HSBC MF has launched its Red Hex SIF business and its maiden offering in this new vertical: Red Hex Hybrid Long Short Fund.
Unlike most other hybrid long shorts which seek to manage their active equity allocations as the primary focus, this new fund deliberately keeps equity sensitivity at a minimum in order to provide stable, inflation beating tax efficient returns to a huge base of investors who have been seeking such a solution.
Its asset allocation and alpha sources are very different: out of the 35% equity oriented allocation, expect 10% in REITs and the balance 25% in arbitrage; out of the remaining 65%, 10% will likely go to InvITs, 15% to G-Secs/AAA bonds and the remaining 45% in AA and other rated papers (credit risk segment).
Alpha will come from REITs, InvITs and lower credit papers while liquidity is ensured by G-Secs/AAA bonds and arbitrage positions.
Duration will be kept at 1 – 1.5 yrs to minimize interest rate risk.
Back-testing data shows that this portfolio has delivered around 9% return with very low volatility – thus comfortably meeting its goal of delivering stable, inflation beating tax efficient returns.
The fund will also offer SWP option from day 1, with a proviso that the SWP commences after the first 12 months. This enables the fund to be positioned as a highly effective retirement income solution or as a solution for anyone seeking regular cash flows.
Speaking on the Government’s move to scrap tax for FIIs on G-Secs and RBI’s move to open a window to attract FCNR-B deposits, Shriram says both are very welcome moves that adequately address the balance of payments situation that was getting the market very worried.
Expect Indian G-Secs inclusion in some more global indices in the coming months – which can bring in perhaps $25 billion in phases. This coupled with potential FCNR-B deposit flows could bring in at least $50 billion in inflows and more importantly will send a strong signal to the market that got used to betting against the rupee and winning.
This does not mean that all is well – geopolitical situation is volatile and US long bond yields are rising – both of which can spell bad news for our market, if they go out of hand. Shriram and his team have been gradually increasing duration in recent weeks in anticipation of the relief measures that have now materialized – but he doesn’t expect to move duration a lot more now.