Use of index tracking funds set to expand in coming years, says HSBC

Published: 11 August 2009

Index tracking funds are set to become more popular in coming years, according to research conducted by HSBC Global Asset Management. The survey found that 95 per cent of financial advisers would either significantly or moderately increase their exposure to index tracking funds over the coming three years.

Andy Clark, Managing Director -Wholesale, HSBC Global Asset Management (UK), said index trackers were set to take a bigger slice of the wealth management market, as low cost beta takes a bigger role at the core of an investment portfolio.

"Particularly in highly efficient markets where fund managers are finding it difficult to outperform markets, index tracking funds have an important role to play. With prices coming down across the industry, there is increasingly a clear price differential between active and passive solutions," he said.

The research also determined that when choosing funds, 90 per cent of advisers deemed price as a highly important factor. The method/system of tracking and strength/reputation of provider were considered other important factors when choosing between index tracking funds, with level of service and fund size considered lower importance.

By far, the most popular use for index trackers among UK intermediaries is to track UK indices: 87 per cent of advisers said they would use trackers to gain exposure to these markets.

HSBC Global Asset Management recently announced that from 1 September 2009, it would slash the fees across its full seven-strong UK-based index tracking range (1) to 0.25 per cent. HSBC index tracking funds had previously ranged in price from 1-0.5 per cent.

The move means HSBC now offers the biggest index tracking range for retail investors, at a market leading price (2).

The new charging structure is available for investments as low as GBP1,000 lump sum or GBP50 regular savings. The reduced charges apply to new and existing investors and takes effect from 1 September 2009. There is no initial charge.

HSBC's new pricing structure does not pay commission, so is likely to appeal to the growing base of fee-based advisers. Clark said the move also recognised that the Retail Distribution Review would create the need to develop factory gate pricing consisting of a clean fee and advice fee. For this reason, HSBC Global Asset Management is at the forefront of a new era in pricing.

Media enquiries to:

Jenne Mannion 44 0 20 7024 0444 or at e-mail Jenne.mannion@hsbc.com

Jane Crookbain 44 0 207 024 0412 or at e-mail Jane.crookbain@hsbc.com

Charlotte McMullen 44 0 20 7153 1549 or at e-mail mcmullen@MComGroup.com

Notes to editors:

1.  

   Index fund	Previous AMC	New AMC	Predicted new TER
   FTSE 100	1%	0.25%	0.27%
   FTSE 250	0.75%	0.25%	0.27%
   FTSE All Share	0.50%	0.25%	0.27%
   American Index	1.00%	0.25%	0.28%
   European Index	1.00%	0.25%	0.32%
   Japan Index	0.50%	0.25%	0.29%
   Pacific Index	0.75%	0.25%	0.37%

   
   

2. HSBC index tracking funds, will from 1 September 2009, have an AMC of 0.25 per cent. Although there are other companies offering trackers at this cost or lower, it is not across a wide range. Some other providers are cheaper than 0.25 per centhowever this is generally for institutional share classes only or they may have additional charges such as purchase fees or registration fees. HSBC Global Asset Management is comparing this figure against other providers' pricing based on a minimum investment of GBP10,000. (HSBC index trackers minimum investment is GBP1,000 or GBP50 regular savings).
   
   A table of UK index funds with lowest TERs is below (listing those with retail share classes only). A table of the largest index tracking funds, produced by Lipper, is available from HSBC Global Asset Management upon request.
   
   The research was commissioned by Consensus. 100 intermediaries were polled.

   Largest index tracking unit trusts/OEICs

   
   

   Fund	Fund Size (GBPm)	TER	AMC	Source report
   L&G UK Index	2,842.3	0.51%	0.50%	06/10/08
   Halifax UK FTSE All-Share Index-Tracking	1,795.0	1.50%	1.50%	31/07/08
   Virgin Money UK Index Tracking	1,485.5	1.00%	1.00%	15/09/07
   L&G European Index	1,244.1	0.79%	0.75%	31/07/08
   L&G US Index	1,030.0	0.77%	0.75%	05/06/08
   Halifax UK FTSE 100 Index Tracking	745.8	1.50%	1.50%	31/07/08
   L&G (N) Tracker UK Tracker Trust	559.8	1.00%	1.00%	30/09/07
   L&G Pacific Index	487.1	0.82%	0.75%	25/03/08
   Fidelity Moneybuilder UK Index	480.8	0.27%	0.10%	31/08/08
   Aviva Investors UK Index Tracking	405.7	0.95%	0.90%	15/04/08

   
   

   The size of funds shown is at portfolio level, while the TERs relate to the main retail share class.
   Source: Lipper

HSBC Global Asset Management

HSBC Global Asset Management comprises four specialist businesses: Halbis, Sinopia, Multimanager and Liquidity. HSBC Multimanager and HSBC Liquidity are global business units which are part of HSBC Global Asset Management. Halbis Capital Management ('Halbis') and Sinopia Asset Management ('Sinopia') are legally established as separate companies.

HSBC Global Asset Management manages assets of USD390.12 billion (as at end June 2009). Through its network of offices in over 20 countries around the world, HSBC Global Asset Management develops strong relationships with corporates, institutions and financial intermediaries of all sizes and types. HSBC Global Asset Management acts as the global representative of its specialist investment businesses.

HSBC Global Asset Management is part of HSBC Global Banking and Markets, a division of HSBC Holdings plc.

For more information see www.assetmanagement.hsbc.com.

HSBC Holdings plc

HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The Group serves customers worldwide from around 8,500 offices in 86 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With assets of USD2,422 billion at 30 June 2009, HSBC is one of the world's largest banking and financial services organisations. HSBC is marketed worldwide as 'the world's local bank'.