For professional clients only

HSBC World Index PortfoliosA range of multi-asset passive portfolios

World Index. One World. One InvestmentDecember 2012

2

` Retail Distribution Review (RDR) – when you must deliver

a consistent investment process and a robust paper-trail

` The changing investment world and potentially increased

opportunities: lower economic growth in developed

economies; and higher-growth but possibly higher-risk in

emerging markets

` New Financial Services Authority (FSA) regulations –

ensuring clients’ portfolios have an optimal risk/return

level

` Greater demands for cost transparency from clients

and regulators

` The need to control your overheads and make your

business efficient

Why passive investing is a potential RDR-ready solution

There has long been a debate about the potential for active managers to beat

their benchmarks and justify their fees. And an examination of individual manager

performance over the longer-term shows that the potential of each manager to

maintain a position of outperformance is limited.

Although a group of active managers may outperform a given index, the chart below

shows that individual manager outperformance falls dramatically each subsequent year

across three different indices. Therefore, on the example below the probability of a

manager outperforming three years in a row is less than 43%.

So when you choose to pay the premium for an active manager it is not only important

to identify the best managers, but also to review and replace them at the right point in

time. A low-cost passive fund may be an intelligent option.

` 1. Passive investing offers a

cost-efficient way to access

global opportunities.

` 2. Passive funds are

neatly aligned with the

requirements of RDR,

where value and cost

matter to clients.

` 3. Active fund research

is going to become a

more-significant burden

on advisers’ time and

resources.

These three factors increase

the relative attractiveness of

passive investment.

Persistence of skill – active managers outperforming their respective benchmarks in consecutive years.*

S&P 500

45.30% 43.86% 42.48%

3 Yrs

FTSE All Share

41.98% 38.92% 37.93%

MSCI Emerging Markets

40.48% 35.71% 33.60%

1 Yr 2 Yrs 3 Yrs1 Yr 2 Yrs 3 Yrs1 Yr 2 Yrs

We understand your business is changing

The advisory market is going through a period of significant change. Increased client expectations and regulations are having a significant impact on how you run your investment business now, and how you may choose to run it in the future. With the ever-growing to do list just to stay compliant, as well as the need to reduce risk and costs in your business, how prepared are you for:

The bottom line is investors and regulators are increasingly demanding value for money.

Source: Morningstar Direct, average % of managers outperforming relative to their primary prospectus benchmark, data analysed covers the period 1 January 2001 - 31 December 2011. Returns for S&P 500 & MSCI Emerging Markets calculated in USD, returns for FTSE All Share calculated in GBP.

Past performance is not a guarantee of future returns

3

Our sophisticated multi-asset passive solution

Our HSBC World Index Portfolios are single-fund solutions

– global, multi-asset funds that primarily hold passive

investment products, namely index tracking funds, ETFs

and direct fixed interest holdings where these can be

bought cheaper.

All of the portfolios are invested across developed and

emerging markets. Additionally, we don’t just invest in

traditional asset classes; we can also invest in property,

private equity, commodities and other non-traditional assets.

With HSBC’s World Index Portfolios, your clients will

have the opportunity to access the expertise of our

well-resourced and highly qualified investment teams

managing the portfolios and their asset allocation.

And our regular portfolio rebalancing ensures that they

remain in line with their agreed risk levels – all at an

extremely low annual charge of 0.5%.

HSBC World Index Portfolios Fees ISIN

Cautious Lower risk solution with around 70% in fixed income, 20% in equities, 5% in alternatives and 5% in cash.

AMC 0.25% C Acc: GB00B84DV184

*OCF 0.75% C Inc: GB00B84L8664

Reg fee 0.10%

Balanced Medium risk solution with around 55% in equities, 35% in fixed income, and the remainder in alternatives and cash.

AMC 0.25% C Acc: GB00B76WP695

*OCF 0.72% C Inc: GB00B7PHDP01

Reg fee 0.10%

Dynamic Higher risk solution with around 73% in equities, 19% in fixed income and the rest in alternatives and cash.

AMC 0.25% C Acc: GB00B849DT80

*OCF 0.73% C Inc: GB00B7NM4986

Reg fee 0.10%

*OCF - On-going Charges, estimated as at 1st November 2012

HSBC World Index Portfolios at a glance

Cautious Balanced Dynamic

US Equity (hedged in GBP)

4.90% 12.36% 14.91%

Europe (hedged in GBP)

4.26% 11.02% 15.71%

UK Equity 5.28% 12.34% 15.85%

Japan Equity (hedged in GBP)

2.81% 6.08% 4.91%

Asia Pac ex-Japan Equity

0.65% 3.30% 8.74%

Global Emerging Market Equity

2.11% 8.43% 12.85%

US Treasuries 17.60% 5.97% 1.64%

UK Gilts 24.78% 13.16% 10.62%

Global Corporate Bonds

12.40% 4.65% 1.12%

UK Inflation Linked Bonds

6.00% 1.14% 0.00%

Global High Yield Bonds

3.05% 3.16% 1.65%

Global Emerging Market Debt

2.49% 3.45% 2.04%

Global Local Currency EMD

3.50% 3.00% 2.00%

Commodity 2.90% 4.50% 3.32%

Property 1.54% 3.68% 3.14%

Private Equity 0.35% 1.10% 1.24%

Cash 5.37% 2.65% 0.27%

HSBC World Index Cautious

HSBC World Index Balanced

HSBC World Index Dynamic

Cautious Balanced DynamicCautious Balanced DynamicCautious Balanced Dynamic

Source: HSBC Global Asset Management, October 2012. For illustration only. May change without further notice.

Hedged indicates that a high percentage or all of the exposure in assets denominated in currencies other than GBP are hedged back to the HSBC World Index Portfolio’s base currency, GBP, to manage currency risk.

Equity Fixed Income Alternative Liquidity US Equity (hedged in GBP) US Treasuries Commodity Cash

Europe (hedged in GBP) UK Gilts Property

UK Equity Global Corporate Bonds Private Equity

Japan Equity (hedged in GBP) UK Inflation Linked Bonds

Asia Pac ex-Japan Equity Global High Yield Bonds

Global Emerging Market Equity Global Emerging Market Debt

Global Local Currency EMD

4

Well-diversified portfolios for three distinct risk profiles

At HSBC Global Asset Management, we want to make

investment decisions simpler for clients. So our HSBC

World Index Portfolios give investors the ability to choose a

single fund that will give them comprehensive access to the

world’s financial markets. All they need to do is make one

decision – on their risk attitude – once you have established

your client’s investment objectives.

We have created three distinct portfolios which we believe

have the potential to meet the risk/return needs of most

investors. We undertook extensive consumer research to

establish how many core investor segments there are as

well as each segment’s attitude to investment risk. The

valuable insights we uncovered have been used to create

these highly sophisticated multi-asset solutions, which

we have fine-tuned to be closely aligned to consumers’

risk preferences.

We implement our diversified investment strategy primarily

by using index tracking funds. Where there isn’t a suitable

index fund, we use Exchange Traded Funds (ETFs). In the

case of government bonds, we are using direct investments,

as this is the most efficient way of implementing our desired

exposure at present. To gain the best value for investors,

we use HSBC index tracking funds where available, and

a selection of other products from other hand-picked

investment managers. You can see full details of the current

portfolio holdings in the funds’ individual factsheets.

Five reasons to consider HSBC World Index Portfolios

1. Expertise in asset allocation.

Asset allocation modelling is a core competency of the multi-asset team. The HSBC tried and tested quantitative

methodology is applied with a qualitative overview built into the process

2. Broadly diversified solution.

All three portfolios are invested across developed and emerging markets. In addition, we do not just

invest in traditional asset classes, we also invest in property, private equity, commodities and

other non-traditional assets which are not always readily available for retail investors

3. Risk-targeted investment solution.

To ensure your client’s risk tolerance is not exceeded, we have a ready-made solution

designed for three different risk profiles. Our multi-asset investment team has built the

portfolios with what they consider is the right mix of asset classes to deliver optimum

diversification, considering each portfolio’s individual risk target.

The three risk profiles are designed for each of the three core customer types:

Cautious, Balanced and Dynamic investors

4. Regular rebalancing.

The portfolios are rebalanced to their original target asset class weightings every

three months. This helps ensure that your client’s risk tolerance is not compromised

as asset classes can perform differently over time. In addition, there is an annual

review of the target asset allocations to ensure the portfolios remain in line with

their long-term risk profiles

5. Cost effective delivery.

Our underlying investment strategies are all passive, which makes them more cost

effective. We use HSBC index tracking vehicles, where possible, as this is the most cost

efficient way to obtain exposure. If there is no appropriate HSBC product, we use ETFs or

sometimes direct security investments which may be more cost effective

5

How we manage the funds – our process

We have a rigorous process to ensure that only the most

appropriate asset classes make it into the HSBC World

Index Portfolios.

This is a sophisticated process that uses advanced

quantitative screening processes and analysis to ensure the

optimum mix of investments for the three portfolios.

` Firstly we undertake a thorough assessment of the

available asset classes.

` Next we use our in-house quant-based optimisation

process to assess how the asset classes work together

to deliver the best blend.

` We then identify the optimal long-term portfolio structure

for the given risk tolerance.

` To ensure robustness of the structure we stress-test the

portfolios in approximately 3000 different scenarios.

` Finally, we select the best investments for each asset

class regardless of the currency and have introduced a

process of hedging non-sterling assets back into sterling

in certain cases. We do this to eliminate unwanted

currency risk, only entering into our positions “on

purpose” and not be surprised by increased portfolio

risk due to currency fluctuations.

Rebalancing / Review

Asset AllocationOptimal long-term (5-10 years) portfolio structure (blend of asset classes, regions, currencies) for desired portfolio risk level

Forward-looking returns for different asset classes

Correlations between different asset classes, using historical data

Single asset class risk, measured by historic volatility

Investment universe

Assessment of available asset classes

Fulfilment

Choose underlying investments, aiming for the most cost-efficient solution for each asset class held

Quarterly: Rebalancing of

portfolio to asset allocation target

weights to ensure portfolio remains in line with risk

budget

Annually:Review of portfolio asset allocation, as

correlations and return

expectations may change over time

Stress-testing of portfolio structure in about 3,000 different scenarios to ensure robustness, using a Monte Carlo simulation methodology see below

Monte Carlo Simulation

Monte Carlo Simulation is a class of computational algorithms that rely on repeated random sampling to compute their

results. The process allows us to value and analyse complex portfolios by simulating the various sources of uncertainty

affecting their value, and then determining their average value over the range of resultant outcomes. Therefore the

Monte Carlo simulations enable the construction of stochastic financial models, as opposed to traditional methods that

do not take into account that market conditions may change and returns may vary. By running the simulations, we can

therefore stress-test our expected returns over different time periods, considering historic correlations and volatility.

The process factors in the fact that actual asset class returns may be different from our return expectations and enables

us to better understand each portfolio’s behaviour in different market circumstances.

Source: HSBC Global Asset Management, September 2012

6

How we manage asset allocation

Asset allocation is important, get your asset allocation wrong

and any returns from your fund selection can be completely

wiped out.

Our approach to asset allocation emphasises targeting

a realistic long-term real return after inflation, and which

rewards investors for the risk being taking.

Our asset allocation strategy relies on two principles:

1. From year to year, asset classes perform differently.

2. Diverse asset classes offer returns that are not

perfectly correlated.

The diagram on this page provides a visual insight into how

asset classes deliver different returns from year to year.

This underlines our view that asset allocation is critical to a

successful investment strategy.

Which asset will perform best each year?

Where appropriate we can efficiently gain access to non-sterling assets by hedging back into sterling.

Global Government Bonds

UK Equities

UK Government Bonds

Property

Commodities

Cash

UK Non-Government Bonds

Global Equities

Hedge Fund of Funds*

25.9 22.0 16.2 30.1 16.8

23.9 12.8 21.4 16.8 14.5

20.9 18.9

9.1

5.3

2.1

-22.7 35.6

-3.5

13.3

-29.9

-22.5

18.9 18.1

10.4

14.5

18.811.2

2.2

-5.5

8.1

25.0 12.8

11.5 22.9

10.2 12.3 19.8 14.3

7.7

7.0

9.5

6.1

5.0 9.5

9.2 8.0 16.1

4.7 5.6 10.8

8.4

4.1

5.7

9.0

2.7 -4.1

7.64.4 6.7 5.3 1.3

2.1 4.4 6.6 0.7 1.8 0.6 3.6

-23.3 0.8 -0.5 4.8 -2.0 -40.3 -1.2 0.5

15.6

6.9

6.0

0.5

-7.9

3.8 6.6 7.9 0.7 4.0 0.8 7.2 -5.2

Best performing asset classin year

Worst performing asset classin year

Year

‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11

-8.8

Source: Bloomberg, data as at 31 December 2011, total returns in GBP. Indices to represent each asset class shown are: Bank of England Base Rate (Cash); FTSE All Stocks (UK Government Bonds); FTSE All Share (UK Equities); MSCI World (Global Equities); HFRI Fof Composite Index (Hedge Fund of Funds); Dow Jones Commodity (Commodities); Citigroup World Government Bond Index (Global Government Bonds); Market iBoxx £ Non Gilt Index (UK Non-Govt Bonds); IPD UK Commercial Property Index (Commercial Property)

7

Efficient asset allocation delivers a better risk and reward

Asset allocation has a significant impact on the potential for a diversified portfolio to

achieve its objectives within a managed spectrum of risk. There is a fine balancing act

to perform in terms of the number of asset classes to include in a fund of this nature.

The finessing of a multi-asset allocation model is as much an art as it is a science.

The number of asset classes is one important factor but so too is the correlation of

asset classes with each other. Using only asset classes that are closely correlated can

even increase the risk of the portfolio without incrementally increasing the potential

return. Therefore, a strategy should not be judged purely on the number of asset

classes it holds, but rather on how those asset classes interact with each other.

We have, therefore, constructed the portfolios using what we believe is the correct

number of asset classes to deliver the optimum potential upside for the minimum

amount of risk. That’s why we think our HSBC World Index Portfolios are an efficient

investment choice.

We blend asset classes to achieve two goals: to reduce unnecessary, unrewarded

and unacceptable risks; and benefit from long-term returns for a given level of risk.

To keep the portfolios in line with their agreed risk levels, we review our asset

allocation target weights at least annually. We do this because expected returns and

correlations between asset classes, for example, may change over time.

Clever asset

allocation can

increase expected

returns without

increasing risk

by lifting the

efficient frontier

Source: HSBC Global Asset Management. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. For illustration purpose only.

Risk

Reward

HSBC World Index Cautious

HSBC World Index Balanced

HSBC World Index Dynamic

Cautious Balanced Dynamic

x

x

x

HSBC World IndexPortfolios

Equity/BondsPortfolios

8

World Index. One World. One Investment

Contact our UK sales team for more information:

Email: adviser.services@hsbc.com or Free phone: 0800 181 890

This document is intended for Professional Clients only and should not be distributed to or relied upon by Retail Clients.

The views expressed above were held at the time of preparation and are subject to change without notice. Any forecast,

projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK)

Limited accepts no liability for any failure to meet such forecast, projection or target. The HSBC World Index Cautious Portfolio,

the HSBC World Index Balanced Portfolio and the HSBC World Index Dynamic Portfolio are sub-funds of HSBC OpenFunds, an

Open Ended Investment Company that is authorised in the UK by the Financial Services Authority. The Authorised Corporate

Director and Investment Manager is HSBC Global Asset Management (UK) Limited. All applications are made on the basis of the

HSBC OpenFunds prospectus, Key Investor Information Document (KIID), Supplementary Information Document (SID) and most

recent annual and semi annual report, which can be obtained upon request free of charge from HSBC Global Asset Management

(UK) Limited, 8, Canada Square, Canary Wharf, London, E14 5HQ, UK, or the local distributors. Investors and potential investors

should read and note the risk warnings in the prospectus and relevant KIID and additionally, in the case of retail clients, the

information contained in the supporting SID.

The value of investments and any income from them can go down as well as up and investors may not get back the amount

originally invested. Where overseas investments are held the rate of currency exchange may also cause the value of such

investments to fluctuate. Investments in emerging markets are by their nature higher risk and potentially more volatile than

those inherent in some established markets. Stockmarket investments should be viewed as a medium to long term investment

and should be held for at least five years. Any performance information shown refers to the past and should not be seen as an

indication of future returns.

The performance and value of bonds, gilts and other fixed interest securities may be affected by interest rate fluctuations and by

changes in the credit ratings of the issuer.

To help improve our service and in the interests of security we may record and/or monitor your communication with us. HSBC

Global Asset Management (UK) Limited provides information to Institutions, Professional Advisers and their clients on the

investment products and services of the HSBC Group. This document is approved for issue in the UK by HSBC Global Asset

Management (UK) Limited who are authorised and regulated by the Financial Services Authority.

Copyright © HSBC Global Asset Management (UK) Limited 2012. All rights reserved. 23161/AS/1212/FP12-1859