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For professional clients only
The funds and their market
ETF Masterclass Series Part 2
1
ETFs and the intermediary market ` ETFs are an important part of the overall growth of passive
investments
` In our view, intermediaries are comfortable with ETFs on the
whole, as these funds have very good transparency and the
ability to access a variety of markets cheaply
` Advisers are more familiar with index funds but as ETFs
become increasingly available on fund platforms, advisers will
be using them interchangeably with index trackers
` However, ETFs are not yet available through all platforms.
This is the main reason for advisers not being as familiar with
some of the more technical aspects of these funds as they
could be.
` Therefore, fund providers have an important role to play in
providing more education around ETFs
ETFs’ place in investment portfolios ` One of the main reasons for the strong growth of the passive
market has been that advisers recognised that ETFs play a
major role in investors’ portfolios
` There has been a step change in how investors are making
their asset allocation decisions and how ETFs are used to
provide market access, whether over the short to medium
term, or, increasingly, over the long term
` Intermediaries’ strengthening focus on costs in the
environment following the Retail Distribution Review (RDR)
has also helped to cement that trend
ETF range from HSBC ` We target our ETFs at our external as well as internal clients
within the HSBC Group and this gives us a perspective on
what our offering should be like. Our approach to the ETF
product is, therefore, conservative
` Our ETF range is what might be termed as ‘vanilla’ - they are
all physically replicated, which means that where possible
we buy all of the stocks in the underlying index. Currently
we only offer equity ETFs and we are sticking to the core
investment markets which we believe should be the major
building blocks for the majority of clients
Education and Due Diligence ` While intermediaries are responsible for making the right
recommendations to their clients according to their individual
circumstances and objectives, we believe that fund providers
have a role to play in helping investors and advisers make
better informed investment decisions
` We believe that, compared with active fund selection, due
diligence for passive funds still has some way to go
` The industry does not seem to have a consistent set of
metrics for conducting due diligence for ETFs. Some clients
look at a combination of different factors, for example
tracking error, tracking difference and total cost of ownership.
Therefore, we believe that explaining what those individual
metrics are and bringing them to life is an important part
of what fund providers can do to assist the marketplace to
evolve
` For instance, in our view asset managers should provide
education around benchmarks and how they differ from
each other. This relates directly to replication and looks at
differentiating factors between index providers, the indices
themselves and the way they are constructed
` Another topic that would benefit from more discussion is the
use of passive strategies and blending passive and active.
Some investors employ active funds to invest their entire
portfolios, while some use the combination of active and
passive.
` In deciding the right strategy, clients have many different
factors to consider, and new factors continue to emerge. For
example, recent research showed that passive strategies
can be a very cost effective way to get exposure to some
developed markets, such as the US
Looking ahead ` Compared to five years ago, the passive investments market
has grown significantly and ETFs have provided a bulk of that
growth
` ETFs have expanded in range and become more mainstream
in the UK
` There is a lot of work still to be done to make ETFs fully
interchangeable with other passive funds. We believe that
achieving that will become another big step for passive
investments
The funds and their market
2
Key Risks
Market risk:
The value of investments and any income from them can go
down as well as up, and investors may not get back the amount
originally invested.
Investment horizon:
Stockmarket investments should be viewed as a medium to long
term investment and should be held for at least five years
Currency risk:
Where overseas investments are held, the rate of currency
exchange may cause the value of such investments to go down
as well as up.
Emerging market risk:
Investments in emerging markets are by their nature higher
risk and potentially more volatile than those inherent in some
established markets.
Geographic risk:
Some of the funds invest predominantly in one geographic area;
therefore any decline in the economy of this area may affect the
prices and value of the underlying assets.
Performance risk:
Past performance is not an indication of future returns
ContactFor more information, please contact us:
Email: [email protected]
Telephone: +44 (0) 207 024 0435
Website: www.assetmanagement.hsbc.com/passive
Important Information
This document is intended for Professional Clients only and should not be distributed to or relied upon by Retail Clients. HSBC’s range of ETFs are a sub-fund of HSBC ETFs plc (“the Company”), an investment company with variable capital and segregated liability between sub-funds, incorporated in Ireland as a public limited company, and is authorised by the Central Bank of Ireland. The company is constituted as an umbrella fund, with segregated liability between sub-funds. Shares purchased on the secondary market cannot usually be sold directly back to the
Company. Investors must buy and sell shares on the secondary market with the assistance of an intermediary (e.g. a stockbroker) and
may incur fees for doing so. In addition, investors may pay more than the current Net Asset Value per share when buying shares and
may receive less than the current Net Asset Value per Share when selling them. UK based investors in HSBC ETFs plc are advised that they may not be afforded some of the protections conveyed by the Financial Services and Markets Act (2000), (“the Act”). The Company is recognised in the United Kingdom by the Financial Conduct Authority under section 264 of the Act. In addition, investors may pay more than the current Net Asset Value per share when buying shares and may receive less than the current Net Asset Value per Share when selling them.The shares in HSBC ETFs plc have not been and will not be offered for sale or sold in the United States of America, its territories or possessions and all areas subject to its jurisdiction, or to United States Persons. Affiliated companies of HSBC Global Asset Management (UK) Limited may make markets in HSBC ETFs plc. All applications are made on the basis of the current HSBC ETFs plc Prospectus, relevant Key Investor Information Document (“KIID”),Supplementary Information Document (SID) and Fund supplement, and most recent annual and semi-annual reports, which can be obtained upon request free of charge from HSBC Global Asset Management (UK) Limited, 8 Canada Square, Canary Wharf, London, E14 5HQ. UK, or from a stockbroker or financial adviser. Investors and potential investors should read and note the risk warnings in the prospectus,
relevant KIID and Fund supplement (where available) and additionally, in the case of retail clients, the information contained in the
supporting SID. The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Where overseas investments are held the rate of currency exchange may also cause the value of such investments to fluctuate. Stockmarket investments should be viewed as a medium to long term investment and should be held for at least five years. HSBC Global Asset Management (UK) Limited provides information to Institutions, Professional Advisers and their clients on the investment products and services of the HSBC Group. This document is approved for issue in the UK by HSBC Global Asset Management (UK) Limited who are authorised and regulated by the Financial Conduct Authority. Copyright © 2014 HSBC Global Asset Management (UK) Limited. All rights reserved. 26156/AS/1114/FP14-1705. Expiry Date 01/11/2015
Index disclaimers
“FTSE®” is a trade mark of the London Stock Exchange Group companies, “NAREIT®” is a trade mark of the National Association of Real Estate Investment Trusts (“NAREIT”) and “EPRA®” is a trade mark of the European Public Real Estate Association (“EPRA”) and all are used by FTSE International Limited (“FTSE”) under licence.” The FTSE 100 Index, FTSE 250 Index and FTSE All Share Index are calculated by FTSE. Neither FTSE, Euronext N. V., NAREIT nor EPRA sponsor, endorse or promote this product and are not in any way connected to it and do not accept any liability. All intellectual property rights within the index values and constituent list vest in FTSE, Euronext N.V., NAREIT and EPRA. HSBC Global Asset Management has obtained full licence from FTSE to use such intellectual property rights in the creation of this product. Standard and Poor’s 500 is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by this Fund. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of investing in this Fund.