Hargreaves flags eight multi-manager funds for performance issues

Lower fund charges and better times for UK equities have not been enough to help Hargreaves Lansdown’s multi-manager funds catch-up with their rivals, according to its latest value assessment.

The D2C platform declared that 11 out of 13 of its funds were “broadly delivering performance value” to investors, in its third assessment of value (AoV) report. However, it added that six funds from its multi-manager range “require continued focus” to improve performance.

Said offenders, representing over £6bn in assets, received an amber rating for failing to beat their benchmarks on a discrete basis over the five years to the end of the reporting period on 30 September 2021, although half had higher rolling returns over the timeframe.

The number of funds given an amber rating for performance was higher than in 2020 when only four vehicles were flagged for needing improvement.

Two funds, the HL Multi-Manager Asia & Emerging Markets fund and Multi-Manager Strategic Assets fund, were deemed to not represent value and given a red rating.

HL Multi-Manager funds show improvement amid value rally

CIO Lee Gardhouse said, in the past 12 months, Hargreaves’ multi-manager funds had benefitted from the broader market rally, with eight out of 10 ranking in the top half of performance tables versus their respective peers.

Many of its funds, notably its income-focused strategies, have a bias toward UK equities and relatively little exposure to US stocks, which paid off last year as beleaguered British companies bounced back from their Covid lows.

However, this preference has hampered performance over the longer term as the UK has trailed global markets since the Brexit vote in 2016.

£6.4bn in funds requiring improvement or not offering value

Source: Hargreaves Lansdown

Ex-Woodford fund having ‘very limited impact on performance’

Its £2.1bn Multi-Manager Income & Growth Trust, which received an amber rating, returned 13.1% over the last five years to 30 September 2021, half of the 25.3% the IA UK Equity Income peer group average.

The £2bn Multi-Manager Special Situations Trust, the second largest amber fund for performance, is up 52.6% over the same timeframe, while its average rival in the IA Global sector has risen 81.1%.

Both funds were named and shamed for lacklustre performance in last year’s AoV report, having been stung by their lingering exposure to Neil Woodford’s defunct equity income fund.

Six funds continue to hold the fund, now called LF Equity Income, in their portfolios, including Multi-Manager Equity & Bond and Multi-Manager UK Growth, which both received amber ratings.

However, Hargreaves said it was now having “very limited impact on performance” due to the funds’ lower weightings, as authorised corporate director Link continues liquidating the fund.

Multi-Manager Income & Growth currently has the largest weighting at 0.6%, while the rest have under 0.3% invested.

See also: Hargreaves funds recoup a further £65m from Woodford payments in 2020

Lower fund charges will be felt in 2022 report

The multi-manager funds’ persistent underperformance comes despite nine out of 10 seeing their charges cut during the year.

In last year’s value assessment Hargreaves said it would be rolling out a tiered charging structure across its multi-manager range to pass on economies of scale to investors.

Funds that are over £1bn in size have seen their 0.75% annual management charge (AMC) drop 0.05% for every £1bn invested on a sliding scale down to 0.60% when assets hit £3bn.

Meanwhile funds that exclusively invest in fixed income have seen their AMC lowered to 0.60%.

As the changes were implemented on 28 June 2021, Hargreaves said the full-year impact of these fee reductions would flow through in the year ending September 2022.

Funds delivering value

Five of Hargreaves’ funds delivered value when it came to performance. These include its trio of Select funds, which have been around less than five years.

Its Multi-Manager European fund was another standout. Though it just underperformed the IA Europe ex-UK sector in 2021, returning 21.6% against the 22.4% average, over five years it is up 68.2% compared to the 60.6% peer group average.

The Balanced Managed fund also scored top marks for performance, despite lagging its peer group over the most recent discrete five year period. Hargreaves said the fund’s defensive bond positioning, which has held back performance, has started to help as fixed income markets worried about rising inflation.