- HSBC has run passive funds for many years
- This fund provides a low-cost and simple way to invest in the FTSE 250 index of medium-sized UK companies
- The fund’s low charges could help it to track the 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 and 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 key provider of index trackers for a number of years, and is home to an experienced management team. Each fund has a primary and secondary 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 last year after previously working at BlackRock as an Exchange Traded Fund (ETF) specialist. We have a strong conviction in the ability of HSBC in providing simple and effective tracker options for investors.
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 costs and this 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, and this could ultimately improve performance.
The team also has the flexibility to use derivatives to help manage the fund efficiently, which adds risk if used. This may involve using 'futures', which provide a quicker and cheaper way to get exposure to the broader index. Again this can help bring the performance of the fund in line with the index.
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 sharing 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 also applies to the HSBC FTSE 250 Index Fund as there are no companies that meet this 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. Our platform charge of up to 0.45% per annum also applies.
The fund has tracked the FTSE 250 index well since its launch in 1997*. As with virtually all index tracker funds, it’s fallen behind the benchmark over time because of the costs involved, but not by much due to the strategies used by the team. 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.
|Annual percentage growth|
| Aug 15 -
| Aug 16 -
| Aug 17 -
| Aug 18 -
| Aug 19 -
|HSBC FTSE 250 Index||7.6%||13.5%||7.9%||-3.8%||-6.6%|
Past performance is not a guide to the future. Source: *Lipper IM to 31/08/2020.