HSBC In Smart Beta Fund Drive

HSBC global asset management (GAM) has announced that it is rolling out a range of smart beta funds based on its alternative weighted index range, the Economic Scales Indices (ESI).

The move highlights the increasing demand from investors for low cost smart beta solutions and follows the launch of the ESI range, which went live last month on June 15. It saw the launch of the ESI emerging market fund, which tracks the ESI emerging market index.

The three further funds, which have been submitted to the regulator for approval, are the ESI global, US and Japan equities funds. They are due to be launched in the last three months of this year.

ESI uses a weighting scheme that measures companies based on their economic scale by “value added”. When the individual company weights are then aggregated they result in a quoted country gross national product (GNP). For example, in the case of the All World HSBC ESI the strategy means investors can get an investment closely mirroring the shape of the quoted world economy.

Chris Cheetham, global chief investment officer at HSBC GAM, said: “A paradigm shift is taking place in the industry as more investors are challenging the so-called conventional wisdom of market capitalisation-weighted indices and their inherent flaws. We believe our proprietary HSBC Economic Scale Indices offer investors an intuitive and effective low cost solution.”

HSBC, which re-structured its fund business last June moving it into the asset management division, said at the time it was concentrating on growing its ETF assets under management, rather than developing products.

The renewed product drive will also involve establishing an Irish domiciled Common Contractual Fund (CCF) to offer institutional investors access to the strategy through a tax transparent vehicle. The first fund (ESI ACWI Equities) is due to launch on 1st October, subject to regulatory approval.

Smart beta, which can also be referred to as strategy indices, applies different weightings to stocks and bonds compared to the traditional method of weighting by market capitalisation. These indices are often developed with the purpose of reducing or diversifying risk, producing excess returns or managing bespoke exposures to stocks.

According to data last summer from Towers Watson over £10 billion of its institutional investors’ assets were allocated to smart beta strategies in the last five years. It said that it had also partnered with asset managers to develop 20 smart beta solutions in areas where there were good investment ideas but no desirable products, on a net of fees basis.

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