hsbc equity hybrid fund deck

Life needs balance. So do your investments.

Aggressive Hybrid fund – An open ended hybrid scheme investing predominantly in equity and equity related instruments

20 April 2021

HSBC Equity Hybrid Fund

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3.25%

3.35%

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RBI Repo rates vs Equity market (Nifty 50 TRI)

RBI Repo Rate RBI Reverse Repo Rate

Where are we today?

Low interest rates and expected volatility calls for a balanced approach

Source: Bloomberg, MOSL, Data as at March 2021,

Past performance may or may not sustain and doesn’t guarantee the future performance

Valuations – Corporate Profit to GDP %

4.5%4.4%

Repo/Reverse repo @ multiyear lows

Repo

Reverse

Repo

Reverse

Repo

Repo

4.75.4

6.3

7.37.8

5.5

6.56.3

4.84.3 4.3

3.73.2

3.6

2.93.1 1.8

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

Average of 5%

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Equity has proven to be one of the best asset classes for long-term wealth creation.

– S&P BSE Sensex has returned ~15% annualised returns, on an average, for a 15-year holding period on a monthly rolling

basis^

Equity offers long-term wealth creation opportunity

Source: BSE, Monthly rolling returns for respective holding periods since 1979. For instance, in case of 15-year monthly rolling returns, there will be 319 return periods. The first return period

will be June 1979-1994 and the last return period will be December 2005-2020. Past performance may or may not sustain and doesn’t guarantee the future performance

Equity performance over a long term (monthly rolling for respective periods)

Equity delivered an average of ~15% returns over a 15 year holding period

16.4 16.0 15.7 15.615.0

0

2

4

6

8

10

12

14

16

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3-year rolling returns 5-year rolling returns 7-year rolling returns 10-year rolling returns 15-year rolling returns

Annualis

ed r

etu

rns %

Average rolling period returns

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Equity provides a wealth-creation opportunity over the long term, but can erode wealth in the short term

owing to volatility.

Long-term investing increases the possibility of better performance with the help of power of compounding

and shields the portfolio against short-term market fluctuations.

Volatility exists in the short run

Source: BSE

S&P BSE Sensex rolling returns for different holding periods. Period: Dec 2005 – Dec 2020; Data as of December 2020, Returns frequency: Monthly rolling


Longer investment horizon helps reduce volatility

-5%-1%

4% 5% 5%

60%

46%

29%

21% 18%15% 15% 14% 13% 13%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

3 years 5 years 7 years 10 years 15 years

Lowest CAGR Highest CAGR Average CAGR

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Every season the winner changes hands in the financial markets.

• Asset classes (equity and debt) perform differently under different market situations.

• Dependency on a single asset class could be risky and instead, diversification helps minimise potential losses.

• As evident in the chart above, Equity index (S&P BSE Sensex) nosedived 52% while debt (Crisil Composite Bond

Fund Index) rose 9% in 2008.

• In 2017, the S&P BSE Sensex surged 28% while the Debt index (CRISIL composite bond fund index) rose just 5%.

• In 2020, the S&P BSE Sensex has outperformed Debt index

Different seasons have different winners

Debt and equity are represented by the Crisil Composite Bond Fund Index and S&P BSE Sensex respectively,

Source: CRISIL Research, BSE, * data till 31 December 2020, Equity – Debt Correlation is calculated using 10 years daily returns data for Sensex TRI and Crisil Composite Bond Fund Index.


Diversification helps minimise losses and get the best of both asset classes

Equity Equity Equity Equity Equity Equity Equity Debt Debt DebtEquity Equity Equity EquityDebt Debt Equity

8%

0%

5% 4% 7% 9%4% 5% 7% 9%

4%14% 9% 13%

5% 6% 11% 12%

73%

13%

42% 47% 47%

-52%

81%

17%

-25%

26%

9%

30%

-5%

2%

28%

6%

13%17%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

200

3

200

4

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5

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6

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202

0

RE

TU

RN

S%

Debt Equity

Equity

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E:20-D:80

E:30-D:70

E:35-D:65

E:50-D:50

E:65-D:35

E:70-D:30

E:80-D:20

Debt

Equity

0%

2%

4%

6%

8%

10%

12%

14%

0% 5% 10% 15% 20%

Retu

rns

Risk

Above list of asset allocation patterns is not exhaustive and only for illustration purpose

E –(Equity) S&P BSE 200 and D (Debt) CRISIL Composite bond fund index, Equity – S&P BSE Sensex TRI, Debt – Crisil Composite Bond Fund Index,

Risk – return chart for 15 years with annualised point to point returns and annualised Standard deviation of daily returns data as at December 2020 , Risk – Standard deviation

Mutual fund investments are subject to market risks, read all scheme-related documents carefully. Past performance may or may not sustain and doesn’t guarantee the future performance

Optimal asset allocation for wealth generation

Right asset allocation is the key to an ideal portfolio

Potential additional risk

to generate returns

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• With appropriate asset allocation between equity and debt, benefits of diversification can be seen, particularly

in the market downtrend.

• The analysis below shows that during bear phases, Portfolio B (70% equity and 30% debt) has performed

better as compared with Portfolio A (100% equity).

Portfolio Allocation A represented by S&P BSE Sensex TRI Index

Portoflio Allocation B represented by S&P BSE 200 TRI Index (70% weightage) and CRISIL Composite Bond Fund Index (30% weightage)

Annualised returns on point to point basis is considered

Source: CRISIL Research, For illustration purpose only


PeriodPortfolio A returns

(equity 100%)

Portfolio B returns (equity 70% and debt 30%)

Sub-prime crisis (Jan 2008-Mar 2009) -44% -35%

Sharp bounce back post sub-prime crisis (Apr 2009-Dec 2010) 54% 38%

European crisis (Jan 2011-June 2013) -1% 1%

Post European crisis (Jul 2013-Feb 2015) 29% 25%

Chinese slowdown (Mar 2015-Feb 2016) -21% -12%

Global liquidity and domestic reforms (Mar 2016-Dec 2017) 24% 22%

Optimal asset allocation best suited for long-term investors

Right allocation across asset classes helps achieve better risk-adjusted returns

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HSBC Equity Hybrid Fund - Volatility can be reduced

Fixed Income complements equity and provides strength to the portfolio


Though equities

offer growth,

extreme volatility

of equities may

reflect temporary

erosion of

investment

Fixed Income

asset class can

provides stability

Exposure to both

asset classes

reduces the

short/medium term

volatility and

provides the right

balance to the

portfolio

Growth StabilityHSBC Equity Hybrid

Fund (HEHF)

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An open ended aggressive hybrid scheme

An asset allocation product with a mix of equity & debt

Benefit from growth potential of equities

Benefit from lower or reduced risk/volatility due to debt

exposure

A solution for long term wealth creationHSBC Equity Hybrid Fund

Asset allocation of aggressive hybrid funds as per SEBI’s new category reclassification.

For representation purpose only, * The provision for equity investments is between 65% to 80% and debt between 20% to 35%. The investment list above is not exhaustive and for illustration

purpose only.


Get upside potential of equities with relatively lower risk

70%

30%

Investment in equity

and equity-related

instruments -

between 65% and

80% of total assets *

Investment in

debt instruments

-between 20%

and 35% of total

assets *

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Fund placement in potential risk-reward matrixStriking the right balance in between

Source – HSBC MF, Note - Above list of categories in the chart is an indicative list and is not exhaustive


RE

TU

RN

Liquid Funds

Short Duration Funds

Gilt Funds

RISK

Long Duration Funds


Dynamic Bond Funds

Large Cap Funds

Mid and Small Cap Funds

Thematic Funds

HSBC Equity Hybrid fund is placed at a mid level of risk-return ratio

Overnight Funds

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HEHF’s investment approachAsset allocation strategy with right balance between equity & debt

Optimal asset allocation – exposure to two different asset classes to strike

the right balance between Growth & Stability

Sector agnostic strategy - sector agnostic style of investments to build a

diversified portfolio using PBROE valuation framework

Optimal-Duration strategy - to follow an optimal duration debt strategy and

invest in high quality fixed income instruments which offer reasonable yields

Flexible in approach, high on growth, low on risks


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Source - MFI ICRA, HSBC Global Asset Management , data as at December 2020

Different market-caps perform in different investment scenarios

Bringing performance consistency

– Large cap stocks have outperformed / fallen less in 2006, 2008, 2010, 2011, 2013, 2018, 2019

– Midcap stocks have outperformed in 2012, 2015 & 2016

– Small cap stocks were the best performers in the year 2005, 2007, 2009, 2014, 2017 & 2020


-100.0

-50.0

0.0

50.0

100.0

150.0

Large Cap Mid Cap Small Cap

20202005 2007 2010 2011 2013 2015 20172006 2008 2009 2012 2014 2016 2018 2019

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Capitalising on the opportunities across the market spectrum

Performance

The funds equity strategy can invest across market spectrum depending on prevailing opportunities which

can provide performance consistency

Volatility

Ability to maintain portfolio volatility at reasonable level due to a balance between large, mid and small cap

stocks

Under researched

Mid & small caps may be subject to mis-appraisals and mis-pricing as they are under researched and thus

can create an alpha generation opportunity for the fund manager

Earnings

It offers a combination of stable as well as balanced earnings with a potential to support stock valuations in

up as well as down trend

Growth

While large cap companies are well positioned to achieve economies of scale, mid and small cap companies

may offer higher growth push


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Why optimal duration strategy?Freedom to position the portfolio favorably

Performance

Potential to capture the superior risk adjusted performance due to flexibility to move allocation towards

favorable duration instruments

Volatility

Potential to avoid extreme risks as the fund manager would aim to reduce duration in a volatile

environment

Risk

Ability to avoid extreme risk as FM has a flexibility to position a portfolio in the favorable short-mid-long

durations

Quality

Investments in better rated credit quality instruments that generally have low capital risk


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|PUBLIC|Data as at March 2021


Fund Philosophy and Key Portfolio Themes

From a bottom up perspective, we have exposure to dominant players/leaders in

badly disrupted sectors but that are on verge of revival

Fund Philosophy

To invest in dominant businesses having scalable businesses, available at reasonable valuations.

The trend of profit pool consolidating with the dominant players in respective sectors/industries, is likely to accelerate

as the current disruption has higher magnitude as well as it encompasses more sectors.

This has increased our resolve to be true to our philosophy and we believe that such stocks would stand to gain

market share even in the sluggish phases of the economy and achieve revenue traction when the economy returns to

normalcy.

Key portfolio themes:

In the context of current elevated valuations, a bottom up approach along with focus on earnings growth, would be the

right way to approach stock selection in our view. Companies which can provide strong earnings growth along with

positive earnings surprises would continue to do well and would be able provide outperformance.

So while earnings growth will still be the most important element that we focus on, but within that there is an emphasis

on ideas with scope for positive earnings surprises.

Our investment strategy will also focus on earnings growth implied by the valuations.

Due to the evolving scenario connected to the second wave, the markets may remain volatile in the near term and any

sharp corrections would be used to add to our conviction bets or where valuations turn reasonable.

We reckon that the second COVID wave would be managed more effectively by the systems and the citizen

stakeholders, given the learnings from the first wave.

From a bottom up perspective, we have exposure to dominant players/leaders in badly disrupted sectors but that are

on verge of revival (Eg: Retail, Multiplex, Real Estate etc.).

The recent budget has envisaged a long road for fiscal consolidation, which provides at least a 4-year window for the

pro-growth approach and capex push. This can potentially raise the long term sustainable growth rate of the economy.

As a result, we have increased weight to Industrials sector. Financials is another key beneficiary of this budget and we

see banks being beneficiaries of system clean-up and growth orientation.

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Data as at March 2021


Portfolio Sectors Positioning

Positive view on Financials, Healthcare, Industrials,

Consumer Discretionary and Real Estate sectors.

We currently hold a positive view on Financials, Healthcare, Industrials, Consumer Discretionary and Real Estate

sectors. Technology is a neutral weighted sector.

The focus is on earnings surprises and we reckon Financials and Real Estate to be at the forefront, while our

exposure in other sectors is also driven by this theme.

Real Estate earnings momentum will be driven by demand factors and industry consolidation benefiting the larger

listed players.

In Financials (specifically in private banks), we believe that the earnings surprises will be driven by rebound in credit

growth coupled with lower credit costs.

The renewed capex push and a multi-year expansionary fiscal policy envisaged in the budget is positive for Industrials

sector. We also have exposure to CVs, to play the economic recovery theme.

At a sub-sector level, we are positive on Cement, owing to the strong demand recovery and Specialty chemicals

driven by the supply chain diversification theme.

Technology is another sector that we like (currently neutral) and looking to increase exposure here. We believe that

the current trend of digital adoption and “migration to cloud” are structural in nature and this should result in improving

growth momentum over medium term.

We have cut exposure to Telecom and now have an underweight stance due to inordinate delay in the tariff hike

(which may impact earnings momentum) and the advent of the next capex cycle (5G). We have used this reduction to

increase weight in pro-cyclical segments.

Our underweight stance in Staples is on account of lack of earnings surprises and lofty valuations

We continue to remain negative on Energy and Utilities sectors

Asset Allocation : As at end of the month, the equity exposure in the fund stood at 73.8%.

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Data as at March 2021


Market outlook

Expansion in valuations make the risk- reward for the equity markets, balanced at this juncture.

On conventional valuation metrics like Price to Earnings / Price to Book ratios, the equity indices are trading well

above historical averages, which make it expensive. However, the lower interest rate environment is likely to

remain in the short term as a result the low cost of capital scenario should remain as well. This makes equities

relatively attractive compared to other asset classes despite the valuations.

The short term could witness volatility given the evolving scenario around the second wave. However, the outlook

from a medium to long term is attractive and the recent budget has provided a fillip to the growth momentum.

Focus on capex and infrastructure spends, should add the multiplier effect as well as improve productivity in the

medium to long term. So effective execution of the budget proposals, would be a big long term positive for India

and for its economic growth trajectory. This is positive for equities from a medium to long term perspective.

Second COVID wave along with extended impact of restrictions despite the vaccine intervention, hardening of

inflation expectations globally and in India and tapering off in liquidity are the key risks in the short term.

Expansion in valuations make the risk- reward for the equity markets, balanced

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|PUBLIC|Data as at March 2021


Key sectors with positive view

Overweight on Consumer staples, Healthcare and Telecom

Sectors Comments

Financials

We maintain a positive view on lending financial institutions and expect them to outperform over the medium to long

term. This will be driven by fast normalisation in asset quality, leading to significantly lower credit cost and hence

strong earnings growth. Going forward, the focus may shift to growth wherein our investee companies will likely gain

market share. We expect Financials to be the biggest driver / contributor of the market earnings growth in FY22. We

continue to prefer large private banks and NBFCs (with good parentage), on account of their strength in capital

adequacy, granular deposit franchise and investment in digital infrastructure. We believe these large lenders have

emerged stronger post crisis – balance sheets are stronger than ever. It has been driven by conservative provisioning

and high NPA coverage over the last 3/4 quarters and also, growth/market share gains are accelerating. Now we

expect ROAs to be near or cross previous peaks, which will drive multiples above long-term averages. The recently

announced budget has addressed concerns on medium term GDP growth, consequently credit growth should see a

rebound and while asset quality should improve going forward. Hence, we remain positive in this space. Our smaller

exposure to the life insurers is driven by the financialisation of savings theme.

Healthcare

Our positive stance is on account of the decent earnings growth visibility. Over the medium term, we believe that the

profit pool of pharma companies will improve owing to reduction in fixed costs, secular domestic market growth and

US business showing signs of improvement. Most of the companies have significantly deleveraged their balance

sheets which will aid earnings and returns profile going ahead. Valuations can improve further as the sector offers mid-

teen earnings growth visibility and improving return ratios. Our exposure to the sector, is primarily through companies

having diversified regional exposure in US generic business and domestic branded market with a higher degree of

vertical integration.

Industrials

We are positive on the space as we see potential revival in the investment cycle over the medium term. In the last

union budget, we have seen increased focus and outlay towards the Infrastructure sector. Furthermore, we believe

that government's renewed focus would continue for the next few years as per the gradual fiscal consolidation path

envisaged. Government has already specified a 5-year National Infrastructure Plan and the current budget gives us

confidence on government's commitment towards the same. We expect the government capex to pick up in near to

medium term. Private capex may still take some more time for full revival, but as the overall economic growth picks up,

the private capex should also see an improvement in the medium term. Hence, the outlook for the sector has improved

considerably for the sector and infrastructure companies. However, focus will remain on companies with strong

balance sheet, execution capabilities and scale advantages. We continue to remain positive on allied sectors (CV,

cables), in order to play the economic recovery theme. We are also positive on select companies in the capital goods

space.

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Who should invest in HEHF?Suited for all types of investors

Cautious - New to equity

HEHF is well suited for investors with no equity exposure due to volatility associated with

equity asset class. HEHF can provide reasonably high return potential with lesser volatility.

Moderate – Measured equity exposure

HEHF is well suited for an informed investor who is looking for adequate exposure to

equities at lesser risk

Disciplined – Balanced approach

HEHF is best suited for investors looking for a cost effective and optimal asset allocation

product


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Why should you invest in HEHF?To be a disciplined investor

Optimal asset allocation

Get exposure to two asset classes in one fund which are not just different, but complementary

Asset rebalancing

Maintain the desired asset allocation level in your portfolio with asset rebalancing

Dual advantage

Grow your investments with equity and stabilise the volatility with debt

Tax effect

Switching between both asset classes for the desired asset allocation portfolio has no tax

incidence #

Past performance may or may not sustain and doesn’t guarantee the future performance # HEHF invest and rebalances portfolio within equity and debt asset class. HEHF has equity fund status and subject to equity taxation.

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|PUBLIC|Data as on 31 March 2021

HSBC Equity Hybrid Fund (HEHF)Fund Portfolio

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Fund Name HSBC Equity Hybrid Fund

BenchmarkA customized index with 70% weight to S&P

BSE 200 TRI and 30% weight to CRISIL

Composite Bond Fund Index.

Minimum

Application

Amount

Rs 5,000/- per application and in multiples of

Re. 1/- thereafter

Additional Purchase Rs 1,000

SIP

(Minimum

Application

Amount)

Rs. 500/-

TypeAn open ended hybrid scheme investing

predominantly in equity and equity related

instruments

Plans /

Options /

Sub options

Regular, Direct plans / Growth, Income

Distribution cum capital withdrawal (IDCW)/

Payout of IDCW, Reinvestment of IDCW

Loads

(including

SIP / STP

wherever

applicable)

Entry Load* : Nil

Exit Load:– Any redemption / switch-out within 1

year from the date of allotment:

For 10% of the units: NIL, For remaining units:

1%

If redeemed / switched out after 12 months from

the date of allotment: NIL”

SIP/STP/SWP AvailableFund

Managers

Neelotpal Sahai and Ranjithgopal for Equity

Kapil Punjabi for Debt

The exit loads set forth above is subject to change at the discretion of the AMC and such changes shall be implemented

prospectively

*In terms of SEBI circular no. SEBI/IMD/CIR No.4/ 168230/09 dated June 30, 2009, no entry load will be charged by the

Scheme to the investor effective August 1, 2009. No exit load (if any) will be charged for units allotted under bonus / dividend

reinvestment option.

HSBC Equity Hybrid Fund (HEHF)Fund snapshot

To seek long term capital growth and income through investments in equity and equity related securities

and fixed income instruments. However, there is no assurance that the investment objective of the

scheme will be achieved.


*Investors should consult their financial advisers if in doubt about

whether the product is suitable for them.

This product is suitable for investors

who are seeking*:

• Long term wealth creation and income

• Invests in equity and equity related

securities and fixed Income

instrumentsInvestors understand that their principal

will be at Very High risk

Note on Risk-o-meters: Please note that the above risk-o-meter is as per the product labelling of the scheme available as on the

date of this communication/ disclosure. As per SEBI circular dated October 05, 2020 on product labelling (as amended from time

to time), risk-o-meter will be calculated on a monthly basis based on the risk value of the scheme portfolio based on the

methodology specified by SEBI in the above stated circular. The AMC shall disclose the risk-o-meter along with portfolio

disclosure for all their schemes on their respective website and on AMFI website within 10 days from the close of each month.

Any change in risk-o-meter shall be communicated by way of Notice cum Addendum and by way of an e-mail or SMS to

unitholders of that particular scheme.

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Disclaimer

This document has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be

construed as i) an offer or recommendation to buy or sell securities, commodities, currencies or other investments referred to herein; or ii) an offer to sell

or a solicitation or an offer for purchase of any of the funds of HSBC Mutual Fund; or iii) an investment research or investment advice. It does not have

regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors

should seek personal and independent advice regarding the appropriateness of investing in any of the funds, securities, other investment or investment

strategies that may have been discussed or referred herein and should understand that the views regarding future prospects may or may not be realized.

In no event shall HSBC Mutual Fund/HSBC Asset management (India) Private Limited and / or its affiliates or any of their directors, trustees, officers and

employees be liable for any direct, indirect, special, incidental or consequential damages arising out of the use of information / opinion herein.

This document is intended only for those who access it from within India and approved for distribution in Indian jurisdiction only. Distribution of this

document to anyone (including investors, prospective investors or distributors) who are located outside India or foreign nationals residing in India, is

strictly prohibited. Neither this document nor the units of HSBC Mutual Fund have been registered under Securities law/Regulations in any foreign

jurisdiction. The distribution of this document in certain jurisdictions may be unlawful or restricted or totally prohibited and accordingly, persons who come

into possession of this document are required to inform themselves about, and to observe, any such restrictions. If any person chooses to access this

document from a jurisdiction other than India, then such person do so at his/her own risk and HSBC and its group companies will not be liable for any

breach of local law or regulation that such person commits as a result of doing so.

© Copyright. HSBC Asset Management (India) Private Limited 2021, ALL RIGHTS RESERVED.

HSBC Asset Management (India) Private Limited, 16, V.N. Road, Fort, Mumbai-400001

Email: [email protected] | Website: www.assetmanagement.hsbc.co.in

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

hsbc equity hybrid fund deck

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