Securitised Credit
Getting to know Securitised Credit
Securitised Credit delivers diversification benefits - given the low correlations to traditional fixed income, which makes the asset class appealing to institutional investors
In focus
Why Securitised Credit?
- Yield premium: Securitised Credit offers a pickup in yield to similarly rated corporate bonds. This is largely the result of complexity and illiquidity premiums. Adding Securitised Credit to an income portfolio can enhance portfolio yield without increasing credit risk or duration. This makes the asset class appealing from a cash flow perspective, making it potentially useful for clients requiring a Cash Flow Driven Investment solution
- Diversification: The low interest rate sensitivity of Securitised Credit and its low correlation with traditional asset classes makes it an appealing asset class for institutional investors to consider from a diversification standpoint
- Spread compression: With credit spreads remaining wide, Securitised Credit offers the potential for spread tightening and capital appreciation as the global economy begins to slow
- Tranche structure: Securitised Credit enables diversified exposure to an illiquid, hard to access, asset class via a tranche structure. Investors in the senior tranche are exposed to less risk and therefore lower returns, as they receive interest and principal payments from the collateral first. Investors in the subordinate tranches are exposed to more risk, but greater return, as the tranches effectively provide 'leveraged' exposure to the collateral
Why HSBC Asset Management?
- Active management: Opportunities move regularly in Securitised Credit and investors should be willing to move to unlock the asset class's wider potential. We focus on delivering value to clients by allocating to the best relative value ideas on a globally dynamic basis
- Global approach: Many competitors focus on investing in the US or European markets only. We focus on delivering value by looking at the entire global opportunity set. This enables the team to be invested in every region, every sector and every rating. As well as providing access to specific US-only sectors such as Single-Family Rentals for European only investors
- ESG integration: ESG is central to what we do so we have developed a proprietary scoring system where we look at the environmental, social and governance aspects of the investments that we make. We revisit that over the life of the holding. The outcome of this part of our process is that certain transactions may be excluded from our funds
- Highly experienced team: Our team at HSBC holds an average of 18 years of experience. Each sector within Securitised Credit (e.g., CMBS, RMBS, CLOs) has a dedicated Portfolio Manager and Analyst, allowing a global value approach to be taken in unlocking the potential within Securitised Credit
Source: HSBC Asset Management as at 31 December 2023
Key risks
The value of investments and any income from them may go down as well as up, and investors may not get back the amount originally invested.
Fixed income investments, especially those involving securitized credit, carry a range of specific risks that should be considered carefully:
- Interest rate risk: Rising interest rates typically cause bond prices to fall
- Credit risk/default risk: Issuers of debt instruments may default on interest or principal payments. Higher yielding securities generally involve a higher risk of default
- ABS Risk: Asset-Backed Securities (ABS) are constructed from pools of loans or receivables and may have unpredictable cash flows due to early repayments, defaults, extensions, impacting both valuation and liquidity
- Counterparty risk: The risk that a counterparty may fail to fulfill its contractual obligations
- Liquidity risk: Securities may be less liquid in certain market conditions, which can lead to significant valuation adjustments or difficulty in selling positions
- Emerging markets risk: These markets are generally more volatile and involve higher risks, including political, legal and currency instability
- Exchange rate risk: Currency fluctuations can adversely affect returns when investments are denominated in a foreign currency
- Leverage Risk: The use of leverage, especially through derivatives, may amplify losses as well as gains
- Derivative Risk: Derivatives may behave unexpectedly and introduce additional counterparty and valuation risks, especially in over-the-counter (OTC) transactions
- Operational Risk: Failures in internal processes, systems, or controls may negatively affect the fund
Further details regarding risks can be found in the Key Investor Information Document (KIID), Prospectus, or Offering Memorandum. This strategy is typically suited for professional investors who fully understand the complex nature of securitized credit instruments.
Disclaimer
This material/presentation/document is exclusively intended for professional investors as defined in Article 4(3)(a-g) of the Swiss Financial Services Act (FinSA, FIDLEG).
It is not intended for:
- Professional clients who are not institutional clients under Article 4(4) FinSA and who wish to opt-in for treatment as retail clients under Article 5(5) FinSA Or
- High-net-worth (HNW) retail clients and private investment structures created for them, who may declare themselves as professional investors (opting out)
There are further possibilities for opting-in and opting-out under FinSA. For details, please refer to our website: https://www.assetmanagement.hsbc.ch/. If you wish to change your client categorization, please inform us.
Regulatory and Documentation Notice
For HSBC GIF sub-funds that are authorized for offering in Switzerland, please refer to the list of collective investment schemes authorized for offering in Switzerland under Article 120 of the Federal Act on Collective Investment Schemes (CISA, KAG), as published by FINMA under Approved Institutes, People, and Products.
Potential investors are kindly requested to consult the latest:
- Key Information Document (KID),
- Prospectus,
- Articles of Incorporation,
- (Semi-)Annual Report of the Fund
These documents can be obtained free of charge at the head office of the representative:
- HSBC Global Asset Management (Switzerland) AG, Gartenstrasse 26, P.O. Box, CH-8002 Zurich
- Paying Agent: HSBC Private Bank (Suisse) S.A., Quai des Bergues 9-17, P. O. Box 2888, CH-1211 Geneva
Risk Factors and Investment Warnings
- Investors and potential investors must read and acknowledge the risk warnings in the Prospectus and KID. Before subscribing, investors should refer to:
- the Prospectus for general risk factors,
- the KID for specific risk factors associated with the fund
- Past performance is not indicative of future results. Future returns may vary significantly
- Performance data does not include issue and redemption costs or commissions, which may affect actual returns
- The presented fund is a sub-fund of Z GIF, an investment company constituted as a Société d'Investissement à Capital Variable (SICAV) domiciled in Luxembourg
- The shares in HSBC GIF have not been and will not be registered under the US Securities Act of 1933. They may not be sold or offered in the United States, its territories, possessions, or areas under its jurisdiction, nor to US persons
The fund presented in this document is a sub-fund of HSBC Global Investment Funds, an investment company constituted as a société à capital variable domiciled in Luxemburg. The shares in HSBC Global Investment Funds have not been and will not be registered under the US Securities Act of 1933 and will not be sold or offered in the United States of America, its territories or possessions and all areas subject to its jurisdiction, or to United States Persons.
Past performance is no indication to future results of a fund. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units.