Hargreaves denies claims of Woodford double standard

Too much hero worshipping of star manager

Mark Dampier: 'Give Woodford at least three years'

Hargreaves Lansdown research director Mark Dampier (pictured) has denied claims that the D2C firm holds certain managers like Neil Woodford to a different standard, following criticisms over its reaction to Blackrock veteran Evy Hambro expanding his role.

Portfolio Adviser reported last week that Hambro, who has managed the Blackrock Gold & General fund for nearly a decade, would be stepping up to run Blackrock’s thematic range, a move Hargreaves analyst Dominic Rowles criticised as “negative for investors”. Rowles said he worried Hambro’s extra duties would leave him with less time to focus on running his £891m gold fund, which he noted has struggled with performance over the past year.

Hargreaves’ stance raised eyebrows among some commentators who pointed out that the firm has been less critical of other managers who have had to deal with bigger changes.

Jason Hollands, managing director at Tilney, was perplexed by Hargreaves’ reaction to what amounts to a manager taking on “a few more reporting line responsibilities”. “If that’s a distraction, then there are other cases where fund managers out there have taken on the additional responsibilities of running a business and launching a platter of new products and that didn’t seem to be a problem at the time.”

“It seems like an odd stance to take on Evy,” agrees Ben Yearsley, director of Shore Financial Planning. “It’s weird to pick on that particularly when there are other examples where they’ve let it go.”

Woodford double standard

Hollands would not reveal which individual(s) he was referring to but an obvious manager that fits the bill is City titan Neil Woodford. Woodford has remained on Hargreaves’ best buy list since it was created in 2003 despite leaving his former home at Invesco Perpetual to set up his own boutique investment firm in 2014.

Hambro’s fund, which he co-manages alongside Tom Holl, was among the funds that were axed from the platform’s favourite funds list which was whittled down to 50 active funds and 10 passive funds earlier this year.

Brian Dennehy, managing director of Dennehy Weller & Co, says there continues to be too much “hero worship” of Woodford.

“He, or more precisely his funds, need to be judged on exactly the same basis as all others. Those criteria need to be clear, understandable and objective. And there needs to be historical evidence that such criteria enabled the pinpointing of funds with outstanding potential in the past.”

Dennehy says he “didn’t observe such an objective process underpinning the Wealth 50” but adds he is happy to stand corrected.

Apples and oranges

Dampier told Portfolio Adviser that Hambro’s evolving role at Blackrock and Woodford’s career change are not the same thing. He says Woodford has more support now than he did when he was a UK equity income manager at Invesco because he has a dedicated compliance team and support from several analysts and managers.

“Invesco is an American company and Neil felt a bit stifled by that and he felt he didn’t have the support. Now, he feels he has that because he’s put that all around him,” says Dampier.

He adds: “What I worry about is people in an existing organisation which inevitably end up having a lot of bureaucracy and they start doing different things.”

Portfolio Adviser understands that one of Woodford’s main motivations for launching an independent boutique was to create an environment where he could concentrate on running money and leave someone else to concentrate on running the business. While a smattering of star managers split their duties between being chief executive and running money, Woodford Investment Management is led by CEO Craig Newman.

However, Yearsley points out that Woodford had additional responsibilities at Invesco as the fund group’s head of UK equities and yet was also on the Wealth 150 list.

Buxton shows Hargreaves’ inconsistency

Yearsley thinks Richard Buxton’s Merian UK Alpha fund, which up until recently was among Hargreaves’ favourite funds, is a better example of the D2C firm’s inconsistency.

The £1.86bn fund featured on the Wealth 150 while Buxton was chief executive of what was then Old Mutual Global Investors and remained on the list as he was navigating the group through a £600m management buyout. “I don’t remember seeing a note having a go at that,” says Yearsley.

“I like fund managers being fund managers personally,” he continues. “In that sense, I agree with Hargreaves’ stance on Evy Hambro because you just want him to be managing the fund and that’s it. But you have to be consistent with that.”

Merian UK Alpha was among the 25 funds dropped from Hargreaves’ revamped buy list, which it unveiled the day after Buxton announced he would be stepping down as CEO of Merian Global Investors.

Hargreaves analyst Rowles commended Buxton’s decision to relinquish his role to concentrate on managing money but said his Merian UK Alpha fund had been cut from the streamlined Wealth 50 because other UK equity funds showed greater promise of delivering better long-term returns at a cheaper price. Merian UK Alpha is available at a discounted OCF to Hargreaves clients.

Merian Global Investors declined to comment.

Waiting with Woodford

Hargreaves has also come under fire in recent years for sticking by underperforming managers like Woodford and shunning others like Terry Smith whose £17.8bn Fundsmith Equity fund has remained in the top quartile of funds in the IA Global sector.

The platform group said it was “waiting with Woodford” in its last update on the Woodford Equity Income fund. Though analyst Kate Marshall admitted “it’s been an uncomfortable time to hold the fund and our own conviction has been tested,” she said such extended periods of underperformance are to be expected because of Woodford’s style of going against the herd.

Although the fund’s performance has picked up marginally this year, it is still trailing behind peers in the IA UK All Companies sector.

3 m6 m1 yr3 yr5 yr
Woodford Equity Income-0.2%-7.1%-4.7%-4.1%N/A
IA UK All Companies2%-6%0%27.8%25.5%
Source: Trustnet

Hambro’s fund, which Rowles flagged for poor performance, has outpaced peers in the IA Specialist sector more recently although it has lagged the sector over a longer time frame.

3 m6 m1 yr3 yr5 yr
Blackrock Gold & General16.3%19%2.1%29.7%14.7%
IA Specialist3.5%0%1.5%41.7%34.3%
Source: Trustnet

Dampier says the last three years for Woodford has been “the toughest period he’s ever had” with the star manager hit by a “double whammy” of investors “absolutely disenchanted with the UK” post-EU referendum and stock mistakes which have weighed on performance, also triggering outflows.

Brexit resolution

Dampier believes “the big thing for Neil will be the resolution of Brexit,” adding that the UK’s impending divorce from the EU has made life tough for the whole UK equity income sector, including Woodford’s successor at Invesco Mark Barnett.

He thinks performance should pick up in the short term provided the UK secures a Brexit deal, which he still believes will happen at some stage.

Morningstar senior analyst and manager research Peter Brunt says it can be difficult to tell whether the fund owes more of its recent woes to a tough environment for UK equities or stock specific setbacks.

Many of the top 15 biggest detractors from performance over the last three years include UK focused companies like Capita and Provident Financial. However, Brunt argues the reasons for their significant underperformance had more to do with individual problems within the companies, like profit warnings and pending FCA investigations at Provident Financial, than exogenous factors.

Woodford’s holdings in housebuilders Taylor Wimpey and Barratt Developments, which are especially susceptible to downward swings in the British economy, were not among the worst performing stocks, Brunt notes. Barratt actually beat the FTSE All-Share since he bought it after the Brexit vote.

He says the star manager has been hurt just as badly by areas of the market he didn’t hold like energy and materials, specifically the miners.

But he says the reason Morningstar downgraded the fund from silver to bronze had less to do with performance and more to do with its increasingly “strong tilt” toward “idiosyncratic” and “esoteric” smaller biotech and intellectual property companies.

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