Terry Smith has hit back at Hargreaves Lansdown as his Fundsmith Equity fund is once again snubbed from the platform group’s overhauled best buy list.
The D2C platform giant unveiled its Wealth Shortlist, a rebranded version of its Wealth 50 list, which came under fire for its championing of the now defunct Woodford Equity Income fund, formerly managed by Neil Woodford.
The changes see Hargreaves adding 17 new funds across eight categories, bringing the total of recommended funds to 68. The list also has an increased focus on passive and ESG funds, with four trackers and two sustainable funds added on.
The FTSE 100 firm said the revamped list will provide clients with increased transparency and improved fund updates.
Fundsmith Equity snubbed
A notable omission to the revamped list was Terry Smith’s Fundsmith Equity fund which was snubbed once again from Hargreaves’ handpicked crop of best buy funds.
Hargreaves Lansdown head of investment Emma Wall said in a statement to the Times that the fund was not included due to concerns around the frequency of Smith’s portfolio updates.
“It is a requirement for our analysis that we can have regular access to the fund manager and monthly holdings and liquidity data,” she said. “Fundsmith prefer to provide data on a six-month basis rather than monthly.”
Previously the D2C firm had cited the £20.1bn fund’s ongoing charges figure and lack of track record in a downmarket as the main reasons why it did not recommend the fund despite “superb” performance.
‘We would worry if we were included’ says Terry Smith
The Fundsmith CEO and founder took aim at Hargreaves’ latest rationale for excluding his fund and questioned its own track record in recommending funds.
“We note the reasons put forward for Hargreaves Lansdown’s continued failure to include Fundsmith in the ‘best buy’ list,” he said.
“They cite our unwillingness to disclose our portfolio positions to them more frequently than we do to our other investors. Leaving aside the issues this would raise with Treating Customers Fairly, we would note that Hargreaves Lansdown has a fund which competes with ours – the HL Select Global Growth Shares Fund – and a highly questionable track record in handling conflicts of interest.
“Moreover, given the poor track record of Hargreaves Lansdown’s best buy lists and the fate of some other funds they have recommended, we would worry if we were included,” Smith added.
Fidelity Special Situations and Liontrust UK Growth replace ejected Neil Woodford and Nick Train funds
Alex Wright’s Fidelity Special Situations fund and the Anthony Cross and Julian Fosh-led Liontrust UK Growth fund are the two active UK funds to be added to the Wealth Shortlist, alongside two Legal and General tracker funds.
The ASI Global Smaller Companies fund, which is to be run by Harry Nimmo following Alan Roswell’s departure, has been added to the recommended global funds, as well as the Fidelity Global Dividend, Troy Trojan Global Income, Fidelity Index World funds.
Investment trusts and ETFs remain excluded from the best buy list.
Several of the new additions have been brought in to replace funds that were pushed off the list over the last year, the most notable being the Woodford Equity Income fund which was dropped only after the fund suspended trading last June.
Nick Train’s Lindsell Train UK Equity and Global Equity funds were also removed last year, hot on the heels of the Woodford suspension, after the funds’ growing stakes in Hargreaves Lansdown were questioned.
Hargreaves also ditched Tom Dobell’s M&G Recovery fund after years of poor performance and more recently dropped the BNY Mellon Global Income fund following the departure of Nick Clay.
No changes were made to the existing funds in its Emerging Markets, Europe, High Income, Mixed Investment, Strategic and Global Bonds, Total Return and UK Equity Income sectors.
Funds added to the Hargreaves Lansdown Wealth Shortlist
|Asia||Schroder Asian Alpha Plus, First State Greater China Growth, Stewart Investors Indian Subcontinent Sustainability|
|Corporate and government bonds||Artemis Corporate Bond|
|Global||ASI Global Smaller Companies, Fidelity Global Dividend, Troy Trojan Global Income, Fidelity Index World|
|Japan||First State Japan Focus|
|North America||Baillie Gifford American, Artemis US Smaller Companies|
|Responsible||BNY Mellon Sustainable Real Return, Legal & General Future World ESG Developed Index
|UK Growth||Liontrust UK Growth, Fidelity Special Situations, Legal & General UK 100|
|UK Small and Mid-sized companies||Legal & General UK Mid Cap Index|
Source: Hargreaves Lansdown
Hargreaves U-turns on discounted fees and fund selection
In addition to changing up its list of recommended funds Hargreaves said it has also enhanced its governance and oversight. Decisions made about the Wealth Shortlist and its range of multi-manager funds will be carried out by separate teams that are independently overseen by different committees.
It has also introduced additional risk and monitoring controls, including analysis of different data points, which it said would help in “building further challenge to the investment selection process”.
In a dramatic U-turn Hargreaves said the savings on a fund’s annual charges will no longer be used as a factor in the fund selection process, following feedback from thousands of clients. Instead it will focus more on the performance potential of its recommended funds, honing in on managers, their processes and the culture of management companies.
“We have taken our time to get this right,” said Wall. “We have improved our transparency of research and process, the information, tools and support we provide clients, and the governance and risk controls of our processes and removed the fund price as a factor for fund selection.
“Our research notes are more in-depth for those clients who want more detail and they help clients understand how a fund may fit into a portfolio. We are also introducing a charges comparison to help investors who wish to use cost as a determining factor for investment.”