HSBC Mutual Funds HSBC Mortgage Fund
Advisor and Premium Series As at October 31, 2008
Fund Description
The fundamental investment objective of this Fund is to earn as high a level of income as possible while protecting invested capital by investing primarily in residential first mortgages on property in Canada and other debt obligations. Subject to the availability of suitable mortgages, the Fund will invest primarily in uninsured Canadian dollar denominated mortgages.
Past Performance
Investor Series Advisor Series Premium Series
1 Annualized
1 Year
5.06% 5.23% −
3 Year 1
3.20% 3.25% −
5 Year 1
3.09% 3.11% −
10 Year 1
3.94% − −
Since Inception 1
5.46% 3.35% −
Date of Inception
Dec 9, 1992 Mar 22, 2002 Mar 31, 2008
Calendar Year Returns
Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 Investor 2.07% 3.06% 2.01% 3.57% 3.38% 3.12% 7.78% 7.02% 2.02% 6.05% Advisor 2.06% 3.06% 2.01% 3.50% 3.44% − − − − − Premium − − − − − − − − − −
Return Analysis (Advisor Series)
# of Years Up (+) # of Years Down (−) Best 1 Yr. Ttl. Rtn. (Ma y 08) Worst 1 Yr. Ttl. Rtn. (J un 06) Average Up (+) Years Average Down (−) Years 5 0 5.89% 0.89% 2.82% −
Statistics
Portfolio turnover P/E ratio − Fund (Advisor Series) P/E ratio − Benchmark Dividend yield before fees (Advisor Series) Dividend yield before fees (Benchmark) Distribution frequency − − − − − *
Portfolio Composition
Residential Mortgages 87.90%
*Income/Dividend component only. Capital gains distributions, if any, are distributed annually for all funds.
Cash and Cash Equivalents
10.02%
Top Holdings
Residential Mortgages Govt. of Canada, T−Bill 2.07%, January 22, 2009 Alberta Capital Fin Auth 1.60%, November 12, 2008 Govt. of Canada, T−Bill 1.90%, November 13, 2008 Canada Hsg Tr No.1, 4.1%, December 15, 2008 Municipal Finance Auth of BC 2.65%, November 19, 2008 Bank of Montreal 3.18%, November 27, 2008 Province of Bc, 1.79%, November 3, 2008 87.90% 1.02% 0.83% 0.81% 0.75% 0.74% 0.48% 0.34% 0.33% 0.32% 93.52%
Bonds
2.08%
Mortgage Maturities (in %)
3−4 years 4−5 years 1−2 years 2−3 years More than 5 years Less than 1 year 10.70% 8.45% 28.94% 29.91% 0.07% 21.93%
Alberta Capital Fin Auth 2.86%, June 8, 2009 Bank of Nova Scotia 2.5%, November 28, 2008 Total
HSBC Mutual Funds HSBC Mortgage Fund
Advisor and Premium Series As at October 31, 2008
Fund Details
Total Assets: RRSP Eligible: Minimum Initial Purchase: Advisor Series Premium Series Minimum Subsequent Purchase: Advisor Series Premium Series Order Cut−off Time: Investment Advisor: Inquiries: Website: $621.8 million Yes
Fund Commentary
Despite relatively stable short−term bond yields, mortgage rates rose during the third quarter. The yield on the DEX Residential Mortgage Index increased by 40 basis points (bps) to 7.05%, as the major banks hiked rates at the very end of the quarter. The yield differential between 5−year fixed mortgage rates and the 5−year Government of Canada bond spiked approximately 80 bps to 429 bps during the quarter, its highest level over the past decade. With continued concerns surrounding global credit markets, it would appear that the banks are continuing to take a conservative approach to their mortgage lending and passing on their increasing funding costs to customers. The attractive running yield of the Fund will be positive for returns going forward. Portfolio duration, which was positioned in line with the benchmark at approximately 2 years, had little impact on relative performance. Weakness in the U.S. economy is expected to dampen export growth, while a slowdown in the housing market and continuing energy cost pressures will act as drags on consumer spending. Our economic forecasts for growth and inflation for 2008 are 0.6% and 2.9% respectively, with 1.2% and 3.1% respectively, expected in 2009. Despite continuing concerns over a lack of confidence and liquidity in global financial markets, the Bank of Canada (BOC) left overnight rates unchanged at 3.0% over the course of Q3. The BOC has cited renewed concerns regarding potential inflationary pressures, echoing the sentiments of other global central banks, as inflation replaced growth as the primary risk factor in determining monetary policy. However, as financial market turmoil increased dramatically in the last few weeks of the quarter, it would now appear that global central banks will need to act more aggressively to deal with the problems in the credit markets and their impact on global economic growth. The BOC is now expected to cut rates by 50 bps by year end. The U.S. Federal Reserve similarly left overnight rates unchanged at 2% in Q3 on inflation risks. We also believe they will react to growing financial market and economic risks by reducing rates by 75 bps over the remainder of 2008. In the short−term, we feel that valuations in the mortgage market are attractive, particularly when compared with money market securities, and will continue to invest excess cash. The average term of the mortgages in the Fund remains conservative at 2.0 years. CA#M0800447
$500 $100,000
$50 $1,000 1:00pm PST HSBC Global Asset Management (Canada) Limited 1−888−390−3333 hsbc.ca/funds
Clients may purchase the Investor and Advisor Series units of all HSBC Mutual Funds in U.S. dollars, with the exception of the Canadian Money Market Fund. The U.S. Dollar Purchase Service is offered as a convenience to advisors and investors. Performance of a fund using the U.S. Dollar Purchase Service may vary from the performance of the same fund in Canadian dollars due to fluctuation in the exchange rate between the two currencies. However, it will have no impact on the overall performance of your clients´ investment in Canadian dollar terms and does not act as a hedge against currency fluctuations between the Canadian and U.S. dollars.
Data and performance provided by: CTVglobemedia Publishing Inc. HSBC Investment Funds (Canada) Inc. ("HSBCIF") is the manager and principal distributor of the HSBC Mutual Funds. Commissions, trailing commissions, management fees and expenses all may be associated with investments in the HSBC Mutual Funds. Please read the HSBC Mutual Funds Simplified Prospectus before applying to invest. HSBC Mutual Funds are not guaranteed or covered by the Canada Deposit Insurance Corporation, HSBC Bank Canada, or any other deposit insurer or financial institution. The value of an investment in the HSBC Mutual Funds may change frequently and past performance may not be repeated. The unit value of money market funds may not remain constant. HSBCIF is a direct subsidiary of HSBC Global Asset Management (Canada) Limited and an indirect subsidiary of HSBC Bank Canada and provides its services in all provinces of Canada except Prince Edward Island. The fund commentary contained in this document has been prepared by HSBC Global Asset Management (Canada) Limited. Opinions expressed in the document are subject to change without notice and this information is not intended to provide professional advice and should not be relied upon in that regard. You are advised to obtain appropriate professional advice where necessary and should consult your investment representative before considering a specific transaction. We, our affiliates and our officers, directors and employees may hold a position in any securities mentioned in this document (or in any related investment) and may from time to time add to or sell any such securities or investment. As well, we and our affiliates may act as market maker or have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. HSBC Global Asset Management (Canada) Limited is a subsidiary of HSBC Bank Canada and provides services in all provinces of Canada except Prince Edward Island.