HSBC is considering launching a global fund of passive funds as a low cost alternative to its actively-managed vehicle.
HSBC says the fund would broadly mirror the asset allocation of the £131.67m Open Global Return fund but would offer a TER of between 1% and 1.35% through the use of index funds and ETFs.
If the proposal gets the green light, it is expected to launch by the end of Q2 and will most likely be run by Nicholas Pothier, manager of both the Open Global Return and Open Global Distribution funds.
The move is part of a growing trend at HSBC towards lower charges and follows its decision last year to cut annual management charges on its range of tracker funds. Earlier this month, T.Bailey announced the launch of its passive international equity vehicle Growth fund LITE, with a TER of 0.99%.
Managing director wholesale UK Andy Clark says the push for lower charges would continue.
"The demand from IFAs is definitely there and I think will only get better," Clark says. "If we are right and people start to drive the costs of their portfolios down, this sort of product can be at the core of doing that.
"It is early days but something we really want to do. It is very RDR-friendly and is where we want to position ourselves. Some people believe in the passive story - as we do - and if you feel it is more cost effective for your client, here is an option to do that. It would still benefit from the tactical asset allocation we do here at HSBC, but would use passive funds instead."
Clark says HSBC would only consider launching the fund if it is able to replicate the diversity in its active funds and make a significant difference to the TER.
"The TER on active fund of funds is 2%," Clark adds. "It has yet to be worked out but I suspect we could do this [with a passive fund] for between 1% and 1.35%. If so, there is a real differential there for clients to choose: You pay a little bit more, you get fund and manager selection but if you do not want to do that we will still use the same asset allocation decisions. We have proved they work and there is no reason it will not work on the passive funds.
"If we look at it and it gets to 1.6% and we are charging 1.9% on our active we have to start thinking it is not worth it. I want to see at least 75 basis points between the TER on our active version and the passive version. Anything more than that and we will probably just walk away."
