Importance of Due Diligence

Transcription

1 Importance of Due Diligence For Index Tracker Funds and Passive ETFs The value of an investment in the portfolios and any income from them can go down as well as up and as with any investment you may not receive back the amount originally invested. For professional clients only

2 Index coverage Weighting methodology Rebalancing Liquidity UCITS Replication Cost Tracking difference / Tracking error AUM Independent ratings Client centric Risk management AUM growth IFA support Focus on growth Experience & brand Fund Index Provider Due Diligence Index-based funds may differ from active funds in the way they are managed, structured and traded but products from different providers may, just as with active funds, perform differently. In order to incorporate high quality passive funds into a portfolio, advisers need to have a robust due diligence process for selecting index-based funds, just as they do for active funds. As awareness of problems such as the issuer s concentration risk becomes more prevalent, we expect to see better due diligence used in the selection of passive funds. Concentration risks relate to having a high proportion of assets invested with a single fund provider. In this publication, we will cover some of the most important questions that, in our view, intermediaries and fund buyers should address as part of their due diligence framework for passive fund selection. Making the right choice As part of passive fund selection, due diligence is typically conducted in three stages. First, suitable indices are identified, then a shortlist of index funds tracking them is created, and finally the fund is selected based on the choice of a provider. The different considerations at each of these levels are weighted depending on advisers views on the key factors featured in each of the differently coloured sections of this brochure. Select an Index Index coverage Each index has its own construction methodology which determines which stocks are included from their respective investment universe. Different index providers covering the same market would not normally have the same stock selection criteria. Some equity index providers would exclude certain types of shares, while others will not or classify sectors differently from other providers. Some indices may exclude whole countries from their scope, while other providers will include them. The most commonly used index selection criteria takes into account market capitalisation of the underlying securities. For example, FTSE and MSCI differ in the way they classify emerging market countries (EMs), with South Korea categorised as developed markets by FTSE but as emerging markets by MSCI. Understanding an index s focus and construction allows you to pinpoint the exact exposure you need for a client s portfolio. For instance, with the S&P 500 Index representing about 80% of US market capitalisation 1, a question can be asked about what will be achieved by going any broader than S&P 500? Capped exposure Some markets are dominated by a few large companies and, as a result, the market cap indices that track these markets may have significant exposure to these companies. Some providers may opt for a capped version of these indices, which limit the percentage exposure to their largest constituents. This allows the provider to offer a more diversified exposure to these markets. HSBC Global Asset Management has opted for this type of index exposure for both the HSBC MSCI Russia Capped UCITS ETF and the HSBC MSCI Mexico Capped UCITS ETF. INDEX Fund selection based on strong risk assessment and due diligence, rather than going for a default provider, will ultimately lead to better outcomes for end investors. Index weighting methodology Different index weighting methodologies can lead to differences in performance and risk-return characteristics among seemingly similar indexes. The S&P 500 Index is an example of the most commonly used index methodology, which is based on market capitalisation. There are other index weighting methodologies and it is important to understand what this means in the context of your overall investment objectives Source: Standard & Poor s, November 2016

3 A Fund Shortlist Index re-balancing: how often? Liquidity of the underlying market Is it a UCITS fund? Overall cost The composition of indices is reviewed periodically to ensure that they remain representative of the their objectives. For example, some stocks are dropped from a market capitalisation index in the course of rebalancing if their size falls bellow or rises above the respective threshold of this index. The frequency of index rebalancing is part of an index s calculation methodology. The more frequently an index rebalances and the larger the resulting underlying movements are, the higher the turnover rate is for that particular index. If an index has a high turnover rate, any fund aiming to track the performance of that index will be faced with higher trading costs. As trading costs come out of fund performance, fund returns will be negatively impacted. As part of their index construction process, providers often apply a filter to exclude stocks with low liquidity however it is still important for investors to consider liquidity when selecting an index. When selecting a passive fund, investors should consider the level of liquidity (availability) of the underlying index s constituent securities. At the most liquid end of the spectrum are listed shares of large global companies, while highly illiquid assets include penny stocks and shares of very small companies that are traded by appointment. Liquidity can fall due to market conditions or stock-specific factors, creating a risk for investors. That risk can impact an asset s price. Most retail funds in Europe are UCITS compliant. UCITS was enacted to create a single European standard for consumer protection in respect to fund composition. In Europe, but also in regions beyond its borders, it is considered a quality seal, as it sets very high common standards that are embedded in the European regulatory framework. Therefore, it makes good sense to select index-based funds that are UCITS compliant. Physical or Synthetic Replication? The most straight-forward way to replicate an index is physical replication. In this instance, an index fund manager purchases the underlying securities of an index. An alternative to this is synthetic replication, whereby a fund manager instead buys a swap from a third party. A swap is a derivative security providing the return from a given index in exchange for a fee and any returns on collateral. There are concerns that the risks associated with synthetic funds the most important of which is counterparty risk can make them a less attractive investment option. It means that investors may not be compensated for this type of risk. When it comes to comparing fund costs, it is increasingly based on passive funds Total Cost of Ownership (TCO). This way, a comparison takes into account not only management fees and the Ongoing Charges Figure (OCF), but also transaction costs. The total cost of ownership comprises: u Costs of holding the fund (which effectively are reflected by the fund s tracking difference) consist of the OCF and the costs incurred within the fund, such as rebalancing costs, taxes, dividend reinvestment/ cash drag and any costs associated with the optimisation, if applicable. u Costs of trading the fund where applicable, include platform or brokerage transaction fees and taxes. The TCO shows that investing attracts a number of expenses not included in the headline price (OCF). Therefore, we believe that when looking at fund costs, cost comparisons should be based on the TCO. For index-based funds, the TCO comprises the tracking difference, which signifies the sum of all costs and income within the fund, and trading costs. FUND 4 5 5

4 Cost? INDEX Tracking difference and tracking error Assets under management (AUM) AUM? FUND Tracking Difference? Passive funds dealing and trading fees mean that Index-based funds attract different volumes of investor they never mimic their index exactly. Two measures assets, which may be partly due to the nature of the used to gauge this discrepancy in returns are tracking underlying indices they track. Significant assets illustrate difference and tracking error. These measures should investor interest in an index-based fund, but also its be considered together as tracking difference looks at underlying market. Moreover, index-based funds that how well an index is replicated over a given period of track more specialised markets (such as an emerging time, while tracking error, being a measure of volatility, market country index) tend to have a lower AUM than a gives an idea how consistent that replication is. large developed country, regional or a global stock index. This is because of the size of the underlying market and Tracking difference compares the fund s demand. Moreover, new funds may be smaller in size but return to the performance of its underlying index at the same time offer a better solution than some of its over a period of time. For example, if an index larger peers. tracker delivered 8.5% over a period of time compared to the underlying index s 10% over the Securities lending same period, the tracking difference in this instance Many fund providers use stock lending which helps will be -1.5%. to reduce fund costs by lending some of the portfolio holdings to a third party for a fee. However, this carries Tracking error is a measurement of risk that counterparty risk, as the stock may be lost if the defines how consistent the return difference between borrower goes out of business. the fund and its benchmark index has been over Some providers indemnify their investors against time. It is calculated as the annualised standard this risk while others don t, so a review of stock deviation of the difference between the fund s daily lending practices should form an important part of any The Global Financial performance and that of its underlying index. due diligence process. If a fund is involved in stock Crisis brought about the It should be remembered that all measures of tracking lending then due diligence should also address that realisation that stock lending quality are backward looking and as such can t be relied point in detail. Questions should be asked about the on to forecast future performance. type of collateral that is being offered and the over carried some additional collateralisation applied. What is the state of financial risks that might have Different pricing points security under any stress testing? Moreover, securities When comparing tracking errors of different funds, lending adds an extra layer of complexity to the fund s been underestimated in investors should bear in mind that different providers investment process and costs. It can also be useful to the past and could result may price their index funds at different times of the look at how the fund provider profits from securities day. It means that the figures may need to be adjusted lending alongside the fund and consider how this may in additional losses. before a fair comparison is made. More information can effect their securities lending policies. be requested from the provider. 6 7 Fund Rating?

5 Select a Provider Independent Ratings As with active funds, there are a number of independent ratings agencies that assess passive funds relative performance, together with the strength and quality of their investment processes. Independent ratings are designed to help investors decide which funds have the greatest potential to deliver the best performance. Independent ratings for passive funds However, index-based funds are still a relatively new area for ratings agencies and there is still no common industry standard of how it should be approached. Therefore, it is important to review the rating methodology and data used to ensure that it meets your expectations. Please see our publication on index fund ratings. Agency Name of Rating Types of funds rated Based on Defaqto Diamond Rating Index trackers (OEICs and unit trusts) Dynamic Planner ACE Fund Rating Index trackers (OEICs and unit trusts) Combination of quantitative and qualitative factors Combination of quantitative and qualitative factors FE (Financial Express) Crown Rating Index trackers (OEICs and unit trusts) and ETFs Quantitative factors Morningstar Star rating Index trackers (OEICs and unit trusts) and ETFs Quantitative factors Analyst Rating (Gold, Silver, Bronze, Neutral and Negative) Index trackers (OEICs and unit trusts) Rayner Spencer Mills RSMR Rating (Blue) Index trackers (OEICs and unit trusts) Qualitative factors Combination of quantitative and qualitative factors Putting clients first It may be argued that, being quantitatively-driven investment vehicles, passive funds are only as good as the processes and technology on which they are built. The Fund provider s track record and reputation offer an effective reflection of their capabilities, knowledge and experience. Any decision to invest in the Fund should take into account the provider s approach to conduct risk and corporate governance. You need to question how client-centric your fund provider is. How much work is done to make investment solutions transparent and easy to understand for investors? Does the firm offer products tested with such organisations as the Wisdom Council, a consumer research agency? Commitment on product development and growth Does the asset manager operate in both ETFs and tracker funds by the same team demonstrating collaborative expertise and commitment to index investing? Is the provider continually developing its range? Due diligence should also look at the strength of the provider s brand and its financial position. How have the assets grown over the previous years? How does the firm manage risk? How does the asset manager support IFAs? Ask yourself, how strong is the asset manager at supporting their clients, such as providing thought leadership, support and briefings for advisers? Does the fund provider have a vision about its place in the evolving industry and a long-term strategy for how best to support their clients? Having a clear vision and a voice helps underline the provider s commitment to index investment products. This would mean that the provider takes the necessary steps to ensure that it offers products that answer investors requirements and are right for market conditions. PROVIDER 8 9 9

6 Risk management Asset managers must be judged on their ability not only to monitor but also to control a range of risks that may affect their passive funds ability to track indices effectively. Risk management is a key consideration not only during portfolio construction but throughout the life of the fund. Ongoing risk management includes the analysis of performance attributions and exposures to different parts of the underlying market. Asset managers also look at the impact of index rebalancing, currency exchange rate exposure and corporate actions, such as mergers and acquisitions, stock splits, rights issues, spin-offs or the receipt of interest and dividends. Other important risk factors that asset managers always need to take into consideration are regulation and tax regimes, which may span many countries and continents depending on the investment universe of a given fund. Changes to tax and regulation may have an impact, sometimes considerable, on the performance of the underlying funds. Experience and brand The track record and reputation of the fund provider offer an effective reflection of the asset manager s capabilities, knowledge and experience. Index Many fund providers use stock lending which helps to reduce fund costs by lending some of the portfolio holdings to a third party for a fee. However, as we argued earlier, it carries some risk and some providers do not indemnify against it. Fund Impact of corporate actions Index rebalancing impact Performance attributions analysis Risk Management Provider Impact of index rebalancing Regulation and tax regimes Sector exposure analysis 10 11

7 HSBC Index Tracker Fund Range Fund Name Benchmark Tracking Method Ongoing Charges Figure (OCF)* Share Class ISIN Fund launch date HSBC American Index Fund S&P 500 Index Physical Replication HSBC European Index Fund FTSE Developed Europe ex UK Index Physical Replication HSBC FTSE 100 Index Fund FTSE 100 Index Physical Replication HSBC FTSE 250 Index Fund FTSE 250 Index Physical Replication HSBC FTSE All Share Index Fund FTSE All-Share Index Optimised HSBC FTSE All-World Index Fund FTSE All-World Index Optimised HSBC Index-Linked Gilt Index Fund FTSE Actuaries UK Index-Linked Gilts Index Physical Replication HSBC Japan Index Fund FTSE Japan Index Physical Replication HSBC Pacific Index Fund FTSE Asia Pacific Ex. Japan Index Physical Replication HSBC Sterling Corporate Bond Index Fund Markit iboxx Non-Gilts Index Optimised HSBC UK Gilt Index Fund FTSE Actuaries UK Gilts All Stocks Index Physical Replication 0.07 Inc GB00B80QG Acc GB00B80QG Inc GB00B80QGD Acc GB00B80QGH Inc GB00B80QD Acc GB00B80QFR Inc GB00B80QFZ Acc GB00B80QG Inc GB00B80QFW Acc GB00B80QFX Inc GB00BMJJJG Acc GB00BMJJJF Inc GB00BYV9WL Acc GB00BYVCCV Inc GB00B80QGM Acc GB00B80QGN Inc GB00B80QGR Acc GB00B80QGT Inc GB00BYV9W Acc GB00BYV9WC Inc GB00B80QG Acc GB00B80QG383 31/10/ /01/ /09/ /10/ /03/ /09/ /07/ /01/ /11/ /10/ /06/2010 Lower minimum investments will apply to business done via platforms. * C share class accumulation units. The OCF figures were calculated as at 3rd October For direct business with HSBC Global Asset Management, a minimum of 1million applies. Initial Charge Domicile 0% UK 12 13

8 HSBC Exchange Traded Fund (ETFs) Range Fund Name Stock Exchange Bloomberg Reuters Base Currency 1 Trading Currency 2 OCF 3 ISIN Sedol Dividends UK Reporting Status 4 Replication Method - Physical UCITS IV Registration PASSIVE ETFs DEVELOPED MARKETS REGIONAL EXPOSURE HSBC MSCI PACIFIC ex JAPAN UCITS ETF LSE LSE SIX Swiss HMXJ LN HMXD LN MXJ FP HMXJ SW H4ZH GY & GR HMXJ.L HMXD.L MXJ.PA HMXJ.S H4ZH.DE 0.40% IE00B5SG8Z57 IE00B5SG8Z57 IE00B5SG8Z57 IE00B5SG8Z57 DE000A1C22P6 B5SG8Z5 B3Z8N00 B60XHD2 B5P4324 B4WHBL4, AT HSBC MSCI OPE UCITS ETF LSE SIX Swiss SIX Swiss HMEU LN HEU FP HMEU SW HMEU SW H4ZE GY & GR HMEU.L HEU.PA HMEU.S HMEUS.S H4ZE.DE 0.20% IE00B5BD5K76 IE00B5BD5K76 IE00B5BD5K76 IE00B5BD5K76 DE000A1C22L5 B5BD5K7 B5MLFJ9 B4V4L83 B3R48F6 B4WZVJ6 HSBC O STOXX 50 UCITS ETF LSE SIX Swiss SIX Swiss H50E LN 50E FP H50E SW H50E SW H4ZA GY & GR H50E.L 50E.PA H50E.S H50EE.S H4ZA.DE 0.05% IE00B4K6B022 IE00B4K6B022 IE00B4K6B022 IE00B4K6B022 DE000A1C0BB7 B4K6B02 B4KTPN2 B4T2156 B3RNLN2 B4WNQH3, AT HSBC MSCI WORLD UCITS ETF LSE LSE SIX Swiss HMWO LN HMWD LN WRD FP HMWO SW H4ZJ GY & GR HMWO.L HMWD.L WRD.PA HMWO.S H4ZJ.DE 0.15% IE00B4X9L533 IE00B4X9L533 IE00B4X9L533 IE00B4X9L533 DE000A1C9KL8 B5BD198 B4X9L53 B4YCZD7 B5W4MY2 B4VBPV5 Quarterly Yes Optimisation Compliant, AT DEVELOPED MARKETS SINGLE COUNTRY EXPOSURE HSBC S&P 500 UCITS ETF LSE LSE SIX Swiss HSPX LN HSPD LN HHH FP HSPX SW H4ZF GY & GR HSPX.L HSPD.L HHH.PA HSPX.S H4ZF.DE 0.09% IE00B5KQNG97 IE00B5KQNG97 IE00B5KQNG97 IE00B5KQNG97 DE000A1C22M3 B5KQNG9 B64XYN7 B5T03T5 B4Y3DG9 B54FQ74, AT HSBC FTSE 100 UCITS ETF LSE SIX Swiss HUKX LN UKX FP HUKX SW H4ZB GY & GR HUKX.L UKX.PA HUKX.S H4ZB.DE 0.07% IE00B42TW061 IE00B42TW061 IE00B42TW061 DE000A1C0BC5 B42TW06 B4NQM28 B55B529 B51D2P1 HSBC MSCI USA UCITS ETF LSE LSE SIX Swiss HMUS LN HMUD LN MUS FP HMUS SW H4ZD GY & GR HMUS.L HMUD.L MUS.PA HMUS.S H4ZD.DE 0.30% IE00B5WFQ436 IE00B5WFQ436 IE00B5WFQ436 IE00B5WFQ436 DE000A1C22K7 B5WFQ43 B3Z7TR6 B57D976 B5103K4 B4YRY80, AT HSBC MSCI JAPAN UCITS ETF LSE LSE SIX Swiss SIX Swiss JPY HMJP LN HMJD LN MJP FP HMJP SW HMJPJPY SW H4ZC GY & GR HMJP.L HMJD.L MJP.PA HMJP.S HMJPJPY.S H4ZC.DE JPY 0.19% IE00B5VX7566 IE00B5VX7566 IE00B5VX7566 IE00B5VX7566 IE00B5VX7566 DE000A1C0BD3 B5VX756 B4V1TC4 B5LRD94 B50ZTJ1 B7J4WR2 B4VZP39 HSBC FTSE 250 UCITS ETF LSE HMCX LN HMCX.L 0.35% IE00B64PTF05 B64PTF0 Quarterly Yes Replication Compliant UK, FR, IE, NL, ES 14 15

9 Fund Name Stock Exchange Bloomberg Reuters Base Currency 1 Trading Currency 2 OCF 3 ISIN Sedol Dividends UK Reporting Status 4 Replication Method - Physical UCITS IV Registration HSBC MSCI CANADA UCITS ETF LSE LSE SIX Swiss CAD SIX Swiss HCAN LN HCAD LN HCAN FP HCANCAD SW HCAN SW H4ZR GY & GR HCAN.L HCAD.L HCAN.PA HCANCAD.S HCAN.S H4ZR.DE CAD 0.35% IE00B51B7Z02 IE00B51B7Z02 IE00B51B7Z02 IE00B51B7Z02 IE00B51B7Z02 DE000A1JF7N6 B57JD27 B51B7Z0 B4X4T87 B5M79V7 B592VC0 B4XWHP4 DEVELOPED MARKETS PROPERTY HSBC FTSE EPRA/NAREIT DEVELOPED UCITS ETF LSE LSE HPRO LN HPRD LN H4ZL GY & GR HPROP.L HPRD.L H4ZL.DE 0.40% IE00B5L01S80 IE00B5L01S80 DE000A1JXC78 B5L01S8 B3LFHB4 BDC7PY8 Quarterly Yes Replication Compliant SW, IE EMERGING MARKETS REGIONAL EXPOSURE HSBC MSCI EMERGING MARKETS UCITS ETF LSE LSE SIX Swiss HMEF LN HMEM LN HMEF SW H410 GY & GR HMEF.L HMEM.L HMEF.S H410.DE 0.40% DE000A1JXC94 B5ZPRQ9 B5SSQT1 B5L27B9 BDC7Q23 Quarterly Yes Optimisation Compliant SW, IE, CH, AT HSBC MSCI EMERGING MARKETS UCITS ETF LSE LSE SIX Swiss HMEF LN HMEM LN HMEF SW H410 GY & GR HMEF.L HMEM.L HMEF.S H410.DE 0.40% DE000A1JXC94 B5ZPRQ9 B5SSQT1 B5L27B9 BDC7Q23 Quarterly Yes Optimisation Compliant SW, IE, CH, AT HSBC MSCI EM FAR EAST UCITS ETF LSE LSE SIX Swiss HMFE LN HMFD LN MEM FP HMFE SW H4ZI GY & GR HMFE.L HMFD.L MEM.PA HMFE.S H4ZI.DE IE00B5LP3W10 IE00B5LP3W10 IE00B5LP3W10 IE00B5LP3W10 DE000A1C22Q4 B5LP3W1 B3XMR13 B5KTC94 B59MNV3 B4TB4Y3 Semi-annual Yes Optimisation Compliant HSBC MSCI EM LATIN AMERICA UCITS ETF LSE LSE SIX Swiss HMLA LN HMLD LN HMLA FP HMLA SW H4ZW GY & GR HMLA.L HMLD.L HMLA.PA HMLA.S H4ZW.DE IE00B4TS3815 IE00B4TS3815 IE00B4TS3815 IE00B4TS3815 DE000A1JF7T3 B56T0F0 B4TS381 B4T3SB4 B4RDC58 B4PJFC6 Quarterly Yes Replication Compliant HSBC MSCI AC FAR EAST EX JAPAN UCITS ETF LSE LSE SIX Swiss HMAF LN HMAD LN H411 GY & GR HMAF SW HMAF.L HMAD.L H411.DE HMAF.S IE00BBQ2W338 IE00BBQ2W338 DE000A1W2EK4 IE00BBQ2W338 BBR6WH8 BBQ2W33 BDC7Q34 BKRC9F6 Accumulated Yes Optimisation Compliant UK, FR, DE, IT, NL,, AT EMERGING MARKETS SINGLE COUNTRY EXPOSURE HSBC MSCI RUSSIA CAPPED UCITS ETF LSE LSE SIX Swiss HRUB LN HRUD LN HRUB SW H4ZM GY & GR HRUB.L HRUD.L HRUB.S H4ZM.DE IE00B5LJZQ16 IE00B5LJZQ16 IE00B5LJZQ16 DE000A1JXC86 B62NTH8 B5LJZQ1 B60XPB6 BDC7Q12, AT HSBC MSCI CHINA UCITS ETF LSE LSE SIX Swiss HMCH LN HMCD LN CNY FP HMCH SW H4ZP GY & GR HMCH.L HMCD.L CNY.PA HMCH.S H4ZP.DE IE00B44T3H88 IE00B44T3H88 IE00B44T3H88 IE00B44T3H88 DE000A1JF7LO B44T3H8 B40S3X5 B4KRT78 B3T97G3 B3T3XS9 HSBC MSCI TAIWAN UCITS ETF LSE LSE SIX Swiss HTWN LN HTWD LN HTWN SW H4ZU GY & GR HTNT.L HTWD.L HTWN.S H4ZU.DE IE00B3S1J086 IE00B3S1J086 IE00B3S1J086 DE000A1JF7R7 B430TV8 B3S1J08 B3SLK27 B44JV

10 Fund Name Stock Exchange Bloomberg Reuters Base Currency 1 Trading Currency 2 OCF 3 ISIN Sedol Dividends UK Reporting Status 4 Replication Method - Physical UCITS IV Registration HSBC MSCI MALAYSIA UCITS ETF LSE LSE SIX Swiss HMYR LN HMYD LN HMYR SW H4ZV GY & GR HMYRM.L HMYD.L HMYR.S H4ZV.DE IE00B3X3R831 IE00B3X3R831 IE00B3X3R831 DE000A1JF7S5 B4885P3 B3X3R83 B3RSM78 B3SR8W1 HSBC MSCI INDONESIA UCITS ETF LSE LSE SIX Swiss HIDR LN HIDD LN HIDR SW H4ZT GY & GR HIDRI.L HIDD.L HIDR.S H4ZT.DE IE00B46G8275 IE00B46G8275 IE00B46G8275 DE000A1JF7Q9 B40Y0X2 B46G827 B3X4ZQ0 B3V0C58 HSBC MSCI KOREA UCITS ETF LSE LSE SIX Swiss HKOR LN HKOD LN HKOR SW H4Z9 GY & GR HKOR.L HKOD.L HKOR.S H4Z9.DE IE00B3Z0X395 IE00B3Z0X395 IE00B3Z0X395 DE000A1JXC60 B3QHF77 B3Z0X39 B3SSPB2 BDC7PX7 HSBC MSCI BRAZIL UCITS ETF LSE LSE SIX Swiss HBRL LN HMBR LN HBZ FP HBRL SW H4ZG GY & GR HBRL.L HMBR.L HBZ.PA HBRL.S H4ZG.DE IE00B5W34K94 IE00B5W34K94 IE00B5W34K94 IE00B5W34K94 DE000A1C22N1 B431M67 B5W34K9 B5MSL81 B5NNMW6 B4YBZ89 HSBC MSCI MEXICO CAPPED UCITS ETF LSE LSE SIX Swiss HMEX LN HMED LN HMEX SW H4ZS GY & GR HMEX.L HMEDC.L HMEX.S H4ZS.DE IE00B3QMYK80 IE00B3QMYK80 IE00B3QMYK80 DE000A1JF7P1 B3VQZM4 B3QMYK8 B3T7V76 B444WR6 HSBC MSCI SOUTH AFRICA UCITS ETF LSE LSE SIX Swiss HZAR LN HZAD LN HZAR FP HZAR SW H4ZQ GY & GR HZAR.L HZAD.L HZAR.PA HZAR.S H4ZQ.DE IE00B57S5Q22 IE00B57S5Q22 IE00B57S5Q22 IE00B57S5Q22 DE000A1JF7M8 B4WN004 B57S5Q2 B5WJDW2 B3QH9F3 B3XV3W3 HSBC MSCI TURKEY UCITS ETF LSE LSE SIX Swiss HTRY LN HTRD LN HTR FP HTRY SW H4ZK GY & GR HTRY.L HTRD.L HTR.PA HTRY.S H4ZK.DE IE00B5BRQB73 IE00B5BRQB73 IE00B5BRQB73 IE00B5BRQB73 DE000A1H49V6 B57QMP4 B5BRQB7 B50S183 B5BCP15 B5V7Y02 ACTIVE ETFs GLOBAL MARKETS BROAD EXPOSURE HSBC ECONOMIC SCALE WORLDWIDE EQUITY UCITS ETF LSE LSE HEWA LN HEWD LN HEWA.L HEWD.L 0.25% IE00BKZG9Y92 IE00BKZG9Y92 BKZG9Z0 BKZG9Y9 Quarterly Yes N/A Compliant UK HSBC MULTI FACTOR WORLDWIDE EQUITY UCITS ETF LSE LSE HWWA LN HWWD LN HWWA.L HWWD.L 0.25% IE00BKZGB098 IE00BKZGB098 BKZGB10 BKZGB09 Quarterly Yes N/A Compliant UK 1. The currency in which the ETF is valued and the dividends are published. 2. The currency in which the ETF is traded in the relevant exchange. 3. Ongoing Charges Figure. 4. HSBC FTSE 100 UCITS ETF and the HSBC O STOXX 50 UCITS ETF had UK distributor status for the period from their launch until 31 December After this UK Reporting Fund status came into effect. All of our ETFs now have UK Reporting Fund status from 1 January 2010 or from the date of their launch if later

11 Key Risks: Exchange Rate risk: Investing in assets denominated in a currency other than that of the investor s own currency perspective exposes the value of the investment to exchange rate fluctuations. Derivative risk: The value of derivative contracts is dependent upon the performance of an underlying asset. A small movement in the value of the underlying can cause a large movement in the value of the derivative. Unlike exchange traded derivatives, overthe-counter (OTC) derivatives have credit risk associated with the counterparty or institution facilitating the trade. Index Tracking risk: The performance of the Fund may not match the performance of the index it tracks because of fees and expenses, market opening times and regulatory constraints. Operational risk: The main risks are related to systems and process failures. Investment processes are overseen by independent risk functions which are subject to independent audit and supervised by regulators. Liquidity risk: Liquidity is a measure of how easily an investment can be converted to cash without a loss of capital and/or income in the process. The value of assets may be significantly impacted by liquidity risk during adverse market conditions. Emerging Market risk: Emerging economies typically exhibit higher levels of investment risk. Markets are not always well regulated or efficient and investments can be affected by reduced liquidity. Focused Strategy risk: Funds with a narrow or concentrated investment strategy may experience higher risk and return volatility and lower liquidity than funds with a more diversified approach. The value of an investment in the portfolios and any income from them can go down as well as up and as with any investment you may not receive back the amount originally invested. Contact For more information, please contact us: broker.sales@hsbc.com Telephone: +44 (0) Website: Important Information For Professional Clients only and should not be distributed to or relied upon by Retail Clients. The material contained herein is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe to any investment. Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target. 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. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Stock market investments should be viewed as a medium to long term investment and should be held for at least five years. Any performance information shown refers to the past and should not be seen as an indication of future returns. Some of the ETFs 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. To help improve our service and in the interests of security we may record and/or monitor your communication with us. 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. Approved for issue in the UK by HSBC Global Asset Management (UK) Limited, who are authorised and regulated by the Financial Conduct Authority. Copyright HSBC Global Asset Management (UK) Limited All rights reserved. HSBC Index Tracker Investment Funds is an Open Ended Investment Company that is authorised in the UK by the Financial Conduct Authority. The Authorised Corporate Director and Investment Manager is HSBC Global Asset Management (UK) Limited. All applications are made on the basis of the HSBC Index Tracker Investment Funds prospectus, Key Investor Information Document (KIID), Supplementary Information Document (SID) and most recent annual and semi annual report, 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 the local distributors. Investors and potential investors should read and note the risk warnings in the prospectus and relevant KIID and additionally, in the case of retail clients, the information contained in the supporting SID. ED EXP200118