Wayne Spiteri, managing director of HSBC Global Asset Management Malta, and Stéphane Mesnard, Multi-Asset Fund Manager at HSBC Global Asset Management, speak about the sensible way to put one’s assets to work with a view of creating future wealth.
Why is it important for people to invest?
SM: Investing is making one’s money work for oneself. There are different ways to invest, such as in real estate, financial assets or a combination of all or some of them. These are good ways to increase one’s capital and revenue over the long-term.
If we look at financial markets, there are a number of liquid products that would suit a variety of investors and their risk appetite and investment horizons. However, investing in financial markets requires going beyond any short-term market volatility.
If one looks at history, periods of rising financial markets outnumber periods of correction. If a client invested €100 some 30 years ago on the EUR stock market, he would have made a return of 740 per cent (or 7.4 per cent annualised return) compared to 180 per cent for cash (or +3.5 per cent annualised). So investing in financial markets for the long term can be beneficial.
What are the considerations of investing in a professionally managed fund?
WS: Investing assumes a strong knowledge of financial markets and the way they function and the stage of the economic cycles. Furthermore, it assumes a sound knowledge of portfolio construction and diversification techniques. The inherent volatility of financial markets can wreak havoc with a portfolio’s return.
While diversification can help mitigate any losses and improve an investor’s risk and return objective over the long-term, investors who delegate active management of their assets to a professional fund manager will benefit from professional expertise and knowledge in terms of portfolio construction and diversification techniques.
In the case of HSBC, clients benefit from an investment expertise that is sourced from our strong global investment platform and based on a consistent investment philosophy. With its five different profiles, the HSBC Select range fits investors’ risk tolerance while providing that immediate diversification mentioned. Buying just one share of a diversified fund, like HSBC Select, gives an investor an immediate diversification in terms of asset classes, as well as geographic regions or sectors.
HSBC Global Asset Management Malta leverages the global footprint of HSBC worldwide, giving it a unique perspective in Malta. In fact, we surpassed the €1 billion milestone in assets under management and distribution in 2016.
Similar to other investments, the HSBC Select Funds expose investors to risks such as credit risk, market risk and foreign exchange risk. Investors should consider the risks inherent in the fund as detailed in its documentation, namely the Prospectus and Key Investor Information Documents.
Investors should also consider that investing in funds usually carry fees such as management and front-end fees. Furthermore, investors will need to assess their ability to bear losses in advance of investing.
How well positioned is HSBC Select vs other funds?
SM: I can’t speak for external competitors but at HSBC we strive to accompany our clients over the long run and invest their money according to a strong, rigorous and stable investment process based on assets valuation and risk diversification. HSBC Select is no exception.
Firstly, our portfolios are built on two different but complementary strategies: a long-term strategic asset allocation based on valuation and our client risk objective; but also, a short-term tactical allocation to adjust HSBC Select portfolios to short-term market volatility and rising opportunities.
Start investing and stay invested to pursue one’s long-term financial objective
Secondly, HSBC Select portfolios are highly diversified: they are invested in different asset classes such as equities, government bonds, corporate bonds, or cash, with exposure to both developed markets and emerging markets, although we do have a bias towards eurozone economies. We can also invest in specific regions or countries, such as India, Brazil, Germany or Japan. In doing so, we try to take advantage of multiple opportunities we observe throughout the economic cycle.
Another important point is that our views are implemented combining traditional market capitalisation exposures and a smart beta approach, which uses a different weighting scheme than market capitalisation, with investments in various well-known factors such as value, quality, momentum or low volatility strategies.
Finally, we maintain an active view on currencies as we do not systematically hedge our exposure coming from our investments outside the euro. Emerging markets currencies, US dollar or Japanese yen are our main non-euro exposure.
How do you think HSBC Select can remain competitive in today’s dynamic and versatile economic environment?
WS: Besides all the performance drivers mentioned, the HSBC Select range distinguishes itself by a dynamic management of equity exposure and interest rate sensitivity. All funds have flexibility on asset allocation that can be used in market downturns to reduce equity exposure, but also in market recovery to increase it. To implement this dynamic management, we use financial derivatives such as futures to adjust exposure to desired levels immediately.
What are the main reasons to stay invested if market conditions are not favourable?
SM: Our current view is positive on financial markets despite the recent market sell-off. Our internal indicators show that the economic environment remains robust for the next quarters, probably not as dynamic as a few quarters ago, but still at elevated levels. Corporate profitability benefits from this environment and has strongly recovered over the last couple of years, and is expected to be between 10 to 15 per cent this year globally.
Furthermore, our valuation framework still favours equity market over bonds, particularly in the eurozone, and we have downgraded our view on credit, which is not sufficiently rewarded in our view. Nevertheless, if a client is sceptical about the current environment, I would advise that historically financial markets tend to rise over longer periods and market downturns have typically created opportunities.
If a client is nervous about investing a lump sum, splitting the amount and making regular investments is a solution to have better entry prices. The most important factor is to start investing and stay invested to pursue one’s long-term financial objective.
The opinions expressed herein should not be interpreted as investment advice. The value of investments can go down as well as up. Currency fluctuations may affect the value of an investment. Investments should be based on the full details contained in the prospectus of the respective fund, which may be obtained from all branches of HSBC Bank Malta plc.