A fund offering consistent returns
Nicholas Pothier, manager of the HSBC Open Global Return fund, insists the best way to deliver consistent returns is to be continually invested in all the major asset classes – even if they are going through tough periods.
"You only capture outperformance over the long term," he explains. "It is impossible to predict with certainty when an asset class will underperform cash, so you should never completely charge out of one and go into another."
His £130 million multi-asset, multi-manager fund, which was launched just over three years ago, maintained this stance throughout the financial crisis, even though its exposure to high yield and commodities was significantly reduced.
"We started taking risk off the table from early 2007, and by the second half of 2008 were 25% invested in cash, as it was clear by then that most asset classes would be affected," Pothier recalls.
The fund is now fully invested again.
"Our approach is to have a steady exposure to all asset classes and to select good managers within them," he explains. "They behave differently from one another, so if you mix them you get a natural smoothing of returns."
The overall aim of the fund, which has an A rating from Standard & Poor's, is to provide a return substantially above cash over the longer term through a diversified mix of investment funds and asset classes.
"It's designed for cautious people, with investment horizons of at least five years, who believe the world will continue to be a fairly uncertain place," Pothier says.
The fact it contains over 30 funds reflects its inbuilt diversification. As well as having exposure to the main asset classes of equities, bonds and property, its other holdings include specialist environmental and emerging markets funds.
The fund is currently overweight in investment grade corporate bonds, where the risk/return trade-off is seen as slightly better; broadly neutral on equities; and slightly underweight in property.
Once the portfolio is established, Pothier looks for managers who are "unconstrained, with a capital-preservation mindset". He cites Crispin Odey, manager of the CF Odey Opus fund, as a prime example: "He is prepared to go quite heavily into cash and protect his fund if necessary."
Any significant alteration in a fund's management team will prompt Pothier to undertake an automatic review, but changes in the fund's focus often simply reflect the fact that a better idea has come along, which he believes has a greater chance of success.
Looking ahead, Pothier still sees a fair amount of uncertainty in the path both the financial sector, and the global economy itself, will take over the next few years.
"As no one can foresee the outcome, we are fully invested, which is a logical place to be for a multi-asset fund – it means we can enjoy the natural benefits of diversification," he says.
|FUND FACTS: HSBC Global Asset Management|
|Address: 1st floor, 78 St James's Street, London, SW1A 1EJ
Tel: 020 7991 8888
||HSBC Open Global Return fund|
|Launch date||November 2006|
|Fund size||£130 million|
|Sector||IMA Cautious Managed|
|Minimum monthly investment||£50|
Fund focus: HSBC Open Global Return Fund
Nicholas Pothier joined the multi-manager division of HSBC Global Asset Management in 2006 and is the lead manager of both the HSBC Open Global Return and the HSBC Open Global Distribution funds.
Prior to joining HSBC Global Asset Management, Pothier was a fund manager at AXA Multi-manager.
He has also worked for AXA Sun Life Discretionary Management Service as a fund manager assistant, and later as an analyst.
Pothier has more than 12 years' experience in the investment industry, starting his career with Liberty Life in South Africa as a broker consultant.
In addition, he holds an Open University diploma in Economics and an Open University BSc, as well as being a CFA Level 3 candidate.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.