HSBC Asia Pacific (Ex Japan) Dividend Yield Fund

HSBC Mutual Fund has recently launched an open ended Fund of Funds Scheme which will invest predominantly in the units of HSBC Global Investment Funds Asia Pacific- (Ex Japan) Equity High Dividend Fund.

Summary

Type	An open ended Fund of Funds Scheme	Benchmark Index	MSCI AC Asia Pacific ex Japan
Min. Investment:	lump sum -> Rs 10,000 and in multiples of Re 1 thereafter SIP - > Rs 1,000 (monthly) or Rs 3,000 (quarterly)	Additional Investment:	lump sum -> Rs 1,000 and in multiples of Re. 1 thereafter
Face Value	Rs 10 per unit	Options available:	Growth and Dividend (with Dividend Payout and Reinvestment facilities)
Entry Load	Nil	Exit Load:	Nil
Issue Opens	February 03, 2014	Issue Closes:	February 17, 2014

 

Investment Objective*

The investment objective of the scheme is “to provide long term capital appreciation by investing predominantly in units of HSBC Global Investment Funds (HGIF) Asia Pacific Ex Japan Equity High Dividend Fund (HEHDF). The Scheme may also invest a certain proportion of its corpus in money market instruments and / or units of liquid mutual fund schemes, in order to meet liquidity requirements from time to time.”

*Source: Scheme Information Document

 

Is this fund for you?

HSBC Asia Pacific (Ex Japan) Dividend Yield Fund (HAPDYF) is an open ended Fund of Funds Scheme mutual scheme from the stable of HSBC Mutual Fund, which will focus on investing predominantly in units of the underlying scheme - HGIF Asia Pacific Ex Japan Equity High Dividend Fund (HEHDF).

The underlying scheme (HEHDF) is an open ended fund based in Luxemburg which will enable investors to invest in long term investment opportunities available in the emerging markets of the Asia Pacific region.

You see, the investment objective of HEHDF is “to seek long-term capital growth and a high level of income by investing primarily in a diversified portfolio of investments in equity and equity equivalent securities of companies which have their registered office in and with an official listing on a major stock exchange or other Regulated Market of any Asia Pacific country (excluding Japan) as well as companies which carry out a preponderant part of their economic activities in the Asia Pacific region (excluding Japan), that offer short-term sustainable dividend yields above the market average and / or the potential for dividend growth above the market average over the short-term”.

Hence the underlying scheme offers investors access to the potentially exciting long term investment opportunities in predominately emerging markets in the Asia Pacific region, with investment primarily into stocks which have a higher dividend yield as compared to market average. But in this endeavour, HEHDF and therefore even HAPDYF would be exposed to the following risks:
 

• Macroeconomic factors such as unemployment, public expenditure and indebtedness, inflation
• Regulatory / legal environment
• Change in market conditions, countries, industries and sectors
• Economic Risk
• Currency Risk
   

So while HAPDYF offers geographical diversification to your investments; it would be suitable only for those who are willing to bear the aforementioned risks while investing overseas. Hence one should first ascertain his / her risk appetite and risk tolerance and then consider investing in HAPDYF.

 

Portfolio & Investment Strategy

HAPDYF will invest a major proportion of its assets in the units of its underlying scheme (HEHDF) and a small proportion of its assets in money market instruments and / or units of liquid mutual fund schemes.

HEHDF believes that markets are not efficient and that much of this inefficiency comes from the market mispricing the sustainable return on capital. Hence it will engage in extensive, rigorous and proprietary research and use fundamental analysis to gain competitive advantage and identify mispriced companies.

The fund is of the view that Asian companies are undergoing a structural change: emphasising quality through de-leveraging, cash-flow generation and sustainable earnings. Hence the fund aims at identifying and investing in companies which combine mis-priced profitability with sustainable and attractive dividend yield through bottom up approach and fundamental research.

While focusing on investing in stocks, the fund will emphasise on investing in companies with:
 

• Industry analysis;
• Ability to create shareholder wealth;
• Profitability relative to risk;
• Financial strength; and
• Corporate governance
   

A dominant portion of HAPDYF assets will be invested in the units of HEHDF, and the rest in money market instruments and units of domestic mutual funds.

Under normal circumstances the asset allocation pattern of HAPDYF will be as under:

 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Units issued by HGIF Asia Pacific Ex Japan Equity High Dividend Fund	95	100	Medium to High
Money Market instruments (including CBLO & reverse repo in government securities) and units of domestic mutual funds	0	5	Low to Medium

(Source: Scheme Information Document)  

The fund will not invest in derivatives, securitised debts or unrated instruments. However, the underlying scheme (HEHDF) may have exposure to these securities and may also undertake short selling and securities lending.

  Performance of the underlying scheme

Annualised Performance	Underlying Scheme (HEHDF)	Benchmark (MSCI AC Asia Pacific ex Japan Index)
1 year (%)	5.90	9.90
3 year (%)	2.78	3.33
5 year (%)	16.33	20.68
Since Inception (%)	7.60	11.43

Returns computed as Nov 29, 2013; Inception date is Nov 05, 2004.
(Source: SID)  

The performance table reveals that HEHDF has underperformed its benchmark (MSCI AC Asia Pacific ex Japan Index) across all time horizons (1, 3, 5 year and since inception).

 

Fund Manager Profile

The fund will be managed by the duo Piyush Harlalka and Sanjay Shah.

Mr Harlalka has over 7 years of experience in fund management and research areas. Before joining HSBC Asset Management (India) Private Ltd. in July 2007, Mr Harlalka was associated with Batlivala & Karanai Securities Pvt. Ltd. as an Assistant Vice President and Research Analyst.

Mr Harlalka has done his Chartered Accountancy and Company Secretary and also is an MBA in Finance. Apart from HAPDYF, he also manages HSBC Emerging Markets Fund and HSBC Brazil Fund.

Mr Shah has over 13 years of experience in research and risk. Before joining HSBC Asset Management (India) Pvt. Ltd. in December 2008, Mr Shah was associated with FIL Fund Management Pvt. Ltd. as a Credit Analyst, with Lehman Brothers Structured Financial Services Pvt. Ltd. as a Vice President (Convertible Products), with Rabo India Finance Pvt. Ltd. as a Senior Manager (Credit Risk), with ICICI Bank Ltd. as Manager (Credit Risk), and with SBI Funds Management Pvt. Ltd. as Chief Manager (Debt Funds).

Mr Shah has to his credit a degree in B.Com, A.C.A. and PGDM. Apart from HAPDYF, he also manages HSBC Dynamic Fund (Fixed Income portion), HSBC MIP, HSBC Cash Fund, HSBC Income Fund, HSBC Gilt Fund, HSBC Ultra Short term Bond Fund, HSBC Floating Rate Fund and HSBC Flexi Debt Fund.

 

Fund Outlook

HAPDYF being a fund of fund, the fortune of the scheme would be determined by the performance of the underlying fund - HEHDF.

The underlying fund invests largely in the emerging markets of the Asia Pacific region. As per its portfolio disclosed on November 30, 2013, HEHDF had maximum exposure in Australia and China. Over the long term, HEHDF has failed to create alpha for its investor’s vis-à-vis its benchmark index.

In the near future, Asian markets might face selling pressures due to economic uncertainties. Australia’s economy is growing at a sub-trend pace and has been negatively affected by the slowdown in the emerging market economies such as China and India. China has particularly been witnessing weaker economic growth of about 7%. If such conditions persist, then it could have a detrimental impact in the performance of the underlying fund, and in turn also impact the performance of HAPDYF negatively.

 

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