HSBC Focused Fund Direct Growth INF336L01PB2

HSBC Focused Fund earns an Average Process Pillar rating.

The most substantial contributor to the rating is the size of its portfolio management team. With three portfolio managers at the helm, the fund is reasonably well-resourced. The fund's concentrated portfolio, with its top 10 holdings accounting for 53% of assets, also strengthens the Process rating. Investors should be mindful that high-conviction portfolios can be volatile, as one misstep can have an outsized impact on returns. However, the process is limited by the parent firm's five-year risk-adjusted success ratio of 44%. The measure indicates the percentage of a firm's funds that have beat their respective category's median return for the period. The parent's modest success ratio suggests that the firm could do better across its fund lineup.

This strategy is similar to its Focused Fund category peers in terms of market-cap and style exposure. Analyzing additional factors, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to suffer from a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also had more exposure to high-momentum stocks in recent years. Momentum approaches bet that rising stocks will continue to rise and that lagging stocks will continue to lag. Compared with category peers, the strategy also had more exposure to the Momentum factor in the most recent month. In addition, this strategy has shown a tendency to hold fewer stocks with high dividend or buyback yields over peers in recent years. Returning capital to shareholders often is not the highest priority of such businesses. The shares of such companies can deliver strong returns if they fulfill their growth projections, but they also carry more risk. Nevertheless, the fund's Yield exposure was in line with peers in the latest month. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.

The portfolio is overweight in healthcare and industrials relative to the category average by 5.5 and 5.4 percentage points, respectively. The sectors with low exposure compared with category peers are communication services and consumer cyclical, underweight the average by 6.6 and 5.8 percentage points of assets, respectively. The portfolio is composed of 29 holdings and is quite concentrated. In particular, 52.7% of the portfolio's assets are housed within the top 10 holdings, as opposed to the typical peer's 33.9%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 38% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.