Funds run by some of the best known fund managers in Britain have been axed from Hargreaves Lansdown’s new fund buylist.
The platform giant released its slimmed-down list of favourite funds this morning, with the new list of 60 funds supplanting the previous 85.
Among the high profile fund managers to be cut from the list was Richard Woolnough, whose £20bn M&G Optimal Income fund is the largest fund in the UK adviser market.
Also axed were Richard Buxton, whose Merian UK Alpha fund has underperformed in recent years and shrunk to £1.7bn in size, and the Merian UK Mid Cap fund, a £3bn vehicle managed by Richard Watts, which has returned 48 per cent over the past five years, compared with 20 per cent for the average fund in the IA UK All Companies sector in the same time period.
The omission of Mr Watts' fund came despite the inclusion of the M&G UK Recovery and Woodford Equity Income funds, which are in the same sector but were among the worst performers in recent years.
Meanwhile the £2.5bn Evenlode Income fund, which was the top performing fund in the IA UK All Companies sector in 2018, featured neither on the old nor the new list.
But the omission that seemed most glaring was that of the £16bn Fundsmith Equity fund run by Terry Smith. The fund is the absolute top performer in the IA Global sector.
It is understood all the funds on the new list are offering discounts on their annual charges to Hargreaves.
Hargreaves Lansdown declined to state how much of a difference an inclusion on its buylist made to the size of a fund but it acknowledged the extra inflows accruing were material.
Mr Smith was not immediately available for comment but he had told The Times newspaper: "Hargreaves Lansdown’s recommended funds continue to be chosen mainly for fund managers’ willingness to comply with a charging structure which enables Hargreaves Lansdown to maximise its own profitability, and not because they perform well for investors."
Hargreaves Lansdown denied that the lack of a discount was the reason for Fundsmith’s exclusion, but it said the fund was expensive.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Equity’s performance has been excellent, however inclusion in the Wealth 50 is based on more than past performance alone. We look at lots of other factors including the manager’s experience, how they’ve performed in a market downturn, and the fund’s charges.
"Terry Smith is in his ninth year in fund management. That’s still relatively short compared to other successful managers in the global sector. He also hasn’t been tested during a prolonged market fall or when his investment approach is out of favour. We like a track record that includes at least a full market cycle, so we can see how a fund manager reacts when the market and the fund goes through a really tough patch."
Mr Khalaf explained at an annual charge of 0.95 per cent the fund's fees were higher than most other funds' in the global sector.
"When we weigh up Smith’s experience, track record, buy and hold strategy, and the size of the fund, we think it’s too expensive compared to its peers," he said.
He added there were other global funds available with more experienced managers whose performance had also been excellent, and whose charges were lower.
In particular, he pointed to the Lindsell Train Global Equity fund which is available to Hargreaves' clients for an annual fund charge of 0.52 per cent.
The funds axed from the buylist are:
- Artemis Strategic Assets
- Jupiter European
- Old Mutual UK Mid Cap
- BlackRock Gold & General
- Legal & General All Stocks Index Linked Gilt
- Old Mutual UK Smaller Companies
- CF Odey Opus
- Legal & General Global Inflation Linked Bond
- Rathbone Income
- Fidelity Special Situations
- Legal & General UK 100
- Standard Life Investors Global Smaller Companies
- First State Global Infrastructure
- Liontrust Special Situations
- Standard Life Investments 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 Hambro Continental European
- M&G UK Inflation Linked Corporate Bond
- JO Hambro Japan
- Marlborough Special Situations
- Jo Hambro UK Equity Income
- Old Mutual UK Alpha
david.thorpe@ft.com
