Thuan, AM Pham Huseynova Truong Hosseini Moghadam

University of Applied Sciences
Campus Zweibrücken
Financial Services Management - Master of Arts
Prof. Dr. Christian Armbruster
Course Paper
Subject
HSBC Global Investment Funds - Global Equity

Climate Change AC EUR
Student:
Linh Pham Thi My (883726)
Tuan Thanh Truong (885160)
Aynur Huseynova (882354)
Seyede Arezoo Hosseini Moghadam (884274)
Course of Study: Asset Management
Date of Submission:
January 27th, 2022
Table of Contents
List of Figure .......................................................................................................ii
List of Table ........................................................................................................iii
1. Introduction ..............................................................................................1
2. Theoretical Part ..........................................................................................2

2.1. An overview of fund’s types .......................................................... 2
2.2. Risk-adjusted performance measures ............................................. 3
2.3. Funds risks .................................................................................. 5
2.4. Morningstar sustainability risk rating methodology ........................ 5
3. Fund overview ............................................................................. 7
3.1. Fund’s asset allocation: structural, sectoral, and regional ............... 7
3.2. Fund strategy and target market ................................................... 8
3.3. Fund’s management ................................................................... 10
4. Performance analysis ................................................................. 11
4.1. Measure the performance ........................................................... 11
4.2. Fund’s risk-adjusted return ........................................................ 11
4.3. Morningstar sustainability rating calculation ............................... 13
4.4. Comparison with Benchmark ...................................................... 15
5. Fund risk management .............................................................................18

5.1. Descriptive statistics .................................................................. 18
5.2. Value at-risk - historical method ................................................. 19
5.3. Value at risk – parametric method............................................... 20
5.4. Value at risk - Monte Carlo simulation ........................................ 21
6. Conclusion .....................................................................................................23
References .........................................................................................................24
Appendix 1.........................................................................................................26
Appendix 2.........................................................................................................28
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HSBC Global investment Funds - Global Equity Climate Change AC EUR
List of Figure
Figure 1. The Morningstar sustainability rating - a five-step process
Figure 2. HSBC Global investment fund performance 2016 – 2021
Figure 3. Risk return analysis of HCBC GIF-GECC AC fund vs counterparts
Figure 4. Fund sector and geographical allocation
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Linh Pham Thi My, Tuan Thanh Truong, Aynur Huseynova,
Seyede Arezoo Hosseini Moghadam
List of Table
Table 1. Asset allocation - structural

Table 2. Asset allocation - sectoral
Table 3. Asset allocation - regional
Table 4. Types of customers of fund
Table 5. The level of fund’s risk
Table 6. Three years fund risk-adjusted performance measures
Table 7. HSBC global investment funds - global equity climate change in comparison to its peers
in December 2021
Table 8. Qualified and eligible holding rescaled
Table 9. Portfolio corporate sustainability score
Table 10. Corporate and sovereign historical sustainability score
Table 11. Portfolio corporate sustainability rating and portfolio sovereign sustainability rating
Table 12. Fund and reference benchmark
Table 13. Fund and reference benchmark performance
Table 14. Descriptive statistic of the logarithmic return of HSBC GECC AC and S&P 500
Table 15. Value at risk of HSBC GECC AC and S&P 500 – historical method
Table 16. Value at risk of HSBC GECC AC and S&P 500 – parametric model
Table 17. Value at risk of HSBC GECC AC and S&P 500 – Monte Carlo simulation – Normal
distribution.
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1. Introduction
HSBC Global Investment Funds – Global Equity Climate Change is a sub-fund of HSBC
GLOBAL INVESTMENT FUNDS, an investment company incorporated in the Grand Duchy of
Luxembourg. The sub-fund aims to provide long-term total return by investing in companies that
may benefit from the transition to a low carbon economy, thereby promoting ESG characteristics
with a lower carbon intensity and a higher environmental, social, and governance (“ESG”) rating.
Our paper content is presented in the following sections. In the first part, we provide the theoretical
parts of fund management in general. In the second part, we provide general information about the
fund such as the investment strategy and target market, the content of the fund portfolio allocation,
and the management of the fund. In the third part, we dive into the analysis of the fund's perfor-
mance based on the Fund's risk-adjusted return indexes and compare it with the fund's benchmark,
which is the MSCI ACWI Index, through which we can get a general assessment of the perfor-
mance of the fund. In this section, we also analyze the fund's sustainability rating and provide a
simulation of how the fund is rated through Morningstar's rating system. In the last part of the
paper, we focus on analyzing the fund's risk through measuring the fund's value at risk (Var)
thereby concluding.
Risk management is an important part of the entire paper for several reasons. First, HSBC Global
Investment Funds - Global Equity Climate Change AC (EUR) is an equity fund and it is actively
managed therefore volatility of the fund is high. Second, this a is global investment fund so it has
to face with a lot type of risk such as market risk, currency risk, interest rate risk, political risk and
so on. Third, the fund strategy is investing in Climate Transition Themes with the expectation that
this field will develop in the future, but this is a complex and uncertain issue. Therefore, the anal-
ysis of the fund's activities based on the perspective of risk management will give us an overview
of the fund's performance and prospects.
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2. Theoretical Part
2.1. An overview of fund’s types
A fund is a collection of money set aside for a certain purpose. Funds are used by individuals,
businesses, and governments to save money. The fund manager regulates the funds to create a
return, and each investor has a pro-rata claim on the income. There are several sorts of funds,
which are discussed further in this paper.
Mutual Funds are described as an intermediary that allows a group of investors to pool their
money, after which the money is invested by an asset management organization in accordance
with a predetermined investment objective. Not every person who wishes to participate in the in-
vesting market has the necessary knowledge, skills, and time to follow market information and
data and make decisions based on it. As a result, mutual funds pool shareholder funds to invest in
bonds, securities, stocks, assets, short-term money market instruments, or a combination of these
things. (Securities and Exchange Commission, 2016).
Each mutual fund program might have its personality and set of goals. Mutual funds provide in-
vestors with units, which give them equitable-legal rights to the assets of the mutual fund. Investing
in mutual funds is easy and cost-efficient because mutual funds enable investors to participate in
a diverse pool of stocks and bonds at a low transaction cost.
Equity Funds. Investing in equity funds, which are often in the form of publicly traded common
stock, allows investors to gain ownership in firms. Equity funds may be mutual funds or private
investment funds, such as hedge funds. Equity funds, which are the most popular kind of mutual
fund, are very volatile and have a high degree of risk. In general, the risk and return likelihood are
higher in the near term, but the investment plan is smooth in the long run, contributing to capital
appreciation (Voigt, 2019).
Debt Funds Fixed interest-bearing instruments like government bonds, firm debentures, or other
fixed-income assets or securities may be invested in these funds, which are meant for investors
who seek a steady stream of income. In contrast to equity funds, debt funds have a lower cost of
investing or expense ratio but less opportunity for growth.
Exchange-Traded Funds (ETFs) Investment in exchange-traded funds is one of the most secure
methods of making money in the stock market. In this sort of fund, the fund owns a variety of
underlying assets (stocks, bonds, oil futures, gold bars, foreign currency, and so on), and ownership
is distributed among its investors in the form of shares. In contrast to mutual funds, ETFs do not
directly trade individual shares; rather, ETF shares are exchanged on national stock exchanges
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throughout the day at market prices that are either equal to or different from their respective net
asset values.
There are several significant distinctions between ETFs and mutual funds. Mutual funds are ac-
tively managed financial vehicles that pool resources from several investors to trade. On the other
hand, ETFs are passively managed schemes that are traded on stock exchanges and follow an in-
dex. ETFs have fewer expenses than mutual funds because mutual funds trade at the end of the
day, but ETFs trade throughout the day.
2.2. Risk-adjusted performance measures
Performance evaluation based just on average return is ineffective since earnings must be adjusted
for risks before they can be quantified definitively. The primary goals of risk-adjusted measure-
ments are to compare investment types and results in terms of the risks they have absorbed. Various
portfolio risks, such as liquidity in financial assets, credit risk, the sensitivity of investments in
relation to the market, volatility of return, and other fund-specific hazards are detected using these
tools. (RisCura Research Team, 2004). This enables investors to examine the actual and projected
performance of their assets. In this paper, a variety of commonly used risk-adjusted performance
indicators have been identified. These include the following: Alpha, Beta, Sharpe ratio, and stand-
ard deviation.
Alpha is a performance statistic that represents the return on the market when compared to a spec-
ified benchmark or market index over a specific period, such as one year. Alpha is a term that
refers to the consequence of active investment and may reflect either a good or negative outcome.
(Chen, 2021). If alpha is positive, it indicates that the fund exceeded its benchmark index during
the period, whereas a negative alpha indicates that the fund underperformed its benchmark index
during the period.
Beta may be used to determine how much a fund's performance varies from the performance of
the stock market index. Beta analysis provides investors with the opportunity to see how a com-
pany performs and how volatile it is in comparison to a specified benchmark index. The beta ratio
gives information about the portfolio's sensitivity and the market's effect on the portfolio's profit-
ability. (Obaidullah, 2020).
Beta coefficient = Covariance (Re, Rm) / Variance (Rm)
• Re: the return on an individual stock
• Rm: the return on the overall market
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It is a significant tool for preferring stocks in terms of volatility reduction and ensuring a much
more diverse portfolio.
The Sharpe ratio was invented by Sharpe, is the most widely used performance measuring
method. As a result, the Sharpe ratio is often used to evaluate portfolio managers and assess the
attractiveness of investment strategies. (Sharma, 2018). Sharpe ratio defines the total anticipated
return minus the return on a risk-free asset divided by the standard deviation of the portfolio return:
Sharpe Ratio = (Rp - Rf)/ ɚp
• Rp: the return of the portfolio
• Rf: risk-free rate
• ɚp: standard deviation of the portfolio's excess return
By using this strategy, investors may quickly and simply analyze the success of their investments
and fund managers. The greater the Sharpe ratio, the more appealing the risk-adjusted return. Ac-
cording to Maverick (2021), Sharpe ratios less than one are regarded as sub-optimal, Sharpe ratios
of more than one but less than two are considered acceptable, Sharpe ratios of two are considered
very good, and Sharpe ratios of three are considered exceptional.
The R-squared ratio R² assesses the dependability of the beta number. In other words, it is a
statistical measurement that describes the amount of variation of the dependent variable that is
justified by the independent variable. The independent and dependent variables have a strong link.
The correlation coefficient R² does not assess the performance of a fund, but it does identify the
correlation of a portfolio with a benchmark. This is stated mathematically in the following way:
R2 = 1 – Unexplained Variation / Total Variation
The rating fluctuates between 0 and 1.0, indicating that 0 represents no dependability and 1.0 rep-
resents perfect reliability. R-squared values range from 0 to 1 and are frequently expressed as
percentages ranging from 0% to 100%. An R-squared of 100 percent indicates that all movements
in security (or another dependent variable) are fully explained by movements in the index (or the
independent variable(s) of interest). (Fernando, 2021).
Standard deviation is a statistical measurement that, when used with R2, examines the degree of
performance fluctuation. However, instead of benchmarking, standard deviation gauges the
amount of volatility and current performance for a certain period of time versus individual invest-
ment returns over past periods. The standard deviation is a risk evaluation tool used to assess the
volatility and risk of possible investments. A high standard deviation indicates that a stock is vol-
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atile, while a low standard deviation indicates that a stock is steady. Standard deviation is calcu-
lated using the following formula:
In general, a larger standard deviation indicates more investment risk or volatility.

2.3. Funds risks
By investing in a portfolio of securities, the investment funds can decrease the risk of single secu-
rity and the effect of a single security’s weak performance. But all types of investment include
various degrees of risk. There are a lot of factors that can affect fund performance. The major risks
can be defined by the type of investing asset and the managers' decisions. There are lots of risks,
some of which are:
• Counterparty Risk: The profits that other parts of an investment, trading transaction or
credit cannot use for their part of the deal and the contractual obligations may not be met.
• Currency Risk: Predicament moves in exchange rates that can drive to lose money
• Gearing Risk: Some funds with some activities may increase both gains and losses. Inves-
tors should consider the policies of funds.
• Diversification Risk: Investing in one asset or one market would put the investor at risk.
Investing in various types of investments can decrease the investor's risk.
• Emerging Markets Risks and Political and Economic Risks: The risk of performing a Fund
would be greater where Funds start to invest in funds that have exposure to increased po-
litical, economic issues or emerging markets.
• Liquidity Risk: Investment Funds are associated with two levels of liquidity risk. Firstly,
the ability of an investment manager to buy or sell funds. Secondly, the ability of investors
to buy or sell the units of the fund.
• Manager Risk: There is a risk that your expectations would not be fulfilled by your invest-
ment manager.
• Market Risk: There is a risk that the value of your investment may decline.
2.4. Morningstar sustainability risk rating methodology
The Morningstar Sustainability Rating is designed to support investors in evaluating the relative
environmental, social, and governance risks within portfolios. Ratings are determined using
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bottom-up assessments of the underlying holdings within a portfolio, underpinned by Sustainalyt-

ics' methodologies for assessing corporate and sovereign ESG risk. The calculation of the Morn-
ingstar Sustainability Rating involves 5 steps to accurately represent the relative risk within each
portfolio; however, the output of the rating is a category of 1 to 5 "globes" for each eligible port-
folio.
Rating Inputs: The Morningstar Sustainability Rating is calculated using Sustainalytics’ ESG
Risk Ratings for corporate issuers and Sustainalytics’ Country Risk Ratings for sovereign issuers
and is based on historical holdings.
Input #1: ESG Risk Ratings Sustainalytics’ ESG Risk Ratings measure the degree to which a
company’s economic value (enterprise value) is at risk driven by ESG factors or, more technically
speaking, the magnitude of a company’s unmanaged ESG risks. The rating was created to provide
investors with a signal that reflects what degree their investments (single assets or portfolios) are
exposed to ESG risks that are not sufficiently managed by companies. The overall unmanaged risk
is measured by evaluating the company’s ESG Exposure to and ESG Management of material
ESG issues. For each issue, exposure can be broken between two types of risk, Manageable and
Unmanageable risks.
Input #2: Country Risk Ratings Sustainalytics' Country Risk Ratings assess the risks to a sover-
eign entity’s socioeconomic well-being by combining an assessment of the government entity’s
current stock of capital with an assessment of its ability to manage the wealth sustainably. To
quantify the amount of risk, the rating combines two dimensions: Wealth and ESG Performance.
Wealth reflects the vulnerability of a country about ESG risks. It is measured as the value of assets
within a country, as calculated by the World Bank. The higher the Wealth of a country, the lower
its vulnerability to ESG risks. The assets can be organized according to four distinct stocks of
wealth: Natural Capital, Produced Capital, Human Capital, and Institutional Capital.
Rating Calculation: The Morningstar Sustainability Rating is the result of a five-step process
(figure 1). First, identifying which portfolio holdings are potentially exposed to material ESG risks
and which holdings fall under the corporate or sovereign risk rating frameworks.
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Figure 1. The Morningstar sustainability rating - a five-step process
Next, derive the Portfolio Corporate Sustainability Score and Portfolio Sovereign Sustainability
Score for every portfolio within the trailing 12 months. Then using these scores to derive a respec-
tive Historical Corporate Sustainability Score and Historical Sovereign Sustainability Score. A
Portfolio Corporate Sustainability Rating and Portfolio Sovereign Sustainability Rating are deter-
mined by its respective historical scores relative to its Morningstar Global Category. Corporate
scores and ratings are derived separately from the sovereign scores and ratings using the same
methodology in parallel, as depicted in the Exhibit below. Finally, the Corporate and Sovereign
Rating are combined proportional to the relative contribution of the corporate and sovereign posi-
tions and rounded to the nearest whole number to derive the Morningstar Sustainability Rating.
3. Fund overview
3.1. Fund’s asset allocation: structural, sectoral, and regional
Asset allocation: structural
Table 1. Asset allocation - structural
7
It has been seen that, based on the Fact Sheet, more of the asset is accumulated in stock in the
long-term asset by 96.83% and the rest of it, is in cash in the long-term asset by 10.37, in the short-
term asset by 7.20, and in other assets by 0.01%. On the other hand, the net asset in stock is 96.83%,
in cash is 3.17 and in other is -0.01.
Asset allocation: sectoral
Table 2. Asset allocation - sectoral
The major part of the assets has been allocated to the industrial sector by 40.96% and the technol-
ogy sector by 24.58% and the remaining part has been allocated to the basic materials, consumer
cyclical, and utility sectors respectively by 10.59%, 8.93%, and 8.10%.
Asset allocation: regional
Table 3. Asset allocation - regional
Most of the assets have been allocated in the United States and Eurozone, respectively, by 37.56%
and 36.94%, and the others are in Japan by 9.95%, the United Kingdom by 8.58%, and Europe-ex
Euro 4.53%.
3.2. Fund strategy and target market
This fund, by investing in a portfolio of shares, tries to have long-term growth in capital and in-
come. By investing in companies that are moving toward the low carbon economy, this fund will
8
have a higher environmental and social governance rating in comparison with the MSCI AC World
Net Index.
At least 70% of the fund’s assets are invested in the shares of companies of various sizes whose
revenue is related to climate transition themes. Companies that conduct the majority of their oper-
ations in developed and emerging markets are more interested in fund investment. Up to 20% in
China A and China B-shares can be invested by the Fund, with up to 10% through the Shanghai-
Hong Kong Stock Connect in China A-shares, and for CAAP, up to 10%. Over 10% may be in-
vested in real estate and over 10% in other funds that involve HSBC funds by the Fund.
Table 4. Types of customers of fund
It is shown that this fund has all types of customers with various investment experiences; basic,
informed, and advanced. Consumers would like to have an investment return over the current in-
flation rate and income-generating assets but not seek to preserve assets.
Table 5. The level of fund’s risk
9
Based on SRRI, the level of this Fund’s risk is 6, which is high. When considering credit risk, the
SRI indicates 4 that it includes the medium level of risk. There is no guarantee against a capital
loss, and this investment is not useful for investors who can bear no capital loss. This investment
is recommended to be held by the company for more than 5 years.
3.3. Fund’s management
After more than 5 years of investing £10,000 in this Fund, the expected return would be 5%. About
£11,032.59 would be the value of the investment, and £1,475.72 would be the total fees. Without
charging the investment, it would be worth £12,762.82. In other words, after fees, the total return
would be 10.33% and the initial set up fee would be £450.
The fees per year include the ongoing charge and transaction fees, which are respectively £188.60
and £16.54.
The actual investment fees that include ongoing costs, transaction fees, performance fees, and
management fees are respectively 1.85%, 0.14%, 0.00%, and 1.50%, whereas the transaction fee
is estimated to be 0.16%.
The share initial issue was in 2007 and from 2007 to 2011 Francois Dossou was the portfolio
manager. From 2011, Angus Parker has been the portfolio manager. It has been seen that from
2016, the fund has started to grow with some fluctuations, even between the middle of 2017 to the
middle of 2019, it had had underperform relative to benchmark and then after the middle of 2019,
it has significant increase even outperform the benchmark.
Figure 2. HSBC Global investment fund performance 2016 – 2021
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4. Performance analysis
4.1. Measure the performance
Prior to reviewing the Fund's performance, some benchmarks for gauging performance must be
established.
Foremost, investors have an established expectation of the performance that may be taken from
the Fund's objective or aim. For instance, by investing in a portfolio of stocks, the Fund seeks to
offer long-term capital growth and income. The Fund invests in firms that have a higher environ-
mental, social, and governance rating than the MSCI AC World Net Index and may profit from
the transition to a low-carbon economy. Furthermore, the Fund was classified as a growth fund by
Morningstar (Morningstar, 2021)
Second, there must be a corresponding benchmark (often an index of the relevant type of fund)
against which the fund's performance is assessed, as well as how well the fund has managed in
comparison to its peers.
Finally, it is critical to monitor performance over a lengthy time horizon to compare the fund's
performance in optimistic and negative markets.
4.2. Fund’s risk-adjusted return
Aside from annualized returns, there are certain factors, such as the managers' investing abilities
and the amount of risk accepted to attain the profits, that indicate how the returns have been ob-
tained. The fund's risk-adjusted performance would be quantified by calculating beta, alpha, sharp
ratio, and standard deviation.
HSBC Global Investment Funds - Global Equity Climate Change AC EUR has had a beta of
(which gauges the fund's sensitivity to the benchmark) of 0,99. (Financial Times. Morningstar),
which is roughly equal to the benchmark. Since the number is just under 1, this is an indication of
the strong correlation between market price and portfolio price.
Alpha compares investment performance to a market index in terms of excess return. The indicator
also assists in evaluating the performance of portfolio managers. The fund has an alpha of +4,61,
which means it has outperformed its benchmark index. Investors are mainly seeking investments
with a positive "α".
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Table 6. Three years fund risk-adjusted performance measures
Source: HSBC Global Investment Funds (Financial Times, n.d.)
It is known that the sharp ratio is a convenient indicator for determining fund selection; in other
words, which fund would deliver a greater return given the degree of risk assumed. The sharp ratio
of the HSBC GIF - GECC AC EUR fund is 1,24 which is deemed good by investors. The higher
the sharp ratio, the better the risk-adjusted performance and investment decisions.
The volatility which is measured by Standard deviation depicts the Fund's return deviation in pro-
portion to the average return over time. The fund has an annualized volatility (as measured by
standard deviation) of 15,04 %, whilst the benchmark has an annualized volatility of 14.51 %. It
depicts the Fund's return dispersion in proportion to the average return over time. It is crucial to
remember that high volatility or standard deviation does not always imply the poor overall perfor-
mance of a Fund.
However, the ratio analysis cannot be finalized at this stage, hence without comparing with the
peers' funds ratios, which means they are not evocative. The table 7 illustrates HSBC Global In-
vestment Funds - Global Equity Climate Change AC' to its counterparts with 4 Star and 5 Star
Morningstar ratings. The funds are in the same category; Global Large-Cap Blend Equity.
Table 7. HSBC global investment funds - global equity climate change in comparison to its peers in
December 2021
Source: HSBC Global Investment Funds
For evaluating the fund's performance in its category, the risk-return tradeoff is one of the crucial
factors. For instance, the graph below depicts the risk-return performance of the HSBC Global
Investment Funds - Global Equity Climate Change AC’s and its counterparts for three years (2018,
2019, and 2020). During this time frame, it is clear from the beneath grid, the HSBC Global In-
vestment Funds - Global Equity Climate Change ac has a standard deviation of 17,78 % and a
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return of 15.62%. It is easily distinguishable that there are funds with lower standard deviations
that outperform HSBC Global Investment Funds - Global Equity Climate Change ACA.
Figure 3. Risk return analysis of HCBC GIF-GECC AC fund vs counterparts
Source: HSBC Global Investment Funds
4.3. Morningstar sustainability rating calculation
In this part, we want to simulate how to calculate the fund's rating of HSBC Global Investment
Funds - Global Equity Climate Change AC EUR according to the 5 steps of Morning star meth-
odology. We use a sample based on the list of the 10 most weighted stocks and then compare it
with the actual rating of the entire fund. Some of the assumptions that we used are as follows:
• 10 holding stocks account for the 100% holding value of the fund.
• The ESG historical rating score on average in 12 months is equal to current ESG scores
currently published in Sustainalytics - a Morningstar company
First, we identify the qualified holding type for the asset in the fund. In actuality, HSBC Global
Investment Funds - Global Equity Climate Change AC EUR is an equity fund. Based on simulating
portfolio with the 10 most weighted stocks then we can conclude some points:
• The contribution sustainability of corporate sustainability is 100% and Sovereign Sustain-

ability Contribution is 0% in the fund.
• All of the holdings are corporate type.
• All of the holdings are qualified holding (Qualified Holdings include equities, fixed-in-
come instruments, commodities, real estate, and alternatives. Excluded from this list are
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short positions, cash, and currency, as well as derivatives and synthetic holdings).
• All of the holdings are eligible (Eligible holdings are those in which a risk rating framework
exists - in this case, all stocks are in the existing rating framework of Morningstar).
We rescale qualified, eligible holding as follows:
Table 8. Qualified and eligible holding rescaled
Source: HSBC Global Investment Funds GLOBAL EQUITY CLIMATE CHANGE monthly report November 30th,
2021
After that, we calculate Portfolio Corporate Sustainability Score using the company's ESG rating
(based on the current scoring of Sustainalytics - a Morningstar company). Calculation of the his-
torical scores based on a weighted average of the trailing 12 months of Morningstar Portfolio Cor-
porate and Sovereign Sustainability Scores, respectively. And historical scores are not equal-
weighted; rather, more-recent portfolios are weighted more heavily than more-distant portfolios
(function as appendix 2). Based on assumption that the historical rating score on average in 12
months is equal to current ESG scores we can simply calculate historical data as follows:
Table 9. Portfolio corporate sustainability score

Source: HSBC Global Investment Funds GLOBAL EQUITY CLIMATE CHANGE monthly report 30 November 2021
Then, we rank the respective Corporate and Sovereign Historical Sustainability Scores of all
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scored funds within a Morningstar Global Category. All scored funds within a Morningstar Global
Category are ranked based on a normal distribution, and each receives a rating from 1 to 5, with 5
being the lowest risk:
Table 10. Corporate and sovereign historical sustainability score

Source: Morningstar/ Sustainalytics
Finally, ranking the fund as Morningstar Sustainability Rating. by combining the Portfolio Corpo-
rate Sustainability Rating and Portfolio Sovereign Sustainability Rating proportional to the relative
contribution of its (long-only) corporate and sovereign positions.
Table 11. Portfolio corporate sustainability rating and portfolio sovereign sustainability rating
Comparison with the real rating of the fund: Corporate Historical Sustainability Score of the fund
is 18.94, higher than the simulated portfolio, but the Sustainability rating is still the same with 5
globes. There are some reasons for this similarity. First, the 10 most weighted stocks account for
a large portion of the fund with 34.654%. Second, following the strategy of the fund, all of the
remaining holdings are stocks that have high ESG scores, so the rating of the overall fund is high.
4.4. Comparison with Benchmark
In this part, we want to describe the differences between the fund and benchmark through the
strategy of asset allocation and security selection. As a result, the ESG score, and performance of
the fund can be explained.
Benchmark: The MSCI ACWI Index, MSCI’s flagship global equity index, is designed to repre-
sent the performance of the full opportunity set of large- and mid-cap stocks across 23 developed
and 25 emerging markets. As of June 2021, it covers more than 2,900 constituents across 11 sectors
and approximately 85% of the free float-adjusted market capitalization in each market.
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In terms of sector allocation, the fund tends to allocate their asset to industrial sectors with the
proportion of 41.37%, more than 4 times higher in comparison with 9.62% of the benchmark.
While the benchmark distributed 14.45% and 12.74% of the total value in Financials and Con-
sumer Discretionary, the figure for the fund is just 1,68% and 1.78% respectively.
On the other hand, regarding the geographical allocation, the fund focuses on the EU market in-
stead of the United State when the proportion of asset allocation for the US market just account
for 35.51% in comparison with 60.41% as MSCI ACWI index. Some of the countries that ac-
counted for highest allocation of the fund is France (10.38%), Japan (9.52%), United Kingdom
(8.23%), Germany (8%) and so on.
Figure 4. Fund sector and geographical allocation

Source: HSBC Global Investment Funds GLOBAL EQUITY CLIMATE CHANGE report September 2021
In terms of securities selection, the fund focuses on companies that have higher ESG than the
benchmark, especially for the factors of Social and Governance. In total, the ESG of the fund is
7.8, higher than the benchmark which is 6.2. About the Environment factors, there is a small dif-
ference. Although the fund focus on the transition of low carbon intensity, the figure of 10 highest
holding does not show that the carbon intensity is the main reason for choosing stocks. Instead,
the ESG score, in general, will be the driving factor for securities selection.
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Table 12. Fund and reference benchmark

Performance comparison: The fund has better performance than the benchmark in the long run but
has worse performance in the short run (less than one year). This result of underperformance in
short term can be explained as follow:
Geographical allocation: in 2021, the US market has a higher growth rate than most other markets
where the fund allocates assets. Specifically, the S&P500 index grew up to 26.9%, much higher
than Germany (15.7%), UK (14.3%), Japan (5.6%), Finland (23.5%), and only worse than France
market with an increase of 28.9% (appendix 2.1). The greater allocation of assets to markets out-
side the US is one reason the fund's returns are lower than the benchmark.
Sectoral allocation: in the US market in the year 2021, the fund allocates more on the Industrials
sector and less in Consumer Discretionary and Financials in comparison with the benchmark. But
Industrials has almost the lower growth rate as Consumer Discretionary (22.8% and 24.29%) and
significantly lower than Financials sectors (37.83%). In the EU market, industrial have better per-
formance in comparison with others but the difference was not high (appendix 2.2 and 2.3). There-
fore, sector allocation could be one reason for the underperformance of the fund.
Table 13. Fund and reference benchmark performance

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Tuan Thanh Truong
5. Fund risk management

5.1. Descriptive statistics
Descriptive statistics provide an overview of the sample without relying on probability theory to
derive conclusions, it is used to give basic information about variables in a dataset and to draw
attention to possible correlations between variables (Bhandari, 2020). According to Ambrosius,
W., (2007), descriptive statistics are a series of short descriptive coefficients that describe a statis-
tical model, which might be a representation of the full population or a slice of it. Besides, it gives
us a general and simple view of the volatility of the variables. This paper defines the risks of one
index and fund based on the log-returns of S&P 500 and HSBC Global investment Funds- Global
Equity Climate Change AC EUR.
Afterward, we will examine the risks of these two portfolios using some methods to figure out the
risks of each index and fund before making a decision that which one is riskier when we invest in.
The data was collected from https://finance.yahoo.com and https://markets.ft.com/data/ from No-
vember 12th, 2007, to December 20th, 2021. To calculate the daily return of these two indexes and
funds, we use the logarithmic return method (log return) with the equation as follows:
The logarithmic return of stock = ln (P1 / P0)
• P1: the price of the stock at day 1
• P0: the price of the stock at days 1-1
We computed the log return because using the simple return can sometimes lead to misleading
outcomes and the log return can be added across periods. Furthermore, the log-returns follow a
normal distribution, thus it is convenient for us to define the value at risk of the index and fund
which are researched in this paper. Ultimately, after calculating the log return and running out the
data analysis tools using descriptive statistic function in excel, we have the outputs in relation to
the log return of S&P 500 and HSBC Global investment Funds- Global Equity Climate Change
AC EUR (HSBC GECC AC) as the table 14.
Based on the data in table 14, it is explicit that the mean of the log return of S&P 500 is moderately
higher than the log return of HSBC GECC AC standing at 0.03% and 0.012% respectively. In
contrast, the median of the log return of HSBC GECC AC is seen as greater than its S&P 500
approximately 1,63 times. We can interpret this, for instance, if we invest with the same amount
of money to the index and fund, we shall probably receive the higher return with S&P 500. In the
contrast, the standard error of the log return of S&P 500 is larger than HSBC GECC AC lightly
with amounts 0.0002229 and 0.000221087, respectively. The standard error of the mean measures
18
Linh Pham Thi My
how far the sample mean (average) of the data is likely to be from the true population mean (Stock
& Watson, 2015). It means the log return of S&P 500 has a greater variability or dispersion com-
pared to the log return of HSBC GECC AC.
The discrepancy between the maximum and minimum of the log return of S&P 500 also is seen
higher than its HSBC GECC AC equivalent with 0.236 and 0.2042. We can conclude from this
symbol that the log return of S&P 500 fluctuates more gradually than HSBC GECC AC.
The logarithmic return HSBC GECC AC S&P 500
Mean 0,000121843 0,000355926

Standard Error 0,000221087 0,000222915
Median 0,001184148 0,000723761
Mode -0,002670229 -0,00787922
Standard Deviation 0,012899063 0,013005739
Sample Variance 0,000166386 0,000169149
Kurtosis 7,497083451 13,61145707
Skewness -0,683687259 -0,596589444
Range 0,204248205 0,231877697
Table 14. Descriptive statistic of the logarithmic
Minimum
return of HSBC GECC AC and S&P 500
-0,106609735 -0,127652141
Maximum 0,09763847 0,104225555
Kurtosis is a statistical
Summeasure that defines how heavily the tails
0,414755155 of distribution differ from the
1,211573092
Count
tails of a normal distribution 3404 In other 3404
(Arnold & Groenveld, 1992). words, kurtosis identifies
Largest(1) 0,09763847 0,104225555
whether the tails of aSmallest(1)
given distribution contain-0,106609735
extreme values. In finance, kurtosis is used as a
-0,127652141
measure of financial Confidence
risk. Table Level(95,0%) 0,000433477
14 shows explicitly 0,000437062
that the Kurtosis of S&P 500 is numerously
higher than HSBC GECC AC standing at 13,61 and 7,49. We can understand this as S&P 50 is
associated with a high level of risk for an investment because it indicates that there are high prob-
abilities of extremely large and extremely small returns. On the other hand, HSBC GECC AC with
a smaller Kurtosis signals a moderate level of risk because the probabilities of extreme returns are
relatively low.
Skewness is a measure of the asymmetry of the probability distribution of a real-valued random
variable about its mean (Arnold & Groenveld, 1992). According to table 14, both skewnesses of
the log return of HSBC GECC AC and S&P 500 are negative at -0,68 and -0,59. This indicates
that the tails of both the log-returns of HSBC GECC AC and S&P 500 are on the left side of the
distribution.
5.2. Value at-risk - historical method
The historical method is a set of strategies and standards used by researchers to do research and
19
Linh Pham Thi My
publish historical documents. It offers as a backdrop for which to determine what is new in the
current circumstance, as well as which factors serve to identify the current situation from previous
ones. (Mason, McKenney, & Copeland, 1997). Market data can represent market prices, interest
rates, spreads, implied volatilities, etc. In this paper, we use the historical data of prices of two
fund and index to compute the log return of those stocks before calculating the return of two port-
folios.
Historical method
HSBC GECC AC S&P 500
Mean 0,00012184 0,00035593
Standard Error 0,00022109 0,00022292
VAR 1% -0,04071598 -0,04019775
VAR 3% -0,02644626 -0,02504284
VAR 5% -0,02121498 -0,01915668
VAR 10% -0,01307208 -0,01204813
Table 15. Value at risk of HSBC GECC AC and S&P 500 – historical method
Procedures:
• Calculate the log return of HSBC GECC AC and S&P 500
• Using descriptive statistic function of data analysis to get Mean and standard error and-
compute the value at risk by using the “PERCENTILE” formula at the confidence level at
99%, 97%, 95%, 90%
The outcome after the above steps is shown in table 15. It is easy to see from table 15 that at the
confidence level of 99%, the declining value of HSBC GECC AC is anticipated to not exceed
4,07% per day. The S&P 500, on the other hand, is predicted a slightly lower loss with 4,019 % of
its value. In the same manner, with the probability of 97% that the highest loss of value of HSBC
GECC AC and S&P 500 per day is 2,64% and 2,50%. A similar trend is witnessed with the 95%
and 90% confidence levels.
Ultimately, in general, table 15 demonstrates that, with the same amount of money invested in
HSBC GECC AC and S&P 500, we probably shall get more loss with HSBC GECC AC, in other
words, the risk of HSBC GECC AC is larger than S&P 500.
5.3. Value at risk – parametric method
A parametric model is a statistical term that refers to a model in which all of the data is contained
within its parameters. Discrete value models are frequently used in parametric models (Rothen-
berg, T., 1971). The parametric value at risk models allows us to calculate the probability of a loss
20
Linh Pham Thi My
not exceeding a certain threshold during some period. The model is based on the normal distribu-
tion and is most suited to measure market risk in liner derivatives: forwards, futures, and swaps.
Parametric method
Mean 0,00012184 0,00035593
Standard deviation 0,01289906 0,01300574
VAR 1% -0,02988586 -0,02989995
VAR 3% -0,02413863 -0,02410518
VAR 5% -0,02109523 -0,02103661
VAR 10% -0,01640897 -0,01631160
Table 16. Value at risk of HSBC GECC AC and S&P 500 – parametric model
Procedures:
• Calculate the mean and standard deviation using the “STDEV” and “AVERAGE” formu-
las and compute the value at risk by using the “NORM.S.INV” formula at the confidence
level at 99%, 97%, 95%, 90%
It is easy to see in table 16 if we invest in HSBC GECC AC, there is a 1% that the predicted loss
of this investment will be exceeded 2,9885%, the loss might achieve roughly 2,1095% and with
the confidence of 95%, the maximum of loss is 1,640% followed by the confidence of 90%. In
comparison with S&P 500 with the same levels of confidence, it is explicitly witnessed that the
maximum loss in a day is usually larger than that of HSBC GECC AC, standing at 2,9899%,
2,4105%, 2,1036%, and 1,6311% in order. Finally, this suggests that in all circumstances, S&P
500 has a higher risk threshold.
5.4. Value at risk - Monte Carlo simulation
The bootstrap is a simple Monte Carlo technique to approximate the sampling distribution. This is
particularly useful in cases where the estimator is a complex function of the true parameters.
Monte Carlo Simulations correspond to an algorithm that generates random numbers that are used
to compute a formula that does not have a closed (analytical) form – this means that we need to
proceed to some trial and error in picking up random numbers/events and assess what the formula
yields to approximate the solution. Drawing random numbers over a large number of times (our
samples consist of 3404 observations of stock prices daily from November 12th, 2007, to Decem-
ber 20th, 2021) will give a good indication of what the output of the formula should be.
Computing VaR with Monte Carlo Simulations is very similar to Historical Simulations. The main
21
Linh Pham Thi My
difference lies in the first step of the algorithm – instead of using the historical data for the log
return of the two portfolios A and assuming that this log return can re-occur in the next time inter-
val, we generate a random number that will be used to estimate the log return of the portfolio at
the end of the analysis horizon.
Procedures:
• Calculate the mean and standard deviation using the “STDEV” and “AVERAGE” formu-
las and compute the value at risk by using the “RAND”, “NORMINV” and
“PERCENTILE” formula at the confidence level at 99%, 97%, 95%, 90%
Normal Distribution
Monte Carlo
Mean 0,00012184 0,00035593
Standard deviation 0,01289906 0,01300574
VAR 1% -0,02984957 -0,02966867
VAR 3% -0,02322835 -0,02402734
VAR 5% -0,02018944 -0,02020177
VAR 10% -0,01507866 -0,01589928
Table 17. Value at risk of HSBC GECC AC and S&P 500 – Monte Carlo simulation – Nor-
mal distribution
In relation to the outcomes of this model in table 17, it is clear that we can estimate the maximum
loss of the HSBC GECC AC with the level of confidence at 99%, 97%, 95%, and 90% being not
over 2,9849%, 2,3228%, 2,0189% and 1,5078% correspondingly. In the same manner, regarding
the similar results of the S&P 500, the largest projected daily losses if we intend to spend money
on are 2,9668%, 2,4027%, 2,0201%, and 1,5899% at the confidence of 99%, 97%, 95%, and 90%
respectively. In conclusion, HSBC GECC AC is less hazardous than S&P 500, which follows a
similar trend as the parametric model and historical model.
22
Linh Pham Thi My
6. Conclusion
HSBC Global Investment Funds – Global Equity Climate Change is an active equity fund that
focuses on investing in companies that may benefit from the transition to a low carbon economy,
thereby promoting ESG characteristics with a lower carbon intensity and a higher environmental,
social, and governance (“ESG”) rating has good performance in the long run, but in the short run,
the performance of the fund is lower than the benchmark due to the asset allocation strategy.
When considering the risk-adjusted return of the fund we can see that the fund outperforms the
peers. In general, this is a potential fund and suitable for long-term investment.
In terms of risk measurement, we can conclude that the return of HSBC GECC AC equals one-
third of the return of S&P 500 after applying the descriptive statistic to portray the historical log-
arithmic return of HSBC GECC AC and S&P 500. This suggests that HSBC GECC AC is a sub-
stantially less efficient investment than the S&P 500.
Last but not least, Value at risk (VaR) is a metric that measures the magnitude of potential financial
losses inside a company, portfolio, or position over a given period of time. VaR estimates can be
applied to individual positions or entire portfolios, or they can be used to calculate firm-wide risk
exposure. After calculating the Value at Risk of HSBC GECC AC and S&P 500 using historical
methods, par-ametric models, Monte Carlo simulations with Normal distribution and T distribu-
tion, the results show that the maximum daily loss of the HSBC GECC AC with confidence levels
of 99 percent, 97 percent, 95 percent, and 90 percent is always higher than the largest projected
daily losses of S&P 500 with the same level of confidence. Finally, investors who invest in HSBC
GECC AC rather than the S&P 500 may face a higher risk of loss and a lower rate of return.
23
Linh Pham Thi My, Tuan Thanh Truong, Aynor Huseynova,
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Appendix 1
Sustainability calculation function
1. Morningstar Portfolio Corporate and Sovereign Sustainability Scores function:
2. Historical Corporate Sustainability Score and Historical Sovereign Sustainability Score

function:
3. Morningstar Portfolio Corporate and Sovereign Sustainability Rankings and Rating:
4. Morningstar Sustainability Rating in final (in number and in “globes”):
26
Source: Sustainalytics Methodology & Portfolio Research 8 th November 2021 – Sustainalytic company
27
Appendix 2
1. Growth rate in some allocated markets
Indexes growth rate in 2021

35,0%
30,0% 28,9%
26,9%
25,0% 23,5%
20,0%
15,7%
14,3%
15,0%
10,0%
5,6%
5,0%
0,0%
S&P500 CAC 40 DAX30 FTSE100 NIKKEI 225 FTWIIRLE
Source: Summary from investing.com
2. Performance of sectors in US market
Source: eresearch.fidelity.com (05 Jan 2022)
28
3. Performance of sectors in MSCI Europe
Source: MSCI.com
29

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University of Applied Sciences

Financial Services Management - Master of Arts

Prof. Dr. Christian Armbruster

HSBC Global Investment Funds - Global Equity

Tuan Thanh Truong (885160)

Aynur Huseynova (882354)

Seyede Arezoo Hosseini Moghadam (884274)

Course of Study: Asset Management

List of Figure .......................................................................................................ii

List of Table ........................................................................................................iii

2. Theoretical Part ..........................................................................................2

5. Fund risk management .............................................................................18

Table 1. Asset allocation - structural

2.2. Risk-adjusted performance measures

In general, a larger standard deviation indicates more investment risk or volatility.

2.4. Morningstar sustainability risk rating methodology

bottom-up assessments of the underlying holdings within a portfolio, underpinned by Sustainalyt-

Figure 1. The Morningstar sustainability rating - a five-step process

Asset allocation: structural

Table 1. Asset allocation - structural

Table 2. Asset allocation - sectoral

Table 3. Asset allocation - regional

3.2. Fund strategy and target market

Table 4. Types of customers of fund

Table 5. The level of fund’s risk

3.3. Fund’s management

Figure 2. HSBC Global investment fund performance 2016 – 2021

4.2. Fund’s risk-adjusted return

Table 6. Three years fund risk-adjusted performance measures

Source: HSBC Global Investment Funds (Financial Times, n.d.)

Source: HSBC Global Investment Funds

Figure 3. Risk return analysis of HCBC GIF-GECC AC fund vs counterparts

Source: HSBC Global Investment Funds

4.3. Morningstar sustainability rating calculation

• The contribution sustainability of corporate sustainability is 100% and Sovereign Sustain-

We rescale qualified, eligible holding as follows:

Table 8. Qualified and eligible holding rescaled

Table 9. Portfolio corporate sustainability score

Table 10. Corporate and sovereign historical sustainability score

4.4. Comparison with Benchmark

Figure 4. Fund sector and geographical allocation

Table 12. Fund and reference benchmark

Table 13. Fund and reference benchmark performance

5. Fund risk management

The logarithmic return HSBC GECC AC S&P 500

Mean 0,000121843 0,000355926

5.2. Value at-risk - historical method

5.3. Value at risk – parametric method

5.4. Value at risk - Monte Carlo simulation

2. Historical Corporate Sustainability Score and Historical Sovereign Sustainability Score

3. Morningstar Portfolio Corporate and Sovereign Sustainability Rankings and Rating:

4. Morningstar Sustainability Rating in final (in number and in “globes”):

Indexes growth rate in 2021

Source: Summary from investing.com

2. Performance of sectors in US market

Source: eresearch.fidelity.com (05 Jan 2022)

3. Performance of sectors in MSCI Europe

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