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Market and multi-asset portfolios update¹

Market update

Equity market volatility continued in April, as global equities retraced some of the gains seen in March. Growing risks of sustained monetary tightening by central banks, heightened concerns around slowing global growth and China’s economic outlook, and the ongoing conflict in Ukraine have all led to sharp riskoff sentiment amongst investors. The selloff was mainly driven by Brazil, the US and Mexico, although the majority of major markets posted negative returns. Growthoriented sectors continued to take the brunt of market falls as bond yields rise, while relatively defensive and valueinclined sectors outperformed.
Fixed income markets continue to function well as volatility reducers in portfolios, protecting investors from the worst of the market falls, although absolute returns were negative over the period. The majority of the rise in yields was seen at the start of the month, with bonds recovering slightly in the final weeks of April. The negative price action was driven by rising inflation (CPI of 8.5% in the US) and hawkish rhetoric from the US Federal Reserve Chair Powell who proposed a 50bp hike at the May Federal Open Market Committee meeting. The convergence between China and US 10Y yields continued as the People’s Bank of China continued to loosen monetary policy (lowering the foreign currency reserve requirements ratio by 25bp in April).
Oil fell at the start of the month on news that the International Energy Agency would release 60m barrels from strategic reserves, and China’s ongoing lockdowns dragged Brent prices below USD 100/barrel. However, Oil rallied in the second half of April after China’s PBoC pledged more policy support and the prospects of an EU ban on Russian crude rose.
The DXY index soared 4.7% in April. The dollar was boosted by a broadbased surge in US Treasury yields as Fed Chair Powell explicitly endorsed a 50bp rate hike in May and signalled further large moves to come. Heightened global growth concerns boosted the USD as investors sought out the ‘safe haven’ currency. In contrast, the EUR slumped 4.7% against the USD in April, dipping below 1.05 briefly, to the lowest level since January 2017. Sterling depreciated during April as UK consumer confidence fell and risk sentiment continued to wane.

What’s next

The Ukraine conflict and China’s zero-covid policy risk prolonging global supply-side challenges. We expect the “stagflation tone” to macro data to ease later this year. Global growth remains above-trend, aided by still loose policy settings, tight labour markets, and a transition to the endemic stage of Covid.

Geopolitical tensions and energy prices are key risk factors for inflation. Nevertheless, price pressures should moderate later in the year amid base effects, better news on autos prices, and cooling demand.

Central bank tightening in 2022 will remain a key headwind to market performance, we expect the Fed to deliver 225bps of rate hikes this year. Notably we expect continued monetary easing in China and counter cyclical fiscal policy to boost credit growth.

As a result of the above, we have become increasingly selective with where we take risk in portfolios: focusing on regional and style allocations in equities (e.g. value and quality factors), income strategies in fixed income (e.g. Asia fixed income, some parts of global credit), inflation protection and “real” strategies (e.g. commodities, infrastructure), and parts of EM ex Europe (e.g. opportunities in China and Latam)

Any performance information shown refers to the past and should not be seen as an indication of future returns.
¹Source for all performance: Bloomberg, as at 30.04.2022.

HSBC World Selection Portfolios (C Acc)

Impact on the portfolios

The World Selection portfolios posted negative performance over the month.
Active positioning added value over April, with the headline underweight to equities and overweight to short dated government bonds contributing. Our overweight positions in both Commodities and Gold also added value over the period, as did the defensive FX overlay.
Granular trades were more mixed. Within the equity portfolio our overweight to Swiss versus European equity added value, while the overweight to Global financials and China A shares detracted moderately. Within the fixed income portfolio our preference for Asia over Global High Yield added value, while the overweight to Chinese versus Global Government bonds detracted.

Performance

Table one

Any performance information shown refers to the past and should not be seen as an indication of future returns.

Source for portfolio performance: HSBC Asset Management as of 30 April 2022. ¹ Performance for C Accumulation share class is net of TER. Results are annualised when calculation period is over one year. Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target.

Asset class weightings per cent (World Selection Balanced)

Chart

Current Positioning and Trades

Equities

Following the market rebound in March, we took some equity risk out of the portfolios at the start of April as we anticipated near term market volatility
We maintain our overweights to USA Quality versus USA equity, World Financials versus World Equity, Swiss versus Europe ex UK equity, and Chinese onshore equity versus emerging market equity

Bonds

At a headline level we are underweight the bond cluster within portfolios, although during the month we slightly increased our exposure to US 2 Year Treasuries
We maintain our underweight to inflation linked bonds, while being neutral on Securitised credit and Corporate Bonds
We continue to have a preference for US over Global bonds given the yield differential

Risky Fixed Income

Alternatives

At a headline level we are overweight Alternatives
We are neutral Style Factors and marginally underweight Trend, although we maintain a preference for defensive trend strategies

Source: HSBC Asset Management as of 30 April 2022. Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target.

Key risks

The value of an investment in the portfolios and any income from them can go down as well as up and as with any investment you may not receive back the amount originally invested.

The key types of risk associated with the HSBC World Selection Portfolios asset allocations are as follows (please refer to the KIID for the full list):

Equity risks
Market fluctuations can affect the performance of an investment fund both upwards and downwards. You may not get back the full amount invested
Emerging markets risk
Emerging economies typically exhibit higher levels of investment risk. Markets are not always well regulated or efficient and investments can be affected by reduced liquidity
Exchange rate risk
Investing in assets denominated in a currency other than that of your own currency perspective exposes the value of the investment to exchange rate fluctuations
Fixed income risk
As interest rates rise, debt securities will fall in value. Issuers of debt securities may fail to meet their regular interest and/or capital repayment obligations. All credit instruments therefore have potential for default. Higher yielding securities are more likely to default
Real estate risk
Cost of acquisition and disposal, taxation, planning, legal, compliance and other factors can materially impact real estate valuation

Important information

For Professional Clients only and should not be distributed to or relied upon by Retail Clients.

The material contained herein is for information only and does not constitute legal, tax or investment advice or a recommendation to any reader of this material to buy or sell investments. You must not, therefore, rely on the content of this document when making any investment decisions.

This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe to any investment.

Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and 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 World Selection Portfolios are sub-funds of HSBC OpenFunds, an Open Ended Investment Company that is authorised in the UK by the Financial Conduct Authority. The Authorised Corporate Director and Investment Manager is HSBC Global Asset Management (UK) Limited. All applications are made on the basis of the prospectus, Key Investor Information Document (KIID), Supplementary Information Document (SID) and most recent annual and semiannual report, 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. Investors and potential investors should read and note the risk warnings in the prospectus and relevant KIID and additionally, in the case of retail clients, the information contained in the supporting SID.

The HSBC Global Sustainable Multi-Asset Portfolios, are Sustainably Invested in line with one or more of the Global Sustainable Investment Alliance (GSIA) sustainable investment styles (positive/best-in-class screening, norms-based screening, sustainability themed investing, impact/community investing). It does not invest in companies involved in the manufacture of cluster munitions or anti-personnel mines. The fund is not guaranteed to outperform those which do not meet sustainability criteria.

Carbon Intensity Formula: Σ((current value of investment/current portfolio value)*(issuer's Scope 1 and Scope 2 GHG emissions/issuer's $M revenue)) Carbon Intensity Methodology: Scope 1 and Scope 2 GHG emissions are allocated based on portfolio weights (the current value of the investment relative to the current portfolio value), rather than the equity ownership approach. Gross values should be used. Company carbon data, can often be “partially disclosed”, i.e. partial geographic coverage, or incomplete operational data. Trucost undertakes analysis and research to assess company reported results. The proprietary Trucost model enables an estimate of total emissions which relies on more than just reported financial data. Where securities are not covered by Trucost , HSBC assigns a proxy value based on the average intensity score of comparable companies. Trucost are a division of S&P Global; they assess risks relating to climate change, natural resource constraints, and broader environmental, social, and governance factors.

These portfolios are sub-funds of HSBC OpenFunds an Open Ended Investment Company that is authorised in the UK by the Financial Conduct Authority. The Authorised Corporate Director and Investment Manager is HSBC Global Asset Management (UK) Limited. All applications are made on the basis of the prospectus, Key Investor Information Document (KIID), Supplementary Information Document (SID) and most recent annual and semiannual report, 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. Investors and potential investors should read and note the risk warnings in the prospectus and relevant KIID and additionally, in the case of retail clients, the information contained in the supporting SID.

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. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Stock market investments should be viewed as a medium to long term investment and should be held for at least five years. Any performance information shown refers to the past and should not be seen as an indication of future returns.

To help improve our service and in the interests of security we may record and/or monitor your communication with us. HSBC Global Asset Management (UK) Limited provides information to Institutions, Professional Advisers and their clients on the investment products and services of the HSBC Group.

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HSBC Asset Management is the brand name for the asset management business of HSBC Group, which includes the investment activities provided through our local regulated entity, HSBC Global Asset Management (UK) Limited.

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HSBC Global Sustainable Multi-Asset Portfolios (C Acc)