HEAD-TO-HEAD: HSBC vs Fidelity

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Both funds rely on bottom-up credit selection to outperform their benchmarks, and both investment strategies have been proven to be strong, according to Ng.

There is not much to highlight with regard to the differences in their investment strategies. But Ng said that the funds’ benchmarks are very different from each other, which explain why their sector allocations and country exposure are different.

HSBC’s benchmark is made up of 70% of the JP Morgan ACI Corporate Non Investment Grade Index, 20% JP Morgan ACI Sovereign (Indonesia, Mongolia, Pakistan, Philippines, Sri Lanka and Vietnam only) Index and 10% JP Morgan ACI Quasi Sovereign (Indonesia, Mongolia, Pakistan, Philippines, Sri Lanka and Vietnam only).

Fidelity’s benchmark is the BofA Merrill Lynch Asian Dollar High Yield Corporate Constrained Blended Index.

Because of the difference in benchmarks, government bonds (and quasi-sovereign) bonds represent around 30% of the HSBC fund, while Fidelity has only about 5% in the portfolio.

Top sector exposure

Because of the allocation difference in government bonds, the duration of both funds are also different, Ng said.

The HSBC fund’s duration is around four years, while its index is around 3.2 years. The Fidelity fund has a shorter duration of around three years versus its benchmark of around 2.7 years.

“Most of the excess duration of HSBC relative to Fidelity should be coming from that of the sovereign bond exposure,” Ng said.

Ng also highlighted HSBC’s higher exposure to the property sector. The fund’s benchmark has around 27% in property, while Fidelity’s benchmark only has 19% in property.

According to him, the HSBC fund’s allocation to the property sector is more representative of the high yield bond market as most funds have around the same exposure in property.

However, for Fidelity, the lower allocation in the sector helps reduce some concentration risk, he noted.

The choice of benchmarks also explains why their country exposure differs, even though both funds have China and Hong Kong representing the largest share in country weightings.

Top country exposure

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