HSBC hires RadiantESG to give fund ESG treatment

The mandate to redo the bank's small- and mid-cap growth mutual fund represents RadiantESG's second portfolio.

HSBC is tweaking its small- and mid-cap growth mutual fund to give it an ESG spin, bringing on women-led firm RadiantESG as the new subadviser.

The HSBC Opportunity Fund has been renamed as the HSBC RadiantESG US Smaller Companies Fund, with RadiantESG replacing the incumbent subadvisor Westfield Capital Management Co.

RadiantESG, which is backed by HSBC, launched its first strategy in December, a small- and mid-cap portfolio that became available through separately managed accounts and commingled funds earlier this year. The new HSBC fund mandate represents the first mutual fund that the company subadvises.

The revamped fund’s principal investment strategy uses proprietary models to evaluate companies by fundamentals and ESG criteria, with the goal of having stronger long-term risk-adjusted returns. The fund screens out stocks with excessive tail risk and fills out the portfolio with competitive fundamental and ESG scores, according to the prospectus.

The benchmark used by the fund, the Russell 2500 Growth Index, is not changing, the companies said in an announcement.

The fund, which was launched in 1996, represented more than $81 million in assets as of the end of March. However, the fund now has about $28.9 million, data from Morningstar show.

The change is attributed to a large investor recently selling its shares. The fund returned 34.3% in 2019, 33.4% in 2020, 16.2% in 2021 and has seen year-to-date returns of -29.2%, according to Morningstar data for I shares of the product.

Management fees for the fund are 60 basis points, with a total net fee of 145 basis points for A shares, according to the prospectus.

RadiantESG currently has about $30 million in assets under management, company co-founder Kathryn McDonald said in an email.

In addition to the two existing strategies, RadiantESG is in discussions with prospects about others that would fit with its global capabilities, “several of which are explicitly impact focused,” or aligned with UN Sustainable Development Goals, McDonald said.

[More: Scrutiny of ESG investments heralds better days ahead, managers say]