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We're cheaper than IFAs says Hargreaves as Wealth 150 culled

Online stockbroker Hargreaves Lansdown has slashed the number of funds on its Wealth 150 buy list, rebranding the selection as Wealth 50. But comments from chief executive Chris Hill will raise eyebrows among advisers.

We're cheaper than IFAs says Hargreaves as Wealth 150 culled

Online stockbroker Hargreaves Lansdown has slashed the number of funds on its Wealth 150 buy list, rebranding the selection as Wealth 50, and squeezed further discounts from a number of funds that survived the cull.

But comments from chief executive Chris Hill will raise eyebrows among advisers, as he compared the cost of investing via the broker with those of investing as part of receiving financial advice.

The roster of 85 funds on the Wealth 150 has been cut to 61, as first reported by Citywire, which all now feature discounts to their annual charges negotiated by Hargreaves Lansdown.

Hargreaves has secured a further discount, in addition to that won during the Wealth 150 negotiations, to 27 funds, and has secured a discount for the first time on a further five. Discounts average 30% across all the funds on the Wealth 50.

‘The new Wealth 50 is the result of months of extensive consumer research, during which we canvassed the opinions of thousands of investors, who told us they would prefer a simpler, more focused list,’ said Hill.

But asked whether Hargreaves could cut its own costs further, as well as squeezing managers, Hill compared the charges investors would face for advice with an overall cost of less than 1% to invest with Hargreaves.

‘When you talk about premium pricing, it’s the advisers that have premium pricing,' said Hill.

‘I would say we’re doing more and more to help people at a price that represents exceptional value. Pushing down the overall cost of investing and improving all the time.’

Woodford survives cull

Neil Woodford, the UK’s most famous fund manager who is enduring a torrid run of performance, has retained his position on Hargreaves’ buy list. Both his Woodford Equity Income and Woodford Income Focus fund feature, with Hargreaves having secured a further discount to their charges.

Woodford Equity Income and Woodford Income Focus, which carry a 0.75% standard charge, have been discounted to 0.5%, down from the 0.6% charge Hargreaves had previously secured.

Over the past 18 months, the Woodford Equity Income fund has lost 20% while the Woodford Income Focus fund is down 17%.

Mark Dampier, Hargreaves Lansdown research director, said he believed the manager would return to form. He argued periods of underperformance were both natural for all investors and something Woodford himself had experienced before, during the tech boom and in the run-up to the financial crisis, despite his strong long-term track record.

‘Neil has gone through at least two poorer periods over his time,’ he said. ‘We’re patient investors. The easy thing would be to take it off the list and I think that’s what a lot of people do.

‘We’ve met Neil a lot over the last 18 months. We agonise over things like Woodford all the time. I can’t sleep at night sometimes.’

Hargreaves Lansdown meanwhile earlier this week published analysis of Woodford’s performance and justification for having retained his funds in their recommended list.

‘We believe Woodford’s demonstrated the ability to get the majority of big economic calls right. And he’s proven to have the analytical skills to invest in the right sectors and companies to profit from these views,’ said Kate Marshall, investment analyst at Hargreaves Lansdown.

‘Of course, in future he might fail to get these big calls correct, or pick the right stocks, but we feel it’s simply too early to give up.’

Still no place for Fundsmith

As part of the revamp, three new funds have been added to Hargreaves’ buy list: Artemis Global Income, Aviva UK Equity Income and Unicorn Outstanding British Companies.

But there is still no place for Fundsmith Equity, the top performing global fund, which has delivered 272% since its launch in November 2010.

Citywire AAA-rated Terry Smith has now accumulated the seven-year track record Hargreaves tends to require for inclusion on its fund buy list.

But Dampier isn’t budging, saying that Smith’s fund, which carries a 0.95% charge on Hargreaves that Fundsmith has long refused to discount, is too expensive.

He compared that charge to the 0.51% and 0.52% charges Hargreaves is able to offer for Nick Train’s Lindsell Train UK Equity and Lindsell Train Global Equity funds, pointing to Citywire AA-rated Train’s similar investment style and results.

Lindsell Train Global, also managed by Citywire AA-rated Michael Lindsell and James Bullock, is up 255% since launch in March 2011, just pipped by Fundsmith’s 264% over the same period.

‘I get Nick Train at about half the price and Nick has done as good a job, so why do I need to put Fundsmith on?’ said Dampier. ‘He’s got a 30-year track record. With all due respect to Terry, he’s got eight years.’

Also conspicuous by their continued absence are investment trusts, which have never featured on the Wealth 150. Dampier said that given Hargreaves’ size, liquidity constraints made it too difficult to feature them.

‘Investment trusts are great private client niche vehicles,’ he said. ‘The problem comes in trying to buy them and sell them for larger groups of clients.’

He said featuring an investment trust in Hargreaves’ Investment Times client publication would likely lead to an immediate demand for up to £20 million of their shares from clients.

‘Tell me how many investment trusts could service that,’ he said. ‘Ask discretionary managers who run investment trust portfolios – it takes them weeks to fill positions.’

UK and bond funds bear brunt

Hargreaves Lansdown’s culling of its buy list has been most pronounced among UK equity and bond funds. Of the 28 UK funds on the Wealth 150, 13 have been cut, with two new additions taking the new total to 17.

Among those that have been culled are some longstanding investor favourites: Liontrust Special Situations, one of the best performing UK All Companies funds over the last decade, and Citywire AA-rated Harry Nimmo’s Standard Life UK Smaller Companies fund, up 360% over the last 10 years.

The number of bond funds has been cut from 17 to 10, with the UK’s largest fund, the £22 billion M&G Optimal Income, chopped from the list.

Jupiter European, the best performing fund in the Investment Association’s Europe ex-UK sector over the last decade, is another notable departure.

Hargreaves reassured that it still believed the Wealth 150 funds cut were still ‘great funds’ but ‘to make a shorter list we had to raise the bar and ensure only our high conviction funds feature on the Wealth 50’. Where those funds featured a discount, that will be preserved.

A trio of tracker funds are also casualties of the shake-up, as Hargreaves focused on featuring a single passive option for each major investment sector.

The more specialist Legal & General’s All Stocks Index Linked Gilt and Global Inflation Linked Bond funds are gone, with the fund group’s more generalist All Stocks Gilt Index Trust and iShares’ Corporate Bond Index fund serving as the passive bond fund options.

Notable survivors include M&G Recovery, over which Hargreaves has faced questions as the once top performing fund suffered a slump in performance. Even with a modest upturn in fortunes over the last three years, few UK All Companies fund have performed worse over the last decade. Hargreaves has squeezed a further discount from the manager, which the charge now cut to 0.6% down from 0.81% previously, itself a discount to the 0.91% standard charge.

Jupiter India has also kept its place despite a grim 12 months for manager Avinash Vazirani during which his fund has lost 22%.

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