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HSBC Investments is launching two new emerging market debt funds, HSBC Global Emerging Markets Local Debt Fund and HSBC New World Income, which the firm says will be among the first of their type available to investors via a collective fund format.
The funds will be managed by Peter Marber and his team at Halbis, the fundamental active asset management specialist of the HSBC Group, using strategies that have been successfully utilised by the team for many years via institutional segregated accounts. Both funds are part of the HSBC Group's flagship Luxembourg-based Global Investment Funds Sicav, which is registered for sale in 30 countries and has UK distributor status. Institutional and retail share classes are available.
The HSBC GEM Local Debt Fund, which aims to outperform major local market benchmarks by 3 per cent per annum, differs from traditional emerging market debt funds in that its investible universe consists primarily of emerging market sovereign and corporate debt denominated in local currency. By contrast, most traditional emerging market debt funds invest almost exclusively in dollar-denominated assets.
Says Marber: 'Local currency debt is a young and relatively under-researched area that has expanded rapidly in recent years. It already exceeds hard currency emerging market debt fourfold by market capitalisation, and offers plenty of potential to exploit market inefficiencies as well as capture appreciating currencies.'
The GEM Local Debt Fund uses flexibility permissible under the Ucits III rules for pan-European retail funds. Allocation to local currency debt will not fall below 60 per cent, limiting exposure to hard currency bonds to 40 per cent.
The fund also seeks good regional diversification, with a maximum of 20 per cent of the fund invested in any single country, with more rigid restrictions applied to lower-rated countries. The opportunity set is further enhanced through allocations to corporate debt, although exposure is limited to a maximum of 3 per cent per issuer.
HSBC New World Income has an absolute return objective of Libor plus 5 per cent per annum over the long term, with modest volatility. In managing this fund, Marber and his team will employ an unconstrained investment approach, meaning that investment decisions are not influenced by any emerging market debt benchmark weightings.
The fund, which also uses full Ucits III powers, invests across the full spectrum of the emerging market debt universe, comprising more than 40 countries, rotating through both hard and local currency bonds. Exposure to emerging market equities is also permitted, but will not exceed 10 per cent of the portfolio. The fund will actively use derivatives, both to control risks and express investment views. HSBC New World Income carries a performance fee.
In both funds, Marber and his team will derive ideas using a combination of top down, macro thematic research and fundamental analysis of preferred instruments. He says the new funds will offer an innovative take on an asset class that has traditionally been overlooked by investors.
'By combining these innovative approaches to the already exciting emerging market debt asset class with a highly experienced team and HSBC's local expertise, we expect these funds can provide a valuable addition to a portfolio in potentially enhancing returns and reducing volatility.'
HSBC had some USD63bn in emerging market assets under management worldwide at the end of March. Marber, who has more than 20 years experience of emerging markets investment, joined Halbis when Atlantic Advisors, an emerging markets debt specialist boutique he founded in 1999, was acquired by HSBC in 2005.
The core investment team has worked together for more than 15 years and has a successful history of investing in a wide variety of emerging market debt strategies including local currency debt and total return strategies. The nine-strong team, supplemented by two recent appointments, is supported by a network of local asset management teams comprising 54 members in 10 countries.
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