Advisers are questioning the value that best-buy fund lists have after Hargreaves Lansdown’s opinion-splitting decision to reform its flagship Wealth 150.
According to a recent report from consultancy Platforum, 61 per cent of advisers use the services of fund research agencies, while an increasing number of providers and fund supermarkets are launching lists of the top funds they recommend.
Ratings from fund research agencies can help advisers create investment solutions for their clients, but how do planners feel about the pre-packaged lists of recommended funds from providers?
Seeing the forest through the trees
Hargreaves’ decision earlier this month to trim its Wealth 150 to a new Wealth 50 list, leaving out stars like Terry Smith but sticking with an under-pressure Neil Woodford, created a significant buzz among investors.
The general consensus among advisers, however, seems to be to not put much weight behind such decisions. Serenity Financial Planning adviser Tina Weeks says her firm prefers to use “evidence-based portfolios” rather than pay attention to fund lists.
Thomas and Thomas financial planner Darren Lloyd Thomas says his firm does not pay attention to fund lists in order to remain impartial.
He says: “We wouldn’t use them, because we like to be independent, so it is important to us that we follow our own investment processes and are not subject to outer influence.”
Others do not pay attention to these lists, as they feel that they are too broad and therefore irrelevant for their firms’ investment process.
Ethical Investors managing director Lee Coates says that his firm only uses ethical funds so it cannot use traditional best-buy schedules.
The updated Hargreaves Lansdown list, for example, segmented its 63 recommended funds into sectors, but only one fund made the ethical category.
Coates says: “It’s difficult, because ethical funds are so personal to the ethics of the individual. It is virtually impossible to have 40 of the most ethical funds because of different ethics, so it is near enough impossible to use them for us.”
Appealing to the right audience
While advisers asked by Money Marketing do not seem to give much weight to top-fund charts, they are often not the lists’ primary target.
Hargreaves’ list is mainly intended for the platform’s clients, who, according to a spokesman, use its investment platform on a direct-to-consumer basis.
Similarly, Fidelity’s Select 50 list appears on its direct platform Fidelity Personal Investing. Its platform for advisers, FundsNetwork, does not have a best-buy or top-funds ranking.
A Fidelity spokesman says: “We launched the Select 50 to make it easier for investors to choose from more than 2,000 funds available on Fidelity’s open architecture Personal Investing platform.
“The Select 50 allows investors to benefit directly from the expertise and insight of our investment analysts, helping them make better-informed decisions to meet their long-term investment goals.”
AJ Bell’s platform offers its own select list to its direct customers, rather than to intermediaries. An AJ Bell spokesman says: “Our favourite fund list is only available and marketed via our direct-to-consumer business. Of course, advisers could go and look at it because it is on the AJ Bell Youinvest website but we don’t promote it to advisers.”
Square Mile Research’s list, the Academy of Funds, on the other hand, is meant for advisers only, with a cautionary note that limits access to the list on the company’s website.
The best way to determine whether including a fund on one of these lists bears any weight would be to look at whether it prompted flows into featured funds.
Flows into individual funds on the list through those channels are rarely disclosed.
When asked whether Bestinvest – which runs the Spot the Dog list of underperforming funds – keeps data on outflows from funds after they make the list, its communication managing director Jason Hollands says: “This isn’t something we’ve looked at in any systematic way. Spot the Dog is produced for direct investors, so isn’t aimed at IFAs who will need to take their own view on whether to hold or switch out of funds enduring prolonged periods of poor performance.
“What I can say is that funds with three years of steep underperformance are often already experiencing outflows and we have certainly seen investors look to move where they have these funds – though our message is that this is not a sell list per se.
“It is also the case that over the years a number of ‘dog’ funds have subsequently been snuffed out entirely, merged or closed down, as groups decided to cut out uncompetitive products.”
AJ Bell, Fidelity and Hargreaves responded to this by saying that they do not disclose flows into individual funds.
However, a Hargreaves spokesman says that the Wealth 150 – the Wealth 50’s predecessor – used to make up around 40 per cent of funds on its investment platform.