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Investment Approach
The Fund was established to provide investors with high levels of stable, tax-advantaged distributions through exposure to securities issued by HSBC Holdings plc, a conservatively positioned and strongly capitalized global bank. Specifically, the Fund will gain exposure to (i) the 8.125% Perpetual Subordinated Capital Securities, Series 1 issued by HSBC pursuant to a prospectus supplement dated April 2, 2008 to a prospectus dated June 14, 2006 and/or (ii) the 8.00% Perpetual Subordinated Capital Securities, Series 2 issued by HSBC pursuant to a prospectus supplement dated June 17, 2010 to a prospectus dated April 16, 2010. The Manager believes that the Capital Securities offer an attractive investment opportunity for the following reasons (as at the time of issue):
Compelling yields – The Capital Securities offer compelling yields, particularly in comparison to capital securities and preferred shares issued by Canadian banks with similar credit ratings. High credit ratings of the Capital Securities – The Capital Securities are rated “A-” by Standard & Poor’s, “A3” by Moody’s and “A+” by Fitch. Diversified business model – HSBC is one of the largest banks in the world. HSBC positions itself as “the world’s local bank” and employs a well-balanced and diversified business model with a focus on maintaining its signature capital strength. Stable funding through customer deposits – A key part of its business model is HSBC’s emphasis on customer deposits as a source of stable funding and a philosophy of “we take deposits first and then we lend”. Consistent profitability – Similar to Canadian banks, HSBC did not require any government capital support and has remained profitable since the onset of the financial crisis. High credit ratings of HSBC – HSBC is rated “AA-” by Standard & Poor’s, “Aa2” by Moody’s and “AA” by Fitch. On the strength of these ratings, HSBC was ranked the second safest bank in the world among banks with more than U.S. $2.0 trillion in assets in October 2009 by Global Finance magazine. Strong capital ratios – HSBC is strongly capitalized with capital ratios at their highest levels in a decade. |