Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
The climate-change fund, part of the HSBC Global Investment Funds series, offers a higher-return/higher-risk profile than a broad global equity play, and is designed partly to entice Hong Kong investors to diversify from their love affair with China and Hong Kong stocks.
The new productÆs benchmark, the HSBC Global Climate Change Benchmark Index, has a very low correlation to A-shares (0.18 to the Shanghai A-Shares Index) or to China-focused plays in Hong Kong (0.54 correlation to the Hang Seng China Enterprise Index).
Patrice Conxicoeur, Asia-Pacific chief executive at Sinopia, says the main reason to invest in the fund is for its performance and its risk/return profile, with diversification a bonus. ôI call that icing on the cake,ö he says.
It is a quant fund, although HSBC is charging the standard 1.5% annual management fee associated with active equity retail products.
With the goal of beating the HSBC climate change index by 3% per annum, it is built around screens for market capitalisation (minimum $500 million), average daily turnover and stocks that derive at least 10% of their revenue from climate change activities. Stocks must also be covered by at least three analysts, and the fund cannot buy or sell more than 10% of its daily trading average.
There are no country or sector calls, and the fund is not constrained by the benchmark, although the firm does actively monitor risk and will rely on human judgement in cases where the data throws up close calls. The HSBC climate benchmark includes over 300 stocks across 34 countries and 19 industries.
In particular it is focusing on renewable power, sustainable agriculture and forestry, carbon capture and storage, low-carbon vehicles, energy efficiency, and water. The firm expects both governments and the private sector to pour huge amounts of investment into these areas over the medium term.
This attention has allowed certain sectors in the HSBC index, such as low-carbon energy production stocks, to handily outperform the MSCI World Index over the past year. The HSBC climate change index is also cheaper: its price-earnings to growth (Peg) ratio is 1.10 versus 1.50 for the MSCI World or 3.67 for the MSCI Asia Pacific ex-Japan equity index.
The current asset allocation allocates 54.6% to low-carbon energy production, 26.8% to water, waste and pollution control, and 18.7% to energy-efficiency management companies. Geographically it has 38.3% allocated to North America, 35.7% to the euro zone, 13.2% to European markets outside the euro zone, 7.6% to Asia, 3.3% to Africa and 1.9% to emerging Asia.
Regulators keep their eyes open on tightening insurance industry by introducing more detailed risk management requirements, which could bring pressure on smaller players.
China and India are more obvious choices for AustralianSuper to consider in Asia Pacific, but the super fund currently lacks the expertise and prefers to stick to the US and Europe.
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