The Managed Portfolio Service - HSBC Global Asset ... the Managed Portfolio Service In today’s...
Transcript of The Managed Portfolio Service - HSBC Global Asset ... the Managed Portfolio Service In today’s...
The Managed Portfolio ServiceActive portfolio construction
Introducing the Managed Portfolio Service
In today’s investment world, it is increasingly
difficult for private investors to ensure that their
specific requirements are met both in terms of
investment returns and underlying investment risk.
At HSBC Global Asset Management, we believe that
the key lies in high quality portfolio construction.
We have developed a ‘multimanager’ service
called the Managed Portfolio Service, which places
portfolio construction at its centre.
HSBC Multimanager pick what it believes to be the
best from what’s on offer in their market for the
Managed Portfolio Service – irrespective of whether
these are HSBC funds or from other providers. So
you don’t need the time or expertise required to
keep up with the performance of individual shares
The Managed Portfolio Service
The Managed Portfolio Service aims to provide you with the
best combination of investments to maximise your potential
returns with a level of risk that suits you.
How does it work?
u The Managed Portfolio Service provides you with
portfolios constructed from a broad range of specialist
funds
u One or more ‘best in class’ fund managers are appointed
to run each of these specialist funds
u Fund managers are selected and monitored by a
thorough screening process carried out by HSBC
Global Asset Management’s Multimanager team
Benefits
Designed to deliver the best possible returns
The Managed Portfolio Service aims to maximise long-term
returns by providing exposure across various asset classes
identified as the most suitable investments for your risk
profile.
Diversifying investment risk
The Managed Portfolio Service uses the latest analytical
techniques to determine which asset classes are most
appropriate for your Managed Portfolio. Some may prove
difficult for private investors to access such as the smaller
equity markets or alternative investments. Exposure to an
appropriate spread of different asset classes is an essential
step in building a fully diversified investment portfolio.
Access to ‘best in class’ managers
We aim to select the best fund managers around the
world to manage the specialist funds in the Managed
Portfolios. These managers may come from either the
retail or institutional arenas, potentially giving you access
to managers not normally available to private investors. In
addition, HSBC Global Asset Management’s multimanager
team monitors the managers continuously to ensure
that they perform to our expectations. Underperforming
managers can be replaced quickly if need be.
Capital Gains Tax efficiency
The Managed Portfolio Service is designed to be tax
efficient in a number of ways.
Personalised Service
You can speak directly to an Investment Manager to answer
any questions or queries you may have.
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Designed to deliver the best possible investment returns
Traditionally, investments are managed with reference to
industry-standard benchmarks such as the FTSE All Share
Index (for UK equities) or the FT-A British Government All
Stocks Index (for UK fixed interest). However, these do
not take into consideration your specific circumstances or
attitude to risk.
The Managed Portfolio Service takes a different approach.
We start by asking the following two questions: ‘how much
risk is it appropriate for you to take?’ and ‘what is the best
combination of investments that can maximise your potential
returns given that level of risk?’
Determining your risk tolerance
We understand that an investment professional’s
understanding of what is high, medium or low risk may
not agree with yours. To help us answer the first question,
we examined ways in which we could understand
your investment needs and your attitude to risk using
everyday terms. To do this, we created our Risk Tolerance
Questionnaire, which we require our existing and our new
clients to complete. This enables us to assess the level
of your risk appetite before discussing any appropriate
investment strategy with you.
Determining the best mix of investments
There are various types of investments (known as asset
classes) to choose from when creating an investment
portfolio. They all have different characteristics and it is how
you combine them that can make the difference.
Fixed interest securities (also known as bonds) can preserve
your capital and provide a steady income stream. However,
fixed interest does not normally help your capital grow, so
over time the impact of inflation can erode your purchasing
power.
Company stocks and shares (also called equities) can help
grow wealth for the future as their long-term rate of growth
is generally higher than inflation. However, the value of
equities can change more rapidly than bonds and you can
be potentially exposed to larger losses in any single year.
Investors may not get back the amount originally invested.
In practice, the needs of most investors involve a
combination of both income and growth. Our experience
in investment management shows that most investors fall
into one of five categories and this is reflected in the five
Managed Portfolios we have created.
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Cash
Government Bonds
Pooled Property
Developed Market Equities
Emerging Markets Equities
Private Equity
Historic Risk %
His
tori
c R
etu
rn %
Efficient Frontier
Diversifying investment risks
A key element in controlling investment risk is diversification.
This will help spread risk across your portfolio to help reduce
the possibility of poor performance.
The chart below illustrates the historic risk and return
characteristics of different asset classes. The higher up the
chart the asset appears, the greater its expected returns
over time. The further to the right it appears, the greater
the risks (defined as changeability of returns) associated
with investing in those assets. It shows that private equity
provides the potential for the highest return of the asset
classes shown but with a high level of associated risk. At
the other extreme, cash has the lowest expected risk but
provides the lowest potential returns.
The curved line, known as the ‘efficient frontier’, represents
a boundary defining all possible combinations of the assets
shown. Each point on the line represents a possible portfolio
that has the highest level of historic return for any given
level of historic risk.
Using ‘efficient frontier’ analysis, we can determine the
weightings in each asset class for our range of five Managed
Portfolios to give the potential for the highest returns at
each of the five levels of risk. Over time, the characteristics
of the asset classes may slowly change so we regularly
carry out ‘efficient frontier’ analysis using current data and
will make changes to the asset class weightings of the
Managed Portfolio on your behalf if required. The portfolios
have been designed so that this does not trigger a Capital
Gains Tax event.
The information above is for indicative purposes only and cannot be guaranteed. Past performance cannot be taken as a
guide to future returns and in particular, clients may not get back the amount originally invested. Performance is based on a
model portfolio and does not reflect private client portfolio performance. Individual client portfolios may differ. Investments in
emerging markets are, by their nature, higher risk and potentially more volatile than those in established markets.
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Source: HSBC Global Asset Management
Access to ‘best in class’ managers
In deciding how to run the Managed Portfolios we asked
two more questions: ‘can any one fund manager be the best
at all times?’ and ‘can any single fund manager be the best
across all asset classes?’ Extensive research shows that the
answer to both questions is: no.
The Managed Portfolio Service aims to overcome these
issues by appointing one or more of the best fund managers
we can find to look after each type of investment. We could
achieve this by buying units in readily available retail funds.
However, this not only limits us to those fund managers
who offer retail funds, but also to funds where the
objectives may not meet your needs. It may be impossible
for us to find a suitable fund and this could compromise your
investment strategy.
To address these issues we have created a series of
specialist funds – one for each asset class – where the
benchmark, investment objectives and risk guidelines have
been designed to ensure that they meet the needs of our
clients. In some circumstances, the Managed Portfolios
may invest in third party funds (i.e. retail funds) if we believe
them to be more suitable investments then the HSBC
multimanager funds.
Our multimanager team undertakes extensive research
to identify the best fund managers for each asset class
and monitors the performance of these managers on
a continuous basis. If any manager fails to meet our
expectations with the Managed Portfolio Service we will
replace them. In this way, we can continually provide you
with access to the fund managers we believe are best
suited to manage each asset class.
For the investment position in cash, we use an HSBC fund
that, because of its size, is able to obtain the higher interest
rates usually only available to institutional and commercial
investors.
Some of the more specialist asset classes may be held
through direct investments where it is not possible to create
a suitable fund.
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Delivering Capital Gains Tax efficiency
What are the Capital Gains Tax benefits?
In a traditional portfolio, every time your portfolio manager
sells something on your behalf, other than fixed interest, it
can trigger a potential Capital Gains Tax (CGT) liability. This
means some investment decisions could be compromised
by the desire to avoid CGT. The Managed Portfolio Service
solves this. Because your investments are ‘wrapped’ within
a Managed Portfolio, any change to the underlying holdings
does not create a CGT liable event. For example:
u selling securities is not a taxable event
u switching between asset classes is not a taxable event
u changing fund managers is not a taxable event
Therefore all investment decisions in a Managed Portfolio
are unencumbered by CGT considerations.
An event that is potentially liable to CGT will only happen
when units in the Managed Portfolio itself are sold. This can
be limited still further by holding your Managed Portfolio
within an ISA wrapper, which we can arrange for you.
Many investors will want to use their annual Capital Gains
Tax (CGT) allowance so that they do not lose the benefit
of this statutory exemption. We offer a facility within the
Managed Portfolio Service that allows you to make use of
that exemption. Please speak to your Investment Manager
for more information.
Any statements in this brochure concerning taxation are
based on our understanding of current law and HM Revenue
and Customs practice. Both law and practice may of course
change. You should remember that the tax law applicable
depends on your own situation and residency status. If you
are in any doubt on this you should seek professional advice.
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Equities
Fixed Interest
Alternative Investments
Cash
62%
20%
0%
18%
1
49%
33%
8%
10%
2
35%
46%
12%
7%
3
24%
60%
16%
0%
4
7%
74%
19%
0%
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Introduction to the five Managed Portfolios
Managed Portfolio 1
uhas the lowest risk of the five Managed Portfolios
uproduces the highest income of the five Managed
Portfolios
uinvests the majority of its assets in fixed interest
instruments spread across government, company and
index-linked stocks
u has some exposure to UK, US and European equities and
takes tactical exposure to other equity markets
uproduces the lowest long-term potential return
Cash18%Equities
20%
Fixed Interest62%
Managed Portfolio (neutral positions)
The Managed Portfolios
We have developed a range of five Managed Portfolios to
suit the various risk profiles and investment needs of our
clients. Each Managed Portfolio is available as either income-
paying* (Distribution) or income-retaining (Reinvestment)
versions. Whether you are looking for income with growth
potential or long-term capital growth with an income
element, there is a Managed Portfolio to meet your needs.
The table below shows an indication of how the five
Managed Portfolios are invested across different asset
classes. As you progress across the table, the portfolios
become riskier but have a higher potential for capital returns.
They also produce progressively less income.
These weightings result from the ‘efficient frontier’ analysis
described previously and reflect our view of the best long-
term mix of investments to maximise potential returns for
the five different levels of risk. We call these weightings the
‘neutral position’ or ‘neutral weightings.’ Our investment
experts at HSBC Global Asset Management may increase
or decrease these weightings (within limits defined in the
Prospectus) according to their expectations of shorter-term
market movements. As an investor in Managed Portfolios,
you can also benefit from the potential for increased returns
provided by this dynamic asset allocation.
*As at the date of this document, dividends paid by the
Managed Portfolios are treated as foreign dividends for UK
tax purposes.
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Managed Portfolio 2
u takes more risk with a higher long-term return
expectation
u has a lower weighting in fixed interest instruments
u has a higher weighting in equities (including a small
neutral weighting in Japanese equities and tactical
exposure to other markets)
uhas a small exposure to alternative investments
(hedge funds, property and private equity)
Managed Portfolio 3
uincreased risk and expected long-term return
udecreased exposure to fixed interest instruments
uincreased exposure to equities (with the addition of
neutral weightings in Asia and Emerging Markets
equities)
uincreased exposure to alternative investments
Managed Portfolio 4
u increased potential for long-term return but higher risk
expectation
umajority weighting in equities
uneutral weighting for cash is 0%
uhigher exposure to alternative investments
Managed Portfolio 5
ucarries the most risk with the highest potential return
over the long term
uinvests around three quarters of its assets in equities
uhas a low exposure to fixed interest instruments
uhas the highest exposure to alternative investments
uprovides the lowest income of the five Managed
Portfolios
Cash10%
Fixed Interest49%
Equities33%
AlternativeInvestments
8%
7
Fixed Interest7%
Equities74%
AlternativeInvestments
19%
Cash7%
Fixed Interest35%
Equities46%
AlternativeInvestments
12%
Fixed Interest24%
Equities60%
AlternativeInvestments
16%
Delivering excellent client servicwe
Performance is key to all investors. However it is only one
part of the story, with service becoming an increasing part of
investment managers’ offering.
Highly professional service
At HSBC Global Asset Management we believe that client
service should be second to none and our dedicated team
delivers a highly professional service. We have experienced
Investment Managers ready to take you through every
step of our investment process who are always available to
discuss any investment issues that you may have.
Comprehensive reporting
An important part of the Managed Portfolio Service is our
comprehensive reporting. Every six months (or every three
months if you prefer) we will provide you with a full report of
your investments. This includes valuation and performance
data with market commentary and outlook.
You can also review your portfolio on the Internet. You will
be given password protected access to our fully encrypted
website where daily valuation details can be found together
with income and capital account histories. From this website
you can access full analysis of your Managed Portfolio
including individual securities. You can also access additional
performance data which would not normally be shown
on your investment report. Monthly factsheets for your
Managed Portfolio are also available.
Naturally, at the end of the tax year, we can provide you and/
or your accountant with all the details required to complete
your tax return.
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ContactHSBC Global Asset Management Telephone 0845 606 6286
78 St James’s Street Web www.assetmanagement.hsbc.com/mps
London SW1A 1HL
This information is issued by HSBC Private Bank (UK) Limited trading as HSBC Global Asset Management, for the information of the
addressee(s) only and should not be reproduced and/or distributed to any other person. To help us continually improve our service and in
the interests of security we may monitor and/or record your communications with us.
HSBC Global Asset Management is a trading name of HSBC Global Asset Management (UK) Limited and HSBC Private Bank (UK)
Limited. Both are registered in England at 8 Canada Square, London E14 5HQ. Authorised and regulated by the Financial Services
Authority. Past performance cannot be taken as a guide to future returns and in particular, clients may not get back the amount originally
invested. Please note, we may record telephone calls in the interest of security.
The operator of the Managed Portfolio Service may take all or part of its annual management charge from capital rather than income.
While this may increase the amount of income available for distribution, it may limit capital growth.
Investment in any market may be extremely volatile and subject to sudden fluctuations of varying magnitude due to a wide range of direct
and indirect influences. Such characteristics can lead to considerable losses being incurred by those exposed to such markets, and the
investor may not receive back the amount originally invested.
Please note, investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in
established markets.
© Copyright. HSBC Global Asset Management 2008. All Rights Reserved.
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