In its second assessment of value report, Hargreaves Lansdown admitted just four of its 13 portfolios had outperformed their peers on a discrete basis over the time period being assessed and that this was largely due to exposure to UK Equity Income strategies, in particular the Woodford fund.
Hargreaves portfolios invested in the failed fund included the Multi-Manager Balanced Managed fund, which lost 4 per cent in the year to September 2020 compared to its peers’ 0.42 per cent loss.
The Multi-Manager Income and Growth trust, which also invested in Woodford, lost nearly 19 per cent compared to the IA UK Equity Income sector’s 17 per cent, while the Multi-Manager Special Situations trust lost 1.2 per cent against its peers return of 7 per cent.
Hargreaves said an overweight exposure to the UK market, which has underperformed its global counterparts over the past few years, and a lack of investment in the strong US stock market had also contributed to the underperformance.
The platform became embroiled in the Woodford saga in 2019 because the now-defunct fund had been promoted via its buy list up to the day of its suspension in June of that year, as well as appearing in six of its multi-manager funds.
The f-word
Hargreaves concluded that the fees on the majority of its funds — 11 out of 13 — were cheaper or in line with their peer group, and that its HL Select funds were about a third cheaper than their industry counterparts.
However, the report said it would look to enhance its sharing of economies of scale to reduce overall fees while also cutting its annual management charge for multi-manager funds invested in fixed interest securities to reflect the low-yield environment.
The platform’s new tiered charging system will see funds of up to £1bn in size charge 0.75 per cent, dropping to 0.7 per cent for more than £1bn, 0.65 per cent for those with more than £2bn of assets while funds larger than £3bn will have a 0.6 per cent charge.
Hargreaves said the three largest multi-manager funds — Balanced Managed, Income and Growth and Special Situations —would initially benefit from these changes.
From April, funds with full exposure to fixed interest assets will have their annual management charge reduced to 0.6 per cent, compared to the current 0.75 per cent.
This was in recognition of a “prolonged period of low yields on fixed interest securities and in anticipation that this will continue” and would improve these fund’s potential to perform.
The fees for mixed asset funds will be calculated according to the underlying exposure.
Hargreaves said its multi-manager Balanced Managed, Equity & Bond, High Income, Strategic Assets and Strategic Bond funds would benefit from the changes.
Hargreaves chairman John Misselbrook said: “We are conscious this has been a very challenging year for our clients who depend upon us delivering against the investment objectives we have set ourselves.
“We are never complacent about our responsibilities or the need to continually seek to do better in delivering value to our investors.”
Why Hargreaves assessed its value for money
As part of the Financial Conduct Authority’s asset management review, fund houses are now required to carry out an annual assessment of whether the firm provides value for their clients.
The value rules — which have been in effect since the start of 2020 — require asset managers to look at their performance, costs, economies of scale, comparable market rates, services and share classes.
The mandated reports have already triggered Artemis, M&G and Aviva Investors to make changes to their fund ranges and charges.
In Hargreaves’s debut assessment of value report, published February 2020, it insisted its multi-manager funds had provided value to investors despite a sustained period of underperformance and higher than average fees.
imogen.tew@ft.com
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