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Home > Business > Special


All about HSBC Unique Opportunities Fund

February 09, 2007

 Summary
  • Type
  • Close-ended (3-Yr) Equity: Diversified
  • Benchmark
  • BSE 200
  • Min. Investment
  • Rs 5,000
  • Face Value
  • Rs 10
  • Entry Load
  • Nil*
  • Exit Load
  • Nil**
  • Issue Opens
  • February 2, 2007
  • Issue Closes
  • February 22, 2007
    *Entry load during NFO period is nil. On conversion from a close-ended scheme into an open-ended scheme, there is an entry load (including on SIP/ STP) of 2.25% on investments below Rs 5 crores (Rs 50 m), otherwise nil

    **Though the exit load is nil, the investor will have to bear the balance proportionate unamortised initial issue expenses for exiting during the close-ended tenure of the scheme. Redemption applications shall be processed at the repurchase NAV.

     Investment Objective*

    The Fund aims to provide long-term capital growth from a diversified portfolio of equity and equity related instruments. The focus would be to invest in stocks of companies facing 'out-of-ordinary' conditions.
    *Source: Offer Document

     Is this fund for you?

    HSBC Unique Opportunities Fund (HUOF) is a 3-Yr close-ended diversified equity fund, with an automatic conversion to an open-ended fund at the end of the period. The fund aims to "tap market opportunities earlier than the norm; to be proactive or quick to respond to changes in policies, trends, regulations etc. as well as to think 'out of the box' about various circumstances faced by different companies/sectors".

    Some companies that can be candidates for HUOF's portfolio include those witnessing a turnaround, spin-offs, mergers, new product/business launches to cite a few instances. The fund will invest in companies that are trading at a discount to their fair value as a result of some of these factors. It will rely heavily on its research process to identify the unique opportunity earlier on and invest in it so as to benefit from the discount in the fair value of the company's share price.

    HSBC Mutual Fund is a process-driven fund house. In its reasonably short tenure, HSBC Equity Fund, a predominantly large cap equity fund (launched in December 2002), has performed well. Other equity funds from HSBC Mutual Fund do not have the track record (we prefer to evaluate equity funds over a minimum period of 3 years) for us to comment on their performances.

    Traditionally, the fund house pursues the top down investment style (which involves first identifying the sector for investment and then the companies within that sector). HUOF will mark a departure from this style to the bottom up approach (which involves identifying the company regardless of how the sector is performing). Another aspect on which HUOF will differ (from its siblings) is the stock allocations, which could be much higher than what we are accustomed to seeing in HSBC Mutual Fund's equity funds. So in a way, HUOF's distinct investment style will 'test' the HSBC Mutual Fund's fund management team.

    In our view, unless well-identified (in terms of the opportunity and the timing), investing in stocks that present a unique investment opportunity can be fraught with above-average risk or in the very least it may not pay off to the extent envisaged by the fund manager. To that end, we recommend that investors consider investing in a well-managed value fund (which evaluate many, if not all, the factors outlined by HUOF for stock selection) with a well-established track record like DSP ML Equity Fund (48.1% compounded annual growth over 5-Yr).

    With regards to HUOF, we recommend that investors evaluate the fund over the 3-Yr tenure and take a revised view based on the fund's performance.

     Portfolio Strategy


    HUOF is mandated to invest between 65%-100% of its assets in equity and related instruments. It has the flexibility to invest upto 35% of assets in debt instruments. The fund has indicated that, if the situation warrants, it will pursue an aggressive investment strategy in terms of stock allocations.

    InstrumentAllocation range
    Equity and equity-related securities65-100%
    Debt, securitised debt* and money market securities0-35%

     Fund Manager Profile


    Mr. Mihir Vora is Senior VP and Head of Fund Management - Equities. He is a CFA and holds a PGDM. Before joining HSBC Asset Management (India) Private Limited in July 2006, he was associated with ABN AMRO Asset Management (India) Limited, among other organisations.

    Mr. Jitendra Sriram, VP and Fund Manager, holds a PGDBM. Before joining HSBC Asset Management (India) Private Limited in May 2006, Mr. Sriram was associated with Deutsche Equities India Private Limited and HSBC Securities and Capital Markets (India) Private Limited, among other organisations.

     Outlook

    HUOF is likely to prove to be a high risk-high return investment proposition due to two reasons, first is the inherent risk of investing in companies that qualify as unique investment opportunities, second is the aggressive investment style (in terms of concentrated stock allocations) that it will pursue under certain circumstances. However, the fund could find an ally in the 35% debt allocation to stem volatility during turbulence in stock markets

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