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Woodford: Hargreaves’ helping hand may help us all
Hargreaves Lansdown looks set to give Neil Woodford's new fund a huge marketing push. Business as usual or something more exciting?
Having launched his new investment company the next step for Neil Woodford is to formally unveil the CF Woodford Equity Income fund he will run.
The former Invesco Perpetual star has enjoyed a great start. Thanks to St James’ Place, Woodford Investment Management begins with £3.5 billion under management, immediately placing it 33rd out of 96 retail fund managers according to the Investment Management Association.
How much further Woodford’s firm rises up the ranks depends on how much more he raises from private and institutional investors when the fund launches. This is a matter of intense speculation but one thing is clear: if Hargreaves Lansdown has anything to do with it, the amount involved could be large.
Although the UK’s largest fund supermarket is not commenting until Woodford’s fund is authorised, all the signs are Hargreaves Lansdown is preparing to give Woodford Equity Income an almighty marketing blitz when it arrives.
It has notified customers that Mark Dampier, its head of research, is compiling a report on the fund and invited investors to register their interest. Today, in a press release entitled ‘Woodford is back’, Dampier states his admiration for Woodford’s track record and investment philosophy.
‘I believe him [Woodford] to be the finest fund manager of his generation and look forward to introducing his new fund to our clients,’ he says.
There's nothing wrong with the first part of that sentence but to my mind the second bit virtually guarantees that Woodford Equity Income will become the 28th fund to join Hargreaves Lansdown’s new Wealth 150+ list.
That little + means a fund manager, having impressed Dampier’s research team, has cut its annual management charge and in return gets extra promotion on its website and other communications to its customers.
Why do I think the stars are lining up in this way? It’s pretty simple really.
Woodford's price pledge
In interviews with the Financial Times and Telegraph at the weekend Woodford disclosed his firm would not sell its funds direct to the public. In other words they will only be available from fund supermarkets like Hargreaves and financial advisers.
He also said his new fund would be cheaper than the Invesco Perpetual Income and High Income funds he used to run. That won’t be hard as Invesco Perpetual levies an annual ‘ongoing charge’, including trading expenses, of around 0.92%. This is a lot higher than the standard ‘clean’ or commission-free annual management charge (AMC) of 0.75% (although that doesn’t include all costs).
Woodford Investment Management could decide to offer the standard 0.75% AMC to all platforms, advisers and investors and leave it at that. By itself that would be a good reason for investors in his old Invesco funds – which still have nearly £22 billion in them – to transfer to his new fund.
There is a chance we could get a price war if Invesco responds and investors are forced to set cost aside and choose between the management skills of Woodford versus his impressive successor at Invesco, Mark Barnett.
Leaving that possibility to one side, however, my money is on Woodford’s commercial team cutting a deal or two to encourage more investors to switch riders (the weekend profiles also revealed Woodford rides horses and is undertaking his first equestrian event shortly).
Help from Hargreaves
Who better than Hargreaves Lansdown (HRGV.L), the FTSE 100 broker which, like Invesco charges a premium price for its services, and is the only platform big enough to have squeezed cuts in charges from fund managers? Hargreaves Lansdown has been pining for Woodford ever since he announced his departure from Invesco last October. The Invesco Perpetual funds were promptly dropped from its broader Wealth 150 list of recommended funds, possibly as a prelude to replacing them with Woodford’s new fund.
In its most recent trading statement chief executive Ian Gorham displayed the firm’s eagerness for a Woodford boost to post-ISA season business by noting his ‘new venture will clearly create interest’.
How much interest may depend on how price competitive Woodford Investment Management is prepared to be. Here Woodford’s video interview with us yesterday gave an intriguing clue. The Citywire A-rated fund manager talked about his enthusiasm for starting a new company ‘fit for the 21st century … without any legacy infrastructure costs’, adding ‘I think we’re going to keep the business low cost’, in case we didn’t get the point.
If Woodford and his commercial team really want to get the full Hargreaves treatment they need to forget about Invesco and focus on at least price matching their rivals, in particular Artemis Income and Threadneedle UK Equity Income . Both funds are on Wealth 150+ having cut their AMCs to 0.66% and 0.65% respectively (although once other expenses are included the ongoing charges on both funds are 0.71%).
If Oxford-based Woodford Investment Management is genuinely low cost and wants to exploit its head-start from St James’ Place, it should be able to afford to undercut Artemis and Threadneedle.
Despite the fanfare over Woodford’s return there is much about these events that is merely business as usual. Indeed Woodford has said as much in recent days as he stressed the continuity of his investment style and thinking. The sight of Hargreaves marshalling its marketing resources is hardly novel either and may cause misgivings for investors who remember its promotion for Anthony Bolton’s Fidelity China Special Situations fund a few years ago.
Nevertheless, the prospect of buying a fund run by a star like Woodford for a genuinely competitive price would not be ‘business as usual’. That would be an exciting development and show that cost-conscious investors don’t have to turn to passive, index-tracking funds.
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by Gavin Lumsden on Jul 22, 2016 at 16:24