HSBC to launch low-cost funds
HSBC has unveiled plans to launch three low-cost funds of funds on 17 October.
The HSBC World Index range contains 'cautious', 'balanced' and 'dynamic' funds, which will invest in global equities and bonds, as well as alternative investments such as commodities, private equity and property.
The three funds will invest in HSBC Global Asset Management's existing passive funds and exchange traded funds as well as external funds. The portfolios will be rebalanced on a regular basis by the multi-asset team, led by Caroline Hitch.
They will have a 0.5% annual management charges and zero initial fee. The total expense ratio (TER) is expected to be 0.83%.
The funds are available through financial advisers, directly to private investors and within some pension schemes.
HSBC's launch follows other big investment managers setting up low-cost funds.
Last month, Fidelity Worldwide Investment unveiled plans to launch three low-cost versions of existing multi-asset funds, using passive funds to provide the exposure. They will charge 0.5% a year in annual management charges.
In February, JPMorgan launched a low-cost active managed fund with a maximum total expense ratio (TER) of 0.55%, while Schroders launched a suite of cheap actively managed equity funds with TERs capped at 0.4%.
Jason Witcombe, chartered financial planner at Evolve Financial Planning, says the trend towards these low-cost funds is "good news" for investors.
He adds: "The adage that 'you get what you pay for' doesn't apply to fund management as paying high fees for actively managed funds doesn't guarantee better performance. In fact, it is often the opposite with compounding effect of high charges decimating long-term returns. These low-cost launches should therefore be applauded."
This article was written for our sister website, Money Observer
Total expense ratio
Most investment funds levy an initial charge for buying the units/shares and an annual management fee but other expenses also occur in running the fund (trading fees, legal fees, auditor fees, stamp duty and other operational expenses) which are passed on to the investor and so the TER gives a more accurate measure of the total costs of investing. The TER is especially relevant for funds of funds that have several layers of charges. Unfortunately, investment fund companies are not obliged to reveal TERs and many only publish the initial charges and annual management charge (AMC).
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.