Hargreaves Lansdown has slashed the number of fund picks on its Wealth 150 fund list to create the Wealth 50, keeping faith with struggling Neil Woodford, although there is still no place for star manager Terry Smith.
The house estimated that investors would pay on average 30% less in annual fund charges under the terms it has negotiated with providers.
The move represents the biggest overhaul in the Hargreaves' buy list since its inception 15 years ago. According to the firm, the constituents on the list had returned 5.8% more than a composite weighted benchmark.
Hargreaves Lansdown’s culling of its buy list has been most pronounced among UK equity and bond funds (see table below). 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 said it believed the Wealth 150 funds that were cut from the list 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 would be preserved.
A trio of tracker funds were also casualties of the shake-up, as Hargreaves focused on featuring a single passive option for each major investment sector.
The W150 funds that have been chopped
|Artemis Strategic Asset||Jupiter European||Old Mutual UK Mid Cap|
|BlackRock Gold & General||Legal & General All Stocks Index Linked Gilt||Old Mutual UK Smaller Companies|
|CF OdeyOpus||Legal & General Global Inflation Linked Bond||Rathbone Income|
|Fidelity Special Situations||Legal & General UK 100||Standard Life Inv Global Smaller Companies|
|First State Global Infrastructure||LiontrustSpecial Situations||Standard Life Inv UK Equity Unconstrained|
|Franklin UK Manager's Focus||M&G Optimal Income||Standard Life UK Smaller Companies|
|Invesco Perpetual Corporate Bond||M&G Strategic Corporate Bond||Stewart Investors Asia Pacific Leaders|
|JO HambroContinental Euro||M&G UK Inflation Linked Corporate Bond|
|JO Hambro Japan||Marlborough Special Situations|
|Jo HambroUK Equity Income||Old Mutual UK Alpha|
Source: Hargreaves Lansdown
Since the Wealth 150's launch in 2003, Woodford has been a mainstay. Both Woodford's LF Woodford Equity Income UK Growth and LF Woodford Income Focus High Income funds survived the transition to a more concentrated list, despite recent years being the roughest stretch of his career.
Both funds carry a 0.75% standard charge that has been discounted to 0.5%, down from the 0.6% charge Hargreaves had previously secured.
Over the last 18 months, the Woodford Equity Income fund has lost 20%, while the Woodford Income Focus fund is down 17%.
Mark Dampier, research director at Hargreaves Lansdown, said multiple meetings with Woodford in recent years had encouraged him to stay invested.
He said: 'We have met him a lot and have had some difficult times. Investment is simple but it isn't easy. I can't sleep at night at times I worry so much.
'We are conviction investors – we could be spectacularly wrong, I can't say for certain because that's investment. We have stuck with him.
'That doesn't mean at some point this year that we won't take him off. It's an on-going thing.'
Ellen Powley, a fund manager with Hargreaves Lansdown, added that despite Woodford's well-advertised dip in performance, the company could not ignore the returns he has generated for clients.
She argued: 'What we find with Neil Woodford is there have been times that have been challenging but what he's delivered for for clients has been exceptional.'
Three new funds entered the list including Kames Ethical Equity fund, the list's one ethical selection.
The list is composed of 50 active funds and 10 passive funds, down from the previous amount of 85 funds.
New additions and surprising omissions
One possibly surprising omission from the list was Fundsmith Equity, managed by Terry Smith. The top performing fund, which has returned 272% since its launch in November 2010, had also failed to make the old Wealth 150 list.
Dampier said that Smith’s fund, which carries a 0.95% charge on Hargreaves that Fundsmith has long refused to discount, is too expensive.
He said: 'When choosing funds for the Wealth 150 we look at a manager’s track record to determine performance potential, as well as the charges our clients pay for each fund and its competitors.
'Fundsmith Equity has performed very well since it launched in 2010, but so has Lindsell Train Global Equity which is a similar fund. Nick Train who runs that fund also has a successful track record dating back 20 years, while Terry Smith’s record started in 2010.
'Finally, the Lindsell Train Global Equity fund is available to our clients for an annual charge of 0.52%, compared with 0.95% for Fundsmith Equity fund, so for these reasons we have chosen Lindsell Train Global Equity for the Wealth 50.'
Other 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 past three years, few UK All Companies funds have performed worse over the past decade. Hargreaves has squeezed a further discount from the manager, with the charge now cut to 0.6%, down from 0.81% previously, itself a discount to the 0.91% standard charge.