Fruits of staying absolutely focused

The HSBC Open Global Return portfolio looks for funds with an absolute return focus as well as a global investment universe – a strategy that has gained it a ranking near the top of its sector.

The £22.6m HSBC Open Global Return fund, launched just over a year ago, invests largely in global funds and in as wide a range of assets as possible. It has no bias towards Britain or stockmarket-based investments; the aim is to ensure the portfolio remains fully diversified by region and asset class.

Over one year to January 15 it ranks fifth out of 46 funds in the IMA Balanced Managed sector, according to Morningstar. It returned 6.84% against a sector average return of 2.5%.

As Fund Strategy reported last week, Cara MacGregor will become co-manager of the fund, subject to Financial Services Authority approval, with James Hughes, head of multi-manager at HSBC. MacGregor joined HSBC from Investment Solutions in April 2007 as a global emerging markets equity analyst.

Over the past year the fund has invested roughly one third in global equities, one third in global fixed income and one third in alternatives, MacGregor says. Its position in fixed income was underweight while its exposure to emerging markets was overweight.

The emerging markets exposure has recently been reduced, largely owing to valuations looking expensive, and is now close to neutral.

The fund’s main exposure in this area is its holding in the JP Morgan Emerging Markets Alpha Plus fund, which stood at 5.36% at December 31. “It has been key to our performance,” says MacGregor. “It’s an emerging market equity portfolio, but it also has an absolute return focus. It can go heavily into cash and use hedging instruments.”

The HSBC Open Global Return fund also holds the Imara African Opportunities fund, which MacGregor says offers good diversification. “The African Opportunities fund is very lowly correlated to emerging market equities and global market equities. That’s been a really key contributor as well.”

The trimmings already made to the fund’s emerging markets exposure were converted into alternative asset classes or cash. “A third of our portfolio is in alternatives,” MacGregor says. “Versus our benchmark we are neutral, but versus our peers we are overweight [alternatives].”

Of the 20 funds within the HSBC Open Global Return portfolio the fund with the largest weighting, as at December 31, is the HSBC Sterling Liquidity fund, at 18.34%. The second is New Star’s International Property fund.

The HSBC Open Global Return fund’s investment strategy is to look for funds with an absolute return focus as well as a global investment universe. Having a global rather than British focus has helped performance, says MacGregor. “It gives fund managers much more flexibility. World equities have been better than just UK equities. And we are not as exposed [to particular sectors] as a lot of funds out there because of our diversification.”

The one UK-only fund in the portfolio, the Blackrock ML UK Absolute Alpha fund, had a 5.4% weighting in the portfolio at December 31 and is included because it is not a typical British equity fund.

“It behaves like a hedge fund,” says MacGregor. “It has not been correlated with UK equity markets because of its absolute return qualities.”