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The better Wealth 50 highlights an inconvenient truth

By Mike Narouei, Content Producer at Boring Money

9 Jan, 2019

or the more technically minded, Holly wrote this piece which analyses the new Hargreaves Lansdown Wealth 50 preferred funds list which was launched on 9th January 2019.

What is the Wealth 50?

- This morning Hargreaves Lansdown launched their revamped preferred fund list. Imaginatively renamed 'Wealth 50' by a marketing genius, we are to take our Tippex to the '1' of the former 'Wealth 150'.

This reduced list is a revision of the preferred picks of the research team, who evaluate fund manager skill, performance and price.

Why create it?

Let’s not overcomplicate this - this is a good thing. Investors tell us they want help with fund selection, and typically a choice of three or four per sector or type is seen as adequate. 50 funds on any preferred list is more than enough for the vast majority of people, according to our testing.

Is it any good?

As for the methodology, I think the research team and approach are solid and thorough. Of course there are subjective calls made but that’s the nature of qualitative fund analysis. The press and pundits will write vast amounts on the fact that Woodford is still there but you can make perfectly valid arguments for and against continuing to back this industry veteran.

Only including funds which are prepared to be beaten up on price is controversial. Journalists are trained to find the angle and they know that bad news is more compelling than fulsome praise. Why, they ask, are managers like Fundsmith, with 8 years of good performance under their belt, not included? The answer is because manager Mr Smith will not be forced into sharpening his pencil and the research bods think there are other managers with similar styles at lower prices.

What does Holly think?

I think this is fair enough. Any shortlist requires filtering criteria. Hargreaves have publicly made price a key component of theirs. And Fundsmith charges 0.95% compared to Lindsell Train’s 0.51% for Hargreaves customers for an arguably similar product.

RDR (the Retail Distribution Review) largely removed the historical trough for research snouts to be placed in, and the hardwired connection made by many journalists between assumed commercial gain and research team favourites is (I think) over-done. It shows naivety about the compliance and risk protocols in place at the larger firms.

What will the industry think?

There will inevitably be hoo-ha about this change – everyone loves to find a reason to critique someone with such a dominant market share. I think those finding cause to critique the research process are scraping the barrel and indulging in over-analyzed intellectual self-pleasuring. It’s a good bunch of funds and the prices are super competitive. This is quite simply good.

Any caveats?

Where I do find reason to furrow my brow is that with a new average and reduced OCF (cost) figure of 0.57% for their actively managed funds on the list, the total cost of owning these products for Hargreaves clients is 1.02% when you add their service fee to the mix. And so about 45% of the total charges paid by an investor is going to the administrative platform. That’s high. As a total it’s competitive. But as a proportion it’s high.

Charges are coming down. That’s not a new argument. But Hargreaves cannot ignore this change forever and are becoming progressively and relatively less competitive. You cannot continue to rob from Peter to pay Paul indefinitely. At some point they will need to look in the mirror.

The Inconvenient Truth...

I remain an independent fan and if viewed in a cost vacuum, their service is still simply the best. Better than all the rest. Better than anyone… sorry. It also always interests me how many personal finance journalists also hold their personal accounts there.

That notwithstanding, it does not ring true to hear a research team passionately advocating price as a chunky factor of what is best for consumers, whilst sitting on a service which steadfastly refuses to acknowledge this inconvenient truth.

To see the new Wealth 50 list of funds for yourself, here’s the full list on the Hargreaves Lansdown site