This investment vehicle, which offers daily liquidity, will target equity-like returns with a maximum annualised volatility target of 10 per cent, with minimal correlation to European equities. The fund will be managed by a team of four, with Vis Nayar as lead manager. In a universe of approximately 700 stocks, the team will look to exploit fundamental equity pricing anomalies using complementary quantitative and qualitative strategies.
HSBC Global Asset Management has been running the same strategy within its flagship European Alpha Fund, domiciled in the Cayman Islands, since April 2008. Since then, the fund has outperformed the MSCI Europe Index and generated alpha on both the long and short portfolios.

Andrew Merricks, head of investments at Skerritts Consultants, reviews the latest offering from HSBC.

This fund does not give a lot away to the uninitiated by its title, appearing to be yet another run-of-the-mill European equity fund aiming to make money, or lose it, by investing in a range of European stocks and shares.

Dig a little deeper, however, and we find an interesting proposition, particularly against the backdrop of turmoil in European markets as a result of the mushrooming crisis enveloping the euro as a consequence of the Greeks’ debt burden and the increasing risk of contagion across the whole of the Eurozone.   

The problems in Europe are not going away. Whether the situation develops into a Lehman-style systemic risk is uncertain, and one suspects that it is a more local affair than the global financial crisis of 2008, but the ripples from Athens are undoubtedly picking up momentum. What this leads to is volatility, and it is from volatility that a fund such as this from HSBC should thrive.

Its UCITS III status effectively allows it to ‘short’ stocks in order to defend investors’ capital from a significant downturn. Shorting gives a manager the potential to make gains from falling prices. It is a tactic that has ever more relevance in turbulent times and, if used correctly, is a vital tool in achieving consistency of returns. I am confident that managers of a retail HSBC fund would not abuse their position and act irresponsibly, as has been witnessed by some hedge fund managers in the past couple of years.

Importantly, this fund has daily liquidity, which means that you get in or out of the fund quickly. I would always recommend this when investing in such a fund, as to be marooned in a suspended investment vehicle is something to avoid like the plague.

So, if we like the structure, do we like the people running it? They have been running a similar fund that has been domiciled in the Cayman Islands and the results have been encouraging. They made money in 2008 and are up in the year to date too.

The target return is 10 to 15 per cent per annum (bearing in mind that a target and reality need not necessarily be one and the same), which means that this fund will underperform a raging bull market but outperform in a bear. There are one or two rivals aiming to do the same thing, but this HSBC fund will not be the worst investment you’ll ever make and, from a risk perspective, looks quite attractive.