CITYWIRE NEW MODEL ADVISER CONFERENCE JANUARY 2011

Asset allocation and efficient portfolio construction with ETFs

For investment professionals only

ETF Selection… so many choices!

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4882How do investors choose the most appropriate ETF?

There are over 1,000 ETFs in Europe from almost 40 different providers1. How do you pick the right one? Costs

– Total Expense Ratio (TER)– Trading Costs (Bid-Offer Spread and commission)– Performance (any tracking difference is an implied cost to the investor)

Structure – Securities-lending risks (physically-based ETFs)– Counter-party risks inherent in swap-based ETFs (quality of collateral)

Product provider– Look for a strong provider, with financial and corporate stability

Other considerations– Domiciliation and country of registration– Tax status– Frequency of dividend distributions– Currency listing

1. Source: ETF Landscape Q3 2010. BlackRock

The HSBC ETF Advantage

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4882Why investors choose HSBC ETFs

100% HSBC: asset management, market-marking, custody, distribution Costs

– Low TERs (e.g. HSBC S&P500 ETF at 15bps versus 40bps in other physically-replicating funds!)– Our trading team posts bids and offers on the exchange throughout the day to ensure that clients can achieve efficient execution– Open architecture… We have partner market makers that provide additional quotes to ensure that clients achieve low trading costs.

Structure– All our funds are physically-based

Legal registrations/tax domiciles – All our UK registered ETFs have UK Reporting Status

ETFs as an Access Product

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4882The benefits of ETFs for advisers

Diversification – Clients can access an entire index in one trade Convenient access to a myriad of asset classes and foreign/emerging markets Transparency

– Clear investment strategy: Tracks a benchmark index

– Costs are clear: Total Expense Ratio (TER)

– Daily disclosure of underlying securities on ETF provider website

Flexibility – Can be used as a short-term trading tool or a long-term investment Cost effectiveness – ‘Buy the market’ in one trade… and TERs are low Liquidity

– HSBC ETFs trade on the stock exchange and clients can get in and out any time the market is open

– The ETF can be as liquid as the underlying basket of shares (due to open-ended structure)

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0%

10%20%

30%

40%

50%60%

70%

80%90%

100%

Other 0.9% 0.6% 1.0%

Emerging Market 4.3% 6.0% 8.4%

Japan 4.7% 5.8% 4.7%

Pacific (ex Japan) 5.8% 5.2% 8.1%

North America 14.8% 15.6% 13.7%

Europe (ex UK) 18.1% 20.6% 17.0%

UK 51.4% 46.2% 47.1%

2007 2008 2009

The changing focus of UK investors

Erosion of home bias: UK investors hold a significantly lower percentage of UK equities than a decade ago (almost 20% lower!)

In 2010, retail investment flows have been largely into Global Emerging Market equities

This follows the trend illustrated in the graph opposite, showing how the Emerging Market allocation has almost doubled in 2 years!

ETFs are a convenient and cost-effective access product to these markets… helping advisers increase diversification and improve performance for their clients

1 Source:The Investment Management Association Annual Survey.Asset Management in the UK 2009-2010.

Assets managed in the UK – Equity allocation by region2007-20091

HSBC Bank’s Asset Allocation for 2011 using ETFs

“We remain positive on Equities for 2011 and believe it is time to go overweight US Equities and remain overweight Emerging Market Equities”

Garry EvansGlobal Head of Strategy

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4882Model portfolio based on HSBC Global Strategy Views for 2011

Source: HSBC Markets (Asia) Limited. (1) For illustrative purposes only.

2.2%8.4%

8.7%

5.2%

14.6%

3.0%8.4%

7.0%

5.2%

12.6%

7.0%

11.4%

42.5%

10.4%

8.4%

45.0%

US

Brazil

UK

Eurozone

Japan

MSCI Pacific ex Japan

MSCI EM Far East

Other

Example of Implementation using ETFs1

HSBC S&P 500

HSBC MSCI Brazil

HSBC FTSE100

HSBC Euro STOXX 50

HSBC MSCI Japan

HSBC MSCI Pacific ex Japan

HSBC MSCI EM Far East

Outer ring: HSBC (Weight %); Dev. markets: 82.7%; Emerging markets: 17.3%

Inner ring: MSCI (Weight %) ; Dev. markets: 86.3%; Emerging markets: 13.7%

HSBC ETF Execution

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4882Where can I buy and sell HSBC ETFs?

London Stock Exchange Stockbrokers Online brokers Wrap Platforms Fund Platforms Talk to us on how to execute ETFs!

Why Open Architecture

Antony ChampionHead of Intermediary Sales

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4882Traditional bonds

Time delay launching new Life funds/Slow to adapt to Market Trends Minimum Investment amount needed to be viable Funds can be closed if fail to attract investment Cost of fund structure limits choice Mirror funds can be difficult for customers to understand Opaque structure/Charges and tax reflected in unit price How much are charges and tax? Difficult to obtain detailed information

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4882Returns differential between OEICs and mirror funds

Source: Morningstar. Returns from 20 September 2008 to 15 December 2010.

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4882Why open architecture

Over 2000 funds Ultimately limited by permissible asset rules Can add funds quickly Not constrained by minimum investment amounts Benefits of holding cash Buys OEICS normally at NAV Separate out cash and tax Transparent performance of OEIC

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4882Tax rates applicable to onshore bonds holding ETFs

Tax rates on growth above RPI only as:– 19.25% Income Funds– 18.25% Accumulation Funds

Tax on income: 0% Funds paying an Interest Distribution: 20% Tax on growth and income Deducted monthly from cash account

Source: HSBC Insurance. This is not tax advice. Tax rates are subject to change.

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Tax rates applicable to onshore bonds holding ETFs – Example

Fund A grows by 10%Pays dividend 2%RPI 5%

Initial investment £10,000Value end Year 1 £11,000Gain £1,000

Dividend at 2% = £200 @ 0% tax

Total return £1,200 = 12% growthTax £96.25 = 8.0%

Treated as 20% tax paid

-£500 (RPI at 5%) = £500x19.25%= £96.25

= £0.00Total tax £96.25

Source: HSBC Insurance. This is not tax advice. Tax rates are subject to change.

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4882Why open architecture bonds?

Can meet customer objectives/matched against asset allocation Separate out cash and tax Transparent performance of OEIC Tax deferral benefits of bond Clear tax rates Ability to change asset allocation Tax deferred income

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4882For more information…

About HSBC ETFs

Call: Michelle Aspinall, ETF Sales Team HSBC Bank, on 020 7991 5719Email: etf.sales@hsbcib.comVisit: www.etf.hsbc.com today

About HSBC Life Onshore BondsEmail: ifa.sales@hsbc.com

Visit: www.bond.hsbc.co.uk

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4882Important information

This document is issued by HSBC Bank plc (“HSBC”). HSBC is authorised and regulated by the Financial Services Authority (“FSA”) and is a member of the HSBC Group of companies (“HSBC Group”). HSBC has based this document on information obtained from sources it believes to be reliable but which have not been independently verified. Any charts and graphs included are from publicly available sources or proprietary data. Except in the case of fraudulent misrepresentation, no liability is accepted whatsoever for any direct, indirect or consequential loss arising from the use of this document. HSBC is under no obligation to keep current the information in this document. You are solely responsible for making your own independent appraisal of and investigations into the products, investments and transactions referred to in this document and you should not rely on any information in this document as constituting investment advice. Neither HSBC nor any of its affiliates are responsible for providing you with legal, tax or other specialist advice and you should make your own arrangements in respect of this accordingly. The issuance of and details contained in this document, which is not for public circulation, does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any security, commodity or other investment product or investment agreement, or any other contract, agreement or structure whatsoever. This document is intended for the use of clients who are professional clients or eligible counterparties under the rules of the FSA only and is not intended for retail clients. This document is intended to be distributed in its entirety. Reproduction of this document, in whole or in part, or disclosure of any of its contents, without prior consent of HSBC or any associate, is prohibited. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document. Nothing herein excludes or restricts any duty or liability of HSBC to a customer under the Financial Services and Markets Act 2000 or the rules of the FSA.This presentation is a “financial promotion” within the scope of the rules of the FSA. HSBC Bank plcAuthorised and regulated by the Financial Services AuthorityRegistered in England No. 14259Registered Office: 8 Canada Square, London, E14 5HQ, United KingdomMember HSBC GroupDISCPRES01110719595 – AMG34882a