Head to head: Fidelity Index World vs the HSBC FTSE All-World Index

The Fidelity Index World and HSBC FTSE All-World Index tracker funds are two of the most popular investments with AJ Bell’s DIY investors across virtually every age group.

They are the sixth and eighth most popular holdings among all AJ Bell Stocks and Shares ISA holders, coming in behind four of AJ Bell’s own Managed Funds and Scottish Mortgage. These two tracker funds are behemoths of the passive space, each holding billions of investor cash.

We highlighted them in our previous series, explaining the differences between the most popular global tracker funds, but given they’re so popular, the top two warranted a further deep dive.

Differences between the 10 most popular passive funds

While they may appear to be fairly similar on the surface, there’re a number of key differences in cost, construction and return on investment.

Similarities: passive and fund type

Both funds are passive instruments, tracking an underlying index by building an investment portfolio designed to mimic rather than beat the performance of a specific market, giving exposure to all the companies in that index.

These are slightly different from ETF’s, which are listed on the stock exchange just like a company such as BP or Shell. An index fund’s price is based on the total value of all securities held within the fund, also known as the net asset value (NAV), and you’re only able to trade them once a day (usually midday but this can vary).

Both the Fidelity and HSBC funds are focused on global equities, which are publicly listed companies or stocks.

Same same, but different

But there are three main areas that these funds differ and all of them can have an impact on your overall investment outcomes.

1. Underlying benchmark

As tracker funds, both the Fidelity and HSBC options will seek to follow and replicate an underlying benchmark. But they track different ones.

The Fidelity fund follows the MSCI World index, while the HSBC fund follows its namesake FTSE All World index.

Both of these are equity indices and market-capitalisation weighted, meaning larger companies have a bigger representation and thereby greater impact on the performance of the index, while smaller companies have less of an influence.

This means that a lot of their top holdings will include the same names. Both have Nvidia as its main exposure followed by Apple, Alphabet (Google), Microsoft, Amazon and Broadcom.

But things begin to diverge at that point as the HSBC fund includes chip-giant Taiwan Semiconductor (TSMC) which is not featured in the Fidelity fund.

This is because of the makeup of the respective underlying benchmarks and the different inclusion rules.

How to build a portfolio once you've bought a global tracker

MSCI and FTSE are the two of biggest players in creating broad global benchmarks and are peers to the S&P or Nasdaq, which make the most well-known US benchmarks.

The reason there is a disparity in these big companies appearing in one index and not the other is down to how FTSE and MSCI classify different regions.

FTSE rates Taiwan as an 'advanced emerging market' meaning it qualifies for inclusion in its main global index.

MSCI meanwhile classifies it as an 'emerging market' and therefore leaves any Taiwanese stocks - such as TSMC - out of the MSCI World index, and therefore it's not included in the Fidelity fund.

The same index difference appear when it comes to South Korea, as MSCI also doesn’t class it as a developed market, while the FTSE does.

This means that the Fidelity fund won’t provide exposure to Samsung Group or SK Hynix either, which are also domiciled South Korea. 

This regional distinction has become increasingly relevant this year as Taiwanese and South Korean stocks have had a major rally. TSMC’s share price has grown 55% so far this year, while Nvidia has grown just 5%, according to data from MarketWatch.

2. Performance

Since the start of the year, the HSBC fund has made 12.3% versus Fidelity’s 10.7%. This was still more than the average IA Global fund, which made 10.1%.

Over a longer time frame, the performance of the two trackers has been fairly even, with the HSBC fund returning 28.3% over the past year and 65.3% over three years, according to data from FE Analytics.

The Fidelity fund came in just behind across both one and three years, returning 26.1% and 63.1%, respectively. But it actually outperformed the HSBC fund over five years (80% versus 76.4%).

Looking ahead, the inclusion of South Korea in the HSBC fund may be a key performance driver. This part of the market has been forecast for fresh highs by Goldman Sachs analysts after an already record-breaking year. However, these are just estimates and past performance is guaranteed to be indicative of future gains.

Currently, South Korea has been such a strong source of growth because of the three aforementioned names (TSMC, Samsung and SK Hynix) becoming key players in the AI build out, specifically around the crucial semiconductor chip supply.

TSMC’s share price is up almost 130% over the past year while Samsung has rallied 320%. SK Hynix is up just over 680%, according to MarketWatch data.

South Korea’s KOSPI index has surged ahead of both these underlying benchmarks as well as the S&P 500 on a one-year, three-year, and five-year basis.

It's up 85% since the start of the year for example, and 142% over the past 12 months, a near fourfold increase on the FTSE, MSCI and S&P indices. Over three years, KOSPI has made over 162%, while the others have all made around 61%.

3. Cost

The final difference between the HSBC and the Fidelity fund are the fees.

Being tracker funds, both cost less than the average active fund. HSBC’s ongoing charges figure (OCF) is 0.12% while the Fidelity fund is 0.13%.

This is less than the 0.16% average fee across the 10 most popular global tracker funds and ETFs among AJ Bell customers.

The OCF is already baked into the performance figures published, meaning the aforementioned total return numbers are net of these fees.

So, you don’t have to do any extra maths to compound the impact over time, but fees are always something worth noting. While it’s impossible to know how a fund will perform in the future, you can know what it will cost you to be invested.