HEAD-TO-HEAD: HSBC vs Vanguard

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Both the HSBC and Vanguard funds are passive products that track the UK equity market. The main difference is the indices that they track, according to Hortense Bioy, London-based director of passive strategies for manager research at Morningstar.

The HSBC fund tracks the FTSE 100 index, which is a large cap index, while the Vanguard fund tracks the FTSE All Share Index, which includes large-, mid-, and small-cap companies.

“As the name indicates, the FTSE 100 tracks only 100 companies, whereas the FTSE All Share tracks around 600 companies. So the All Share Index is much broader in composition,” Bioy explained.

Bioy added that the FTSE 100 covers 80%-85% of the UK market, while the FTSE All Share covers 98% of the market.

Since the FTSE All Share Index has a broader composition, Bioy believes that it is more representative of the UK market than the FTSE 100 Index. Around 70% of the FTSE 100 companies’ revenue come from outside the UK and most of the top 10 holdings report their results in US dollars rather than sterling.

“The FTSE 100 is often seen more as a global index,” she said.

The difference between the two indices is highlighted in the portfolios of the two funds. The HSBC fund has less than 10% exposure in mid- and small-cap companies, while the Vanguard fund has nearly 25% of its portfolio in these companies.

Source: Morningstar

Their sector allocations are also different. The FTSE 100 Index has more exposure to defensive stocks and less exposure to cyclical and sensitive funds, which is reflected in the HSBC fund when compared to the Vanguard fund.

Source: Morningstar

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