The UK investment firm ramped up its bargaining power against fund houses with a streamlined revamp of its buy list, which was rebranded as the Wealth 50 on 9 January, with substantially lower average charges across constituents.
The average ongoing charges figure (OCF) saving for Wealth 50 funds is 0.22%, including tracker funds, while for the Wealth 150 the average saving was 0.09%.
The average OCF in the smaller buy list is now 0.5% down from 0.75% in the Wealth 150.
The streamlining was in response to client demand for a more concentrated list with over 6,500 existing and potential DIY customers canvassed.
Sticking by Woodford
In total, 25 funds have been dropped, eight of which did not offer discounted OCF to Hargreaves’ clients. The firm also got rid of the Wealth 150+, a smaller list of highly-discounted funds.
“A good 90% of funds are useless,” Hargreaves research director Mark Dampier says of the universe of up to 3,000 funds available to UK retail investors.
Crispin Odey and Anthony Cross are among the causalities whose funds did not offer reduced fees, although Neil Woodford, who slashes his fees by a third for the D2C giant’s clients, has made the grade despite losing investors more than 8% over the last three years.
Dampier says the criticism he gets for sticking by Woodford is a hassle but that the research team have kept the famous fund manager on the Wealth 50 due to their long-term, conviction approach.
Artemis Global Income, Aviva UK Equity Income and Unicorn Outstanding British Companies are the only three funds to be added to the Wealth 50 in the latest changes.
Performance of HL Wealth 50 new additions
|Artemis Global Income||-12.47||-13.39||26.12||46.14|
|IA Global Equity Income sector||-4.08||-5.63||34.32||40.91|
|Aviva Inv UK Equity Income||-10.67||-10.48||16.66||23.08|
|IA UK Equity Income sector||-10.22||-10.15||14.61||19.99|
|Unicorn Outstanding British Companies||-13.60||-6.38||11.11||25.08|
|IA UK All Companies sector||-11.39||-10.68||19.33||19.56|
Source: FE Analytics
In total, the buy list now consists of 50 active funds and 10 passive products.
Gbi2 managing director Graham Bentley says a tighter list grants Hargreaves more bargaining power, noting remaining funds in the Wealth 50 have the potential to pick up higher flows. “If your product was competing with six other comparable funds before but is now only competing with four you’d expect to sweep up some of what has been left behind.”
However, even within a buy list there is normally an even smaller subset of products that take the bulk of inflows, Bentley says.
Fifty to 60 funds is appropriate for a D2C platform buy list, says Fundscape chief executive Bella Caridade-Ferreira. “Platforms need to provide a broad enough choice of funds or investors could misconstrue the lists as advice.”
The average number of funds in D2C select lists fell from 78 in 2015 to 73 in 2018, according to Platforum.
Dampier, who established the idea for the Wealth 150 in 2003, says he is proud of the buy list because “everyone else has copied it”.
Interactive Investor revealed on Monday it had launched a buy list, also consisting of 60 funds, called the Super 60. Lang Cat founder Mark Polson says: “Interactive Investor have got a great chance to really do something there, but HL is such a beast – it’s nearly £100bn ($127.6bn, €111bn) under administration, the strong track record – that everybody else is starting from one step behind.”
Half of Hargreaves’ assets are held within Wealth 50 funds.
Fidelity and Charles Stanley Direct are other notable D2C platforms that negotiate on fees but not with the same sway as Hargreaves, Polson says. “However, that has to be balanced with the fact HL is much more expensive.” The platform charges 0.45% for the first £250,000 invested.
Discounted OCFs dominate Wealth 50
Dampier says there is no cut and dry policy on dropping funds without OCF discounts. Kames Ethical Equity, Majedie UK Equity and Jupiter Strategic Bond remain in the Wealth 50 despite not offering Hargreaves clients a discount. The OCFs on the equity funds range from 0.73% to 0.78%.
J O Hambro Capital Management has confirmed it does not negotiate on fees. It has been removed from the list entirely, with its Continental Euro, Japan and UK Equity Income funds, with charges between 0.67% and 0.85% all dropped. The UK Equity Income fund remains in Hargreaves’ multi-manager funds alongside JOHCM Japan Dividend Growth.
“We wished to maintain a consistent pricing structure across all fund platforms and preserve our longstanding emphasis on premium pricing for capacity-managed funds with strong long-term performance records,” a JOHCM spokesperson says, adding talks with Hargreaves had been “constructive” and the platform’s move did not reflect a negative view on their products.
Fundsmith, which does not negotiate on fees, remains absent from the buy list.
Star fund managers dumped
Both Woodford Equity Income and Equity Focus, managed by Neil Woodford, and the Lindsell Train UK Equity and Global Equity funds have survived the Wealth 150 makeover. The boutique fund houses offer Hargreaves client’s OCFs between 0.5% and 0.52%.
However, Crispin Odey’s Opus fund and Liontrust Special Situations, which is managed by Anthony Cross and Julian Fosh, were removed meaning both fund houses are no longer represented in the Wealth 50. Neither offered Hargreaves clients a discount and Odey Opus had been the most expensive fund on the Wealth 150 with an OCF of 1.22%.
Alex Wright’s Fidelity Special Situations fund has been removed. It did not offer Hargreaves clients discounts, but Ian Spreadbury’s former Fidelity International fund, Moneybuilder Income, has a discounted OCF of 0.46% for Hargreaves and has been kept.
Funds culled from Hargreaves’ buy list ranked by OCF discount
|Fidelity Special Situations||0.00%||0.91%|
|J O Hambro Continental Euro||0.00%||0.69%|
|J O Hambro Japan||0.00%||0.85%|
|J O Hambro UK Equity Income||0.00%||0.67%|
|LF Odey Opus||0.00%||1.22%|
|Liontrust Special Situations||0.00%||0.87%|
|Marlborough Special Situations||0.00%||0.79%|
|Legal & General UK 100 Index*||0.04%||0.06%|
|Invesco Corporate Bond||0.05%||0.61%|
|M&G Optimal Income||0.05%||0.86%|
|Stewart Investors Asia Pacific Leaders||0.05%||0.86%|
|First State Global Listed Infrastructure||0.06%||0.75%|
|Merian UK Mid Cap||0.08%||0.78%|
|Artemis Strategic Assets||0.09%||0.77%|
|Legal & General Global Inflation Lnk Bond*||0.10%||0.17%|
|Merian UK Alpha||0.15%||0.71%|
|Merian UK Smaller Companies||0.18%||0.86%|
|Franklin UK Managers’ Focus||0.20%||0.63%|
|Standard Life Inv UK Smaller Companies||0.22%||0.77%|
|Standard Life Inv UK Equity Unconstrained||0.25%||0.90%|
|Blackrock Gold & General||0.27%||0.90%|
* passive products
However, other star fund managers were dropped despite offering Hargreaves’ clients a discount on OCFs.
Richard Woolnough is a notable example, with a 5 basis point discount failing to keep the M&G Optimal Income fund on the buy list. Asked to respond to the removal, an M&G Investments spokesperson pointed to the fact the Recovery and the Global Macro Bond funds remain on the list.
Merian Global Investors, which offered discounts ranging from 8 to 18 basis points across three Wealth 150 products, has also been dropped. That includes its UK Alpha fund, a possible vindication of manager Richard Buxton’s decision to step back as chief executive at the firm to focus on running money. Merian declined to comment.
While many of the funds dropped are run by high profile managers, Darius McDermott, managing director of Chelsea Financial Services says the removal of Liontrust Special Situations was the change that surprised him the most. “It’s been continually excellent.”
Hargreaves Lansdown says no funds that have been dropped have indicated they will drop their discounted OCFs for its clients.
Aberdeen Standard Investments told our sister publication Portfolio Adviser its three SLI funds that had appeared on the Wealth 150 and were all culled from the Wealth 50 will remain available to Hargreaves customers on the same terms. Aberdeen Asia Pacific Equity and Latin American Equity remain on the buy list.
Legal & General UK 100 Index and Legal & General Global Inflation Linked Bond were the only passive products to be dropped in the streamlining of the buy list.
Specialist funds too volatile for D2C
Hargreaves has removed specialist funds from its buy list over time as retail investors tend to buy them as they peak and sell as they bottom out, says Dampier. “We don’t have a tech fund, we don’t have an oil fund, we don’t tend to have single sector funds anymore,” Dampier says.
However, the Jupiter India fund, which remains in the Wealth 50, which has been one of the top selling funds in recent years, was the fourth-worst performing fund of 2018 with a 25% loss.
The Blackrock Gold & General fund, co-managed by Evy Hambro and Tom Holl, was one of the few remaining specialist funds in the Wealth 150 and failed to make the grade for the Wealth 50.
Thematic funds are popular with retail investors because they tap into powerful narratives rather than abstract financial theory, says Morningstar analyst Kenneth Lamont. “These funds can be suitable for retail investors but due to their elevated risk profile, they are best used to complement rather than replace existing core holdings and should be held for medium to long-term time frames.”
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