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Smart beta and factor-based investing
Smart beta and factor-based strategies offer investment options that lie between active and passive investing.
We offer off-the-shelf and bespoke smart beta and factor-based strategies with global, regional and country-specific variations.
HSBC Global Asset Management has a long track record of partnering with clients to provide best in class off-the-shelf and bespoke smart beta strategies.
Multi-factor strategies provide controlled exposure to multiple factors (Value, Quality, Low Risk, Small Size, Momentum) aiming for consistent outperformance relative to a traditional index equivalent and with targeted tracking error. Through our proprietary risk models, we tailor our factor-based strategies to incorporate client-specific guidelines including bespoke tracking error levels, factor exposures and ESG constraints
Fundamental strategies include our suite of Economic Scale Equity (ESE). Launched in June 2012, ESE strategies weigh companies by their economic footprint, aiming for better risk-adjusted returns relative to a market cap-weighted index. Our methodology was created “in house” by our quantitative research team
Volatility focused strategies combine quantitative discipline and qualitative judgment. We capture quality companies based on attractive profitability and valuation profiles and construct a portfolio optimised for lower volatility. Proprietary fundamental research and integrated Environmental, Social and Governance (ESG) analysis are used to confirm stock volatility characteristics and whether company profitability levels can be sustained
Designed to combine Value, Quality, Momentum, Small Size, and Low Risk factors and provide consistent outperformance against a market cap-weighted index with low tracking error.
Factor investing is based on the observation that stocks with certain characteristics (or more precisely, premia) have outperformed the broader market over time on a risk-adjusted basis. Allocating to factors gives investors transparent and cost effective access to these sources of returns, enabling them to better understand and manage underlying portfolio risks.
A "pure" factor framework maximises exposure to the desired factors while minimising all other unintended exposures
A multi-factor approach should be customisable to provide strategic and tactical exposures to desired factors with targeted tracking error and risk controls
The key elements of our factor investment process include quantitative stock selection, robust portfolio construction and consistent implementation with integrated risk management:
Our bottom-up methodology combines factor scores at the stock level
Our portfolio construction process optimises exposure to alpha signals in a transparent and consistent way
We apply strict active limits at the sector, country and factor level to avoid taking unrewarded risks
Pure factor framework provides minimal unintended risks and low correlations among factors
We design and validate each factor from scratch. Metrics and fundamental data elements are carefully selected based on decades of experience in hands-on factor investing
Investment approach is highly adaptable to implement customised portfolios based on client requirements
We have robust implementation capabilities and a strong technology and risk modelling infrastructure
Our global multi-factor strategy has a long and stable track record of 10+ years
Provide exposure to low beta, quality and value factors with higher risk-adjusted returns than their market cap index equivalents.
Lower volatility strategies can offer better risk-adjusted returns than a market cap index equivalent and their lower drawdown potential helps preserve capital in down markets.
Our approach combines quantitative discipline and qualitative judgment
We identify and rank quality stocks with attractive profitability and valuation profiles
We then apply minimum variance optimisation to the top quartile of ranked stocks to create a low volatility portfolio
The low volatility portfolio includes some less correlated, higher volatility names to reduce absolute risk
Fundamental research focuses on confirming a stock’s volatility outlook and whether its profitability is sustainable
Our fundamental research adds value within a disciplined framework, helping to avoid false signals. This is distinct from pure passive approaches and pure quantitative methods
We include Environmental, Social and Governance (ESG) research in our process to confirm a stock’s volatility characteristics and whether its profitability levels are sustainable
Our investment process sets us apart from more traditional low volatility approaches. We focus first on finding quality stocks (strong profitability and valuation) and then optimise for low volatility. This supports diversification and helps avoid crowded trades, sector concentration and interest rate sensitivity
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Where overseas investments are held the rate of currency exchange may also cause the value of such investments to fluctuate.
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Terms and conditions
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