I transferred my ISA and Pension to Hargreaves Lansdown using their ready-made portfolios; however, the funds in these portfolios keep changing?
22 March 2021
Question by David
I transferred my ISA and Pension to Hargreaves Lansdown a few years ago using their ready-made portfolios for both; however, the funds that make up these portfolios keep changing. There's no notification of this and I don't know if or when I should be changing my portfolios to reflect these fund changes.
Answered by Josh Butten
Your question is a very good one - and I’m sure other readers will be using the same ‘ready-made’ solution and have similar questions. I've familiarised myself with the Hargreaves Portfolio+ offering to help answer this question and hope the following is helpful!…
HL’s Portfolio+ offering is intended to be super-straightforward and require no input from the investor. HL are taking care of the fund manager selection and are performing a rebalance for you every 6 months. The jury is out on whether a rebalance needs to be done more often than annually - but the fact it is being done for you is very important. For retail investors not seeking financial advice I like ‘auto-rebalancing’ solutions which keep you at the intended risk-level - although this is certainly not the cheapest option I have come across.
As you have witnessed - HL will constantly be changing the underlying funds as and when their fund manager's long-term views change on ‘what constitutes the right solution’ for an investor in each portfolio. These changes are a natural result of the Portfolio+ offering and I wouldn’t worry too much about keeping track of these. The Portfolio+ route is a ‘hands-off’ option, which is supposed to be straightforward and mean that you don’t need to watch the underlying fund movements.
The key question for you as in investor is: “Is the Portfolio+ option right for me?”
Personally I am not keen on how HL are building their own Frankenstein benchmarks from the Investment Association’s sector return data, when there are perfectly good benchmarks out in the big wide world which require no adaptation and can then provide a useful comparison against other options.
Focusing on the ‘Balanced Growth’ portfolio (which I suspect is the most popular), the benchmark has achieved 53% since the fund launched in June 2015 but the Portfolio just 37.5%. This is a rather large performance gap, albeit possibly to be expected with such high charges weighing down the returns. Costing 1.42% for the Portfolio+ fund, plus the 0.45% HL platform charge (reduces to 0.25% above £250,000), the total charge of 1.87% is fairly eye-watering in my opinion. An investor who invested £150,000 at inception of the portfolio would have grown their savings by 35% (37.5% minus 0.45%pa) and paid total fees of more than 10% in just 5.5 years. In this case, HL have kept almost a quarter of the gross investment returns. Whilst an average return of 6.3%pa is no bad thing, market returns have been much higher in this time period and could be captured at a much lower cost using a simple index fund.
Perhaps it is those high charges which motivate the HL fund managers to make the regular fund changes that you’re struggling to keep up with!? If I were in their shoes I would certainly feel the pressure to make regular changes to warrant those fees.
For some context on fees, you can expect to pay a total of <0.5%pa for an auto-rebalancing passive fund, such as Vanguard Lifestrategy, potentially as low as 0.15%pa depending on which platform you choose. You could even choose to engage with a financial planner and I expect your total fees would reduce despite adding in full financial planning services. I am an advocate for always starting a conversation with a financial planner, especially as the first conversations is usually at no cost.
I appreciate my answer has gone beyond your original question - but I hope this is helpful for you and other Portfolio+ investors.
Josh is a co-founder at boosst, an independent financial planning firm that works with families across the UK - and currently the CISIs Financial Planning Firm of the Year. Josh specialises in helping families to answer their ‘big questions’; which is achieved by bringing together personal finance expertise with cashflow planning software.