Strategy
Investment Strategy
Indicative asset allocation
The indicative asset allocation of the Sub-Fund is as follows:
70% - 100% of the net asset value (“NAV”) of the Sub-Fund | Hong Kong Dollars-denominated and settled short-term deposits and high quality money market instruments |
0% – 30% of the NAV of the Sub-Fund | Non-Hong Kong Dollars-denominated and settled short-term deposits and high quality money market instruments |
The Sub-Fund seeks to achieve its investment objective by investing primarily (i.e. not less than 70% of its NAV) in Hong Kong Dollars-denominated and settled short-term deposits and high quality money market instruments issued by governments, quasi-governments, international organisations, financial institutions and corporations. The Sub-Fund may invest up to 30% of its NAV in non-Hong Kong Dollars-denominated and settled short-term deposits and high quality money market instruments. High quality money market instruments include but are not limited to debt securities, commercial papers, certificates of deposits, short-term notes and commercial bills, etc.
Debt securities invested by the Sub-Fund include but are not limited to government bonds, fixed and floating rate bonds, etc.
The Sub-Fund will only invest in debt securities rated investment grade or above. For the purposes of the Sub-Fund, investment grade is defined as below:
- a short-term debt security which (or if the security itself does not have a credit rating, the issuer or guarantor of which) is rated A-3 or higher by Standard & Poor’s or F3 or higher by Fitch Ratings or P-3 or higher by Moody’s or equivalent rating as rated by one of the international credit rating agencies, or rated A-1 or above by one of the credit rating agencies in the PRC; and
- a long-term debt security which (or if the security itself does not have a credit rating, the issuer or guarantor of which) is rated BBB- or higher by Standard & Poor’s or Fitch Ratings or Baa3 or higher by Moody’s or equivalent rating as rated by one of the international credit rating agencies, or rated AA+ or above by one of the credit rating agencies in the PRC. For the avoidance of doubt, the Sub-Fund does not intend to invest in debt securities with a long term to maturity remaining at the time of investment. The long-term credit ratings will be considered where the Sub-Fund invests in debt securities which have been rated long-term credit ratings, but have a shorter term to maturity remaining (subject to the requirements on remaining maturity, weighted average maturity and weighted average life of the portfolio of the Sub-Fund as set out below) at the time of purchase by the Sub-Fund.
For split credit ratings, the highest rating shall apply. For the avoidance of doubt, the Sub-Fund will not invest in unrated or low-investment grade debt securities or money market instruments and other ancillary investments.
For investment grade debt securities, while the credit ratings provided by the relevant rating agencies serve as a point of reference, the Manager will assess the credit risks of the debt securities on an ongoing basis based on quantitative and qualitative fundamentals, which may include the issuer’s leverage, operating margin, return on capital, interest coverage, operating cash flows, industry outlook, the firm’s competitive position, corporate governance etc., to ensure that the debt securities in which the Sub-Fund invests are of sound credit quality. The Manager will assess the liquidity profile of instruments based on, amongst other factors, time to cash, external liquidity classification, liquidation horizon, daily trading volume, price volatility and bid-ask spread of such instruments. Only instruments with sufficient liquidity will be included in the portfolio of the Sub-Fund.
There is no specific geographical allocation of the country of issue of the high quality money market instruments or deposits, except that the Sub-Fund may not invest more than 20% of its NAV in emerging markets other than Mainland China. The Sub-Fund may invest in aggregate up to 100% of its NAV in Hong Kong Dollars-denominated and settled short-term deposits and high quality money market instruments issued in Greater China (comprising offshore market of Mainland China, Hong Kong, Macau and Taiwan). The Sub-Fund will not invest in securities or instruments issued in onshore Mainland China.
The aggregate value of the Sub-Fund’s holding of instruments and deposits issued by a single entity will not exceed 10% of the total NAV of the Sub-Fund except: (i) where the entity is a substantial financial institution and the total amount does not exceed 10% of the entity’s share capital and non-distributable capital reserves, the limit may be increased to 25%; or (ii) in the case of Government and other Public Securities (as defined in the Explanatory Memorandum), up to 30% may be invested in the same issue; or (iii) in respect of any deposit of less than USD1,000,000 or its equivalent in HKD, where the Sub-Fund cannot otherwise diversify as a result of its size.
The Sub-Fund will maintain a portfolio with weighted average maturity not exceeding 60 days and a weighted average life not exceeding 120 days and must not purchase an instrument with a remaining maturity of more than 397 days, or two years in the case of Government and other Public Securities.
The Sub-Fund may invest not more than 15% of its NAV in short-term and high quality asset-backed securities (including asset backed commercial papers, mortgage backed securities and collateralised mortgage obligations). The Sub-Fund will not invest in any convertible bonds or instruments with loss absorption features.
The Sub-Fund may borrow up to 10% of its total NAV but only on a temporary basis for the purpose of meeting redemption requests or defraying operating expenses.
The Sub-Fund may enter into sale and repurchase transactions for up to 10% of its NAV but only on a temporary basis for the purpose of meeting redemption requests or defraying operating expenses. The Sub-Fund may also invest up to 30% of its NAV in reverse repurchase transactions. Such sale and repurchase and reverse repurchase transactions will be conducted over-the-counter. The Sub-Fund will not write any options. The Sub-Fund will enter into other financial derivative instruments (“FDIs”) (including interest rate swaps and currency swaps) for hedging of non-Hong Kong Dollars-denominated and settled short-term deposits and high quality money market instruments only.
Save as disclosed above, the Sub-Fund will not enter into any securities lending, structured deposits, structured products or other similar over-the-counter transactions, or any short positions. If any of these change in the future, prior approval of the SFC will be sought (if required) and not less than one month’s notice will be provided to Unitholders before the Sub-Fund enters into any such transaction.
