HSBC FTSE 250 Index: September 2026 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 way to track the performance of the FTSE 250 Index, which is made up of medium-sized UK companies.

Medium-sized companies can offer more growth potential than the larger companies of the FTSE 100, though they can also carry more risk because they’re less established.

Mid-sized companies 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 companies that aren’t listed in the UK. This provides the fund with some international diversification.

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. It 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 senior fund manager.

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, accounting for 40.8% as of the end of August 2026. This includes investment trusts, which sit within the financials sector. The next biggest sectors are industrials and consumer discretionary which made up 17.6% and 13.6% of the fund respectively.

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

The fund also participates in securities lending whereby some of its investments are lent to other providers in exchange for a fee. This offsets some of the costs of running the fund but adds risk.

Culture

The index investment team at HSBC isn’t as large as some of the bigger index providers, though it's still experienced and committed to improving the way it tracks the index. 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.

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 index funds exclude shares or bonds issued by companies involved in the development, production, use, maintenance, sale, import or export, storage or transportation of controversial weapons which are banned by international convention. The firm has also committed to phase-out active holdings 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.

HSBC receives proxy voting advice from Institutional Shareholder Services (ISS). However, if an Investment or Stewardship team identifies a proposal where a different approach may be warranted, the matter is referred to the Voting Advisory Group – a dedicated committee of specialists that includes relevant investment team members. The Group reviews the proposal and reaches a decision with reference to HSBC’s comprehensive voting guidelines. Voting activity is disclosed on a company-by-company basis on HSBC’s website.

HSBC FTSE 250 Index tracks a benchmark that doesn’t specifically integrate ESG analysis or exclude companies in industries like tobacco or alcohol, though, like all HSBC funds, it excludes companies involved in banned weapons.

Cost

The fund has an ongoing annual fund charge of 0.13%, but a discount of 0.05% is available for HL investors, which reduces the charge to 0.08%.

Our platform charge of up to 0.35% per annum also applies, except in the HL Junior ISA, where no platform charge applies. Both a buy and sell instruction will be subject to HL dealing charges. Find out more about our charges

Performance

Over the last 10 years, the fund’s tracked the FTSE 250 Index closely, returning 83.5%* versus 87.3% for the index. As you’d expect from an index tracker fund, it’s fallen 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 keep performance close to the index. Remember, past performance isn’t a guide to future returns.

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

Medium sized companies have lagged their larger counterparts over the past 12 months though. Banks performed strongly, and the FTSE 100 Index includes many large UK banks. Higher interest rates have benefited banks as they increase the amount banks can charge when lending, which boost profits. Mining and energy companies also performed well, and are sectors where the FTSE 100 Index has a lot of exposure.

Inflation and higher interest rates 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 and they tend to have more short-term debt.

Although inflation has fallen from the high levels seen after Covid, it remains above the UK’s target. The Bank of England lowered interest rates during 2025 but hasn’t cut them in 2026. This is because ongoing conflict in the Middle East pushed energy prices higher, leading to concerns that inflation could gather pace and prevent interest rate cuts or even see rates rise.

Given HSBC’s 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.