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Interview with Farley Thomas, Global Head of ETFs and Wealth Solutions, HSBC …
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Good morning Mr.Thomas, HSBC is one the major financial institutions in the world but a relative newcomer to the world of ETFs. Can you tell our readers something about your company and its objectives in terms of the ETF market?
Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world. HSBC’s international network comprises around 8,000 offices in 88 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.
HSBC is using the significant capabilities of its Global Asset Management, Global Markets and Securities Services units to deliver ETFs.
We believe we can target 10% share of the European market and have the patience to develop our business over the next few years. The HSBC brand and our product and distribution capabilities give us an advantage that we have to harness. Our plan is to launch a range of good value, high quality products aimed at asset allocators, wealth managers, traders and personal investors.
Your current range of products consists of 8 ETFs. Can you talk to us about your products and their most important features?
Consistent with our objective of developing a range of core products initially, we have launched a small range of equity ETFs tracking the major indices. We will add to this range considerably each quarter and plan to offer coverage of the main asset classes and indices relevant for investors. We were one of the first ETF providers to signal the expected core positioning of ETFs by using our main Group brand for HSBC ETFs rather than position ETFs as a niche offering with a separate brand.
As a result of leveraging the significant internal capabilities of the HSBC group, our products represent great value for investors. We are very competitively priced and are committed to developing simple ‘physical’ ETFs wherever possible.
Do your ETFs adopt a physical or swap based replication? What is your opinion about the relative advantages of both methods and what is HSBC’S position on this issue?
Currently all of our products employ a physical replication approach. In our view providers need to focus on what the client wants and our clients tell us that this is a balance of: expense, transparency and investment performance. Where we can deliver good performance and good value using a physical replication approach we will avoiding complicating our product through use of derivatives and exposing clients to swap counterparty risk. However where a market is either inaccessible through physical replication or the expenses of physically investing would render the fund inefficient we will consider a synthetic approach. In this case we believe that HSBC’s reputation for risk management and its financial strength will be important in developing any swap-based products we launch in the future.
Your products are currently listed on the English and French markets. Do you expect to expand the listing of your products to other European markets or do you prefer to increase the number of ETFs before moving toward other markets?
We aim to do both. To date we have been focused on ensuring we have the right processes, people and systems in place to efficiently roll out products. We are now in the position that we can comfortably launch and cross list product simultaneously. In the coming months you will see HSBC both growing its ETF offering and increasing accessibility through registrations and listings in major European markets.
Recent history has demonstrated that ETFs and ETCs prosper even in market downturns. How are your products dealing with the difficulties of the current market? Are you pleased with your AUM results and volumes of trade?
Ours ETF activity is less than a year old and we are mainly focusing on expanding the range and ensuring product quality. Through the credit crisis, ETF assets under management doubled and traded volumes quadrupled, so the market conditions actually favour ETFs.
Since launching our first product in late August 2009 we have seen a steady increase in AUM and traded volumes. As our range expands we will be more focused on promoting the range to our client bases in Europe.
What can you tell us about the future, when do you expect to list new instruments and what type of products will they be?
We will continue to expand our equity offering and balance our current range of developed market products with a good range of emerging markets products as investors would expect these from HSBC. We will also expand the range with ETFs covering other asset classes. We will be rolling out ETFs across Europe with registrations in all major European ETF markets and additional listing on SIX Swiss and Deutsche Boerse.
In addition to our European activity we will be expanding on our existing ETF business in Asia Pacific building out a product range on the Hong Kong stock exchange to service the Group’s extensive client base in Asia-Pacific.