- In recent years the fund industry has introduced a new gauge: ESG – Environment, Social and Governance – for fund holdings as a supplement to traditional financial gauges (historical returns, dividend payouts and volatility) when picking funds
- Sustainable investing is a recent strategy that the fund industry advocates. Thanks to technology like Big Data, fund houses can index and score the ESG performance of corporates by setting quantifiable and objective measurements
- On HSBC’s platform, most of the equity funds and multi-asset funds have a sustainability rating. Europe multi-asset funds and Taiwan equity funds are mostly rated as Category Five while some Japan and Asia equity funds have a lower rating
Investors often look for long-term and sustainable returns when investing in mutual funds. In recent years the fund industry has introduced a new gauge: ESG – Environment, Social and Governance – for fund holdings as a supplement to traditional financial gauges (historical returns, dividend payouts and volatility) when picking funds. Investors can reference the Sustainability Rating established by fund rating agencies as a quantifiable measurement to assess the ESG performance of funds and make a forward-looking investment.
- Occasionally, there are headlines about corporate incidents that lead to environmental damage or loss of life and properties, or unethical business practices which bring negative impacts to goodwill or penalties from the regulators. Funds may hold these stocks due to valuations or growth trends. Recently, more funds are considering ESG in their investment process as a risk management strategy to manage these risks.
- As of last year, assets under management in ESG funds globally have risen 60% over six years to over US$1 trillion, according to Morningstar, the fund researcher. While over 60% of the capital came from Europe, ESG funds in the US attracted nearly US$5.5 billion in net inflows last year, at a time when both equity and bond funds registered net outflows. This indicates that ESG strategy has become a new investment trend.
- ESG has a wide range of issues – data protection and privacy, employees’ equal opportunities, product safety and quality, checks and balances on the independence of management boards, internal audit systems, energy efficiency, waste management etc. All these factors will determine a company’s goodwill, cost of capital and also its ability to resist external factors. Companies that perform well in ESG can boost their business value and hence lower risks triggered by corporate governance issues or environmental regulations. ESG strategy is therefore more than just “charity” to fund investors.
- Sustainable investing is a recent strategy that the fund industry advocates. Thanks to technology like Big Data, fund houses can index and score the ESG performance of corporates by setting quantifiable and objective measurements. Generally speaking, fund managers would exclude companies from industries such as tobacco, firearms and so on, and select high quality bonds and equities according to their ESG scores. Companies with higher ESG scores would be over-weighted and those with lower scores would be under-weighted. With ESG complementing traditional financial data, funds could strive for a better alpha.
- The industry has yet to develop a standardised measurement to gauge the ESG performance of different companies, but most fund houses publicise their ESG investment logic. Thematic funds that are related to sustainable investing normally provide more details on how the funds carry out their ESG strategy and also gauge measures such as carbon intensity indices for reference. At the moment there are over 20 sustainable investment funds authorised for individual investors in Hong Kong, including green bond funds, new energy funds, climate change funds and low-carbon equity and bond funds, according to data compiled by the SFC.
- With the increasing awareness of ESG beyond sustainable investment funds, fund rating agencies also rate the ESG performance of equities and bonds that other general funds are holding and establish the Sustainability Rating for funds. Ranging from Category One to Five, funds rated as Category Five score most highly in ESG among peers.
- On HSBC’s platform, most of the equity funds and multi-asset funds have a sustainability rating. Europe multi-asset funds and Taiwan equity funds are mostly rated as Category Five while some Japan and Asia equity funds have a lower rating. Taking Chinese equity funds as an example, the 10-year average returns of funds that are rated as Category Four range from 11% to 13%, about a percentage point higher than their peers. The volatility over the past ten years is also lower. Investors should look for the rating of a particular fund on the websites of fund rating agencies. Distributors are not showing the ratings yet as the concept is still at the development stage.
- Since ESG is a long-term investment strategy, a fund that is top rated in sustainability does not necessarily lift the net asset value in the short term. By referencing the sustainability rating, the returns for long-term fund investors could have more protection by lowering risk factors. It is believed that capital in Asia will eventually flow into sustainable investing as it has in Europe and the US.
Source: HSBC, Morningstar, data as of 18 February 2019.
- Investment involves risk. Past performance is no guide to future performance. For details of the investment products, their related fees and charges and risk factors, please refer to the individual product materials.
- In the worst case scenario, the value of the investments may be worth substantially less than the amount originally invested (and in an extreme case could be worth nothing).
- The investment decision is yours but you should not invest unless the intermediary who sells it to you has explained that the product is suitable for you having regard to your financial situation, investment experience and investment objectives.
- Issuer's Risk – you rely on the issuer's creditworthiness. Bonds are subject to both the actual and perceived measures of creditworthiness of the issuer. There is no assurance of protection against a default by the issuer in respect of the repayment obligations. In the worst case scenario (eg insolvency of the issuer), you might not be able to recover the principal and interest/coupon, if applicable, and the potential maximum loss could be 100% of the invested amount and no coupon received.
- Investors should not base on this marketing material alone to make investment decisions.
- Please also refer to the additional risk disclosures set out below.
- Diversification: You spread your investment across a diverse portfolio. This is usually safer than investing in a single company. Of course levels of risk and return also vary among different funds.
- Professional management: It would be very difficult for an individual to have an in-depth knowledge of markets around the world. With unit trusts, fund managers’ expertise is working for you.
- Access to worldwide markets: Your money can be invested in overseas markets which may not be easily accessible by individuals. There are also different currency-denominated choices.
- Regular income: Bonds / Certificates of Deposit (CDs) deliver stable and predictable coupons as streams of income. Bonds also offer predictable repayment of principal at maturity. There are also different currency-denominated choices.
- Yield enhancement: Bond yields are usually higher than time deposit rates with similar maturity.
- Capital gain potential: You can also benefit from capital appreciation if bond prices move up.
- Risk diversification tool: Bonds / CDs exhibit low correlation to other asset classes, so the inclusion of bonds can bring relative stability to a portfolio.
- Plenty of choices: Choose from more than 50 different types of bond / CD1, with flexible investment periods from 3 months to 25 years, and purchase amounts as low as US$1,000 to suit your investment needs.
1Number of bonds / CDs available on HSBC’s online platform as of 22 February 2019
- ‘HSBC HK Easy Invest’ App: You can trade securities instantly and get free market information including real-time quotes, news and market data in three major stock markets (Hong Kong, China A and US).
- Stocks monthly investment plan: Build your investment portfolio by buying Hong Kong stocks with regular monthly contributions.
- Research reports and Heatmap: Log in to your investment account to look for more than 6,000 research reports on Hong Kong stocks, US stocks and China A-shares provided by Thomson Reuters, and the Heatmap showing the performance and turnover of different sectors.
The information in this document does not constitute a solicitation for the making of any deposit or investment in any products referred to herein.
This document has been distributed by The Hongkong and Shanghai Banking Corporation Limited (the 'Bank') in the conduct of Hong Kong regulated business. It is not intended for anyone other than the recipient and should not be distributed by the recipient to any other persons. It may not be reproduced or further distributed.
The information set out in this document is meant for general reference only. Whilst every care has been taken in preparing this document, the Bank makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Except as specifically indicated, the expressions of opinion are those of the Bank only and are subject to change without notice.
The information contained in this document has not been reviewed in the light of your personal financial circumstances. The Bank is not providing any financial or investment advice. The information is not and should not be construed as an offer to sell or a solicitation for an offer to buy any financial products, and should not be considered as investment advice.
Investment involves risk, the value of any investment may move up or down, and the investment may become valueless. Investors should carefully consider whether any investment products or services are appropriate for them in view of their investment experience, objectives, financial resources and relevant circumstances. The relevant product offering documents should be read for further details, including risk factors.
Currency conversion risk – the value of your foreign currency and RMB deposits will be subject to the risk of exchange rate fluctuation. If you choose to convert your foreign currency and RMB deposits to other currencies at an exchange rate that is less favourable than the exchange rate in which you made your original conversion to that foreign currency and RMB, you may suffer loss in principal.
Companies within the HSBC Group and/or their officers, directors and employees may have positions in any financial instruments mentioned in this document and may from time to time add to or dispose of any such financial instruments.
The above information is for indication only and is subject to related terms and conditions; please contact our branch staff in Hong Kong for details.
The contents of this document have not been reviewed by the Securities and Futures Commission of Hong Kong or any regulatory authorities in Hong Kong.
- In the worst case scenario, the value of the funds may be worth substantially less than the original amount you invested (and in an extreme case could be worth nothing).
- Funds which are invested in certain markets and companies (eg emerging markets, commodity markets and smaller companies) may also involve a higher degree of risk and are usually more sensitive to price movements.
- Credit Risk/Interest Rate Risk – a fund that invests in fixed income securities may fall in value if interest rates change, and is subject to the credit risk that issuers may not make payments on such securities. Price of the fund may have a high volatility due to investment in financial derivative instruments and may involve a greater degree of risk than is the case with conventional securities.
- Counterparty Risk – a fund will be exposed to credit risk on the counterparties with which it trades in relation to financial derivative instrument contracts that are not traded on a recognised exchange. Such instruments are not afforded the same protections as may apply to participants trading financial derivative instruments on organised exchanges, such as the performance guarantee of an exchange clearing house. A fund will be subject to the possibility of insolvency, bankruptcy or default of a counter party with which a fund trades such instruments, which could result in substantial loss to a fund.
- There are risks involved in buying bond/CD. Before applying for any of bond/CD, you should consider whether bond/CD is suitable for you in light of your own financial circumstances and objectives. If you are in any doubt, get independent professional advice.
- Bonds and CDs are mainly medium to long-term fixed income products, not for short-term speculation. You should be prepared to hold your funds in bonds/CDs for the full tenure; you could lose part of or all your principal if you choose to sell bonds/CDs prior to maturity.
- It is the issuer to pay interest and repay principal of bonds/CDs. If the issuer defaults, the holders of bonds/CDs may not be able to receive back the interest and principal. The holders of bonds/CDs bear the credit risk of the issuer and have no recourse to HSBC unless HSBC is the issuer itself.
- Indicative prices of bonds/CDs are available and bond/CD prices do fluctuate with market changes. Factors affecting the market price of bonds/CDs include, and are not limited to, fluctuations in Interest Rates, Credit Spreads and Liquidity Premiums. The fluctuation in yield generally has a greater effect on prices of longer tenure bonds/CDs. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling bonds/CDs.
- If you wish to sell bonds/CDs, HSBC may repurchase them based on the prevailing market price under normal market circumstances, but the buying price may differ from the original selling price due to changes in market conditions.
- There may be exchange rate risks if you choose to convert payments made on bonds/CDs to your home currency.
- The secondary market for bonds/CDs may not provide significant liquidity or may trade at prices based on the prevailing market conditions and may not be in line with the expectations of holders of bonds/CDs.
- If bonds/CDs are redeemed early, you may not be able to enjoy the same rates of return when you use the funds to purchase other products.
- Investment involves risk. You should carefully consider whether any investment products or services mentioned herein are appropriate for you in view of your investment experience, objectives, financial resources and relevant circumstances. The price of stocks securities may move up or down. Losses may be incurred as well as profits made as a result of buying and selling stocks securities.
- The Bank does not provide investment advice. Investment involves risk. The price of stocks may move up or down.
- Important: The HSBC HK Easy Invest App ("Easy Invest") and the contents of this material/correspondence are provided by The Hongkong and Shanghai Banking Corporation Limited ('HSBC HK') for the use of existing HSBC HK customers only. You should download Easy Invest only if you are an existing HSBC HK customer. Easy Invest is not intended for download, or use, by any person in any jurisdiction where such download or use would be contrary to any law or regulation of such jurisdiction or where HSBC HK is not licensed or authorised to provide Easy Invest and/or any of the Services.
Issued by the Hongkong and Shanghai Banking Corporation Limited