Hargreaves multi-manager funds stung by lingering Woodford exposure in second value assessment

Hargreaves Lansdown’s lingering exposure to the Woodford Equity Income fund has come back to bite a handful of its multi-manager funds, according to its second value assessment, as the Covid crisis wreaked havoc on the UK equity income sector.

Six out of 10 of the platform giant’s multi-manager funds, representing £4.5bn of assets, were deemed to not offer value or “need improvement” when looking at rolling and discrete returns over five years to the end of the reporting period on 30 September 2020. 

Hargreaves’ trio of Select funds, which have been around less than five years, received top marks for performance and charges.

Two of the multi-manager laggards, including the £1.9bn HL Multi-Manager Income & Growth Trust, suffered because of their legacy holdings in Woodford Equity Income, the report indicated. 

When Woodford Equity Income suspended in June 2019, 291,520 Hargreaves customers who held the fund directly or indirectly were blocked from pulling out their money. A year and a half later the end of the fund’s wind-up is still nowhere in sight and trapped Hargreaves customers have lost over £400m.

See also: Hargreaves clients suffer £400m hit from Woodford as execs enjoy bonuses

Hargreaves acknowledges ex-Woodford fund in second value assessment

Hargreaves came under fire for failing to reference Neil Woodford’s former fund in its debut value assessment, despite six of its multi-manager funds owning 614.7 million shares between them at the end of the reporting period. 

Its second value report mentions the still suspended Woodford fund a total of four times.  

See also: FCA assessments in the spotlight as Hargreaves omits reference to Woodford

Woodford’s former fund was cited explicitly as a contributing factor in three funds’ underperformance – the HL Multi-Manager Balanced Managed fund, HL Multi-Manager Income & Growth Trust and HL Multi-Manager Special Situations trust. 

All three funds failed to beat their respective Investment Association peers in the year to 30 September, with the £1.6bn HL Multi-Manager Special Situations trust slumping the furthest, losing 1.2% compared to the IA Global’s gains of 7.0%.  

The HL Multi-Manager Income & Growth trust lost 18.9% versus the IA UK Equity Income’s losses of 17.3% over the year, while HL Multi-Manager Balanced was down 4.0% compared with the IA Mixed Investment 40-85% Shares losses of 0.42%. 

Despite this only the HL Multi-Manager Income & Growth and Special Situations trusts featured among the six funds named and shamed for poor performance over the period.

In the 12 months since Hargreaves’ first value report, its multi-manager funds’ exposure to Woodford Equity Income, now rebranded LF Equity Income, has dwindled as the fund’s authorised corporate director Link liquidates assets.

The HL Multi-Manager Income & Growth fund, which had the highest exposure of the multi-manager range at the end of September 2019 at 11.1%, still had a 1.5% holding in the fund one year on.

HL Multi-Manager stakes in Woodford Equity Income over one year

Source: Hargreaves Lansdown 

Multi-manager laggards

Four of the six funds that were spotlighted for poor performance had been burned by their “very painful” exposure to UK equity income strategies, which were among the hardest hit during the pandemic, and lack of investment in the US market, Hargreaves said. 

Two funds, the £196.2m Multi-Manager Asia & Emerging Markets fund and £170.8m Multi-Manager Strategic Assets fund, were found not to offer value and received a red rating, meaning further “action is required”. 

Hargreaves said the former vehicle had been negatively impacted by its underweight to China, as well as manager selection in the emerging markets portion of the portfolio. The latter was affected by its lower equity and higher fixed income exposure compared to the peer group. 

HL Multi-Manager funds that require improvement

Source: Hargreaves Lansdown 

Hargreaves introduces tiered charges to pass on economies of scale

Despite concluding that 11 out of 13 funds were cheaper or in line with their peer group 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 will see their 0.75% annual management charge drop 0.05% for every £1bn invested on a sliding scale down to 0.60% when assets hit £3bn. 

Hargreaves said it would also lower fees on multi-manager funds that have higher exposure to fixed income assets as this was harder to justify given falling bond yields. 

A full summary of the changes to annual charges is included here.