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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