hsbc gif brazil equity fund april 2010 sales aid · reversal of the inventory cycle, boosted...
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HSBC GIF Brazil Equity FundSales aid
For professional advisers only
April 2010
Why Brazil Equities?
2000 2009
Population 172.8 million* 198.7 million*
Average age 29.5 years* 28.2 years*
Labor force 74 million* 93.7 million*
GDP PPP $1,230 billion* $1,794 billion*
GDP Growth 2.7%* -0.5%*
Exports $46.9 billion* $197.9 billion*
Imports $48.7 billion* $173.1 billion*
*Source : World Bank, January 2010 **Source : The Economist, June 2009
Facts
Investment grade status was awarded to Brazil’s foreign currency denominated debt in 2008 by Standard & Poor’s**
Brazil accounts for 22% of the world’s arable land surface**
In Brazil, 60% of the population is less than 25 years old**
Brazil has 20% of the world’s fresh water**
Brazil’s main stock market index rose 12.1% during 2009 according to MSCI (January 2010)
Brazil has the world’s largest commercial cattle herd (50% larger than the US) at 190 million heads**
Market
Brazil is now the largest national economy in Latin America, the world’s tenth largest economy at market exchange rates and the ninth largest in
purchasing power parity (PPP), according to the World Bank. Characterized by large and well-developed agricultural, mining, manufacturing, and
service sectors as well as a large labour pool, Brazil’s economy outweighs that of all other South American countries and Brazil is expanding its
presence in world markets. The country has been expanding its presence in international financial and commodities markets and is regarded as
one of the four emerging economies called BRIC (Brazil, Russia, India and China). Major export products include aircraft, coffee, automobiles,
soybean, iron ore, orange juice, steel, ethanol, textiles, footwear, corned beef and electrical equipment.
In 2007, Brazil launched a four-year plan to spend $300 billion to modernise its road network, power plants and ports. Brazil’s booming economy
is shifting into overdrive, with bio fuels and deep-water oil providing energy independence and the government collecting enough cash to irrigate
the desert and pave highways across the Amazon Rainforest.
Since 2003, Brazil has steadily improved macroeconomic stability, building up foreign reserves, reducing its debt profile by shifting its debt burden
toward Real denominated and domestically held instruments, adhering to an inflation target, and committing to fiscal responsibility. In 2008,
Brazil became a net external creditor, Brazil’s external debt totalled less than its foreign reserve holdings, and two ratings agencies awarded
investment grade status to its debt. After record growth in 2007 and 2008, the onset of the global financial crisis hit Brazil in September 2008.
Brazil’s currency and its stock market – Bovespa – saw huge swings as foreign investors pulled out of Brazil. Brazil experienced two quarters of
recession, as global demand for Brazil’s commodity-based exports dwindled and external credit dried up.
However, Brazil was one of the first emerging markets to begin a recovery. In Brazil, GDP fell by 0.5%in 2009 in the first two quarters of the crisis
period, but rebounded in the second and third quarter of 2009. A robust fiscal policy package, including support for the automotive sector and a
reversal of the inventory cycle, boosted industrial production, which was strong at a 22.2% annualized pace in October 2009. At the same time,
lower policy interest rates and a decline in interest rate spreads helped prompt a recovery in private credit that has bolstered domestic demand.
The Central Bank expects a GDP growth of 3.5% for 2010.
The HSBC GIF Brazil Equity Fund – Investment Process
The Brazil equity team is headed by José Cuervo and supported by Natalia Kerkis in Sao Paolo. Each of the ten analysts, based in London and Sao Paolo,
has a number of sectors to cover, and they all meet regularly -both formally and informally -to share thoughts and ideas.
The fund’s investment process reflects HSBC’s experience in Latin American markets. The team of analysts provide each other with quality,
detailed research, enhanced by local knowledge of Brazilian and other Latin America, all within a tight risk control framework. This dedicated team
focus on fundamental research and idea generation, which results in timely and effective decision making within a tight risk-control framework.
They can also leverage the global resources of HSBC. The investment process emphasises a fundamental ‘bottom-up’ evaluation of Brazilian
companies, preferring a Discounted Cash Flow (DCF) valuation model with a ten-year horizon. The manager has a mid-to-Iong time horizon when
selecting companies for the portfolio; The manager is not concerned with chasing short-term returns or momentum themes; instead we look to
identify companies that offer compelling valuations and that can demonstrate solid and sustainable long-term strategies.
The team employs a disciplined investment process that aims to identify the fair value of any stock. Having achieved this the fund manager can
decide whether a company is being fundamentally under or over valued by the market. That in turn prompts the decision to buy, sell or hold.
The analysts are looking in particular to identify companies that enjoy a strong cash flow and that show evidence of continued strong cash flow
generation into the future. Assessing this means looking at the company’s long-term strategy and its competitiveness within its particular sector.
Analysing the quality of company management is key to this, and we devote considerable resources to this activity, including undertaking more
than 200 company meetings every year. The manager is also able to draw on the skills of the domestic HSBC investment team, with which we
share our Sao Paolo office. HSBC has been an active investor in this region for more than 20 years.
The fund has a focus on domestic consumption with some exposure to commodities (iron ore, nickel and oil). This is ideal for participating in
the significant potential of an economy that has an abundance of natural resources and a rapidly developing domestic market. We regard risk
management as an integral part of our investment process. The primary objective is to ensure the level of risk in our portfolios is appropriate to
the fund’s objectives and that both internal controls and fund specific restrictions are adhered to. To ensure our investment restrictions and risk
controls are complied with, we have a team of independent risk management professionals who monitor business activity.
We manage risks through the application of rigorous procedures and sophisticated tools, with comprehensive due diligence carried out
by experienced professionals. Both fund managers and dedicated risk management professionals are involved in the entire process. Fund
managers have specific responsibility for monitoring the risk of their portfolios. On a daily basis, the team receives a report that shows the
nature and source of risk for the portfolios it manages. As investment decisions are taken, the portfolio manager checks the market risks
associated with the investment strategy undertaken.
Such monitoring is performed by the fund manager through front office computer applications to ensure that:
The amount of risk in each portfolio will be commensurate with the level of confidence associated with our views
The portfolio will be invested in line with house policy
Those investments will comply with the portfolio risk limits and guidelines
Investment Universe 1200/650
stocks
1
Liquidity Screen
Minimum US $500k daily
trading
Global Research
Idea generation
Post Quant Screening Universe
c. 350/270 stocks
2
Analysis 170/130 stocks
3
Valuation focus
Both relative and absolute
Final portfolio 40-60 stocks
4
Brazil universe
Disciplined stock selection
From the global teams
From the teams
From the fund management
team
Across the broader research
network
Business fundamentals
Financial modelling Catalysts
Risks
Price target
The team
For Professional Advisers only and not for distribution to retail clients. †Telephone calls/emails may be monitored and/or recorded. The views expressed in this document are those of HSBC Global Asset Management (UK) Limited at time of preparation and do not constitute investment advice, and are subject to change without notice. No liability is accepted to recipients acting independently on its content. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target. The HSBC GIF Brazil Equity Fund is a sub-fund of the HSBC Global Investment Funds, a Luxembourg domiciled SICAV. The funds mentioned in this document may not be registered for sale or available in all jurisdictions. For available funds please contact your local HSBC office. There are risks involved with this type of investment. Please refer to the Prospectus for general risk factors, and to the Simplified Prospectus for specific risk factors. The value of investments and any income from them can go down as well as up, and the investor may not get back the amount they invested. Where overseas investments are held, the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established markets. This sub-fund invests predominantly in one geographic area; therefore any decline in the economy of this area may affect the prices and value of the underlying assets. This investment should be viewed as medium to long-term, and investors should plan to keep it for at least five years. UK based investors in HSBC Global Investment Funds are advised that they may not be afforded some of the protections conveyed by the provisions of the Financial Services and Markets Act 2000. The shares in HSBC Global Investment Funds have not been and will not be offered for sale or sold in the United States of America, its territories or possessions and all areas subject to its jurisdiction, or to United States Persons. All applications are made on the basis of the current HSBC Global Investment Funds Prospectus, Simplified Prospectus and most recent annual and semi- annual reports, which can be obtained upon request free of charge from HSBC Global Asset Management (UK) Limited, 8 Canada Square, Canary Wharf, London, E14 5HQ. UK, or the local distributors. Approved for issue in the United Kingdom by HSBC Global Asset Management (UK) Limited – Authorised and regulated by the Financial Services Authority. © 2010 HSBC Global Asset Management (UK) Limited. All rights reserved.18122/0410/FP10-0618
Fund Characteristics
Universe: Brazilian Equities with no capitalisation constraints
Benchmark: MSCI Brazil 10/40
Number of stocks: 40 to 60 stocks on average
Management fees: 1.75% tax included
Performance fees: NONE
Subscription fees: 5.54% maximum, tax included
Redemption fees: NONE
Dealing: Daily before 10:00 (CET)
Valuation: Daily
Settlement: Trade day + 4 business days
The HSBC GIF Brazil Equity Fund
The Fund manager is supported by his local investment team and also by Halbis Capital Management teams based worldwide.
The manager can also call upon the considerable amounts of research and insight generated by HSBC investment professionals.
Contact our Adviser Services Team on:Telephone: 0800 181 890†
Email:[email protected]†
www.globalfunds.hsbc.com
Investment Support(1 Product Specialist,
3 Support, 9 Risk)
Regional EMPortfolio Managers (9)
Investment Support Core Team Research Insights
Halbis GEM Team (4)New Frontier Markets Team
(3)
Dealing(6 UK, 3 Brazil, 5 HK)
Halbis GEM Debt Team (4)New York
Halbis Economist (1)Paris
Halbis Regional analysts(10)
José CuervoLead Fund Manager
London
Portfolio Managers
Natalia KerkisFund Manager
Sao Paulo
LATAM (10)Sao Paulo
Analysts
HSBC Mexico (1)HSBC Argentina (2)
Halbis GEM Equity Team (4)London