Investment Stuff - alpha, beta, sharpe ratio

The HSBC fund fact sheets have all these figures that I didn't know what they meant, so I did some googling and found out.

Alpha - The higher the better. A positive alpha means this fund outperformed the benchmark by that percentage (1 = 1 percent better). A negative number is bad.

Beta - measures volatility. The lower the better. A beta of 1 means this fund is as volatile as the market. Utilities and bonds have a low beta, tech stocks have a high beta.

Sharpe Ratio - higher the better, measuring risk adjusted performance. Wikipedia has a good example so I'll just plagiarize here:

"As a guide post, one could substitute in the longer term return of the S&P500 as 10%. Assume the risk-free return is 3.5%. And the average standard deviation of the S&P500 is about 16%. Doing the math, we get that the average, long-term Sharpe ratio of the US market is about 0.4 ((10%-3.5%)/16%). But we should note that if one were to calculate the ratio over, for example, three-year rolling periods, then the Sharpe ratio could vary dramatically."

So you should look for funds with at least a Sharpe Ratio of 0.4, if not more.

The ideal fund would have a high alpha, low beta, and a high sharpe ratio. In English that means you want a fund that outperforms its benchmark, has low volatility, and has a higher risk adjusted return than the S&P 500 (10%) as compared to 30 year Treasuries (3.5%).

Best way to automatically invest if using HSBC in HK

First, if you go to the branch and talk to a wealth manager, they will steer you towards their Wealthinvest Insurance plan, which blows.

Of course, what's not clear online is the 'early encashment charge' which is what they charge you if you withdraw before 10 years. During year 1, it's 50%, and it rapidly goes down (50%, 30%, 21%, 17%, 14%, 12%, 10%, 8%, 6%, and finally 0%), but it's definitely not flexible. Add on top the 2% fee/year you are paying for their platform, and you can quickly conclude that this is not a good plan.

The better plan (which they will steer you away from) is the Unit Trust Monthly Investment Plan. The reason they will use is that you will get charged 5% every time you buy a fund. Of course, they neglect to mention (and they tell me actually that you can't actually buy) their no fee funds with the UTMIP :

The 27 No Fee Unit Trusts available from HSBC HK as of 6/23/2011

The UTMIP plan can be stopped at anytime (I set mine to stop after 1 year automatically), has a 1000 HK minimum per fund, and if you buy the no fee funds there's no 5% fee. You only pay for the funds management fee (which is the same with Wealthinvest) and if you stop before the year is up there's another 1% charge.

This is a much, much better deal than the Wealthinvest plan. The Wealthinvest plan is only worth it if you love the 44 funds in the plan they are offering, and don't plan on touching it for 10 years, and like the idea of paying for some capital preservation insurance if you die (basically, if the amount of investments goes below your principal and you die within the 10 years, there's a death benefit that covers the difference, up to 500k USD).

I emailed my wealth manager a screenshot of my confirmation screen buying my no fee fund of choice using UTMIP, just to make sure he knows for sure that what his colleague was telling him was not true.