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The HSBC FTSE 100 ETF provides broad exposure to large capitalisation UK equities and can be used as a core holding. Investing in this well-diversified fund could appeal to those looking to build a UK-centric portfolio. However, it is important for investors to examine the fund’s holdings. With a 20% weighting, the oil & gas sector has recently supplanted the financial sector as the top sector represented in the fund. Overall, a third of this ETF is invested in shares of resources firms including energy and mining companies such as Royal Dutch Shell and Rio Tinto, whose share price is primarily driven by international commodity prices.
Also, it should be noted that the FTSE 100 is closely correlated to international equity indices as many of the index’s constituents are truly global players (more than 70% of the revenues of FTSE 100 companies come from outside the UK, while most of the top ten FTSE 100 companies report their results in US dollars rather than sterling). Over the past five years, the FTSE 100 has shown a 90% correlation to both the EURO STOXX 50 and the MSCI World.
This fund can also serve as a tactical tool for those looking to place a bet on the near-to-medium-term prospects of the UK equity market under the belief that the benchmark is undervalued. However, investors outside of the UK should be wary of currency risk.
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