HSBC FTSE 250 Index ongoing charge change

The HSBC FTSE 250 index fund has recently altered the way it calculates its ongoing charges figure (OCF) in line with recommendations from the Investment Association (IA).

The IA issued guidance in July 2020 and reconfirmed its position in January 2022, concerning the disclosure of costs and charges for UK funds. More specifically, the IA guidance indicated that the OCF for UK funds should take account of look through costs for underlying investments like investment trusts and REITs held within the portfolios.

Incorporating the new guidance leads to a material increase in the OCF for the HSBC FTSE 250 Index fund. However, this does not represent an increase to actual management or operational costs investors in the fund experience. These costs have always existed and have been reflected in the performance of the funds. This is only a change to the way costs are disclosed.

For now, the guidelines set by the IA are only guidance, and therefore other providers do not have to follow them. However, in the future it may be that these charges are reflected in all funds that hold certain investments like investment trusts.

Our view

While we appreciate the large increase in OCF from 0.12% to 0.37%, may come as a concern to clients, HSBC is acting in line with guidance. While we don’t necessarily expect other providers to adopt the same approach unless the guidance becomes regulation. Investors were already experiencing these costs so there should be no change to the performance of the fund.

In indices, the cost of the underlying investments like investment trusts are already reflected in index performance, therefore they represent no cost to the tracking outcome of the fund.

The fund offers investors a simple, well diversified way of investing in medium sized UK companies and we remain confident that it will continue to track the index well in the future.

Past performance is not a guide to the future. Source:*Lipper IM to 31/03/2023.