Published on

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide


  1. 1. Asset allocation and efficient portfolio construction with ETFs CITYWIRE NEW MODEL ADVISER CONFERENCE JANUARY 2011 For investment professionals only
  2. 2. ETF Selection… so many choices!
  3. 3. How do investors choose the most appropriate ETF? <ul><li>There are over 1,000 ETFs in Europe from almost 40 different providers 1 . How do you pick the right one? </li></ul><ul><li>Costs </li></ul><ul><ul><li>Total Expense Ratio (TER) </li></ul></ul><ul><ul><li>Trading Costs (Bid-Offer Spread and commission) </li></ul></ul><ul><ul><li>Performance (any tracking difference is an implied cost to the investor) </li></ul></ul><ul><li>Structure </li></ul><ul><ul><li>Securities-lending risks (physically-based ETFs) </li></ul></ul><ul><ul><li>Counter-party risks inherent in swap-based ETFs (quality of collateral) </li></ul></ul><ul><li>Product provider </li></ul><ul><ul><li>Look for a strong provider, with financial and corporate stability </li></ul></ul><ul><li>Other considerations </li></ul><ul><ul><li>Domiciliation and country of registration </li></ul></ul><ul><ul><li>Tax status </li></ul></ul><ul><ul><li>Frequency of dividend distributions </li></ul></ul><ul><ul><li>Currency listing </li></ul></ul>1. Source: ETF Landscape Q3 2010. BlackRock
  4. 4. The HSBC ETF Advantage
  5. 5. Why investors choose HSBC ETFs <ul><li>100% HSBC : asset management, market-marking, custody, distribution </li></ul><ul><li>Costs </li></ul><ul><ul><li>Low TERs (e.g. HSBC S&P500 ETF at 15bps versus 40bps in other physically-replicating funds!) </li></ul></ul><ul><ul><li>Our trading team posts bids and offers on the exchange throughout the day to ensure that clients can achieve efficient execution </li></ul></ul><ul><ul><li>Open architecture… We have partner market makers that provide additional quotes to ensure that clients achieve low trading costs. </li></ul></ul><ul><li>Structure </li></ul><ul><ul><li>All our funds are physically-based </li></ul></ul><ul><li>Legal registrations/tax domiciles </li></ul><ul><ul><li>All our UK registered ETFs have UK Reporting Status </li></ul></ul>
  6. 6. ETFs as an Access Product
  7. 7. The benefits of ETFs for advisers <ul><li>Diversification – Clients can access an entire index in one trade </li></ul><ul><li>Convenient access to a myriad of asset classes and foreign/emerging markets </li></ul><ul><li>Transparency </li></ul><ul><ul><li>Clear investment strategy: Tracks a benchmark index </li></ul></ul><ul><ul><li>Costs are clear: Total Expense Ratio (TER) </li></ul></ul><ul><ul><li>Daily disclosure of underlying securities on ETF provider website </li></ul></ul><ul><li>Flexibility – Can be used as a short-term trading tool or a long-term investment </li></ul><ul><li>Cost effectiveness – ‘Buy the market’ in one trade… and TERs are low </li></ul><ul><li>Liquidity </li></ul><ul><ul><li>HSBC ETFs trade on the stock exchange and clients can get in and out any time the market is open </li></ul></ul><ul><ul><li>The ETF can be as liquid as the underlying basket of shares (due to open-ended structure) </li></ul></ul>
  8. 8. The changing focus of UK investors <ul><li>Erosion of home bias: UK investors hold a significantly lower percentage of UK equities than a decade ago (almost 20% lower!) </li></ul><ul><li>In 2010, retail investment flows have been largely into Global Emerging Market equities </li></ul><ul><li>This follows the trend illustrated in the graph opposite, showing how the Emerging Market allocation has almost doubled in 2 years! </li></ul><ul><li>ETFs are a convenient and cost-effective access product to these markets… helping advisers increase diversification and improve performance for their clients </li></ul>1 Source:The Investment Management Association Annual Survey. Asset Management in the UK 2009-2010. Assets managed in the UK – Equity allocation by region 2007-2009 1
  9. 9. HSBC Bank’s Asset Allocation for 2011 using ETFs
  10. 10. “ We remain positive on Equities for 2011 and believe it is time to go overweight US Equities and remain overweight Emerging Market Equities” Garry Evans Global Head of Strategy
  11. 11. Model portfolio based on HSBC Global Strategy Views for 2011 Source: HSBC Markets (Asia) Limited. (1) For illustrative purposes only. Outer ring: HSBC (Weight %); Dev. markets: 82.7%; Emerging markets: 17.3% Inner ring: MSCI (Weight %) ; Dev. markets: 86.3%; Emerging markets: 13.7% Example of Implementation using ETFs 1 HSBC MSCI EM Far East HSBC MSCI Pacific ex Japan HSBC MSCI Japan HSBC Euro STOXX 50 HSBC FTSE100 HSBC MSCI Brazil HSBC S&P 500
  12. 12. HSBC ETF Execution
  13. 13. Where can I buy and sell HSBC ETFs? <ul><li>London Stock Exchange </li></ul><ul><li>Stockbrokers </li></ul><ul><li>Online brokers </li></ul><ul><li>Wrap Platforms </li></ul><ul><li>Fund Platforms </li></ul><ul><li>Talk to us on how to execute ETFs! </li></ul>
  14. 14. Why Open Architecture Antony Champion Head of Intermediary Sales
  15. 15. Traditional bonds <ul><li>Time delay launching new Life funds/Slow to adapt to Market Trends </li></ul><ul><li>Minimum Investment amount needed to be viable </li></ul><ul><li>Funds can be closed if fail to attract investment </li></ul><ul><li>Cost of fund structure limits choice </li></ul><ul><li>Mirror funds can be difficult for customers to understand </li></ul><ul><li>Opaque structure/Charges and tax reflected in unit price </li></ul><ul><li>How much are charges and tax? </li></ul><ul><li>Difficult to obtain detailed information </li></ul>
  16. 16. Returns differential between OEICs and mirror funds Source: Morningstar. Returns from 20 September 2008 to 15 December 2010.
  17. 17. Why open architecture <ul><li>Over 2000 funds </li></ul><ul><li>Ultimately limited by permissible asset rules </li></ul><ul><li>Can add funds quickly </li></ul><ul><li>Not constrained by minimum investment amounts </li></ul><ul><li>Benefits of holding cash </li></ul><ul><li>Buys OEICS normally at NAV </li></ul><ul><li>Separate out cash and tax </li></ul><ul><li>Transparent performance of OEIC </li></ul>
  18. 18. Tax rates applicable to onshore bonds holding ETFs <ul><li>Tax rates on growth above RPI only as: </li></ul><ul><ul><ul><li>19.25% Income Funds </li></ul></ul></ul><ul><ul><ul><li>18.25% Accumulation Funds </li></ul></ul></ul><ul><li>Tax on income: 0% </li></ul><ul><li>Funds paying an Interest Distribution: 20% Tax on growth and income </li></ul><ul><li>Deducted monthly from cash account </li></ul>Source: HSBC Insurance. This is not tax advice. Tax rates are subject to change.
  19. 19. Tax rates applicable to onshore bonds holding ETFs – Example Fund A grows by 10% Pays dividend 2% RPI 5% Initial investment £10,000 Value end Year 1 £11,000 Gain £1,000 Dividend at 2% = £200 @ 0% tax Total return £1,200 = 12% growth Tax £96.25 = 8.0% Treated as 20% tax paid -£500 (RPI at 5%) = £500 x19.25% = £96.25 = £0.00 Total tax £96.25 Source: HSBC Insurance. This is not tax advice. Tax rates are subject to change.
  20. 20. Why open architecture bonds? <ul><li>Can meet customer objectives/matched against asset allocation </li></ul><ul><li>Separate out cash and tax </li></ul><ul><li>Transparent performance of OEIC </li></ul><ul><li>Tax deferral benefits of bond </li></ul><ul><li>Clear tax rates </li></ul><ul><li>Ability to change asset allocation </li></ul><ul><li>Tax deferred income </li></ul>
  21. 21. For more information… <ul><li>About HSBC ETFs </li></ul><ul><li>Call: Michelle Aspinall, ETF Sales Team HSBC Bank, on 020 7991 5719 Email: Visit: today </li></ul><ul><li>About HSBC Life Onshore Bonds </li></ul><ul><li>Email: </li></ul><ul><li>Visit: </li></ul>
  22. 22. Important information <ul><li>This document is issued by HSBC Bank plc (“HSBC”). HSBC is authorised and regulated by the Financial Services Authority (“FSA”) and is a member of the HSBC Group of companies (“HSBC Group”). </li></ul><ul><li>HSBC has based this document on information obtained from sources it believes to be reliable but which have not been independently verified. Any charts and graphs included are from publicly available sources or proprietary data. Except in the case of fraudulent misrepresentation, no liability is accepted whatsoever for any direct, indirect or consequential loss arising from the use of this document. HSBC is under no obligation to keep current the information in this document. You are solely responsible for making your own independent appraisal of and investigations into the products, investments and transactions referred to in this document and you should not rely on any information in this document as constituting investment advice. Neither HSBC nor any of its affiliates are responsible for providing you with legal, tax or other specialist advice and you should make your own arrangements in respect of this accordingly. The issuance of and details contained in this document, which is not for public circulation, does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any security, commodity or other investment product or investment agreement, or any other contract, agreement or structure whatsoever. This document is intended for the use of clients who are professional clients or eligible counterparties under the rules of the FSA only and is not intended for retail clients. This document is intended to be distributed in its entirety. Reproduction of this document, in whole or in part, or disclosure of any of its contents, without prior consent of HSBC or any associate, is prohibited. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document. Nothing herein excludes or restricts any duty or liability of HSBC to a customer under the Financial Services and Markets Act 2000 or the rules of the FSA. </li></ul><ul><li>This presentation is a “financial promotion” within the scope of the rules of the FSA. </li></ul><ul><li>HSBC Bank plc </li></ul><ul><li>Authorised and regulated by the Financial Services Authority </li></ul><ul><li>Registered in England No. 14259 </li></ul><ul><li>Registered Office: 8 Canada Square, London, E14 5HQ, United Kingdom </li></ul><ul><li>Member HSBC Group </li></ul><ul><li>DISCPRES011107 </li></ul><ul><li>19595 – AMG34882a </li></ul>