Are ‘Best Buy’ Lists Really the Best?

The task of a Do-it-yourself is not an easy one. There are so many funds around, the choice of what to invest in can be quite daunting. So there is a demand for a filter system that reduces the number of recommended funds to a manageable choice. One of the most popular was Hargreaves Lansdown’s Wealth 50 list.

We have no qualms with recommended best buy lists provided the choice of funds is objective. But this is what Terry Smith had to say about Hargreaves Lansdown’s Wealth 50 list: “‘Hargreaves Lansdown’s recommended funds continue to be chosen mainly for fund managers’ willingness to comply with a charging structure which enables Hargreaves Lansdown to maximise its own profitability, and not because they perform well for investors.’

Terry Smith seems to have a valid point. His top performing Fundsmith Equity Fund has delivered annualised returns of 20% a year since inception in 2010 and since end November 2017 has returned a 32% gain; yet the fund has never been included in the Wealth 50 list.  Meanwhile the Woodford Equity Income fund has been included in the Wealth 50 list and heavily promoted by Hargreaves Lansdown has recorded a 31% loss since December 1 2017 yet was only removed just before Woodford halted withdrawals on June 3 this year…

Was the fund worthy of its position on the Wealth 50 list?  We will leave you to decide (figures 1/12/17 to 31/5/19). Here are some of Neil Woodford’s major investments: Kier down 80%, Prothena minus 80%, Allied Minds 79% in the red, Provident Financial 78% loss, Purplebricks 71% in deficit, AA 68% out of pocket, Imperial Brands off 44%. In this period the fund was a deft exponent at investing in troubled companies. And the losses keep coming. This month Woodford’s largest holding shed 50% in one day after analysts in the US questioned the reliability of its numbers. It also highlighted weaknesses in corporate governance where the CFO was the wife of the CEO.

Unsurprisingly with this run of “bad luck”, investors rushed for the exits. Unfortunately many did not act quickly enough before withdrawals were blocked. At Hargreaves Lansdown alone nearly 300,000 investors are marooned in a massively under-performing fund. They have been told that it will not be until December when they have a possibility of getting access to their investments.  Undoubtedly, many of them will regret relying on a popular buy list rather than seeking independent investment advice.

Brian Durrant