Thursday, 1 June 2017

A Look at HSBC Global Strategy Fund

In my recent post reporting on my holding of Vanguard Lifestrategy 60 fund, I concluded that I was happy with performance to date but would prefer less exposure to the UK market. One of the comments suggested a look at HSBC's Global Strategy funds as an alternative. 

There are 3 funds - 'Dynamic', 'Balanced' and 'Cautious' which provide different levels of equities so investors can select the level which most closely corresponds to the level of 'risk' they wish to take. Looking at their most recent factsheet (pdf), the levels of equity for each fund are :

Dynamic   80% 
Balanced  55% and 
Cautious   25%.

The closest match to my LifeStrategy 60  is their Balanced fund so I will briefly compare the two.

The main difference is that the HSBC fund is actively managed and whilst some of the underlying funds are passive, the allocation of assets is reviewed on a monthly basis and the manager will make adjustments to the mix within pre-determined limits. The fund therefore relies upon the ability and judgment of the manager to make consistently good calls. 

The Vanguard fund however maintains a much more rigid structure to keep the equity allocation very close to 60% at all times. However, they deliberately maintain an overweight allocation to UK equities - 25% which translates to 15% of the whole fund.

In other respects, the two funds are very similar - both offer a blend of assorted global equities and bonds using predominantly low cost index funds or ETFs. With the VLS fund, these are all from Vanguard's own range of underlying funds. With HSBC, they use a mix of their own funds combined with ETFs from iShares.

There is however some variation in the composition of the two funds - VLS provides a higher proportion of government bonds as well as the much higher weighting to UK equities. The HSBC fund offers a higher weighting to corporate bonds, adds property to the mix (5%) and a much lower weighting to UK equities - just 3.4% compared to 15% for the Vanguard fund. This could,of course, change should the manager consider UK equities to be under-valued at any future point. 

Here's the latest breakdown :
 
(click to enlarge)

Although both funds were launched in 2011, the Vanguard fund is much more popular with assets of £2.3bn compared to just £94m for the HSBC fund and I was surprised to see the charges for both are close - VLS at 0.22% and HSBC at 0.19%.

Performance over the past 5 years is remarkably similar - a return of 66.8% for Vanguard compared to 67.7% for the HSBC fund.

5 Yr Performance to May 2017

The income yield is slightly higher from the HSBC fund at 1.4% compared to 1.3% from Vanguard and assume the extra income will be mainly generated by the higher proportion of corporate bonds.

Conclusion

I had not previously come across the HSBC funds before but this is not really surprising given the many hundreds of funds on offer to the small investor.

Having had an opportunity to research them, I must say they do tick a couple of boxes for me. I like the lower weighting to UK equities and I like the option of property. On the negative, I am not so keen on such a large proportion of corporate bonds - just under 30% and would prefer the greater stability offered by the proportion of government bonds offered by the VLS fund.

The Vanguard Lifestrategy is by far my single largest portfolio holding and I would not really like it to make up more than say 1/3rd of the total so this could be a possible alternative at some point.


What do others think? Would this be a good second string to the low cost global index bow? Leave a comment below.

4 comments:

  1. have a look at the Charles Stanley Pan Asset for another set of 6 options of passive with active assets allocation within a band http://www.charles-stanley.co.uk/pan-asset/panasset-model-portfolios
    I hold some of these with VLS

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    1. Mmmm...the first thing I note is that charges seem to be double those of the HSBC/VLS funds. I wonder how the performances compare..do you have any figures?

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  2. I hold the dynamic version of this and have been fairly pleased with it's performance. It's one of my largest holdings and I plan to continue to pump in on a monthly basis. I would definitely consider adding this or the balanced into your portfolio.

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    1. Yes, I guess you cannot be too unhappy with a gain of 27% in the past 12 months and 90% since launch in 2011. The performance is very close to the Vanguard LS 80.

      I am currently sitting on the sidelines half expecting a pullback in the markets but would probably go for the balanced or Cautious fund as I am looking more for capital preservation rather than growth at my investing stage.

      Good luck with this one.

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