I’d worry if I WAS included

After he is once again excluded from Hargreaves Lansdown’s best buy list, star manager Terry Smith comes out fighting . . .

INVESTMENT platform Hargreaves Lansdown has launched its updated list of recommended funds – but immediately ran into controversy over its selection.

The firm, which has been trying to rebuild its battered reputation following the Neil Woodford debacle, revealed that its new Wealth Shortlist was largely the same as its former Wealth 50 list – with 17 funds tacked on.

Hargreaves said it had addressed criticisms, including the claims that it was more likely to recommend funds which it could make more money from.

But Jeremy Fawcett, the head of data provider Platforum, said: ‘You could say they’ve done the bare minimum to make the list defensible. They haven’t changed it.

‘If you’d taken a fresh look you would have expected a bit more change. They’ve said: “We don’t think there’s anything wrong with it, but we have some perception issues. If we address those, but don’t change the list, we’re doing what we need to do.”’

The revamped list riled successful fund manager Terry Smith, whose Fundsmith Equity vehicle still does not feature despite its stellar performance in the last decade.

Smith, who has a history of clashing with the firm, said: ‘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.

‘Given the poor track record of Hargreaves Lansdown’s best buy lists and the fate of some other funds recommended, we would worry if we were included.’

Hargreaves’ Wealth 50 list, which had acted as a guide for inexperienced and time-poor savers, fell into disrepute last year after recommending the doomed Woodford Equity Income fund right up until its suspension. Investors in that fund, which is being wound down, have lost at least 27pc of savings.

Hargreaves argued that it had not included Fundsmith because it does not give regular enough updates about firms it invests in.

Hargreaves’ Emma Wall said: ‘We need this data in order to do full qualitative and quantitative analysis of the fund and the manager’s track record, determine how we might expect the fund to perform in the future, and keep up to date with portfolio changes.’

But industry insiders said it was harder to see why Smith, who has turned £ 1,000 into £5,003 since Fundsmith launched in 2010, was still excluded.

Jason Hollands, of investment firm Tilney, said: ‘As an intermediary you can get an enormous amount of insight from fund managers on which to base recommendations, even if it’s under a non-disclosure agreement.’

Dzmitry Lipski, at Interactive Investor, added: ‘We receive high quality information from Fundsmith. We can’t fault it on transparency. It is one of the more engaged fund management groups.’

One criticism levelled at Hargreaves was that it was more likely to recommend funds which offered customers lower fees.

Although lower fund manager fees are good for savers, it allowed Hargreaves to boost its profits by hiking its own platform fees, while keeping the overall charge to customers similar to that of its rivals.

It has now declared that the discount a fund manager offers the platform will no longer be a factor when deciding what to recommend. Following the Woodford fiasco, Hargreaves said it would look closer at the liquidity of funds it recommends, or how easy it is for investors to withdraw their money.

This was a major problem with Woodford, since too much of savers’ cash was in small, risky companies whose shares were hard to trade quickly.

Under the oversight of John Troiano, a Schroders veteran Hargreaves hired as independent non-executive director this year, it will analyse more data to determine how risky funds are.

Critics said the firm could have been more thorough. Despite the increased focus on liquidity, the new shortlist still includes funds which invest entirely in tiny companies, which are harder to sell out of in a hurry should investors need their money back.

Peter Sleep, senior portfolio at Seven Investment Management, said: ‘Some of their thinking is a bit half-cock. They’ve left listed investment trusts off the list, which is fair enough as many are arguably less liquid.

‘But they didn’t join the dots and make the leap when they were looking at what’s in some of the open-ended funds.’

Fawcett said: ‘I think they’ve probably done enough to reassure customers, but they’ll be hoping over the next few years that these recommendations perform well, otherwise customers will lose confidence and they’ll have a major problem.’