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How Hargreaves Lansdown's 'Best of British' fund stacks up

Only Neil Woodford has attracted more Hargreaves Lansdown client money than the online broker's launch of its Multi-Manager UK Growth fund.

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by Daniel Grote on Feb 03, 2015 at 15:32

How Hargreaves Lansdown's 'Best of British' fund stacks up

Hargreaves Lansdown has raised £162 million for its new Multi-Manager UK Growth fund, the second biggest fund launch ever for the online stockbroker, behind only star manager Neil Woodford's launch of his Woodford Equity Income fund last year.

We've taken a closer look at the fund and what it promises for investors.

What is 'multi-manager'?

As its name suggests, Hargreaves' new offering is a multi-manager fund. That means it does not invest directly in stocks and shares but in funds run by other managers. Multi-manager funds are often seen as a 'one stop shop' for investors who want to delegate fund-picking to a professional.

If multi-manager funds are run well, they provide investors with a well-balanced portfolio run by a collection of the best fund managers in each sector they invest in. They tend to cost more than regular funds, as investors are subject to two layers of charges: the fee levied by the manager running the fund and the costs of the underlying funds that make up the portfolio.

The Hargreaves fund carries an annual or ongoing charge of 1.42%. This is higher than the 0.9% cost typically levied by regular funds. But it is less expensive than the 1.74% charge levied by the Jupiter Merlin Growth fund, if bought on Hargreaves Lansdown, and (just) cheaper than the 1.52% ongoing cost of the Henderson Multi-Manager Income & Growth fund and the 1.46% ongoing charge levied by the Schroder Multi-Manager UK Growth fund. Platform charges apply on top of these costs.

Not just growth funds

For that price, you'll get access to a portfolio of UK funds picked to deliver growth over the long term. Citywire AA-rated fund manager Lee Gardhouse (pictured) hasn't just picked growth funds, however. Of the 12 funds that feature in the portfolio, three are equity income funds focused on investing in higher yielding stocks: CF Woodford Equity Income Marlborough Multi-Cap Income and Threadneedle UK Equity Alpha Income .

Gardhouse said he had picked these funds because equity income strategies still offered strong growth potential, and provided diversification. They could be expected to be stronger performers in tough market conditions than the more growth oriented approaches.

Hargreaves has not yet released details on how the portfolio has been divvied up between the 12 funds, but Gardhouse described both the Woodford and Threadneedle funds, run by Citywire AAA-rated Leigh Harrison, as 'core' holdings.

'Neil Woodford's focus on undervalued and out-of-favour, but fundamentally sound, companies has served him well over the long-term,' he said. 'His willingness to back his ideas with high conviction is one of the reasons we like his approach.'

Other funds deemed 'core' are the Majedie UK Equity fund, run by Citywire AAA-rated James de Uphaugh, and the AXA Framlington UK Select Opportunities fund, run by A-rated Nigel Thomas. These are two of Gardhouse's roster of 'special situations' funds - the moniker given to funds that aim to find stocks undervalued by the market in a bid to gain from a recovery.

The other two are BlackRock UK Special Situations , run by Richard Plackett, and Jupiter UK Special Situations , run by Citywire AA-rated Ben Whitmore. These sorts of funds could be expected to power performance in strong market conditions, although Gardhouse sees the Jupiter and Majedie funds as more resilient in a bearish environment.  

'We like Ben Whitmore's contrarian approach and a focus on companies which have temporarily fallen on hard times, but still with sound franchises, disciplined management, and profits to fund dividends,' he added.

The fund's position in Lindsell Train UK Equity stands out from the other holdings due to fund manager Nick Train's concentrated stock-picking approach. Citywire AA-rated Train holds just 24 stocks in the funds, which is similar to his Finsbury Growth & Income (FGT ) investment trust.

Small company bias

The fund has a bias towards small and medium-sized companies, which make up 45% of the portfolio. This is less than the 49% in large, blue-chip stocks but more than the proportion held by the broader market.

Exposure to medium-sized companies – the 'mid cap' stocks that make up the FTSE 250 – comes through the AXA Framlington UK Mid Cap fund run by Citywire A-rated Chris St John, while A-rated Giles Hargreaves also invests a proportion of his Marlborough Multi-Cap Income fund in these companies.

Smaller company funds include Old Mutual UK Smaller Companies Focus , run by Dan Nickols and Giles Hargreave's Marlborough UK Micro-Cap Growth and Special Situations funds. And the fund could even invest in yet smaller companies: Gardhouse said the Marlborough Nano-Cap growth, which invests in firms with a market capitalisation of less than £100 million, was a potential future investment.

That small and 'mid-cap' company bias has contributed to the funds large 'overweight' position in industrial stocks, meaning the fund holds proportionally more of these stocks than its benchmark, the FTSE All-Share index. Gardhouse said much of this 19% allocation – compared to the market's 7% weighting – was composed of small and mid-cap support services companies.

Running low on oil

Consumer services represent another big position, while the fund is light on commodities, with basic materials making up just 3% of the portfolio, compared to the 9% weighting of the FTSE All-Share, and 6% in oil and gas stocks versus the market's 17%. The big dividend-paying oil majors feature heavily in many equity income funds, but Neil Woodford has shunned this area, while Leigh Harrison is heavily underweight. The Marlborough Multi-Cap Income fund, which invests outside the FTSE 100 and so avoids the oil majors, holds just 1.9% in oil and gas stocks.

The small and mid-cap bias of the fund is in line with the approach Gardhouse has taken on other multi-manager funds he runs picking managers than invest in UK shares.

'We tried to see what we have done well, and that has been investing in conviction managers' he said, adding that these were more prevalent in smaller company investing.

Gardhouse also runs the Hargreaves Lansdown Multi-Manager Special Situations , Equity & Bond , Strategic Bond and Income & Growth funds.

He said the new fund would be run in a similar way to the UK portion of the Special Situations fund, which is up 118.6% over 10 years, ranking it 46 of 113 funds in Citywire's Global Equities sector. Gardhouse's other fund with a 10-year track record, the Income & Growth fund, has delivered 113.8% over that period, placing it 17th of 63 funds in the UK Equities sector.

Over five years, the Equity and Bond fund has delivered 55.6%, placing it 13th of 209 funds in Citywire's Mixed Asset sector, while the Strategic Bond fund has returned 41.7%, placing it 27th of 48 funds in the Sterling Bonds sector.

To find out more about multi-manager funds, vist our Citywire Money guide.

15 comments so far. Why not have your say?

sgjhaghsdg

Feb 03, 2015 at 15:39

That's OK for those who know enough to choose their own multi-manager fund, but others will need multi-multi-manager funds. OK, there's yet another layer of fees, but this has surely got to be worth it. :-)

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John Myers

Feb 03, 2015 at 16:38

Does the charge for this fund include the Vantage 0.45 percent.

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Daniel Grote - Citywire

Feb 03, 2015 at 17:05

Hi John - it doesn't. I've added a line to the piece to make that clear.

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foton

Feb 04, 2015 at 14:20

They invest in funds run by other managers-........

so there is a fund fee, multi manager fee and platform fee

statistically over 5 years 20% return; is is nett return (after all these fees deducted) or not?

why not to invest into all these funds directly , they are all listed by you, can not see an advantage, though thre must be some, so many people invested

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Suhan Srinivasan

Feb 04, 2015 at 15:33

Would it not just be cheaper to pay an adviser 0.5% to advise you what funds to select? Do that for the rest of the portfolio and you can have a professionally balanced portfolio! They may even recommend a platform with a charge lower than 0.45%.

On the positive side, I do like half of the funds that they have selected.

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philip gosling

Feb 04, 2015 at 17:42

This type of fund is for those that want stock market exposure but who lack the experience, expertise or time to manage their investments. That is probably millions of people so they've tapped into a willing market.

We all know investing directly into individual shares is the cheapest way of investing but it is high risk when something goes wrong - Alliance & Leicester, Bradforth & Bingley & Cable & Wireless are some of my duffers though Diageo & Babcock have been some successes but now I use funds - older, wiser and I sleep better at nights.

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sgjhaghsdg

Feb 04, 2015 at 17:53

There are lots of multi-asset portfolio funds that achieve exactly this without the high fees. Over the long term, Vanguard Lifestrategy 60% will do the job perfectly nicely but the managers will get fewer yachts.

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philip gosling

Feb 04, 2015 at 17:58

sgjhagsdg

Yes - I use the Vanguard Lifestrategy 100% but people like Neil Woodford, Train & Smith do beat the market for many years and Vanguard never beats the market so you need a mix of stock market investments as well as a mix of property, cash, bonds etc to ensure diversification. Investment is never just either......... or .........

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sgjhaghsdg

Feb 04, 2015 at 18:22

Those who get talked about in hushed tones have beaten the market (albeit often by investing outside said market!) but there are swathes of active managers, often past superstars, who under perform in a big way. See Best Invest's Dogs study for the nitty gritty.

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craig long

Feb 07, 2015 at 09:37

"why not to invest into all these funds directly , they are all listed by you, can not see an advantage, though thre must be some, so many people invested " -- assume they rebalance the funds as needed so, would need to actually do the same if DIY?

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Frank Frank

Feb 07, 2015 at 14:56

One day the gullible fools who now pay double charges for multi-manager funds, will be conned into paying treble charges for multi-multi-manager fund, where an "expert" chooses multi-manager funds for you.

That is why he will be spending his retirement on his yacht, while you will be spending yours in a little semi. Cheers !

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Sinic

Feb 07, 2015 at 16:48

After spending years paying a financial advisor a deal of money in commission for placing my investments into funds I could have selected as least as competently as him, I smelt the coffee and started to invest directly through HL. It does not take great experience, skill or even time to select a balanced portfolio of funds and investment trusts. There is more than enough easily accessible information from on line sources including HL. I really do feel that it is a mugs game to pay an extra 0.75% or so to do something that one can do oneself.

For that reason I am out!

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foton

Feb 07, 2015 at 17:33

Pay attention to proposed no charge Woodford's growth trust

charge from profit, not from capital

he calls it patient fund, there is a reason for this

something new in the uk market

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sgjhaghsdg

Feb 07, 2015 at 17:34

The approach suggested by Sinic can work well but, 1) you need to understand the fundamentals of asset allocation and the fu of rebalancing, 2) HL may be cheaper than using an IFA but they are still an expensive platform.

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Tony Maloan

Feb 09, 2015 at 07:01

I was invested in the last HL multifund for many years same bloke running it LG.

It went nowhere, so had to go.

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