An analysis of Woodford Equity Income flows within Hargreaves Lansdown’s discounted share class has highlighted the “financial misery” that can be caused when a platform gets its fund research wrong.
Clients of the D2C giant pulled money from the suspended fund at half the rate of investors using rival platforms, Woodford Equity Income fund reports show in analysis first covered by the Sunday Times.
Hargreaves income investors were the only type of unitholders to add to the fund over the period.
At the end of June, investors in the discounted Z share class, which is only available to Hargreaves Lansdown, accounted for £2.2bn assets under management, a 21.8% reduction from the AUM they represented at the end of December 2018.
The share class is available to both retail investors and the £6.6bn worth of HL multi-manager funds that have exposure to Woodford Equity Income.
However, the C share class, available to all investors, represented £1.2bn of the fund’s assets, a reduction of 32.5% over the six-month period covered in the accounts.
Taking into account performance of approximately -12.4%, Hargreaves clients were pulling money at a rate of 9.4% of AUM, more than half the rate of C class shareholders, who were selling at a rate of 20.2%.
Platforms should show fund research is impartial
In June, Portfolio Adviser highlighted that the FCA had appeared on the back foot as its platform market study closed in the midst of the Woodford saga.
Responding to the figures, Candid Financial Advice director Justin Modray said platforms and brokers should take more responsibility for encouraging clients to invest in certain funds.
“Platforms should demonstrate that their lists are compiled as a result of impartial research, free of any marketing considerations, ideally by publishing all their research meeting and due diligence notes,” Modray said.
The Woodford Equity Income accounts show the extent platform buy lists affect customer decisions “and the financial misery that can result when a platform gets it wrong”, he added.
An investor who had channeled £10,000 into the fund at the start of the year, when Hargreaves Lansdown retained the underperforming fund in its revamped Wealth 50, would have lost approximately £1,240 over H1.
HL income investors net buyers of Woodford
In the income version of the Z share class, Hargreaves clients were net buyers of units in H1, holding 931,809,232 compared to 917,196,155 at the start of the period, Woodford Equity Income accounts show. Its accumulation investors had been net sellers.
In contrast, C share class holders had reduced their exposure by more than 100 million units, holding 425,922,649 at the end of H1 compared to 546,826,559 at the start of the period. All remaining income and accumulation share classes faced net redemptions.
The Sunday Times reported the net inflows of Hargreaves clients into income units contrasted with net redemptions in the preceding years when they sold approximately 310,000 shares in 2018 and 256,000 in 2017.
The change in flow figures coincide with the revamp of the Wealth 50, The Sunday Times said.
