Home advantage with top-10 player

Four large holdings in the HSBC Income Fund of Funds are core HSBC portfolios, including its flagship MultiAlpha Sterling Bond, whose underlying performance has driven returns.

While the HSBC Income Fund of Funds is unfettered, the portfolio incorporates many of the group’s income team’s best ideas and several of its own branded products. Four of its top 10 holdings are HSBC branded funds, mostly from its MultiAlpha range.

Julian York, the manager of the £202m fund, says these are core products in HSBC’s income portfolio range. “The largest holding is the HSBC MultiAlpha Sterling Bond fund. This is our flagship product from our research team. They [consist of] the top picks of fund managers.”

The MultiAlpha Sterling Bond fund, which makes up 22.59% of the overall portfolio, has had a positive impact on overall performance. Indeed, it resulted in the Income Fund of Funds breaking into the top 10 performing funds of funds in the IMA Mixed Investment 20-60% Shares sector over one year to March 2. It was in 10th position, returning 4.86% to investors over that time, according to Morningstar. Over three years the fund was 17th in its sector, returning 43.04%.

York adds: “With the performance of the MultiAlpha Sterling Bond fund being better than the markets’ because of its long duration approach, and because it is such a large holding, it was a large component of [the fund of funds’] strong performance.” (FoFs continues below)

The team at HSBC consists of global analysts who focus on specific asset classes, which eventually feed in to York. “It is a big team,” he says. “It is mostly based in London, but they are also based in New York, Paris, and Hong Kong.

“The portfolio consists mostly of fixed income. We have some European fixed income, and there is a significant portion in UK equity income. The thing to remember is that the fund is global, but it has a UK bias.”

Of the funds not associated with HSBC that are included in York’s top 10 line-up, he says each is chosen for a specific reason. He points to the Artemis Income fund, his third-biggest holding at 13.47% of the portfolio. Managed by Adrian Frost, the fund has returned 65.4% to investors over three years to March 7, according to FE Trustnet. York adds: “Artemis Income is a large part of the model. It is the largest single manager component in the portfolio.”

 

York also holds the M&G Corporate Bond and Invesco Perpetual Corporate Bond funds. He says: “Invesco and M&G form a balanced pair. One is aggressive and the other more defensive. Interestingly, one is positive on financials while the other is anti-financials. We look to find managers who can add value, but we put in a lot of work to make sure the portfolio construction is well balanced.”

Even when markets are volatile, York is unlikely to make large allocation manoeuvres unless he reckons it is completely necessary.

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“This is not a portfolio where allocations move dramatically,” he says. “There are two reasons for this. First, it is made up of the best ideas of the research team. Changing things quickly could wipe out a lot of good work. But, more importantly, it is an income fund, so buying and selling funds could corrode capital”.