European Equities: “Value” calling! · Positively correlated to the cycle and reflation...

January 2017

European Equities: “Value” calling!

This presentation is intended for Professional Clients only and should not be distributed to or relied

upon by Retail Clients. The information contained in this publication is not intended as investment

advice or recommendation. Non contractual document

Frédéric Leguay

Head of European Equities and

Large Cap European Equities

Lead portfolio manager(HSBC Global Asset Management France)

Denis Grandjean

Head of Equity and ESG Research

Back-up portfolio manager(HSBC Global Asset Management France)

2Non contractual document

Summary

European equity: 2016 in review Section 1

2017 European equity outlook Section 2

Euphoria? Section 3

"Value" calling! Section 4

HSBC GIF Euroland Equity Section 5

̶ Process, performance review & stock examples

Assets, teams and expertise Section 6

Appendix Section 7

European equity: 2016 in review


Source: HSBC Global Asset Management (France). For illustrative purposes only. Representative overview of the investment process, which may differ by product, client mandate or market conditions.

2016: Main events

Quality becomes

a value trap

Central Bankers

take a back-seat

The political

response to

populism is

reflation

Shift from macro

concerns to global

economic re-

synchronisation


Sources: HSBC Global Asset Management, MSCI as at 31/12/2016. For illustrative purposes only.

The content of this page is historic and contains information that is not current. It is not intended as advice or a recommendation to buy or sell any sector or financial instrument.

2016: Eurozone sector performance

ARCELORMITTAL 132%

STMICROELECTRONICS 82%

COVESTRO AG 72%

ADIDAS AG 69%

TENARIS SA 60%

TECHNIP SA 55%

LANXESS 48%

KERING SA 39%

REPSOL SA - MADRID 38%

DANONE (GROUPE) -1%

DEUTSCHE BOERSE AG -6%

HEINEKEN NV -8%

ACCOR SA -9%

ANHEUSER-BUSCH INBEV -10%

KERRY GROUP PLC-A DUBLIN -10%

UNITED INTERNET -26%

NOKIA OYJ -27%

INGENICO GROUP -34%

2017 European equity outlook

Non contractual document


Are there good reasons to be optimistic?The lost decade: coming to an end?

Europe vs US: Relative Performance (TR) and Relative earnings Growth over 10Y

Sources: HSBC Global Asset Management, MSCI, IBES, Factset, Morgan Stanley Research, Consensus Earnings Estimates over time, as at 31.12.2016.

Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (France) accepts no liability for any failure to meet such forecast,

projection or target.

The figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns.


Are there good reasons to be optimistic?Synchronous economic momentum

Citigroup – Economic Surprise Indicators

Period: 30.09.2013 to 31.12.2016

1.The NR (Net dividends reinvested) index provides the equity returns including dividends net of withholding tax. http://www.msci.com/products/indexes/real_time/

Sources: Bloomberg and MSCI as at 31.12.2016. For illustrative purposes only.

The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns.

• Higher Commodity Prices

• Bounce in Manufacturing Activity

• End of Inventory Destocking

• Rebound in Capital Spending

• Falling Unemployment

• Rising Consumer spending

• Global Fiscal Expansion

http://www.msci.com/products/indexes/real_time/


Are there good reasons to be optimistic?Credible acceleration in profit growth

Earnings revision ratio

Sources: HSBC Global Asset Management, MSCI, IBES, Factset, Morgan Stanley Research, Consensus Earnings Estimates over time, as at 31.12.2016.

Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (France) accepts no liability for any failure to meet such forecast, projection or target.


• Higher commodity prices

• Bounce in global nominal GDP

• Higher inflation

• Lower Euro

• Lower interest rates

• Lower tax rates


Eurozone Consensus Profit Estimates (EUR mn)

Source: MSCI EMU – Consensus Next 12-month Earnings Estimates over time. Sources: Global Asset Management and MSCI, MSCI, IBES, Factset, Morgan Stanley Research as at 31.12.2016.

Note: Data calculated before goodwill and in local currency terms.



Are there good reasons to be optimistic?4 bubbles and a cycle

• High operational gearing (net margins at 5%)

• High proportion of financials (20% earnings)

• Large sensitivity to commodity (15% earnings)

• Large exposure to emerging (20% sales)

• Domestic pent-up

• Positive impact of lower Euro (50% of sales)

From Previous Peak -58.8% 0.0% -2.6% -64.3% -1.9% -48.3% -3.2% -46.8% 0.0% -54.0% -30.8%

Trend Growth 1996-2006 10.2% 4.9% 8.3% 15.2% 6.1% 6.4% 2.8% 11.3% 8.0% 7.9% 8.3%

Trend Growth 2007-2016 -7.4% 8.0% 3.7% -7.1% 1.4% -3.8% 1.7% -7.4% 4.9% -7.6% -1.9%

FIN COD COS ENE IND MAT INF TEL HEA UTI MKT


Source: Datastream, Morgan Stanley, MSCI as at 31.12.2016. For illustrative purposes only.


Trend PE in Europe

Period: 31.07.1985 to 31.12.2016

1985 2016

Europe – Earnings per Share and Trends (Log scale)

Period: 31 July 1985 to 31 December 2016

Are there good reasons to be optimistic?Is 3% the right level of trend growth for earnings in Europe?

15.4 x

9.6 x


Sources: Bloomberg and MSCI as at 31.12.2016. For illustrative purposes only.


Europe Trend PE vs. Real total return achieved 10 years later (December 2016)

Period: December 1979 to December 2006

On the horizontal axis (left to right) a given dot presents the valuation

(trend PE) of the Europe equity market at a given month over the period

(December 1979 to end February 2006). The same given dot also

shows the historical returns achieved over the following 10 years

(December 1989 to February 2016). It is pretty clear that the dots further

to the right which present the market at high valuations (Trend PE) are

generally followed by very low to negative returns over the following 10

years. At the current Trend PE of 13.6, most of the returns in the following

10 years are concentrated in a +5% to +15% return range. Months in

which Trend PEs are particularly low (far left) have systematically been

followed by 10 year returns in excess of +10% per year.

Trend PE of 15.4 is at end-December 2016

Historical range of yearly Real Total Return achieved

for 10 years in Europe when the Trend PE is at 15.4x

Are there good reasons to be optimistic?Still consistent with attractive risk-adjusted returns

Euphoria?


Source: Datastream, Morgan Stanley, MSCI as at 31.12.2016. For illustrative purposes only.


Relative Long Term Valuation Measures (Europe vs. US) – Z-Score

Period: 31.12.1980 to 31.12.2016

Are we already in Euphoria?Not in Europe! - Valuation


Source: Datastream, Morningstar, MSCI as at 31.12.2016. For illustrative purposes only.


Net Flows into European Equity Funds – as a percentage of the Assets under Management (€476 bn)

Period: 31.01.2007 to 31.12.2016

Are we already in Euphoria?Not in Europe! - Liquidity


Source: Datastream, Morningstar, MSCI as at 31.12.2016. For illustrative purposes only.


Relative Beta to the market of the largest 140 Eurozone funds

Period: 08.07.2011 to 31.12.2016

Are we already in Euphoria?Not in Europe! - Sentiment

The average Beta of Eurozone funds has hardly moved and remains

“Value” Calling!


"Value" Calling!A typical value rally lasts 2 yrs & averages +25% relative performance

Sources: Datastream, Morgan Stanley, MSCI as at 31.12.2016. For illustrative purposes only.


Value Spread (Price to book: expensive/cheapest) – Z-Scored

Period: September 1996 – December 2016


"Value" Calling!Positively correlated to the cycle and reflation

Sources: Datastream, Morgan Stanley, MSCI as at 31.12.2016. For illustrative purposes only.


MSCI Europe Value – Relative performance vs. MSCI Europe Growth and Long term US interest rates

Period: September 2002 – December 2016

(rhs)(lhs)


"Value" Calling!Positively correlated to the cycle and reflation

Sources: HSBC Global Asset Management,MSCI as at end-December 2016. For illustrative purposes only.




MSCI Europe

6-Month regression between the Industry Group relative performance and the change in the indicator – 20 years – Dec 2016

Relative performance

expectationsHigher Long term Interest rates Higher Inflation

Diversified Financials Diversified Financials

Materials Materials

Banks Banks

Capital Goods Energy

Automobiles & Components Capital Goods

Retailing Retailing

Household & Personal Products Pharmaceuticals Biotechnology & Life Sciences

Telecommunication Services Household & Personal Products

Pharmaceuticals Biotechnology & Life Sciences Food Beverage & Tobacco

Food Beverage & Tobacco Telecommunication Services

Relative performance

expectationsHigher ISM (US) Higher Eurozone Composite PMI

Banks Banks

Semisconductors and equipment Semisconductors and equipment

Materials Consumer Durables & Apparel

Consumer Durables & Apparel Capital Goods

Capital Goods Materials

Household & Personal Products Food & Staples Retailing

Telecommunication Services Telecommunication Services

Food & Staples Retailing Household & Personal Products

Food Beverage & Tobacco Food Beverage & Tobacco

Pharmaceuticals Biotechnology & Life Sciences Pharmaceuticals Biotechnology & Life Sciences

-

+

-

+


Sources: HSBC Global Asset Management, MSCI as at 31.12.2016. For illustrative purposes only.


"Value" Calling!Faster profitability improvement

MSCI Europe Value – Relative performance and Relative EPS vs. MSCI Europe Growth

Period: April 2005 to December 2016


Source: HSBC Global Asset Management (France) as at 31.12.2016. For illustrative purposes only.


The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the markets, according to the information available to date. They do not constitute any

kind of commitment from HSBC Global Asset Management.

"Value" Calling!Where is value?

Trend PE Schiller PE Profitability & Valuation

Food & Staples Retailing Food & Staples Retailing Banks

Utilities Utilities Automobiles & Components

Energy Materials Insurance

Banks Telecommunication ServicesPharmaceuticals Biotechnology & Life

Sciences

Materials Automobiles & Components Energy

Telecommunication Services Energy Capital Goods

Pharmaceuticals Biotechnology & Life

SciencesBanks Food & Staples Retailing

Commercial & Professional Services Commercial & Professional Services Real Estate

Semisconductors and equipment Retailing Software & Services

Transportation Consumer Services Retailing

Household & Personal Products Household & Personal Products Health Care Equipment & Services

Food Beverage & Tobacco Health Care Equipment & Services Consumer Durables & Apparel

Health Care Equipment & Services Software & Services Household & Personal Products

Retailing Semisconductors and equipment Food Beverage & TobaccoExpensive

Cheap


Risks

Sources: HSBC Global Asset Management. For illustrative purposes only. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset

Management (France) accepts no liability for any failure to meet such forecast, projection or target.

Bond yields overshoot

US profit cycle weakens

Chinese investment bubble bursts

Excessive currency volatility

Political uncertainties

Structural deflation awakens again

Disruption in economic models accelerates

HSBC GIF Euroland Equity



We believe it is possible to achieve

out performance by exploiting the

strong relationship that exists

between profitability and valuation

We believe it is easier to outperform

by selecting stocks with a medium

term view

Profitability is our framework,

valuation our discipline

Our style has a marginal

“contrarian” and “value” bias

Graphical Representation

1st Quintile – the most attractive

0.0

1.9

3.8

5.7

7.7

9.6

0.0% 10.7% 21.4% 32.1% 42.9% 53.6%

Profitability

Valu

atio

n

Expensive

Attractive

Illustration of investment universe

2nd Quintile – attractive

3rd Quintile – Fair value

4th Quintile – Not attractive

5th Quintile – the least attractive

Profitability & valuationOur investment process illustrated


Profitability & valuation: adapting the bias to the economic cyclePortfolio exposure to profitability profiles


Profitability profiles of companies

in strategy …

…high and stable

Pro

fita

bil

ity (

%)

Cost of capital

…average but growing

Pro

fita

bil

ity (

%)

Cost of capital

…weak but recovering

Pro

fita

bil

ity%

Cost of capital

10%

60%

30%

30%

50%

20%

Our holdings (by profitability profiles) depend on the profitability cycle

We OW cheap cyclicals when signs of an economic recovery appear

We OW high & stable profitability companies when the profitability

cycle is maturing to protect our relative performance when markets

consolidate

Average

profitability

Recessionary phase Expansionary phase

Time

28 Document non contractuel

Integration of ESG criteria is key in our stock selection

Source: HSBC Global Asset Management. For illustrative purposes only. Representative overview of the investment process, which may differ by product, client mandate or market conditions.

• Absolute: level of

consistency/adherence to

the 10 ONU principles

• Relative approach:

ranking from 0 to 10 and

per percentile. Source:

MSCI ESG Research &

GMI and our ESG

internal weightings by

sector

• The results of the ratings

are ranked from 0 to 10

(10 is best) and a

percentile ranking is

issued (100th is best rate)

• High, Medium and Lowratings are available in the "Font-office" tools

• « Executive Summary» for each stock (hosted on internal website tool)

• Financial and ESG analysis:

- For new investment cases

- Annual reviews

- Monitoring of « High Risk »

• A «Due Diligence» is required for all “High Risk” names along with decisionifrom local CIO who is responsible of the final decision (maintain, under monitoring, exclusion)

• Ratings:

- « High Risk » :

Company violated 1 or

several of the 10 ONU

principles, or ranked

within the 5 last

percentile

- « Medium Risk » :

company is suspected

as not fulfilling 1 of the

10 principles, or ranked

between 5th and 20th

percentiles

- « Low Risk »:

identify/determine?

Company complies to

ONU principles, or

ranked between 20th

and 100th percentiles

• Voting policy favours

governance practice

• We publish an annual

report summarising

voting decisions and

reasons for which we did

support resolutions

For additional information related to

the voting poilicy and the exercise of

voting rights is available in the annual

report, please refer to the following

website:

http://www.assetmanagement.hsbc.co

m/fr/footer/politique.html

• A dedicated team of

"Engagement" meets

both companies held in

the portfolio

• The aim of this

engagement actions is

to create awareness and

to increase

understanding of our

concerns and

expectations

• Engagement actions will

define our voting

decisions and whether

the stock should be

liquidated

Absolute

and relative

approach

Risk ranking

across ESG

intranet tool

Management

riskVoting right Engagement


HSBC GIF Euroland Equity: net performance (IC share class) AUM EUR 755.1 million as at 31.12.2016

Source: HSBC Global Asset Management (France) as at 31.12.2016. Management fees: I share Class: 0.75%. Operating, administrative and servicing expenses: 0.25%.

* Index given for comparative and illustrative purposes only. The fund is not managed to the index, is actively managed and returns may deviate materially from the performance of the specified index.

Allocation is as at the date indicated, may not represent current or future allocation and is subject to change without prior notice.



Net cumulative performance (IC share class) since inception

15.12.2006 – 31.12.2016

Fund

Tracking Error (ex-post 3 ans) 3.35%

Number of holdings 57

1st Quartile

2st Quartile

3rd Quartile

4th Quartile

10 Largest holdings (%) Weight

SOCIETE GENERALE 3.43%

SANOFI 3.33%

ALLIANZ SE-REG 3.30%

AXA SA 3.03%

BANCO SANTANDER SA 2.96%

BAYER AG 2.85%

ING GROEP NV 2.84%

DEUTSCHE POST AG 2.68%

DAIMLER AG 2.65%

NATIXIS 2.40%

Total 29.47%

Net performance 2016 2015 2014 2013 3 years 5 yearsSince

launch (IC)

HSBC GIF Euroland Equity (IC) 4.7% 11.8% 2.8% 31.6% 20.4% 87.5% 34.7%

MSCI EMU (NR)* 4.3% 9.8% 4.3% 23.4% 19.5% 75.9% 16.1%

Excess Return 0.4% 2.0% -1.5% 8.2% 0.8% 11.6% 18.6%

Quartile# 2 2 3 1 2 1 N/A

# Morningstar fund quartile - category Eurozone Large-Cap Equity: please note that this ranking is calculated with the retail A share class. Management Fees: A share class:

1.50% Operating, administrative and servicing expenses: 035%. Data Source - © Copyright 2016 Morningstar, Inc. All Rights Reserved. The information contained herein: (1)

is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar

nor its content providers are responsible for any damages or losses arising from any use of this information.

+34.7%

+16.1%


HSBC GIF Euroland Equity (IC): gross returnsAn illustration of how the fund performs in up and down markets

Source: HSBC Global Asset Management (France). Performance in EUR, gross of fees. Period: 30.09.2004 to 31.12.2016. For illustrative purposes only.

*As of end of September 2004, the fund has been fully managed following the profitability and valuation investment process. **Index given for comparative and illustrative purposes only. The fund is not

managed to the index, is actively managed and returns may deviate materially from the performance of the specified index.


The performance figures in the document are gross of fees. Returns would be lower once fees are taken into account.

The fund tends to "do better" in rising markets and perform "in line" in down markets

Excess return (gross of fees): 60.1% (from September 2004* to December 2016)

Gross performance in up and down periods (from 30.09.2004 to 31.12.2016)


HSBC GIF Euroland Equity: factor based competitive positioningBased on weekly NAV between 31.12.2011 and 31.12.2016

Source: HSBC Global Asset Management (France). Each dot on the line is the sensitivity of one of 140 funds to the mentioned factors.

Period: 31.12.2011 – 31.12.2016. The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management (France) on the markets, according to the information

available to date. For illustrative purposes only.


Illustration of the fund and its sensitivity to a number of factors (value, size, quality, dividend yield and market beta); these factors allow

you to show the alpha of the fund

140 funds in the Morningstar Euro Large Cap category with AUM > EUR100m and that have a Euroland large cap benchmark

Value factorSize factorAlpha

Quality factorDividend Yield factorMarket factor


HSBC GIF Euroland Equity (IC)One of the biggest value biases (lowest P/B) vs customised peer group

Peer group analysis: risk adjusted performance and P/B for a selection of Eurozone funds

Period: 01.01.2012 to 31.12.2016

Source: HSBC Global Asset Management (France) as at 31.12.2016. For illustrative purposes only.



HSBC GIF Euroland EquityPerformance attribution 31.12.2015 to 31.12.2016

Source: HSBC Global Asset Management (France). For illustrative purposes only.


The performance figures in the document are gross of fees. Returns would be lower once fees are taken into account.

SOCIETE GENERALE 0.38%

NATIXIS 0.24%

THALES (exTHOMSON-CSF) 0.29%

PRYSMIAN SPA 0.20%

DEUTSCHE POST AG 0.37%

POSTNL 0.12%

ARCELORMITTAL 0.39%

BUZZI UNICEM SPA 0.27%

TELEPERFORMANCE SE 0.26%

PUBLICIS GROUPE SA 0.07%

HEINEKEN NV -0.12%

ARYZTA AG -0.15%

DEUTSCHE BANK AG -0.04%

AHOLD (KONINKLIJKE) NV -0.17%

CARREFOUR -0.23%

GEMALTO -0.08%

CAP GEMINI -0.14%

ENGIE -0.29%

VEOLIA ENVIRONNEMENT -0.44%

Technology Hardware-Equipment UW 0.45%

Food Beverage & Tobacco UW 0.43%

Capital Goods OW 0.21%

Materials UW -0.36%

Semiconductors & Semiconductor UW -0.43%

Consumer Durables & Apparel UW -0.61%

Banks 0.98%

Capital Goods 0.50%

Transportation 0.45%

Materials 0.40%

Media 0.37%

Food Beverage & Tobacco -0.08%

Diversified Financials -0.09%

Food & Staples Retailing -0.16%

Software & Services -0.43%

Utilities -0.64%

SIEMENS AG GERMANY UW -0.28%

ENGIE OW -0.29%

ADIDAS AG UW -0.33%

VEOLIA ENVIRONNEMENT OW -0.44%

BASF SE UW -0.46%

BNP PARIBAS UW -0.47%

UNICREDIT SPA OW -0.61%

ANHEUSER-BUSCH INBEV UW 0.39%

OMV AG OW 0.39%

ARCELORMITTAL OW 0.39%

SOCIETE GENERALE OW 0.38%

NOKIA OYJ UW 0.37%

DEUTSCHE POST AG OW 0.37%

MICHELIN B OW 0.30%

Sect

or

allo

cati

on

: -8

5 b

ps

Stock selection : +220 bps




HSBC GIF Euroland Equity1-year and 3-year factorial performance attribution (30.12.2016)


HSBC GIF Euroland EquitySector positioning



Most important value sectors Least important value sectors

Relative weight

Banks 5,84%

Pharma, Biotec & Life Sciences 2,06%

Automobiles & Components 1,63%

Capital Goods 1,40%

Food & Staples Retailing 1,35%

Insurance 0,13%

Energy -0,88%

Total 11,53%

Relative weight

Health Care Equipment & Services 1,06%

Household & Personal Products -0,45%

Software & Services -0,54%

Retailing -1,55%

Real Estate -1,81%

Consumer Durables & Apparel -3,21%

Food Beverage & Tobacco -3,37%

Total -9,88%

Value sectors in our Profitability & Valuation model & our relative portfolio positioning vs MSCI EMU

36

High superior & stable

Pro

fita

bilit

y %

Cost of capital

Pro

fita

bilit

y %

Cost of capital Pro

fita

bilit

y %

Cost of capital

Low RecoveringMedium RisingDutch - Food retailCapitalisation €25.2 bn

P/B vs ROE (2018e) Strong US activity: anticipation around

food price deflation is exaggerated

Synergies boost results: purchasing

(75%). EBIT margins to progress from

3.8% to 4.2% in 2018

Solid track record in capital allocation:

€1 bn/year stock buy-back program

demonstrates management is confident

Attractive financials: free cash flow yield

@ 7-8% (2017e & 2018e), stock trading

@ P/BV of 1.5x, ROE should improve to

15% by 2018 (implicit PE of 10x)

Source: HSBC Global Asset Management as at 31/12/2016

Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (France) accepts no liability for any failure to meet such forecast, projection

or target.


37

A group in transformation

Gazprom deal increases reserves

lifeline by 9-14 years & implies less

exploration investments & more cash

flow

Good visibility on dividend (over +4%)

& increase likely in 2017

Low debt levels & good cash flow

Profitability/valuation analysis

attractive

Free cash flow & Reserve Life

Period: 2008 to 2020e

Austria - Oil & GasCapitalisation €11.3 bn


Pro

fita

bilit

y %

Cost of capital

Pro

fita

bilit

y %

Cost of capital Pro

fita

bilit

y %

Cost of capital

Low RecoveringMedium Rising



or target.


38

France - BankCapitalisation €38.1 bn

Evolution of profitability (ROTE) and Solvability (CET1)

Period: 2007 to 2020e Stock is still undervalued despite

improved solvability (CET1 FL @ 11.4%

end September 2016)

International network in growth mode

with improving profits

France should benefit from a steeper

yield curve & restructuring in the

network

Stock trading at 0.8x TBV 2017 for a

ROTE of 8.2% vs 0.9x and 7.2% for the

Eurozone sector


Pro

fita

bilit

y %

Cost of capital

Pro

fita

bilit

y %

Cost of capital Pro

fita

bilit

y %

Cost of capital




or target.


39 39

France - AutomobileCapitalisation €25.2 bn

Evolution of the profitability and valuation

Period: 2007 to 2020e 2017 should remain solid after a strong

2016, fuelled by product offensive

Modest growth in Europe but EM could

be a major volume driver (ie Russia)

Cost cutting and productivity

improvements

Market discounts that earnings have

reached a peak

Stock significantly undervalued


Pro

fita

bilit

y %

Cost of capital

Pro

fita

bilit

y %

Cost of capital Pro

fita

bilit

y %

Cost of capital


Sources: HSBC Global Asset Management, Exane as at 31/12/2016


or target.


40


Pro

fita

bilit

y %

Cost of capital

Pro

fita

bilit

y %

Cost of capital Pro

fita

bilit

y %

Cost of capital


Dutch - Specialty ChemicalsCapitalisation €10.3 bn

Strategy to refocus on nutrition is

almost complete

Cost reduction program in place

(€250/300 ml)

Organic growth in “core activities”

Results are expected up: EBITDA

margins for Nutrition division @ 20% by

2018

Company is trading as a 25%

discount vs comparable companies in

sector

EBITA Margin

Period: December 2005 to December 2019e



or target.


41

Dutch - Health Care EquipmentCapitalisation €26.4 bn

Accelerating growth (+ 4 to 6%) thanks

to revised group strategy

Increased profitability, EBITA margins

should increase from 11% to 14% by

2019

Profits growing by 12-15% per year

over the next years

EBITA Margin

Period: December 2005 to December 2019e


Pro

fita

bilit

y %

Cost of capital

Pro

fita

bilit

y %

Cost of capital Pro

fita

bilit

y %

Cost of capital


%



or target.


Assets, teams and expertise


HSBC Global Asset Management: Equity specialistManufacturing center: France

European equities: Key facts

Source: HSBC Global Asset Management as at 30 September 2016

EUR 8.9 bn in equity

assets under

management

~15 equity portfolio

managers (11 large and 4 small and mid cap)

~6 large cap equity

analysts

Our key strengths

– Integrated: one team-one process “profitability

and valuation”

– Specialised: analysts (6) supporting the large

cap team cover 2-3 sectors each.

Manager/analyst role for small and mid cap

segment

– ESG database allows for complete company

analysis

– Unique “repeatable” approach: each

investment case follows predefined steps to

decompose profitability drivers

– Global infrastructure: global database and tools

brings consistency and comparability

– Dedicated Bloomberg application allows

teams to exchange investment cases and

meetings notes


HSBC Global Asset Management: Equity specialistCapabilities

Source: HSBC Global Asset Management as at 30 September 2016

*Employees’ Savings Plans

Core (large cap):

EUR 6.4 bn

Dividend/Income:

EUR 1.1 bn

SMID: EUR 800 ml

European equities: Assets under management by type

Other*: EUR 560 ml

Active fundamental stock selection

Long dated track record

Robust long term performance– Consistently in 1st or 2nd quartiles; 3 & 5Y periods

– Focus is on delivering optimised risk adjusted

returns

Strategy Launch date Process upgrade

Core (large cap) 1980 2004

Dividend/Income 2003 2012

SMID 1998 2003

Strategy Geography

Core (large cap) Europe, Europe ex UK, Euroland, France

Volatility Focused Europe, Europe ex UK

Dividend/Income Europe

SMID Europe, Euroland, France


OrganisationParis European equity investment team

An experienced investment team in Paris with an average over 20 years industry experience

Stable and committed teams benefiting from a common investment framework supported by customized tools

ESG (Environmental, Social and Governance) factors are systematically taken into account1

1. Formal integration of ESG criteria were implemented as of 2012.

Source: HSBC Global Asset Management (France). As of January 2017. ( x ) Years of industry experience. For illustrative purposes only.

Research and

Development

1 economist

European Equity:

Tony Eagleton (22)

Global RI:

TBD

Product Specialists

Cédric Carpentier (14)

Risk management tools and

strategy research

Investment Process

R&D

Pascal Pierre (19)

Head of Equity

and ESG1 Research

Denis Grandjean (27)

Head of Large Cap

European Equity

Frédéric Leguay (28)

Head of Thematic

Equity

Pascal Pierre (19)

Portfolio Managers Financial and ESG1 AnalystsFinancial engineering

& quantitative research

Head of European Equities - Frédéric Leguay (28)

Equity Traders

5 traders

Laura Fauveau (3)

Materials and Construction,

Healthcare, Business

Services

Aloys Goichon (12)

Utilities, Oil & Gas

and Capital Goods

Guillaume d’Harcourt (37)

Aerospace-Defense, Autos

Eric Hazart (24)

Bank, Insurance and Real

Estate

Benoit Olle-Laprune (23)

Technology, Media and

Telecoms

Florence Tassan (18)

Consumer goods and

services, Transportation

François Chacun (28)

Jeanne Follet (18)

Patrick Gautier (17)

Denis Grandjean (27)

Bénédicte Mougeot (21)

Yann Petel (33)

Jean-Luc Rondet (29)

Arnaud Tourlet (17)

SMID Cap Equity

Other Thematic

Abderrahman Belcaid (11)

Frédérique Caron (15)

Christophe Peroni (20)

François Travaillé (29)

Clément Tasseau (14)


HSBC GIF Euroland EquityPortfolio Managers

Source: HSBC Global Asset Management.

Denis Grandjean

Head of Equity and ESG Research

Back-up portfolio manager

Denis has been working in the industry since 1990

Prior to joining HSBC in 2004, Denis held the positions of Portfolio Manager at Crédit Commercial de France and at

Elysées Fonds

He graduated with degree in economics from the University of Paris X (France) and graduated with a degree in

Finance from ESC Rouen (France)

He is a Certified European Financial Analyst

Frédéric Leguay

Head of European Equities and Large Cap European Equities

Lead portfolio manager

Frédéric has been working in the industry since 1989

Prior to joining the Group in 2006, Frédéric worked for AXA Investment Managers in the European Equity team and

for Indosuez Carr Futures International in London and Chicago

He holds a Master's degree from the business school ISC Paris (France) and holds an MBA from the University of

Georgia (United States)

He is a Certified European Financial Analyst

Appendix


Portfolio characteristics

Comparative index MSCI EMU (NR)*

CapitalisationBiased to large-cap stocks:

EUR1bn minimum (at purchase)

Style « Value » bias

Typical holdings 50-60**

Individual stock holdings 5% max.

Tracking error ex-ante 3 - 5%**

Average annual turnover < 30%**

Regional exposure

Mainly 10 developed Eurozone countries

(Austria, Belgium, Finland, France,

Germany, Ireland, Italy, Netherlands,

Portugal, Spain)

Sector exposure

No sector constraints yet impose a

minimum of 15 to be held at all times

(out of the 24 MSCI industry groups)

Cash weighting 0-5%**

Source: HSBC Global Asset Management as of 31.12.2016. For illustrative purposes only.

* Index given for comparative and illustrative purposes only. The fund is not managed to the index, is actively managed and returns may deviate materially from the performance of the specified index.

** The above mentioned limits/objectives are to be considered on the recommended minimum investment period; there can be no assurance that the strategy of the fund will achieve this objective.

Net new money and assets under management

(EUR million) as of 31.12.2016

HSBC GIF Euroland EquityFund details and assets under management


Source: HSBC Global Asset Management (France). The information contained above does not constitute a commitment from HSBC Global Asset Management (France) and is subject to change without

prior notice. For information purposes only, the fund may not be registered for sale in your country. Before subscription, investors should refer to the Key Investor Information Document (KIID) of the fund

as well as its complete prospectus. For more detailed information on the risks associated with this fund, investors should refer to the prospectus of the fund.

HSBC GIF Euroland EquityFund details

Legal Form

Sub-fund of Luxembourg UCITS IV HSBC Global Investment Funds

Valuation

Daily

Dealing

Daily by 10:00 (CET)

Execution

Trade Day

Settlement

Trade Day + 4 business days

Management Company

HSBC Investment Fund (Lux.) SA

Custodian and transfer agent

HSBC Bank Plc. Luxembourg Branch

Recommended investment horizon

Minimum 5 years

Main Risks

Equity risk, Capital loss risk

Launch Date

04 April 2003

Reference Currency

Euro

Dealing currencies

EUR, USD, PLN

Management Fees

1.50% (A) | 0.75% (I)

Performance Fees

None

Subscription/Redemption Fees

5.54% max./None

Minimum Initial Investment

A Share Class: USD5,000; I Share Class: USD1,000,000

Share Type

Accumulation (C) or Distribution (D)

ISIN Codes

AC: LU0165074666

AD: LU0165074740

IC: LU0165074823

ID: LU0165075127

Publication of Net Asset Value

www.assetmanagement.hsbc.com/fr


HSBC GIF Euroland EquityMaterials

Source: HSBC Global Asset Management. For illustrative purposes only.

Fund overview(s) One-on-One’s

Europe Insights

Standard presentation(s)

4-page reporting Campaigns


This document is produced and distributed by HSBC Global Asset Management (France) and is only intended for professional investors as defined by MIFID. All non-authorised reproduction or use

of this commentary and analysis will be the responsibility of the user and will be likely to lead to legal proceedings. This document has no contractual value and is not by any means intended as a

solicitation, nor an investment advice for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The commentary and analysis presented in this

document reflect the opinion of HSBC Global Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global

Asset Management (France). Consequently, HSBC Global Asset Management (France) will not be held responsible for any investment or disinvestment decision taken on the basis of the

commentary and/or analysis in this document. The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns. It is

important to remember that the value of investments and any income from them can go down as well as up and is not guaranteed. Capital is not guaranteed. Fluctuations in the rate of exchange of

currencies may have a significant impact on fund performance. Funds that invest in securities listed on a stock exchange or market could be affected by general changes in the stock market. The

value of investments can go down as well as up due to equity markets movements. Please note that the strategies are authorised to invest in small and mid-cap stocks, which can present a greater

risk for the investor. All data come from HSBC Global Asset Management (France) unless otherwise specified. Any third party information has been obtained from sources we believe to be reliable,

but which we have not independently verified. The funds presented in this document may not be registered and/or authorised for sale in your country. HSBC GIF Euroland Equity is a sub-fund of

HSBC Global Investment Funds, a Luxemburg domiciled SICAV.

HSBC GIF Euroland Equity is a sub-fund of HSBC Global Investment Funds , a Luxemburg domiciled SICAV. Shares of the Company may not be offered or sold for sale or sold to any "U.S. Person

within the meaning of the Articles of Incorporation, ie a citizen or resident of the United States of America (the "United States"), a partnership organised or existing under the laws of any state,

territory or possession of the United States, or a corporation organised or existing under the laws of the United States or of any state, territory or possession thereof, or any estate or trust, other than

an estate or trust the income of which from sources outside the United States is not includible in gross income for purposes of computing United States income tax payable by it. Before subscription,

investors should refer to the Key Investor Document (KIID) of the fund as well as its complete prospectus. For more detailed information on the risks associated with this fund, investors should refer

to the complete prospectus of the fund.

This material is solely for the attention of institutional, professional, qualified or sophisticated investors and distributors. It is not to be distributed to the general public, private customers or retail

investors in any jurisdiction

Funds that invest in securities listed on a stock exchange or market could be affected by general changes in the stock market. The value of investments can go down as well as up due to equity

markets movements. Investment in Financial Derivative Instruments (FDI) may result in losses in excess of the amount invested. This is because a small movement in the price of the underlying

financial instrument may result in a substantial movement in the price of the FDI.

Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any

financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment

decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI

information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or

related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality,

accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any

MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages (www.mscibarra.com).

Important information for Luxembourg investors: HSBC entities in Luxembourg are regulated and authorised by the Commission de Surveillance du Secteur Financier (CSSF).

Important information for Swiss investors: This document may be distributed in Switzerland only to qualified investors according to Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment

Schemes Act (CISA). The presented fund is authorised for distribution in Switzerland in the meaning of Art. 120 of the Federal Collective Investment Schemes Act. (Potential) investors are kindly

asked to consult the latest issued Key Investor Information Document (KIID), prospectus, articles of incorporation and the (semi-)annual report of the fund which may be obtained free of charge at the

head office of the representative: HSBC Global Asset Management (Switzerland) Ltd., Gartenstrasse 26, P.O. Box, CH-8002 Zurich. Paying agent: HSBC Private Bank (Suisse) S.A., Quai des

Bergues 9-17, P. O. Box 2888, CH-1211 Geneva 1.

HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above document has been produced by HSBC Global Asset Management (France) and

has been approved for distribution/issue by the following entities :

HSBC Global Asset Management (France) - 421 345 489 RCS Nanterre. Portfolio management company authorised by the French regulatory authority AMF (no. GP99026) with capital of 8.050.320

euros.

Offices: HSBC Global Asset Management (France) - Immeuble Coeur Défense - 110, esplanade du Général Charles de Gaulle - 92400 Courbevoie - La Défense 4 – France. (Website:

www.assetmanagement.hsbc.com/fr).

Copyright © 2017. HSBC Global Asset Management (France). All rights reserved. Updated in January 2017.

AMFR_Ext_40_2017

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