Hargreaves Lansdown's buy list under fire

Hargreaves Lansdown's buy list under fire

Hargreaves Lansdown's widely watched list of top 150 funds is facing criticism for how it measures the performance of those investments it endorses.

Alan Miller, partner at wealth management firm SCM Private, has taken aim at the FTSE 100 listed online broker and advice firm's Wealth 150 list, questioning the methods used by the company to determine which funds qualify.

The Wealth 150 list, which has been running since 2003, is widely publicised in the national press, and is used as an industry guide to the top fund picks.

But Mr Miller said despite Hargreaves recently announcing how well its Wealth 150 list has performed since it began in November 2003, "our SCM Direct analysis of more recent performance gives a very different view”.

His comments come in the wake of a report from the Financial Conduct Authority (FCA) stating in July that best buy fund lists on platforms, including, but not exclusively Hargreaves Lansdown, tend to have funds on the lists which are "affiliated" to the company in some way.

Earlier this year the SCM founder analysed the entire Investment Association fund universe, using FE performance data for the full year from 2016.

He said the analysis he conducted showed, on average, funds picked by Hargreaves Lansdown would have come 49th out of the top 100 funds across all sectors, ranked by performance.

Those picked by Bestinvest would have finished 52nd on average, Charles Stanley 55th and Chelsea 56th.

Mr Miller contrasted that with a statement on the Hargreaves Lansdown website about the performance of its buylist since 2003, which said: “We are proud of the performance of our fund choices to date.

"They have on average outperformed their most appropriate benchmark indices by 6.47 per cent, and sector averages by 12.04 per cent, although not every fund has outperformed."

Mr Miller said the disparity between his analysis and Hargreaves Lansdown’s is due to the latter’s methodology, which he considers to be flawed.

Hargreaves Lansdown’s methodology considers all funds that have ever been on the Wealth 150 and the periods they were on the list for. Then for the length of time the fund featured on the Wealth 150 the company calculates four figures:

1) Fund return

2) Hargreaves Lansdown-Assigned Index return

3) Investment Association Sector Peer Group return

4) Where applicable, loyalty bonuses from July 2006, have been included and added back to the fund returns.

The index, peer group and tracker returns are then subtracted from the fund return to give a figure of outperformance/underperformance per fund.

Hargreaves then takes the average across each sector of the performance figures. 

But Mr Miller criticised this approach.

“A very low percentage of Hargreaves clients today would have been a client since the Wealth 150 list started. If this is the case, how relevant or useful [is it ] as it measures performance just over one long period?  

"Currently, Hargreaves administers £79bn of investments on behalf of over 950,000 clients, as compared to £6.1bn and 188,000 clients at the end of 2006.