Use of index tracking funds set to expand

Index tracking funds are set to become more popular in coming years, according to research conducted by HSBC Global Asset Management. The survey found that 95% of financial advisers would either significantly or moderately increase their exposure to index tracking funds over the coming three years.

Andy Clark, Managing Director, Wholesale, HSBC Global Asset Management (UK), said index trackers were set to take a bigger slice of the wealth management market, as low cost beta takes a bigger role at the core of an investment portfolio.

"Particularly in highly efficient markets where fund managers are finding it difficult to outperform markets, index tracking funds have an important role to play. With prices coming down across the industry, there is increasingly a clear price differential between active and passive solutions," he said.

The research also determined that when choosing funds, 90% of advisers deemed price as a highly important factor. The method/system of tracking and strength/reputation of provider were considered other important factors when choosing between index tracking funds, with level of service and fund size considered lower importance.

By far, the most popular use for index trackers amongst UK intermediaries is to track UK indices: 87% of advisers said they would use trackers to gain exposure to these markets.

HSBC Global Asset Management recently announced that from 1 September 2009, it would slash the fees across its full seven-strong UK-based index tracking range to 0.25%. HSBC index tracking funds had previously ranged in price from 1-0.5%.

The move means HSBC now offers the biggest index tracking range for retail investors, at a market leading price.

The new charging structure is available for investments as low as £1,000 lump sum or £50 regular savings. The reduced charges apply to new and existing investors and takes effect from 1 September 2009. There is no initial charge.

HSBC's new pricing structure does not pay commission, so is likely to appeal to the growing base of fee-based advisers. Clark said the move also recognised that the Retail Distribution Review would create the need to develop factory gate pricing consisting of a clean fee and advice fee. For this reason, HSBC Global Asset Management is at the forefront of a new era in pricing.