At the end of 2022 Hargreaves Lansdown got their team of analysts together and came up with their ‘Five funds to watch in 2023’.  

This list of funds was promoted by Hargreaves Lansdown and picked up by a number of other financial media outlets.  

Hargreaves Lansdown are one of the biggest direct to consumer investment platforms in the country with assets under administration of around £142.2billion. 

They are a reputable company and many will take notice when a company like this gives you ‘tips’ on where to invest.  

As humans we are always interested in shortcuts and ways to get rich quicker. We crave that secret ingredient that will make our pensions soar. 

They are not the only investment platform that promote ‘best buy’ lists like this every year however for the purpose of this article they are the ones we are focusing on.  

So, let’s see how their ‘tips’ got on. 

 

Fund Performance

 

 

First up we have the Pyrford Global Total Return fund.  

This fund underperformed its sector benchmark quite significantly during 2023 and has actually failed to beat the sector in eight of the last 10 years. 

The fund and Hargreaves Lansdown state that one of the aims of the fund is not to lose money over a 12-month period. The fund has achieved this target in all but one of the last 10 years. However not losing money in actual returns is not the same as not losing money in real terms. There is no point having positive returns each year if the returns are below inflation as you are still then losing money in real terms. 

Another aim of the fund is to beat inflation over the long term. Again, the fund has failed to do this over the last 10 years. 

Second, we have the Schroder Managed Balanced fund. 

This is a fund of funds meaning it invests into other Schroder funds. Surely not double charging here?  

The fund can invest in a mix of equities and bonds and tries to time the switch depending on the economic conditions of the time. This fund underperformed the sector. 

In fact, the fund has underperformed the sector over the last three years but has outperformed over five year and 10-year periods, just. 

Thirdly we have the Jupiter Income fund. 

This fund is mainly invested in UK shares so doesn’t offer global diversification.  

It did beat the sector during 2023 but has taken a turn for the worst recently, underperforming during the last 12 months up to March 2024 and the last five years. 

Fourthly we have the M&G Global Macro Bond fund. 

It’s not just equity funds where the Hargreaves Lansdown ‘experts’ have trouble with their predictions, this bond fund has not faired much better.  

It underperformed its sector by quite some margin during 2023. It has also underperformed over three and five years. 

So far, we have looked at four active funds with ongoing charges of between 0.33% and 0.60% per year.  

The fifth and final fund on the 2023 ‘Five funds to watch’ list was a tracker/index fund, the Legal and General International Index fund. 

This fund aims to track the global equity market excluding the UK. So, there is no active picking of stocks trying to beat the market.  

This fund outperformed all of the other funds on the list at a fraction of the cost with an ongoing charge of just 0.08%. In fact, it didn’t just outperform all of the other funds listed over 2023, it has massively outperformed them all over the last nine years. 

 

The problem with ‘best buy’ fund lists

 

 

The problem with ‘best buy’ fund lists is that the funds chosen are usually recommended based on past performance.  

After all, it’s all we have to go on. We don’t know what is going to happen in the future and no fund manager can plan with certainty how to position their fund for what’s coming next.  

You would hope that relying on past performance is a good indicator of future returns.  

Unfortunately, it’s not.  

There is lots of data that shows that the vast majority of funds that perform well over five to 10 year periods underperform over the following five to 10 years. 

I doubt you will find a fund manager to admit it but most of the time, a fund manager’s performance is just down to luck. 

What’s frustrating is that the best performers over the last few years are funds that will now see huge inflows of people’s retirement savings into their funds. If the funds underperform going forward it won’t matter too much to them as they will still be receiving their annual management fees.  

Most people will be better off with a simple low-cost global equity index fund. Investing in thousands of the best businesses in the world. You invest and forget about it. It will do its thing like it always has.  

Now I don’t want to be overly critical of Hargreaves Lansdown. Their investment platform is very good and they do offer good customer service however theirs and other investment platforms business relies on activity on your account. They need you to be buying and selling all the time so they can charge fees. 

They are not a financial planning business interested in your long-term future. You could argue they are a marketing company promoting funds. 

Interestingly Hargreaves Lansdown have just released their ‘Five funds to watch’ 2024 list. Guess what? None of the funds recommended on the 2023 list make it on to this new list. Surprise surprise!  

If you would like to stress test your retirement plans or even to get a plan in place then please get in touch for a free no obligation 15-minute call. We would be happy to review your position, explain where you stand and what you need to do to get the outcome you desire. We have created hundreds of happy and protected retirements over the years. This could be you too.  

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.