What Is Going On At HSBC?

What is going on at HSBC Global Asset Management? Its active fund and index tracker funds are flourishing, yet its exchange traded fund (ETF) business is slowly disappearing from view.

Mighty Overall Assets

To give some context, the asset manager has £6.6 billion within its range of eight-strong index tracker funds, and across the global firm as a whole there are $446.6 billion USD worth of assets. Every airport walkway in the world seems to be plastered with HSBC adverts.

The asset manager has also been sensitive to price on its index tracker range, cutting annual fees to as low as 0.07 percent on its All-Share Index fund.

HSBC Global Asset Management (UK) chief executive officer Andy Clark, said in a statement in response to the fee-cuts: “Passive investing is a big and expanding market in the UK and as a fund provider we are committed to playing a part in this expansion.”

ETFs Don’t Get The Same Attention

It clearly has the might, the power and the potential to advertise its ETF range to the same extent. Like its fast-growing competitor Source, it could hand out jars of free sweets to advisers and dominate the City of London with its marketing billboards.

Yet it doesn’t, and I’m left wondering why.

It has now been widely reported that its ETF arm has shed 640 million euros so far this year, as shown by Deutsche Bank data, a slip of 12 percent of its total ETF AUM since the end of 2014. Now HSBC falls far behind the major players like iShares, db X-trackers and Lyxor which have grown 11 percent, 17 percent and 18 percent over the same period respectively.

HSBC has twice responded to comment on the same story with the same statement - that outflows are largely due, like its competitors, to "sell-offs in specific markets".

The only other ETF firms to have negative flows year to date are commodity-focused providers like Julius Baer, Deka Investment and Zuercher Kantonalbank.

China ETF Didn’t Happen

Around a year ago I reported that HSBC was gearing up to launch a China A-shares ETF, following the likes of db X-trackers, Source, Lyxor and iShares, after the asset manager was granted a RQFII quota to invest in mainland Chinese markets. That has not happened. Even more perplexing, the last ETF HSBC launched was in the summer of 2014 – the HSBC Worldwide Equity UCITS ETF.

One potential reason for the slowdown is cost. The average annual fee of its 28 ETFs is 0.45 percent. Some are cheaper, like the S&P 500 ETF at 0.09 percent, but many of the single country ETFs – Taiwan, Turkey, Mexico – cost 0.60 percent. Advisers don’t have to root around much with other providers before they realise they could invest in much cheaper alternatives.

Not That Many ETFs To Choose From

Another reason for HSBC’s apparent calcification has been the limited range of its products. Single-country ETFs in countries like Russia might be more suited for tactical investors, not buy-and-hold advisers putting together a portfolio for their clients.

Also, the U.S. – its cheapest ETF available – has been out of favour this year compared to 2014 as investors de-risk and take profit before the anticipated rise of interest rates by the Fed.

One investment manager who did not want to be named, said: “They [HSBC] are very slow to launch new products, they have no fixed income or alternative ETFs, their pricing has not kept pace with the rest of the industry, they have high staff turnover, they have moved the responsibility [of the] ETF business around different parts of the bank, they were slow to appoint 3^rd party authorised participants and market makers and they can be a difficult company to do business with.”

Yet HSBC Has Some Things On Its Side

Despite this list, HSBC has potential. All its ETFs are physically replicated, which suit an audience of advisers. Secondly, HSBC stopped securities lending, another practise that gets retail investors’ backs up, in 2013. Thirdly, this asset manager is more than capable of handing out sweets at every street corner.

We can only hope, in the good name of competition, that HSBC doesn’t fade away like other providers – RBS and iPath products from Barclays – have done before.