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The open road

On the first anniversary of HSBC Investments’ OpenFunds multi-manager range, Rob Griffin talks to head of UK multi-manager and offshore James Hughes and senior fund manager Nicholas Pothier about the philosophy behind the funds and plans for a forthcoming global property Fof

Why are you launching the HSBC Open global property fund?

James Hughes:

We want to provide exposure to an important asset class that can help diversify the total risk of their portfolios. The aim of this fund, which will be run by Dr Guy Morrell, is to produce long-term capital growth by investing in direct property funds and listed property securities around the world. We like to think of it as a one-stop shop for property. We are still finalising the details ahead of its scheduled launch on November 26 but the fund will probably have a strong focus on continental Europe and Asia because the UK is seen as overvalued.

Isn’t it too late to invest in property now?

James Hughes:

People are nervous about property because it has been in a bull market for the last few years. It is fair to say the UK market is looking a bit toppy but that is not the case globally. There are plenty of interesting areas around the world and an actively-managed property fund of funds is a great way of getting access to those locations.

The OpenFunds range celebrates its first anniversary at the end of November. What was the idea behind its launch?

Nicholas Pothier:

To provide exposure to different asset classes and to be global in outlook because most products tend to be UK focused and skewed towards equity and fixed-interest investments. We felt it was important to take a proper, balanced approach and that is possible with funds of funds. The main benefits of the range are that it is unbiased by asset class, unrestricted by geographical boundaries and provides investors with access to truly world-class specialist talent from around the world.

Aside from global property, what funds make up the range?

James Hughes:

There are two other portfolios – HSBC Open global distribution and HSBC Open global return. Both invest in a broad range of asset classes and across global markets but the former aims to distribute a higher level of income while the latter concentrates on providing a combination of capital growth and income. The funds are designed to be used by advisers as single strategy solutions or as simple core building blocks within a broader portfolio.

What is your investment philosophy?

Nicholas Pothier:

No single asset house has a monopoly on talent and that is the underlying driver of both our philosophy and process. Even the best managers will underperform at times and sometimes by a significant amount. Our objective is to mix managers of different styles who we believe can outperform over the long run, even though we cannot predict exactly when that will happen. This should help smooth out returns because at any one time at least some of your managers will be doing well.

How do you choose funds?

James Hughes:

When an idea comes along, we will ask questions such as is the manager completely unconstrained? Do they have an aggressive management style? Where they are likely to fit into the portfolios?

We then have a thorough look at the business and take a lot of care in examining the people working at the company and understanding how the overall process and the investment house operate.

Nicholas Pothier: A lot of time will be spent trawling through managers’ ideas, seeing what they have done in the past, analysing how their team work together and getting a feel for the level of interaction between managers and analysts. Generally, I am looking for a set of behaviours and character traits which will deliver outperformance and to do that effectively you need the help of experienced analysts.

What type of manager do you prefer?

Nicholas Pothier:

Our process enables us to invest in managers that are not necessarily widely known in the marketplace and we believe this is a major benefit. Introducing names that are either off the beaten track or working in an overlooked part of a major investment house provides even greater diversification for clients. In addition, there will also be a long list of managers who can step into the breach if a fundamental change takes place within one of the existing holdings.

What is your sell discipline?

James Hughes:

Holdings with the OpenFunds range will stay relatively stable unless there has been a major issue with a particular holding. We will even live with a little bit of underperformance from time to time as long as nothing fundamental has changed.

Nicholas Pothier: The main reason for selling is if there is a change in the manager’s stated approach and we are not happy with the reasoning behind it.

Do you intend to launch further products within this range?

James Hughes:

Yes, it is likely that we will expand the range and I would not be surprised if another one is launched over the coming year although nothing has been decided. We have been very pleased with how the existing funds have been embraced by investors and are now keen to build up the alternative sides, which can be classed as anything other than benchmark-driven equity and bond investments.

Nicholas Pothier: We believe there are a significant number of clients who want an investment that is going to preserve capital better than equity-orientated investments and give steadier returns over time. Our long-term goal is to build a cutting edge multi-manager business and we are already well on the way to achieving that goal.

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