While the more politically minded among you may disagree, I think the most exciting announcement of the past few weeks has come, not from Westminster, but Bristol, home of the UK’s biggest investment platform, Hargreaves Lansdown.
And I’m not talking about the rejected £4.7bn takeover bid from a private equity consortium, which got people animated last week. I’m talking about the fact that HL, the great champion of active fund management, appears to have seen the light and launched a portfolio service providing a risk-rated fund of index-tracking funds.
At long last, the investment brand has accepted that many investors want a core portfolio product which is cheap, does what it says on the tin, and does not rely too much on the whims of idiosyncratic active fund managers.
The only hitch — apart, or perhaps because, of the lateness of this new product — is that it’s entering a very competitive market.
Let’s delve into the product itself, which is provided by BlackRock, the asset management behemoth. HL’s Multi-Index range offers a spectrum of options, from a cautious mix (30/70 split between shares and bonds) to an adventurous one (100 per cent shares). The ongoing charge for these funds, set to launch on June 6, will be capped at a reassuringly low 0.3 per cent a year with, as you may expect, fees declining the more you invest. While it’s important for investors to remember the HL platform fee, which varies from 0.45 per cent for Sipps, Isas and direct accounts to zero for a junior Isa, that still means the total price stands at a competitive 0.75 per cent per year.
While it may not be the cheapest option in the realm of low-cost portfolios, brimming with exchange traded funds (ETFs) and index funds, it certainly offers value for money compared with some of the more actively managed products.
And, while the title of this column may allude to the adventurous investor, from time to time everyone needs to focus on these more “core” — for which, read “boring” — investments, too.
This is the invest-and-forget stuff. And there’s lots of it, with providers ranging from online platforms such AJ Bell to digital wealth advisers like Nutmeg and fund managers such as Vanguard. I’ve tried many of these funds and platforms, and here is my take: you shouldn’t expect a very wide dispersion in returns based on the risk profiles (which run from cautious — with a low equity rating — and ends with adventurous or growth — with a 100 per cent allocation to shares). Damien Fahy, personal finance commentator and creator of website Money to the Masses, has done the hard yards and looked at varying returns from the leading apps.
By and large the differences over say a few years barely stretch above 1 or 2 per cent on a total return basis. It’s worth pointing out that nailing down performance isn’t that easy, because not all the platforms and providers report their numbers to independent consultants such as Asset Risk Consultants (Arc).
On the costs side of the equation, FT Money conducted a deep dive into which platform has the lowest fees last week. The finding was: it’s complicated.
Vanguard is still much cheaper than these new HL portfolios, though UK fintech InvestEngine isn’t far behind — by my calculations, Vanguard’s all-in fees are under 0.43 per cent per year, while InvestEngine’s range costs just under 0.50 per cent. And then there’s Nutmeg, a digital wealth app which has a much wider range of easy-to-use portfolios. Per year, its core, cheap, fixed-allocation service costs £6.80 for every £1,000, comprising £4.50 of Nutmeg fees, plus fund costs and market spread.
But Nutmeg also gives you much more choice in terms of core portfolios — it has 10 risk buckets and a range of products, including fixed-allocation and fully-managed portfolios, something called “Smart Alpha”, which gives clients access to an actively managed combination of passive and active ETFs, and a thematic investing strategy. These additional services all drag the cost closer to (and above) 1 per cent.
Finally, we have HL’s big rival, AJ Bell. It has long offered multi-index portfolios run by a respected investment management team. I’ve been invested — via its Dodl app — in AJ Bell Adventurous Accumulation fund. In terms of costs, the ongoing charge for this fund is 0.31 per cent, alongside a platform charge of 0.25 per cent, implying a total cost including platform of 0.56 per cent.
I’d make two final observations on asset allocation and left-field alternatives. The first is that when I looked under the bonnet at how these various portfolios are allocated to different geographies, I found big variations. Take the 100 per cent equity mix, where HL has indicated a weighting to the UK of less than 10 per cent while some of its digital rivals are at or above 20 per cent.
This poses the question of just how fixed all these weightings in different geographies and assets really are. If the manager — in this case HL choosing which of BlackRock’s index funds to include in the portfolio — twiddles with the “weights”, will they be any good at it? As Paul Kearney of Arc observes, if the strategic asset allocation can be adjusted “then who can say which will deliver the superior performance”?
After all, “making tactical decisions to underweight or overweight asset classes, sectors or geographies when risk is well rewarded is the essence of discretionary investment management”.
There might well be wealth managers who exclusively or mainly use passive trackers who could outperform based on their asset allocation mojo, such as Netwealth or Killik. Or, for that matter, AJ Bell’s relatively active fund range. And then there’s a smaller cohort of “traditional” fund managers who run portfolios full of ETFs such as Ekins Guinness and its Dynamic Growth Fund, which has built up a fine record of tactically switching between ETFs based on a dynamic asset allocation across market cycles. It might be passive in the vehicles it uses, but it is unquestionably active in the way it allocates.
While the new HL products are neither the cheapest nor the most adventurous, maybe they will outperform their peers. What’s not up for debate is that, if the Bristol investment machine has finally entered the bear pit of low-cost, core portfolios, the world is inexorably turning passive.
David Stevenson is an active private investor. Email: adventurous@ft.com. X: @advinvestor.
Comments are closed, but trackbacks and pingbacks are open.