- HSBC has been running tracker funds for over 30 years
- We think this fund is a good option for exposure to UK medium and small sized companies
- The fund’s low charges should help it track the FTSE 250 index closely
- This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential
How it fits in a portfolio
The HSBC FTSE 250 Index Fund offers a low-cost solution for tracking the performance of the FTSE 250 Index, which is made up of medium-sized UK companies. Medium-sized companies typically offer more growth potential than the larger companies of the FTSE 100, though they can be more volatile. They also tend to carry out more of their business domestically in the UK. That said, the broader FTSE 250 Index includes investment trusts, some of which invest in overseas markets. This provides the fund with a bit of international diversification. We think this fund could help diversify an investment portfolio focused on larger, or global, companies.
HSBC has been a provider of index trackers for a number of years and is home to an experienced management team. Each fund has a primary, secondary and deputy fund manager, who tend to specialise in a particular region, though in practice the team as a whole helps to manage each fund.
Alongside the wider team, Jonathan Dilley, a senior portfolio manager, heads up the European and UK sectors including the HSBC 250 Index Fund. He joined HSBC after previously working at BlackRock as an Exchange Traded Fund specialist. We have confidence in the team’s ability to provide simple and effective tracker options for investors.
Many HSBC portfolio managers also have wider responsibilities across the business, such as working on projects to understand their clients’ needs in more detail. This helps them drive change and innovation, which we think compliments their role.
The fund aims to track its benchmark by investing in all the stocks in the index, and in the same proportion. This is known as full replication. The team aims to track the index as closely as possible by reducing trading costs, which is a key part of their strategy.
There may be instances when it’s not possible or practical for the fund to invest in every company in the index. This is because it's sometimes difficult to buy and sell the smallest companies quickly or at low cost, which could ultimately impact performance.
Instead the team has the flexibility to use derivatives to help manage the fund efficiently. This involves using 'futures', which provides a quicker and cheaper way to get exposure to the broader index, instead of buying smaller companies at a higher cost.
The team can also participate in initial public offerings if they know that the company will be added to the index in a few days’ time. This allows them to purchase companies earlier and at a lower price before the rest of the market is involved. It’s another method to help them track the benchmark closely.
The passive investment team at HSBC may not be as large as some big index providers, though it's still experienced and committed to improving ways of tracking the index closely. The team is open when it comes to sharing ideas and information. We believe this adds good challenge on how to run the fund effectively.
We also like the fact HSBC tries to encourage positive corporate behaviour and governance at the companies they invest in. In addition, none of the group's funds invest in companies involved in controversial weapons. This doesn't apply to the HSBC FTSE 250 Index Fund as there are no companies that meet these criteria in the index.
The fund has an ongoing annual fund charge of 0.12%, but a discount of 0.05% is available for HL investors, which reduces the charge to 0.07%. We believe this is a reasonable charge when compared with other tracker funds in this sector. Our platform charge of up to 0.45% per annum also applies.
The fund’s tracked the FTSE 250 index well since launch in 1997. Given HSBC’s size, experience and expertise running index tracker funds we believe this will continue. Remember, past performance isn’t a guide to future returns.
As with most index tracker funds, it’s fallen behind the benchmark over time because of the costs involved. The strategies used by the team such as reducing trading in the fund helps minimize these costs.
The fund (and its index) has rebounded strongly from last year’s market lows, rising 33%*, though there are no guarantees this will continue. UK medium-sized and smaller companies were hit particularly hard during the pandemic amid concerns over profits and the reduced consumer activity. However, after a strong vaccine rollout and support schemes from the government, they’ve seen their share prices push above their pre-pandemic highs.
A glance at the five-year performance table below shows that in some years the fund has tracked the index closer than others.
|Annual percentage growth|
| June 16 -
| June 17 -
| June 18 -
| June 19 -
| June 20 -
|FTSE 250 TR||22.2%||10.6%||-3.8%||-10.0%||33.4%|
|HSBC FTSE 250 Index||24.3%||9.8%||-4.0%||-9.6%||33.0%|
Past performance is not a guide to the future. Source: *Lipper IM to 30/06/2021.