USD
Appendix 1: Stock Examples
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Largest private bank in Colombia, by assets and branch network
The bank should benefit from the healthy non-inflationary economic expansion in Colombia, boosted by the developing oil and mining industries in the country
It also has operations in El Salvador, Panama, Cayman Islands and Puerto Rico
It is well capitalized with a Capital Adequacy Ratio over 13% and it covers its NPLs 1.4x
The Group has generated a Return On Equity over 19% for each of the last 8 years, including through the global financial crisis of 2008/9, allowing it to continue to grow profits and pay dividends
Stock example Colombia: Bancolombia
Source: HSBC Global Asset Management, May 2011. Any forecast, projection or target when provided is indicative only and is not guaranteed in anyway. This example is not and should not be construed as an offer to sell or a solicitation of an offer to purchase or subscribe to any investment
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Stock Example Turkey: Turk Hava Yollari
Source: Source: HSBC Global Asset Management as of November 2010. *After including all off balance sheet leases.Any forecast, projection or target when provided is indicative only and is not guaranteed in anyway. This example is not and should not be construed as an offer to sell or a solicitation of an offer to purchase or subscribe to any investment.
National carrier of Turkey, with 70% domestic market share and 60% of international scheduled flights.
Concerns exist over the company’s aggressive plans to expand its fleet and further gear up its balance sheet.
A weaker than expected demand environment is also a major risk.
However, confident over top line growth in light of THY’s geographic location, infrastructure upgrades, Star Alliance membership and ability to leverage Turkey’s foreign policy.
Cost advantage over legacy carriers due to younger fleet and lower wages. Provides confidence over sustainability of high operating margin.
Worries over debt overdone. Gearing of 1.2x-1.4x* for 2010-2012e, versus sector average of 3.3x for 2010.
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Important InformationThis 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.
HSBC Global Investment Funds (GIF) CIVETS 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, Key Investor Information Document 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.
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Important Information (cont’d)The MSCI CIVETS Countries Capped index is the fund’s current benchmark, which may change and is not detailed in the fund's prospectus. This benchmark is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet this target.
MSCI Index – The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an ‘as is’ basis and the user of this information assumes the entire risk of any use it may make or permit to be made of this information. Neither MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating the MSCI information (collectively, the ‘MSCI Parties’) makes any express or implied warranties or representations with respect to such information or the results to be obtained by the use thereof, and the MSCI Parties hereby expressly disclaim all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential or any other damages (including, without limitation, lost profits) even if notified of, or if it might otherwise have anticipated, the possibility of such damages.
Markets in some countries are described as 'emerging markets'. Some of these may involve a higher risk than where investment is within a more established market. These risks include the possibility of failed or delayed settlement, registration and custody of securities and the level of investor protection offered. In addition, there are liquidity risks associated with emerging markets securities or assets whereby traded volumes can be significantly reduced under certain market conditions, to the extent that an investor's ability to redeem their holdings could be restricted for a period of time. Emerging markets are generally, but not exclusively, those that are not within the United States, Canada, Switzerland and members of the European Economic area, Japan, Australia and New Zealand.
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. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established markets. This sub- fund invests predominantly in one geographic area; therefore any decline in the economy of this area may affect the prices and value of the underlying assets. Stockmarket investments should be viewed as a medium to long term investment and should be held for at least five years. Any performance information shown refers to the past and should not be seen as an indication of future returns. 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.21550/112011/FP11-1997