hsbc world selection portfolios

For HSBC Advisers Only

Asset allocation breakdown (UK) - 31 March 2018

HSBC World Selection Portfolios

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HSBC World Selection Portfolios Fulfilment strategy

We believe that asset allocation is the key driver of returns and that fulfilment should aim to capture the

characteristics of an asset class on a cost efficient basis

We assess the most appropriate fulfilment approach for each asset class, with an emphasis on cost efficiency

Fulfilment includes active, passive or alternative weighting scheme strategies, via funds, exchange traded funds

(ETFs), direct security investment and derivatives

Below we explain the different fulfilment strategies for the HSBC World Selection Portfolios

Active Management

Active investment funds aim to outperform a

benchmark/index by analysing the market and then

investing where the fund manager believes there is the

greatest potential for outperformance.

Key benefits: Access to expert teams of analysts and fund

managers

Potential for higher-than-index returns

Ability to react to market conditions

Poor performing companies can be identified and

avoided

Disadvantages: Reliant on the skill of the fund manager to make

good investment choices or to follow a sound

investment strategy

Risk of underperformance as active management

may not always outperform its benchmark index,

particularly after fees

Charging information: Active management typically commands higher fees

and can generate more transactional costs than

passively managed investments or alternative

weighting schemes

Traditional Passive Management

Passive investment funds aim to simply track the

performance of a market capitalisation weighted index. The

fund manager invests in accordance with a pre-determined

strategy that does not involve any forecasting. Includes

index tracker funds and ETFs.

Key benefits: Low cost access to market returns

No material risk of underperformance relative to the

index

Simple and transparent

Diversified – gains exposure to all stocks in an index

Disadvantages: Receives only “market” performance as it is dictated by

the index, i.e. no potential for outperformance

Undervalued securities cannot be identified

The requirement to invest in a poor stock just because

it is in the index

Overvalued stocks can become an increasingly large

share of index as most indices are based on market

capitalisation i.e. the weight of a stock in the index is

based on its price

Takes no views on company prospects or direction of

market

Charging information: Typically lower operating expenses and fees than

active management and alternative weighting schemes

For use by HSBC Advisers only

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Alternative Weighting Schemes

Alternative weighting schemes, sometimes referred to

as ‘Smart Beta’, use a different approach than market

capitalisation to construct an index. Examples include

indices based on a stock’s volatility, dividends or some

measure of fundamental value. Alternative weighting

scheme funds aim to improve on the risk return

outcome of traditional, market cap passive

management.

Key benefits:

May circumvent some of the flaws of traditional passive

investing – reallocates away from overvalued stocks

Potentially superior performance relative to traditional

index

Smart index construction – weights based on

something other than market capitalisation e.g. HSBC

Economic Scale Equity

Systematic, rules-based implementation

Disadvantages:

Potential for underperformance relative to active funds

and traditional index

Broad definition – alternative weighting scheme is an

umbrella term for anything not using market cap in its

index construction. Any two alternative weighting

schemes can therefore look and perform very

differently

Charging information:

Typically lower operating expenses and fees than

active management however can be more expensive

than traditional passive

“Fulfilment includes active, passive or alternative weighting scheme strategies, via funds, exchange traded funds (ETFs), direct security investment and derivatives.”


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HSBC World Selection Cautious Portfolio

* In reality portfolio volatility may fall above or below this target

Global Equity Strategy Target %

HSBC European Index Traditional Passive 1.5

HSBC Japan Index Traditional Passive 1.5

iShares Core MSCI Emerging Markets Traditional Passive 1.5

HSBC ESI Worldwide Equity ETF Alternative Weighting Scheme 1.7

HSBC FTSE All-World Index Traditional Passive 11.7

HSBC MSCI Russia Capped ETF Traditional Passive 0.8

HSBC Multi Factor Worldwide Equity ETF Traditional Passive 0.9

Global Government Bonds Strategy Target %

HSBC GIF Global Government Bond Alternative Weighting Scheme 14.3

HSBC Global Government Bond Strategy Alternative Weighting Scheme 20.3

US 10 Year Future Derivatives 2.0

Global Corporate Bonds Strategy Target %

HSBC GIF Global Corporate Bond Actively Managed 14.5

Global High Yield Bonds Strategy Target %

HSBC GIF Global High Yield Bond Actively Managed 4.3

iShares Fallen Angels High Yield Corporate Bond Traditional Passive 1.3

Asset Backed Securities Strategy Target %

HSBC Global Asset Backed Bond Actively Managed 5.0

Emerging Market Debt – Hard Currency Strategy Target %

HSBC GIF Global Emerging Markets Bond Actively Managed 3.0

Emerging Market Debt – Local Currency Strategy Target %

HSBC GIF Global Emerging Market Local Debt Actively Managed 8.8

HSBC GIF India Fixed Income Actively Managed 0.3

Property Strategy Target %

HSBC GIF Global Real Estate Equity Actively Managed 3.5

Cash Strategy Target %

Cash Cash 1.0

HSBC Sterling Liquidity Cash 2.5

Portfolio optimised for a long-term annualised volatility* of less than 5%


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Source: HSBC Global Asset Management. Data as at 31/03/2018.

Asset class (target %)

Strategy % Manager %

19.5

36.5

14.5

5.5 5.0

3.0

9.0

3.5 3.5

0

5

10

15

20

25

30

35

40

Global Equity GlobalGovernment

Bond

GlobalCorporate

Bond

Global HighYield Bond

ABS EMD - HardCurrency

EMD - LocalCurrency

Property Cash

19.0

36.4

39.2

1.7

3.7

0 10 20 30 40 50

Traditional Passive

Alternative Weighting Scheme

Actively Managed

Derivatives

Cash

91.9

2.7

1.7

3.7

0 20 40 60 80 100

HSBC

Third Party

Direct Holding

Cash


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HSBC World Selection Conservative Portfolio






HSBC GIF Economic Scale Index GEM Equity Alternative Weighting Scheme 0.7

HSBC GIF Economic Scale Index Global Equity Alternative Weighting Scheme 1.9









iShares Core £ Corporate Bond Traditional Passive 0.8

iShares Euro Corporate Bond Large Cap Traditional Passive 2.5

iShares $ Corporate Bond Traditional Passive 3.3














Cash Cash 1.0


Portfolio optimised for a long-term annualised volatility* between 5% and 8%


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Asset class (target %)


28.3

7.8

32.0

5.55.0

4.0

9.0

5.0

3.5

0

5

10

15

20

25

30

35


Bond

GlobalCorporate

Bond



EMD - LocalCurrency

Property Cash

33.6

8.0

52.6

2.2

3.6

0 10 20 30 40 50 60

Traditional Passive

Alternative WeightingScheme

Actively Managed

Derivatives

Cash

84.8

9.4

2.2

3.6

0 20 40 60 80 100

HSBC

Third Party

Direct Holding

Cash


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HSBC World Selection Balanced Portfolio




HSBC American Index Traditional Passive 10.6


HSBC FTSE 100 Index Traditional Passive 1.3

HSBC FTSE All-Share Traditional Passive 0.0


iShares Core MSCI Pacific ex Japan Traditional Passive 1.0




SPDR S&P US Financials Select Sect ETF Traditional Passive 1.0











Asset Backed Securities










Cash Cash 1.0



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Asset Class (Target %)


54.8

2.8

12.0

7.0

3.04.5

9.0

5.0

2.0

0

10

20

30

40

50

60


Bond

GlobalCorporate

Bond



EMD - LocalCurrency

Property Cash

51.4

5.5

39.4

1.8

2.0

0 10 20 30 40 50 60

Traditional Passive

Alternative WeightingScheme

Actively Managed

Derivatives

Cash

88.8

7.5

1.8

2.0

0 20 40 60 80 100

HSBC

Third Party

Direct Holding

Cash


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HSBC World Selection Dynamic Portfolio








HSBC FTSE All-Share Index Traditional Passive 0.0






















Cash Cash 1.0

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78.3

0.0 0.53.5

0.02.8

9.0

5.0

1.0

0

10

20

30

40

50

60

70

80

90


Bond

GlobalCorporate

Bond



EMD - LocalCurrency

Property Cash

72.4

6.7

19.8

0.0

1.1

0 20 40 60 80

Traditional Passive


Actively Managed

Derivatives

Cash

90.1

8.8

0.0

1.1

0 20 40 60 80 100

HSBC

Third Party

Direct Holding

Cash


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HSBC World Selection Adventurous Portfolio


Portfolio optimised for a long-term annualised volatility* greater than 14%









HSBC GIF Economic Scale Index GEM Equity Alternative Weighting Scheme 2.6

HSBC GIF Economic Scale Index Global Equity Alternative Weighting Scheme 6.0















Cash Cash 1.0


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86.5

0.0 0.02.0

0.0 0.5

5.0 5.0

1.0

0

10

20

30

40

50

60

70

80

90


Bond

GlobalCorporate

Bond



EMD - LocalCurrency

Property Cash

78.1

8.5

12.2

0.0

1.2

0 20 40 60 80 100

Traditional Passive


Actively Managed

Derivatives

Cash

87.8

11.0

0.0

1.2

0 20 40 60 80 100

HSBC

Third Party

Direct Holding

Cash


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HSBC World Selection Income Portfolio



FTSE 100 Index Future Mar 16 Derivatives 5.4

Fidelity MoneyBuilder Dividend Actively Managed 4.2

HSBC FTSE 100 ETF Traditional Passive 2.6

Artemis Global Income Actively Managed 3.2

HSBC Global Equity Income Instl Inc Actively Managed 6.8

HSBC Developed World Equity Income Factor Actively Managed 3.7



HSBC Corporate Bond Actively Managed 14.5

HSBC Sterling Corporate Bond Index Traditional Passive 6.5



NB Global Floating Rate Income Actively Managed 3.5









Infrastructure Strategy Target %

BBGI Actively Managed 1.3

GCP Infrastructure Investment Actively Managed 1.3

HICL Infrastructure Actively Managed 2.5


F&C Commercial Property Actively Managed 1.7


Henderson UK Property Actively Managed 1.1

Ignis UK Property Actively Managed 0.4


Cash Cash 1.0



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26.0

0.0

35.0

11.5

5.0

9.0

5.0 5.0

2.5

1.0

0

5

10

15

20

25

30

35

40

GlobalEquity

GlobalGovernment

Bond

GlobalCorporate

Bond


EMD - HardCurrency

EMD - LocalCurrency

Infrastructure Property ABS Cash

14.8

0.0

83.9

0.0

1.3

0 20 40 60 80 100

Traditional Passive


Actively Managed

Derivatives

Cash

71.5

27.2

0.0

1.3

0 20 40 60 80

HSBC

Third Party

Direct Holding

Cash


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Jargon Buster

AAbsolute Return

An investment strategy that seeks to generate a positive

return as a percentage of money invested rather than

relative to an index or benchmark.

Active Management

A style of investment management that makes specific

investment decisions which aim to outperform an index

or benchmark.


A passive index constructed using anything other than

market capitalisation. Alternative weighting schemes or

smart beta emphasizes weighting schemes based on

fundamentals or market inefficiencies.

Annual Management Charge (AMC)

A charge made to cover the expenses associated with

the management of a fund.

Asset Allocation

Some funds invest in a range of different asset classes,

such as company shares, bonds and property. The

allocation of funds to different assets is decided by the

fund manager within the broad objectives of the fund.

BBenchmark

A standard against which the performance of a fund

is measured. Funds usually choose an index to be the

performance benchmark and the index will match the

region or sector the fund invests in. For example, a fund

investing in companies listed on the FTSE 100 will often

use the FTSE 100 Index as a benchmark.

CCollective Investments

Each of the HSBC World Selection Portfolios is a type

of pooled investment. This means that the contributions

from many different investors are pooled together to

form a fund which is then managed on the same basis

for all individual investors holding shares in the fund.

Commodities

Commodities are raw materials such as food, grains,

and metals, which a fund manager is able to buy or sell,

usually through futures contracts which are agreements

to buy or sell at an agreed upon price on a specific date.

The price of a commodity is subject to supply and

demand.

Corporate Bond

A bond issued by a company to raise money. In return

for lending the company money the investor will receive

interest payments (coupon) plus the return of the

original investment when the bond matures.

DDerivatives

Unlike stocks and bonds, a derivative is usually a

contract rather than an asset. Its value is determined by

fluctuations in the underlying asset. Futures and options

are two commonly traded types of derivatives. An

options contract gives the owner the right to buy or sell

an asset at a set price on or before a given date. On the

other hand, the owner of a futures contract is obligated

to buy or sell the asset.

Diversification

A method by which a fund’s investments are spread, for

example, across different types of investments and

countries. By doing so the fund’s volatility can be

minimised by the impact of a loss to any one investment

being reduced by the rise of another.

Dividend

A financial distribution made by a company to its

shareholders, often in the form of cash. Whether a

company pays a dividend and the size of the payment is

usually determined by the size of the company’s profits.


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Jargon Buster

EEmerging Market Debt

Bonds issued by emerging market governments or

corporates. Hard currency debt refers to emerging

market bonds denominated in a so called ‘hard

currency’, typically US dollars. Local currency debt

refers to emerging market bonds issued in emerging

market currencies.

Equities/Shares

A share is a stake in the company that has issued it.

Equities is another name for shares. The value of the

shares will depend on a number of factors including

how well the company is performing financially.

Exchange Rate

The price of one country’s currency expressed in

another country’s currency. In other words, the rate at

which one currency can be exchanged for another.

GGovernment Bond or Gilt

A loan to a national government in return for which the

fund receives regular payments, (known as the coupon)

and a promise that the original investment (principal) is

paid back at a specified date. Gilts are loans to the UK

government.

FFixed Interest

Usually used to refer to a bond where the interest is

calculated as a fixed percentage of the original amount

of money borrowed.

Fund

A fund pools together the money from many individuals

enabling a fund manager to invest all the money in the

same way. Exactly what the fund manager buys

depends on the investment objective of the fund.

Fund of Funds

A Fund of Funds is a fund which invests in other funds

rather than investing directly in company shares

(equities), bonds or other securities. The HSBC World

Selection Portfolios are managed on a fund of funds

basis.

HHigh Yield Bonds

Bonds issued by companies of lower credit quality.

These companies are more likely to default but provide

a higher yield than investment grade (higher credit

quality) bonds.

IInflation

The rate of increase in the price of goods and services

as measured by the Consumer Price Index (CPI) or

Retail Price Index (RPI). RPI and CPI both measure

movement in the average price of a shopping basket of

goods and services as a way of gauging price inflation.

RPI includes certain items that are not part of the

Consumer Price Index (CPI), including council tax and

mortgage interest payments.

MMoney Market Instruments

A term that includes various instruments, such as

deposits, commercial paper and floating rate notes

(FRN). These instruments, or types of investment,

typically have very short term maturity dates and are

used by institutions and the government to manage

short term cash needs.


18

Jargon Buster

OOngoing Charges Figure (OCF)

The ongoing charges figure is a measure of what it

costs you to invest in a fund on an ongoing basis. It is

made up of the annual management charge (AMC) and

other costs incurred in running a fund, such as

custodian, auditor and regulatory, and which are paid

directly out of the fund – these are also known as

additional fund expenses. The total ongoing charge

figure also includes the costs of buying and selling (or

trading) the stocks in which a fund invests.

SSecurity/Securities

A term used to describe stocks, shares and bonds.

Stock Market

A place where stocks and shares are bought and sold,

for instance the London Stock Exchange.

PPassive Management

A passive approach to investment management where

a fund tracks a specific index or set of indices, such as

the FTSE All-Share Index or the S&P 500. The fund

manager invests in accordance with a pre-determined

strategy that does not involve any forecasting. Includes

index tracker funds and ETFs.

Portfolio

Whereas a fund typically invests in shares, bonds and

money market instruments, the HSBC World Selection

Portfolios invest in a range of funds selected by the fund

manager.

RReal Terms

Real value removes the effects of inflation. The effect of

inflation is the biggest factor in expressing a real value.

For example, inflationary effects will mean that in real

terms £1 today will be worth less, and have a lower

purchasing power, in the future.

TTracker Funds

An Index Tracker aims to replicate the returns of a given

index as closely as possible, by investing in financial

instruments that will closely replicate the characteristics

of the given index. An Index Tracker fund may not

exactly replicate an index for a number of reasons,

including:

Charges will have an impact on the performance of

tracker funds

It may not be economic for a fund manager to

purchase shares in a particular territory and the

manager may choose to gain exposure to a region

of the world through a specialised financial

instrument

The effect of dividend payments are normally

reflected immediately in the index and often some

weeks later in a tracker fund.

VVolatility

Volatility is a measure of how much a fund or security’s

price goes up or down as a percentage of its total value.

For example the price of a money market fund will

typically change very little from day to day and has low

volatility. A fund investing in shares is exposed to stock

market variations and has a higher volatility. The higher

the volatility of a fund, then generally the greater the

investment risk.


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Notes

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Notes

21

For HSBC Advisers only and should not be distributed to or relied upon by retail clients.

The material contained herein is for information only and does not constitute investment advice or a recommendation to

any reader of this material to buy or sell investments.

This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such

distribution or use would be contrary to law or regulation. This document is not and should not be construed as an offer to

sell or the solicitation of an offer to purchase or subscribe to any investment.

Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast,

projection or target where provided is indicative only and not guaranteed in any way. HSBC Global Asset Management

(UK) Limited accepts no liability for any failure to meet such forecast, projection or target.

The HSBC World Selection Portfolios are sub-funds of HSBC OpenFunds, an Open Ended Investment Company that is

authorised in the UK by the Financial Conduct Authority. The Authorised Corporate Director and Investment Manager is

HSBC Global Asset Management (UK) Limited. All applications are made on the basis of the HSBC OpenFunds

prospectus, Key Investor Information Document (KIID), Supplementary Information Document (SID) and most recent

annual and semi annual report, which can be obtained upon request free of charge from HSBC Global Asset Management

(UK) Limited, 8, Canada Square, Canary Wharf, London, E14 5HQ, UK, or the local distributors. Investors and potential

investors should read and note the risk warnings in the prospectus and relevant KIID and additionally, in the case

of retail clients, the information contained in the supporting SID.

The value of investments and any income from them can go down as well as up and investors may not get back the

amount originallyinvested. Where overseas investments are held the rate of currency exchange may also cause the value

of such investments to fluctuate. Investments in emerging markets are by their nature higher risk and potentially more

volatile than those inherent in some established markets. Stock market investments should be viewed as a medium to long

term investment and should be held for at least five years. Any performance information shown refers to the past and

should not be seen as an indication of future returns.

To help improve our service and in the interests of security we may record and/or monitor your communication with us.

HSBC Global Asset Management (UK) Limited provides information to Institutions, Professional Advisers and their clients

on the investmentproducts and services of the HSBC Group.

Approved for issue in the UK by HSBC Global Asset Management (UK) Limited, who are authorised and regulated by the

Financial Conduct Authority.

www.assetmanagement.hsbc.com/uk

Copyright © HSBC Global Asset Management Limited 2018. All Rights Reserved.

XB-0441. EXP 31/12/18

Key risks

The value of an investment in the portfolios and any income from them can go down as well as up and as with

any investment you may not receive back the amount originally invested.

Exchange rate risk: investing in assets denominated in a currency other than that of the investor’s own currency

perspective exposes the value of the investment to exchange rate fluctuations

Derivative risk: the value of derivative contracts is dependent upon the performance of an underlying asset. A small

movement in the value of the underlying can cause a large movement in the value of the derivative. Unlike exchange

traded derivatives, over-the-counter (OTC) derivatives have credit risk associated with the counterparty or institution

facilitating the trade

Emerging market risk: emerging economies typically exhibit higher levels of investment risk. Markets are not always

well regulated or efficient and investments can be affected by reduced liquidity.

Fixed income risk: as interest rates rise debt securities will fall in value. Issuers of debt securities may fail to meet their

regular interest and/or capital repayment obligations. All credit instruments therefore have potential for default. Higher

yielding securities are more likely to default.

Liquidity risk: liquidity is a measure of how easily an investment can be converted to cash without a loss of capital

and/or income in the process. The value of assets may be significantly impacted by liquidity risk during adverse market

conditions

Operational risk: the main risks are related to systems and process failures. Investment processes are overseen by

independent risk functions which are subject to independent audit and supervised by regulators.

Real estate risk: cost of acquisition and disposal, taxation, planning, legal, compliance and other factors can materially

impact real estate valuation

Third-party risk: governance of underlying assets remains the responsibility of third-party managers. Regular

assessment is undertaken for third-party manager approval.

hsbc world selection portfolios

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