Hargreaves Lansdown has said its funds represent value despite the majority underperforming on a three and five year basis.
In an assessment of value report published this week, Hargreaves Lansdown said all of its 14 funds represent value to their clients, with five of these requiring “continued focus”.
This is despite 10 of these 14 funds underperforming their sector on a three-year basis and nine funds underperforming on a five-year basis.
A further two, the HL Select Growth Shares and HL Growth Fund, have not been running for five years, so a benchmark performance cannot be made during that time period.
We have lost a good year of investment performanceJohn Misselbrook, Hargreaves LansdownHargreaves Lansdown said it measured each fund’s performance against its benchmark over both the past five years and rolling five year periods, as well as how the fund has measured against its objective.
As of yesterday (February 7) all but two of the funds with a five-year record — the HL Select UK Growth Shares and the HL Select UK Income Shares funds — had underperformed over this time period, according to FE Analytics.
The multi-manager funds all returned less than their sectors in the past five years, with the High Income fund returning 10.95 per cent compared with the sector's 14.06 per cent, and the Special Situations Trust returning 21.49 per cent compared with the sector's 54.21 per cent.
One of the best performing multi-manager funds was the Multi-Manager European fund, which lost out to the sector by under 2 percentage points on a five-year basis.
At the other end of the performance spectrum was the Strategic Assets fund, which returned 4.99 per cent to its benchmark's 12.37 per cent over three years, and 9.65 per cent to the sector's 26.06 per cent over five years.
But in the report Hargreaves Lansdown said these funds still represented value to the end investor.
Performance in 2022 ticked up slightly for some of the funds, though nine out of 14 still underperformed the sector.
The report said it was “disappointing” to have to report that some of its funds had failed to deliver on their objectives, but eight of the 12 funds launched more than five years ago have seen capital growth over the past five years.
The HL Multi-Manager Equity & Bond, HL Multi-Manager Income & Growth, HL Multi-Manager Strategic Bond and HL Multi-Manager UK Growth funds have all lost capital over the past five years.
Chair of Hargreaves Lansdown, John Misselbrook, acknowledged that the investment performance across the multi-manager fund range needs further improvement.
“In our five-year performance assessment model we have lost a good year of investment performance, and performance in the current year has been mixed,” he said.
Misselbrook added that steps have been made to improve the funds’ investment performance in the past year, including expanding the number of investment professionals and fee reductions to some of the multi-manager funds.
Hargreaves Lansdown has dropped the ongoing charges figure on some of its funds, after its 2020 assessment of value report said some of its funds had “somewhat higher” charges than similar funds.
All of its multi-manager funds have seen fee reductions of at least 0.01 percentage points over the past year.
We will seek to identify outlier firmsThe FCAIn the report, Hargreaves Lansdown said it believes the underlying fund charges, which range from 1.46 per cent to 1.3 per cent for the multi-manager range, are “reasonable” for actively managed funds.
The report was produced as a result of new rules introduced in 2020 by the Financial Conduct Authority.
As part of the regulator’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 assessment criteria set out by the FCA include performance, general costs, economies of scale, comparable market rates, comparable services and share classes.
In a latter to asset management CEOs this week, the regulator said it will follow up its review of value assessment reports, and will seek to identify “outlier firms”.
This includes where firms do not asset value at fund level rather than unit class, or where fund performance is assessed using measures that do not reflect a fund’s investment policy or strategy.
The FCA will also consider how companies tackle the issue of ESG investing.
sally.hickey@ft.com
