HSBC Exchange Traded Funds HSBC AMANAH SAUDI 20 ETF WWW.HSBCSAUDI.COM
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HSBC Exchange Traded Funds Contents Introduction 4 What are ETFs 7 How do ETFs work? 8 How to invest in ETFs 11 Pricing efficiency and liquidity of ETFs 12 Risks in ETFs 15 HSBC s Credentials 16 Shariah Compliance 19 More Information 20
HSBC Exchange Traded Funds Introduction Exchange Traded Funds (ETFs) have become a phenomenal global success and continue to rise in popularity as one of the fastest growing investment products of recent times. In 2010, assets under management (AUM) for ETFs increased by 26.6%, crossing the USD 1 trillion mark. Trading volumes for ETFs are also increasing gradually. ETFs popularity can be attributed to their lower cost, accessibility, flexibility, transparency and liquidity; all features that investors typically see as key in a desirable investment product. This document introduces ETFs as an investment product, and explains the main elements you need to understand before you consider investing. 4
WWW.HSBCSAUDI.COM Phenomenal global success
WWW.HSBCSAUDI.COM ETFs are low cost Investment funds
HSBC Exchange Traded Funds What are ETFs In essence, ETFs are low cost investment funds that trade as a single security whilst giving you exposure to the components of an index in which you wish to invest. They combine the tradability and liquidity advantages of stocks with the low costs and diversification benefits of index funds in one product. ETFs are, therefore, a simple and straightforward way for any investor to gain instant diversified exposure to a particular market, region, sector, asset class and current investment strategy, all through one simple transaction. 7
HSBC Exchange Traded Funds How do ETFs work? Most ETFs are passive investments and are not actively managed by a fund manager. The aim of these passively managed ETFs is to simply mirror or replicate an index that represents a particular market or sector, etc. There are a wide variety of indices in existence today and more are being created that allow products like ETFs to track the combined value of all the individual companies or securities that make up a particular index. The returns of ETFs also include income distributions which are either paid out at regular intervals or automatically reinvested. 8 8
WWW.HSBCSAUDI.COM ETFs reflect a particular market
WWW.HSBCSAUDI.COM Trading at any time
HSBC Exchange Traded Funds How to invest in ETFs You can invest in ETF shares easily through your broker. They trade on Tadawul and settle through the local clearing system in the same way as any other listed tradable securities. Most mutual funds will deal only once a day at a forward point, on either the same or the following day from when you deal and also at an unknown valuation from the time you place the order. ETFs, however, can be traded at any time and at any size at the price you see and agree to. ETFs therefore provide certainty; certainty that you are dealing at a known price and certainty that you are getting what you want to invest in. 11
HSBC Exchange Traded Funds Pricing efficiency and liquidity of ETFs A feature of the efficiency that ETFs offer is that the price of an ETF is constantly kept very close to its true and fair value by authorised market makers who try to correct any premium or discount that may occur in the price during trading on the exchange. These market makers can correct any supply or demand imbalances that can cause the price of the ETF to be at a premium or discount to the fair value. This has advantages for both large and small investors as trades can be made in any size, even for very large orders without there being any market impact. The pricing of ETFs therefore tends to be both efficient and transparent. ETFs publish an inav or Indicative Net Asset Value which is calculated and updated to reflect real time movements of the index being tracked. ETFs are transparent and you know what you are investing in as the implied underlying portfolio is updated and there for all to see on a daily basis. 12 12
WWW.HSBCSAUDI.COM Ensuring the highest Levels of liquidity 13
WWW.HSBCSAUDI.COM Risk management is a key issue
HSBC Exchange Traded Funds Risk in ETFs An investment product cannot be thought of as being risk free and ETFs also carry a risk. ETFs track an index very closely, both up and down, in value. However, an ETF also has to comply with the Investment Funds Regulations of the Capital Market Authority. Of course, the return will depend on the performance of the underlying index which may have risen or fallen over the period of investment. 15
HSBC Exchange Traded Funds HSBC s Credentials You can be confident in the capabilities and resources of one of the world s leading financial institutions. In terms of investment management, the HSBC Group has over US$925bn of assets under management worldwide. HSBC Global Asset Management has longstanding experience of managing funds tracking a diverse range of indices. HSBC Saudi Arabia is one of the leading players in the local mutual fund industry with a market share of 22% in local equity funds*. When it comes to market making, HSBC s Global Markets business, one of the largest of its kind, offers 24-hour coverage and knowledge of local markets and products, including ETFs of course. Supporting the ETF is the award-winning institutional fund services capabilities of HSBC. They have US$5.6 trillion of assets under custody globally, one of the world s largest sub-custody networks and over US$2.5 trillion of funds under administration globally. Source: HSBC Holdings plc 2010 Annual Report Source: HSBC Securities Services as at 31 December 2010 *Tadawul as at 31 December 2010 16
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HSBC Exchange Traded Funds Shariah Compliance HSBC s shariah compliant investment products carry a high level of shariah authenticity, with the Fund structure, procedures and documents having been reviewed by its Shariah Supervisory Committee. You can invest in this Fund with the peace of mind that the Fund has been reviewed and approved by a Committee of shariah scholars comprising Sheikh Abdullah Sulaiman Al Manee, Sheikh Dr. Abdullah El Mutlaq and Sheikh Dr. Mohammed El Gari 19 19
HSBC Exchange Traded Funds More Information We hope you have scanned what is important to you. If you would like more information about what HSBC ETFs have to offer today, please visit www.hsbcsaudi.com 20
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For further information, please contact: Business Support Unit HSBC Saudi Arabia Limited P.O. Box 9084, Riyadh 11413, Kingdom of Saudi Arabia Tel: 800 124 1212 Fax: (9661) 299 2385 website: www.hsbcsaudi.com Incorporated in Riyadh, Saudi Arabia with limited liability, C.R. No. 1010221555, Capital of 50 million Saudi Riyals (Fully Paid) Licensed and regulated by the Capital Market Authority (CMA) license number 05008-37 Important information Prior to entering into a transaction, you should consult your legal, regulatory and tax advisory. Business, investment and trading decisions (including decisions regarding the suitability of these investments) should be based on your own judgement and upon advise from such advisers as you deem necessary and not upon any view expressed by HSBC Saudi Arabia Limited, its subsidiaries or related companies. The Fund is registered with The Capital Markets Authority (CMA) in Saudi Arabia. Registration of the Fund does not imply protection from loss. This document is not and should not be construed as an offer to sell or solicitation of an offer to purchase or subscribe to any investment. HSBC Saudi Arabia Limited have based this document on information obtained from sources it believes to be reliable but which it may not have independently verified. HSBC Saudi Arabia Limited makes no guarantee, representations or warranties and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion herein are subject to change without notice. The value of any investment or income may go down as well as up. Past performance is not necessarily a guide to future performance.