HSBC FTSE 250 Index: August 2025 fund update

• HSBC has been running tracker funds for over 35 years

• We think this fund is a good option for exposure to UK medium-sized companies

• The fund’s low charges should continue to 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 is 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 carry more risk because they’re less established.

They also tend to earn more of their revenue here in the UK. That said, the broader FTSE 250 Index that this fund tracks includes investment trusts, some of which invest in overseas markets. This provides the fund with some international diversification compared with peers that track the index that excludes investment trusts. Some of the investment trusts invest in higher risk emerging markets, though they only make up a small portion of the overall fund.

An index tracker fund is one of the simplest ways to invest, and we think this fund could be a great, low-cost starting point for an investment portfolio aiming to deliver long-term growth. We think this fund could help diversify a portfolio focused on larger, or global, companies.

Manager

HSBC has been a provider of index trackers for over 35 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.

Nelson Gu specialises in the UK and is the primary manager on this fund. Gu joined HSBC’s ETF & Indexing Equity team in 2016 as an Index Analyst and worked his way up to become a fund manager. He’s been a Senior Portfolio Manager since 2019 and has 11 years of industry experience.

Many fund managers at HSBC 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 complements their role.

Process

The fund aims to track its benchmark, the FTSE 250 Index, by investing in all 250 companies in the index, and in the same proportion. This is known as full replication and should help the fund track the index closely. The team aims to track the index as tightly as possible by reducing trading costs, which is a key part of their strategy.

Financial companies make up a large part of the fund and accounted for 45.0% as of the end of July 2025. The next biggest sectors are industrials, consumer discretionary and real estate which make up 15.6%, 13.3% and 9.4% of the fund.

Stamp duty, a government tax that’s paid on the purchase of UK listed shares, is one of the main contributors to the tracking difference between the fund and the index. Because of this, the team try to reduce turnover in the portfolio, which refers to the frequency at which shares are bought and sold.

The fund also participates in securities lending whereby some of the investments in the fund are lent to others in exchange for a fee. This helps to offset some of the costs of running the fund but adds risk.

Culture

The passive investment team at HSBC isn’t as large as some big index providers, though it's still experienced and committed to improving ways of tracking the index closely. The team’s open when it comes to sharing ideas and information. We believe this adds good challenge on how to run the fund effectively.

Employees are also encouraged to participate in HSBC’s sharesave scheme which should encourage them to be more engaged with the growth of the company. This means fund managers’ interests are better aligned with investors.

ESG Integration

HSBC’s active and passively managed funds exclude shares or bonds issued by companies involved in the development, production, use, maintenance, sale, import or export, storage or transportation of weapons banned by international convention. They’ve also committed to phase-out active investments in issuers exposed to thermal coal by 2030 in the OECD and EU, and by 2040 in the rest of the world.

Fund managers meet regularly with companies and challenge them on corporate strategy, financial and non-financial performance and risk, allocation of capital and management of environmental, social and governance issues. They prioritise engagement based on the scale of client holdings, salience of the issues concerned, and overall exposure to the issue in question.

The firm also outlines its approach to Responsible Investment, and provides a number of case studies, in its comprehensive annual Responsible Investment Review. HSBC’s Stewardship team is responsible for voting, and voting decisions are arrived at with reference to a comprehensive voting guidelines policy.

HSBC FTSE 250 Index is a passive fund designed to track an index that doesn’t specifically integrate ESG analysis or exclude companies in certain industries, like tobacco or alcohol.

Cost

The fund has an ongoing annual fund charge (OCF) of 0.14%, but a discount of 0.06% is available for HL investors, which reduces the charge to 0.08%. Our platform fee of up to 0.45% per annum also applies, except in the HL Junior ISA, where no platform fee applies.

In early 2023, HSBC altered the way it calculated its OCF in line with recommendations from the Investment Association (IA). The IA guidance indicated that the OCF for UK funds should take account of ‘look-through’ costs for underlying investments like investment trusts and real estate investment trusts (REITs) held within the funds.

Incorporating the new guidance led to a material increase in the OCF for the HSBC FTSE 250 Index fund. However, this didn’t represent an increase to management or operational costs. These costs always existed and had been reflected in the performance of the funds. This was only a change to the way costs were disclosed.

In September 2024, the UK government and Financial Conduct Authority lifted these cost disclosure requirements temporarily as they’re intending to replace the current EU-inherited regulation with a new framework tailored towards UK markets and firms.

In response to this, HSBC has changed the way it calculates the OCF for its UK funds back to how it did before the guidance from the IA in 2023. Again, there’s been no change to the actual costs associated with managing the funds, just the way in which they’re disclosed.

Performance

Over the last 10 years, the fund’s tracked the FTSE 250 Index closely, returning 62.38%* versus 62.93% for the index. As you’d expect from an index tracker fund, it’s fallen slightly behind the benchmark over the long term because of the costs involved in running it. However, the tools used by the managers have helped to reduce the tracking difference between the fund and the index. Remember, past performance isn’t a guide to future returns.

Over the long term, UK medium-sized companies have performed better than larger firms. They’re typically seen as more agile than large firms, giving them the opportunity to take advantage of new growth opportunities more easily.

They’ve lagged their larger counterparts over the past 12 months though. Aerospace & defence companies have performed strongly driven by the UK’s commitment to increase defence spending and banks have done well as they’ve benefited from higher interest rates. This has boosted the returns of the FTSE 100 Index as it has exposure to large companies in these sectors.

Inflation and higher interest rates also tend to have a bigger impact on smaller companies compared to larger ones as the valuation of smaller companies is more reliant on expectations of future growth in earnings and cashflows.

With inflation closer to the 2% target, the Bank of England (BoE) lowered interest rates in August 2024 after holding rates at a 16 year high for a full year. Although the BoE has continued to cut rates, it’s taken a gradual approach as inflation remains above target. Interest rates have therefore stayed higher, and for longer, than initially expected, which has been more challenging for medium-sized companies.

Given HSBC’s size, experience and expertise running index tracker funds, we expect the fund to continue to track the index well in the future, though there are no guarantees.