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Hargreaves' Wealth 150 shrinks amid shortage of stars

'There is no shortage of funds available to UK investors, just a shortage of good ones,' says Hargreaves.

 
Hargreaves' Wealth 150 shrinks amid shortage of stars

A shortage of good funds has led Hargreaves Lansdown to cut its Wealth 150 to just 84 funds, and the online stockbroker expects its buy list to shrink even further.

The Wealth 150, which has long belied its name by featuring far fewer than 150 funds, fell to its lowest level last week when Jupiter China  was removed on the news of manager Philip Ehrmann's departure from the fund group.

While Hargreaves' intention when launching the list in 2003 was to feature around 150 open-ended actively-managed funds - and not necessarily exactly that number - the number of funds featured has been gradually declining since 2007.

‘There is no shortage of funds available to UK investors, just a shortage of good ones,’ said Laith Khalaf, senior analyst at Hargreaves Lansdown. ‘There are gifted managers out there who can deliver consistent outperformance for investors, but they are few and far between.’

Khalaf said Hargreaves' development of its methodology used to assess fund managers was responsible for some of the shrinking. Among the factors Hargreaves examines is how much performance is due to investment sector rather than stock picks, the role played by the size and yield of companies they invest in, the value added by trading and whether the manager performs well in rising or falling markets, or both.

He added that Hargreaves' stipulation that managers boast a seven-year track record excluded many of the 2,500 funds available in the UK. Khalaf said this rule enabled Hargreaves to identify managers that had been 'proved successful through all stages of the business cycle, not just the racy bit’.

Fund closures, where ‘talented managers have reached capacity and have closed their funds to new investment’ have also played a part, he said.

This is particularly true of smaller companies and emerging market funds such as Aberdeen Emerging Markets and First State Global Emerging Markets , both of which are closed to new investment.

Wealth 150 performance

Over the 11 years since it launched, funds in the Wealth 150 have outperformed the average fund in nine of 11 sectors. The table below shows the combined performance of Wealth 150 funds - including those that have since been dropped, over the period they were in the list - in a certain sector versus the Investment Management Association (IMA) sector average:

Wealth 150 return IMA sector return
UK Smaller Companies 276% 202%
UK All Companies 176% 129%
Asia Pacific ex Japan 240% 210%
Europe 163% 138%
GBP Strategic Bond 81% 61%
Global Emerging Markets 229% 220%
Japan 63% 54%
UK Equity Income 135% 127%
GBP Corporate Bond 61% 55%
Global 105% 115%
Technology 113% 140%

The outperformance is most stark  in UK Smaller Companies and UK All Companies, which Khalaf said was the 'richest hunting ground' for quality fund managers.

‘Wealth 150 outperformance [in UK-focused funds] has resulted from a long-term backing of managers like Neil Woodford (CF Woodford Equity Income fund), Richard Buxton (Old Mutual UK Alpha ), and Dan Nickols (Old Mutual UK Smaller Companies ),’ he said.

‘While these may seem like obvious choices with the benefit of hindsight, this was not the case in 2003 when they appeared on the initial Wealth 150.’

There are two sectors where the fund list has underperformed the IMA sectors: Global and Technology.

Khalaf said the funds in the Wealth 150 that sit in the Global sector had a specialised investment remit.

‘Funds include an infrastructure fund [First State Global Listed Infrastructure ], a resources fund [First State Global Resources ], and an environmental solutions [Jupiter Ecology ] fund,’ he said. ‘These funds’ return relative to the Global sector is really more to do with how these specialist areas have performed, rather than whether a manager has done well or poorly.’

Just one technology fund has featured  in the Wealth 150 for the past eight years – GLG Technology . Over 11 years it has returned 113%, compared to the IMA sector return of 140%.  ‘[GLG] held up well until very recently, but has had an extremely difficult 2014 because of its exposure to new technology and big data stocks,’ said Khalaf.

Expect list to shrink further

Mark Dampier, head of research at Hargreaves Lansdown, said he expected the number of funds on the Wealth 150 to shrink further over the next five years.

‘If you had asked me 10 years ago [how many funds would be on the list now] I would have said more because of the number of fund launched,’ he said.

‘When we thought up Wealth 150 we said 90% of funds were not worth considering but there are over 2,000 funds so we would still be left with 200 but it has reduced. There is more weeding out to be done and I can see a trend for the number [of funds on the list] going down because the reality is there are not many really good fund managers.’

The online stockbroker doesn't expect to be adding investment trusts to its list any time soon. 'The large number of our investors who use the Wealth 150 to help them decide where to invest is such that investment trusts cannot be added to the list,' said Khalaf.

'The price of investment trusts is determined by demand, and putting a trust on the Wealth 150 would create more demand than supply, pushing up the price for investors. We have stress-tested this scenario and will continue to monitor the situation, but the liquidity of investment trusts simply isn't sufficient for us to responsibly add them to the Wealth 150.'

30 comments so far. Why not have your say?

John D

Nov 12, 2014 at 15:19

‘"There is no shortage of funds available to UK investors, just a shortage of..." companies willing to pay the ransom?

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Mark C Digby

Nov 12, 2014 at 17:39

How about including some Investment Trust recommendations please?

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Dave Wray

Nov 12, 2014 at 18:02

Is this a further sign that, to the average DIY invester, passive trackers are the way to go?

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Bob C urry

Nov 12, 2014 at 18:36

HL make a lot more from charges on unit trusts and OEICs than investment trusts and ETFs. If my understanding is correct, the former have an annual HL charge of 0,45% on the first tier of £250,000; whereas the latter only have that charge levied if held in a SIPP (capped at assets of £44,444 or more) or an ISA (capped at assets of £10,000 or more).

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Peter O'Hara

Nov 12, 2014 at 19:06

I think Mark and Bob have hit the nail on the head. I've been investing through Hargreaves for over 10 years and I've lost a considerable amount of money by following their "Wealth 150"....I nearly wrote "recommendations" but the constant disclaimers negate that word. Although they are specialist funds, Blackrock Gold & General (-48.67% over 5 years) and Neptune Russia & Greater Russia (-17.7% over 5 years) are still on the "Wealth 150" list. How do they get away with using the word "WEALTH" ?

As Mark suggested, research Investment trusts on Morningstar and invest in some 5 star Gold trusts but try to buy during market dips or discounts to NAV due to other factors.

I bought into Edinburgh Investment Trust after Neil Woodford announced he was leaving and the share price dipped. I'm showing a healthy profit now and regular dividends. I'm not telling about my many f***k ups though !

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Keith Cobby

Nov 12, 2014 at 19:13

The 'Wealth 150' is a tip sheet and the only place for those is in the bin. Do your own research.

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ian collier

Nov 12, 2014 at 20:32

charge too much all charges should be base on all funds under management, not spliting it to get more money out of clients

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Medussa828

Nov 12, 2014 at 22:11

Wise words Peter, I experienced same as you. My entire pension wrecked by Neptune Russia , Never again. Why still on Wealth 150 indeed !! Also CAVEAT EMPTOR: Genesis Emerging Markets went in one day from 1083% return in 5 years to 45% return according to H.l !, I had to sell immediately.....

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Medussa828

Nov 12, 2014 at 22:19

I too have had to laboriously buy investment trust shares in chunks.. Pretty archaic really....

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Medussa828

Nov 12, 2014 at 22:28

More detail please Peter if you would I am quite intrigued at this ! It's normally reasonably rated and I was thinking of pitching in directly with ET...

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Keith Cobby

Nov 12, 2014 at 22:45

The cheapest way to buy investment trust shares is through the manager's savings plans.

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Dennis .

Nov 13, 2014 at 00:09

Just accept that the HL150 is a marketing concept. It's designed to guide you towards their most profitable lines. Nothing more.

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Franco

Nov 13, 2014 at 02:27

I see HL are preparing the ground to start listing ITs in their Wealth list, and charge their managers 0.45%.

If you cannot beat them join them, I am buying HL shares..

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Terence Mason

Nov 13, 2014 at 08:09

Use Citywire or Trustnet and do your own research. I have yet to see Chelverton UK Equity Income, Legg Mason Japan Equity, MFM Slater Growth or JP Morgan US Equity Income on any list of recommendations, but they have all exceeded the performance of favourite funds of Hargreaves, BestInvest and Chelsea Financial during my holding periods.

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Mark C Digby

Nov 13, 2014 at 10:44

Super feedback folks! I, like Keith, use some IT own savings accounts. Problem though is that you cannot have several ISAs per year in different schemes, and so the massive advantage of holding many ITs, which I do, outside ISA is lost, and that is more important to me than a small cut in the cost of the savings plan.

Keep it going folks, a really good quality of feedback!

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Mark C Digby

Nov 13, 2014 at 10:46

Sorry, correction of above, advantage of holding your ITs Inside an ISA. Apologies.

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Dennis .

Nov 13, 2014 at 11:04

There have been debates elsewhere on Citywire about the true value of ISAs which have become a means of driving sales to the innocent by Building Societies and the likes of HL.

The unwary think tax free but in reality dividends are taxed at source and with a BSoc account the savings are minimal. Without an ISA you still have a £10k+ CGT allowance and the tax free ISA status dies with you anyway. I keep more and more of my investments in the free HL fund and shares accounts and save the 0.45% management charge on the ISAs.

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Mark C Digby

Nov 13, 2014 at 11:06

Sorry, but on reflection, if you want a really good site to hold ISA ITs or any others come to that, I find Interactive's fee structure very attractive and their site is superb.. It would cost me a large amount however to buy my way out of HL, their transfer fees are astronomic, but they are superb for service, just so jolly expensive, particularly on their original purpose, funds! I have been gently swapping my fund investments to similarly managed ITs since the change in their charging structure.

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Tom Mozy

Nov 13, 2014 at 12:01

For me, im a fan of HL - the service, the platform, and the costs make sense for me. Yes if i had alot more investable capital then the investment trust route would be preferable but I dont. OEICS make sense to me, but the w150 is baised, so I do ignore it, and pick the best managers in the OEIC world. If i wanted £1000 of equity income, the choice for me would be as follows.

Say Woodford (unb) and say CTY on HL.

The costs buy buy both would be £0.00 and £11.99 respectively.

The on going/mgt costs would be 0.6%+0.45% HL fee and 0.365% and 0.44% on going charge + 0.45% platform fee respectively (these are my circumstances)

As you can see - OEICS make a more sense to me, the annual fees are cheaper let alone the years needed to hold to repay the £11.99 fee but the IT route is for when I have loads of money :)

As for the w150 - there are alot of managers on there that have smashed thier respective benchmarks, just like in the IT world. I have plenty of choice in the OEIC world and its cheaper for me.

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David Higham

Nov 13, 2014 at 12:51

Really good comments. The Wealth 150 is useful, but as has been said above, how some of the funds remain there is beyond belief. The message is...do your own research and widen the scope. I like Citywire, Morningstar, and particularly Trustnet.

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Dennis .

Nov 13, 2014 at 12:51

I have some Woodsford but you should also take a look at Terry Smith's Fundsmith. It's done brilliantly since launch and has a very simple investment strategy and low charges. You can get it on HL but they tend to hide it away. Over the past few weeks of FTSE turmoil it has crept up regardless.

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William Phillips

Nov 13, 2014 at 14:45

HL is driven by marketing considerations, so naturally it recommends other outfits driven by marketing considerations.

Of course they wouldn't tip investment trusts. I am glad ITs remain a well-kept secret for serious long-term investors, not Dampier's gullible fashion victims.

The only trust HL ever got behind was Fidelity China Special Situations when it agreed to pay them a commission, and look how that turned out.

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william h smith

Nov 13, 2014 at 17:00

I have been with HL for some years. I have never found the 150 Funds of any value. The days when you could invest and forget are long gone. You have to do the research and for this HL are very good. Forget their recommendations and be prepared to change direction and alter the investments as often as needed. Fundsmith has been very good and so have a number of other funds but very few stay in contention for too long - remember smaller cos? Not a very good investment in recent months. 3/5 year records are history - tell me what's moving today and better still tomorrow!

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Alexander MOFFATT

Nov 14, 2014 at 16:57

Why isn't Terry Smith's Fundsmith on HL list ?

It's done very well over last few years?

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Dennis .

Nov 14, 2014 at 17:44

I think that the Fundsmith issue proves the point. The HL150 list is biased towards maximising returns for HL.

There was an interesting situation in 2010 when they removed the highly recommended Newton Higher income fund from the list (for good reasons) but then changed their comments about it to sound as if they had never ever recommended it. This has since been rewritten (sounds like 1984 Ministry of Truth)

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Medussa828

Nov 14, 2014 at 18:43

All very interesting....Iam planning a completely treachorous act and going total investment trusts next tax year... UT.'s are far too expensive.

iam after global equity funds and emerging markets, has anyone had a fun time with these Please ?

Thank you all for your contributions, it certainly evens up the story !

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Terence Mason

Nov 14, 2014 at 18:52

If you're after global, then go for Scottish Mortgage and for emerging markets try JP Morgan Global Emerging Markets Income

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howie

Nov 15, 2014 at 13:08

Hi Dennis,if you hold funds in your ISA which distribute payments as interest rather than dividends then your broker will claim the tax back for you.

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Mark C Digby

Nov 15, 2014 at 18:12

I find Fundsmith very attractive, but why buy through HL unless you want an ISA and have already used HL for it? The charges on a Fundsmith FUND with HL will attract their higher FUND charges, Whereas Mr Smith is cheaper for his account and no charges?

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Dennis .

Nov 15, 2014 at 18:24

In my case I have a lot of investments (including Fundsmith) in HL ISA for historic reasons and about £20K in Fundsmith direct. The HL fund and share account has no charges so I have some in there too. The great thing about HL is its website and the ability to keep everything in the family together.

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