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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.

View full list of available funds.

We offer off-the-shelf and bespoke smart beta and factor-based strategies with global, regional and country-specific variations.

HSBC 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

Fundamental strategies – Economic Scale Equity (ESE)

Aim to capture equity beta and attain higher risk-adjusted returns relative to traditional indices.

Our philosophy

  • Cap-weighted indices can be inefficient and stock prices can be noisy relative to their fair value
  • A weighting approach that captures a company’s economic activity (its contribution to gross national product (GNP)—or its “value-add") yields stable weights with low linkage to share prices

Our process

  • We calculate each company’s “value-add” — the difference between its output (sales) and inputs (its purchases of goods and services from other businesses)
  • A company’s weight is determined by its “value add” / sum of all company “value adds”
  • Resultant factor exposures are generally tempered
  • Only liquid names are included
  • Systematic rebalancing leverages potential market mispricing while keeping turnover low

Company “value-add” amounts are disbursed to equity holders, debt holders, employees and the government.

HSBC strengths

  • A theoretically sound and intuitive approach that breaks the link between index weight and market price, enabling superior diversification and better capture of the noise that influences market prices
  • A proprietary methodology that is cost-efficient and transparent
  • Pure play on rebalancing and traditional index inefficiency
  • Limited style bias facilitates use as the core building block of an equity allocation
  • A proven track record since 2012

Lower volatility strategies

Provide exposure to low beta, quality and value factors with higher risk-adjusted returns than their market cap index equivalents.

Our philosophy

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 process

  • 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

HSBC strengths

  • 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

 

Risk Warning
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.