InvestmentsSep 2 2019

Hargreaves urges clients to stick by underperforming fund

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Hargreaves urges clients to stick by underperforming fund

The compilers of the Wealth 50 fund buy list at Hargreaves Lansdown have urged clients to stick with a UK equity fund which drastically underperformed over the past five years. 

In a note to clients dated August 29, Hargreaves Lansdown investment analyst Dominic Rowles wrote that the company shared its clients' "disappointment and frustration" that the performance of the £2.2bn M&G Recovery fund had been "poor" recently.

He added:  “However it does something different to its peers and could be a good way to diversify a broader investment portfolio. We're also encouraged that the manager hasn’t deviated from his longstanding investment approach. The fund remains on the Wealth 50 but we're closely monitoring progress and will keep investors informed if our view changes."

The fund has shrunk in size from about £6.3bn in 2014 as performance has dipped. It has returned 4 per cent over the past five years, compared with a return of 27 per cent for the average fund in the IA UK All Companies sector in the same time period.

It is managed by Tom Dobell, and has been since 2000.

Adrian Lowcock, head of personal investing at Willis Owen said: “The most important thing to understand about this fund is that it has underperformed at a time when the value style of investing has underperformed.

"Tom Dobell is a manager that likes to invest in companies that are trying to turnaround their performance, and since the financial crisis that sort of risk is something investors have not been comfortable with.

"There have been periods where this fund has strongly outperformed and periods where it has under performed. The period of under performance this time has lasted longer than anyone expected."

M&G declined to comment at this stage.

Hargreaves Lansdown's decision to stick by the fund comes after the controversy surrounding its decision to keep the now suspended Woodford Equity fund on the Weath 50 list until after investors were prevented from being able to take their cash from the fund in June.

The Woodford Equity Income fund is in the same IA UK All Companies sector as the M&G Recovery fund.

The largest holdings in the M&G Recovery fund are BP and Lloyds Banking Group, which are in the FTSE 100. 

Hargreaves Lansdown has repeatedly defended the methodology used to compile the buy list, stating it is compiled firstly on performance and then on price.

A spokesman for the company confirmed clients of Hargreaves Lansdown pay a management fee to M&G of 0.5 per cent to own the M&G Recovery fund - a discount compared to what clients on other platforms pay M&G, which is 0.81 per cent.   

Clients of Hargreaves Lansdown also receive a discount to invest in the Woodford Equity Income fund.

Hargreaves Lansdown is not charging its clients a platform fee for owning the Woodford Equity Income fund during the period of suspension.

david.thorpe@ft.com