Hargreaves Lansdown slashes its top funds list down to a new Wealth 50, as Woodford keeps his place but Fundsmith fails to make the cut
DIY investing giant Hargreaves Lansdown has slashed its top funds list to relaunch it as the Wealth 50.
The Wealth 50 directory replaces the firm’s Wealth 150 and 150-plus lists.
Hargreaves Lansdown’s research director Mark Dampier says the new slimmed down selection aims to remove confusion, provide more focus, and reflect the difficulty in finding managers that its analysis shows have the skill to consistently deliver market-beating returns for investors.
Star manager Neil Woodford’s flagship fund keeps its place on the list, despite his recent struggles, but another investment big hitter Terry Smith’s Fundsmith still failed to make the grade, even though it has delivered exceptional returns for investors over eight years.
Investment firm Hargreaves Lansdown has launched a list of its favourite funds for DIY-investors looking for inspiration
Fundsmith never managed to claim a place on the previous list, the longer Wealth 150.
Quizzed on that decision, Mr Dampier said that Woodford had a considerably longer track record of outperformance than Smith and had come through bad patches before.
He also said that the Wealth 50 contains a rival to Fundsmith in Lindsell Train’s Global Equity fund, where joint manager Nick Train has a longer track record and it has a similar investing style at a much cheaper price.
Taking into account the discount that Hargreaves Lansdown secures for its clients, the ongoing charges are 0.52 per cent annually (down from a standard 0.72 per cent), whereas Fundsmith charges 0.95 per cent.
At a briefing on the new list yesterday, Hargreaves refuted suggestions that only fund managers willing to give it a discount on charges were included, but said it was proud to be able to use its clout to secure lower costs for its investors.
It also defended its own relatively high 0.45 per cent annual charge for using the platform, saying it had high levels of customer service and was continually improving its offering.
The new Wealth 50 list, which can be seen here, in fact, contains 60 funds at launch and Hargreaves said that it will not always aim for an exact 50 picks, but that is the number of funds it expects to feature over the long-term.
It includes 50 active funds — each with a fund manager in charge of making the investment decisions.
For those who are looking for a cheaper investment that simply follows the market rather than trying to beat it, there are ten passive funds, often viewed as a simpler option for first-time investors.
These are the funds that Hargreaves Lansdown cut from its existing Wealth 150 list for the new slimmed down Wealth 50
Hargreaves new list has another recently launched contender in the form of Interactive Investor’s Super 60.
No investment trusts
There is no space for any investment trusts on the Wealth 50, something the platform has been criticised for.
Mr Dampier defended the decision, saying that it is because Hargreaves Lansdown clients may struggle to buy and sell them, as inclusion on the Wealth 50 can lead to a flood of demand for their shares – pushing prices up.
This is because investment trusts are listed on the stock market and investors must buy their shares to invest.
As their number is limited, an investment trust’s shares can be worth more or less than the sum of the trust’s investments that it is entitled to, known as its net asset value.
When a trust is in hot demand, its shares may be worth more than the net asset value, trading at what is known as a premium.
Hargreaves Lansdown has managed to secure a discount on fund charges for all those featured in the list and claims this delivers an average 30 per cent saving.
For active funds this delivers an average ongoing charge of 0.57 per cent, although the DIY investing platform’s service fee of 0.45 per cent must be added to this to deliver a total cost of investing of 1.02 per cent on average.
The cheapest fund to invest in is the Legal and General UK Index tracker fund at just 0.04 per cent, adding Hargreaves’ 0.45 per cent charge means a total cost of investing of 0.49 per cent.
Hargreaves Lansdown’s 0.45 per cent annual charge on funds puts it at the more expensive end of the DIY investing platforms that levy a percentage fee.
Fund dealing is free on the platform but share dealing and buying and selling investment trusts and ETFs is relatively expensive at £11.95 per trade.
By comparison, AJ Bell’s YouInvest has a 0.25 per cent annual fee, but charges £1.50 for fund dealing and £9.95 for share dealing. Interactive Investor charges a flat £90 per year but rebates this in free dealing up to that value, with buying and selling funds and shares costing £10.
What’s in the Wealth 50?
Hargreaves Lansdown says that it analyses 1,250 funds using ‘rigorous quantitative and qualitative’ methods.
It follows fund managers and aims to build up a career-long profile on them to understand whether they are doing well due to skill, or just because they were in the right place at the right time.
It gets portfolio data for 1,250 funds every month and uses its own mathematical modelling tools to analyse the individual shares or bonds managers invest in. This data must cover at least seven years, and ideally ten.
Hargreaves says: ‘We’re strict when it comes to experience because markets are cyclical, and these cycles on average last about seven years.’
The UK-focussed funds that made the cut are featured in the table below, you can read the full Wealth 50 list here.