News and Insights

News and Insights

In the current environment, with government bond yields at historic lows and negative interest rates in Europe and Japan, investors looking for yield have to move down the credit spectrum. However, recent market events such as the UK Brexitvote and cuts in economic growth forecasts have caused many investors to turn to safe haven assets. We believe that investors seeking yield without venturing into a pure high yield allocation should consider the BBB-BB crossover space which can offer attractive risk-adjusted return potential.
Over the past two years, we have maintained a relatively cautious long-term outlook on Emerging Markets (EM). That view was based on our observation of weakening fundamentals in many EM countries that had relied on the commodity boom and quantitative easing in the US to fund macroeconomic imbalances. We highlighted China's ongoing economic rebalancing and a potential shift in monetary policy in developed markets (DM) as the key headwinds for the emerging world. Recently, however, we have begun to observe a stabilization in economic fundamentals in a number of countries, global monetary policy support that has mitigated external threats, and finally, attractive relative valuations in EM versus the developed markets. As a result, we have been selectively adding risk in our portfolios, with a focus on relative value opportunities and on optimizing total carry.
High yield (HY) has been in the headlines for months now as a troubled asset class. This negative press echoes with a sentiment that harks back to its humble origins as the “junk bonds” of the late 70s and early 80s. Looking beyond the recent volatility however, it is clear that the evolution of the HY asset class has garnered it unquestionable legitimacy and a justified role alongside other established asset classes in investor portfolios.
The Asia ex-Japan small-capitalization universe is composed of a dynamic and diversified set of smaller companies in Asia. Relative to the US and European small-cap markets, the Asia ex-Japan small-cap universe is a considerably deeper, yet demonstrably less efficient market with lower levels of sell side coverage and more limited information flow. This provides active managers fertile ground for delivering alpha. Investing in Asia ex-Japan small-caps offers unique access to niche business models and get greater exposure to companies benefiting from growing domestic consumption in Asia. While volatility is higher relative to the large-cap space, risk-adjusted returns for small-caps in Asia have proven to be more attractive over time. In our view, investors should consider an allocation to Asia ex-Japan small-caps within a broader equity portfolio.
Enhanced money market fund regulation, in the form of an amendment to Rule 2a-7of the Investment Company Act of 1940, is due to come into effect in 2016. With less than six months to go until the more structural changes are implemented, it is time to address in some detail how these changes will impact institutional investors in prime money market funds. HSBC Global Asset Management (HSBC) believes that the value proposition of prime money market funds persists despite these changes, and that prime funds will continue to be an important cash management option for large corporate and institutional investors. We believe that investors should use the remaining time to fully understand the new regulations and how they will impact their cash investment strategies from October 2016 onwards.


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HSBC Global Asset Management is the marketing name for the asset management businesses of HSBC Holdings Plc. HSBC Global Asset Management (USA) Inc. is an investment adviser registered with the US Securities and Exchange Commission. HSBC Global Asset Management (USA) Inc. serves as the investment adviser to the HSBC Funds. Foreside Distribution Services, L.P., member FINRA, is the distributor of the HSBC Funds and is not affiliated with the adviser. HSBC Securities (USA) Inc., member NYSE, FINRA and SIPC, is a sub-distributor of the HSBC Funds. Affiliates of HSBC Global Asset Management (USA) Inc. may receive fees for providing various services to the funds.

Risk Considerations:
Past performance is no guarantee of future results. There is no assurance that a portfolio will achieve its investment objective or will work under all market conditions. The value of investments may go down as well as up and you may not get back the amount originally invested. Portfolios may be subject to certain additional risks, which should be considered carefully along with their investment objectives and fees. Equity investments fluctuate in value based on changes to an individual company’s financial condition and overall market conditions. Investments in foreign markets involve risks such as currency rate fluctuations, potential differences in accounting and taxation policies, as well as possible political, economic, and market risks. These risks are heightened for investments in emerging markets which are also subject to greater illiquidity and volatility than developed foreign markets. Frontier markets generally have smaller economies or less developed capital markets than traditional emerging markets, and therefore investing in frontier markets can magnify the risks of investing in emerging markets. Fixed income is subject to credit and interest rate risk. Credit risk refers to the ability of an issuer to make timely payments of interest and principal. Interest rate risk refers to fluctuations in the value of a fixed income security that result from changes in the general level of interest rates. In a declining interest rate environment, a portfolio may generate less income. In a rising interest-rate environment, bond prices fall. Investments in high yield securities (commonly referred to as “junk bonds”) are often considered speculative investments and have significantly higher credit risk than investment grade securities. The prices of high yield securities, which may be less liquid than higher rated securities, may be more volatile and more vulnerable to adverse market, economic or political conditions. Risk is inherent in all investing. You could lose money by investing in the Money Market Fund (‘MM Fund’). Although the MM Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the MM Fund is not a deposit of HSBC Bank USA, N.A. and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The MM Fund's sponsor has no legal obligation to provide financial support to the MM Fund, and you should not expect that the sponsor will provide financial support to the MM Fund at any time. For complete risk considerations, please refer to the fund's prospectus.

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