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Fund Objective
To outperform the total return performance of a BRIC market reference in
the long term. The fund has an indicative reference to the MSCI BRIC
Index, a market capitalisation-weighted index representing the equity
markets of Brazil, Russia, India and China.
Why Invest in BRIC
A compelling long-term
growth story. If long-term forecasts based on capital accumulation,
employment and population growth and technological progress are to be
believed, within just a few decades the BRIC economies will have
overtaken most of the G7 (US, Japan, Germany, the UK, France, Italy and
Canada) with only the US and Japan remaining by 2040. (Source: Goldman
Sachs BRIC Model Projections, 2003)
Combining markets with low correlations brings diversification benefits.
Each country in a BRIC portfolio offers something different and
remarkably complementary to the others. China is the ‘world’s
manufacturer’ with abundant labour resources. India specialises in
services, outsourcing, technology and pharmaceuticals. Brazil’s focus is
agricultural commodities whilst Russia has natural resources in
abundance with substantial oil & gas reserves.
Emerging market fundamentals remain strong. HSBC Investments believe
that fears of inflation and/or a significant slowdown in US growth will
recede and as they do, buyers will be attracted back into emerging
markets. Central banks are unlikely to conduct overly restrictive
monetary policies because of the risk that they might choke off growth.
We continue to believe that volatility is to be expected and is a useful
control in normalising market excesses. Why invest in the HSBC GIF BRIC
Markets Equity fund?
Driven by a proven active quantitative process. The investment
adviser,SINOPIA Asset Management, the quantitative management specialist
of the HSBC Group, uses its quantitative valuation model to make
exposure management, country allocation and stock selection decisions.
Designed to outperform BRIC markets' total return performance. Country
allocations can deviate by +/-10% from the benchmark reference weight
whilst SINOPIA’s earnings momentum scoring methodology drives over/under
weight exposures in individual stocks. The fund seeks to always be close
to fully invested albeit with the latitude to reflect bullish and
bearish views on the market through exposure management.
Backed by rigorous investment execution. The manager’s investment
universe contains the largest 200 stocks in the region (MSCI BRIC Market
Cap- eighted Index). A tailored trading and risk management strategy
places an emphasis on the larger and therefore more liquid markets and
instruments in order to maximise liquidity and minimise
costs.
Investment Strategy
The Fund manager pursues a unique approach to dealing with some of the
challenges of emerging markets by using active quantitative techniques
to outperform the MSCI BRIC Index in relative terms through a
combination of country allocation, stock selection and exposure
management.
This process is independent of human factors and emotions and relies on
quantitative stock valuation and active management of country allocation
and exposure, staying close to fully invested (overall equity exposure
is adjusted depending on the expected return of BRIC markets) in the
most efficient way possible whilst seeking to maximising liquidity and
keep costs contained.
BRIC country allocation depends on SINOPIA's proprietary valuation model
signals with an allocation of 10% minimum, 50% maximum per country.
Stock valuation is based on SINOPIA's earnings momentum scoring method
with the “active portfolio” of overweight/underweight positions
represent a maximum of 20%. The portfolio is expected to contain a high
number of stocks (70-120 holdings with around 100 on average) with a
particular emphasis given to maximising liquidity and minimising trading
costs.
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