Hargreaves Lansdown (HL) have updated their Wealth 150 fund list, creating a shortlist of funds called the Wealth 50 (HL50 is our short hand). As we have our own ratings systems with strong track records – Dynamic Fund Ratings and Vintage Fund Ratings – using objective criteria, we wanted to test the HL50 against such an objective benchmark.
Firstly, we’ll take a quick look at what makes a good ratings system and then measure the funds in the HL50 using our Vintage Fund Ratings, to see how the funds stack up.
What goes into a rating system?
HL state: “Every year we spend thousands of hours crunching the numbers and meeting fund managers, to uncover the funds we believe have the most potential.
Only those we feel are the very best make the cut for the Wealth 50.
And we don’t get paid for including a fund on the list.”
That sounds plausible, but it lacks detail on any underlying process. Our view is that any best-buy list or fund rating system must be supported by a tight process. More precisely, these are our the must-haves for an effective process to identify outstanding funds:
- Straightforward to identify top-rated funds.
- The underlying process must be objective, clear and understandable.
- It must be easily repeatable.
- There must be a volume of long-term evidence of it generating extra growth.
These are straightforward criteria, and these are met by our Dynamic Fund Ratings and Vintage Fund Ratings meet these criteria.
There is no seat of pants - it is objective. No fund recommendation by proclamation "because I'm an expert". No scope for our choices to be skewed by fund managers with a good story.
First impressions
As we are using our Vintage Fund Ratings as the measure in this note, it is important that you know what makes them tick.
To achieve a Vintage rating a fund must be in the top 40% of performers in 60% of the time. The “time” is the 120 overlapping 6 monthly periods in the last 10 years with a higher weighting being given to more recent periods.
We didn’t think this was a demanding benchmark. But we found that 92% of funds failed to beat it.
Applying this benchmark to the HL50 list:
- only 7 are Vintage-rated funds (just 14% of this best-buy list)
- and the average Vintage rating was 41% (nearly a third below the Vintage benchmark
Remember, to get a Vintage rating a fund needs a score of 60% or more.
Now let’s look at a the HL50 funds in a couple of the popular sectors – UK All Companies and Global.
UK All Companies
These are the HL50 funds in the UK All Companies sector, along with our Vintage ratings. There is only one Vintage rated fund – Lindsell Train UK Eq.
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HL50 Funds
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Vintage rating
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Unicorn Outstanding British Cos.
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58%
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LF Woodford Equity Income
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20%
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Lindsell Train UK Eq
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74%
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AXA WF Framlington UK
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-
|
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M&G Recovery
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25%
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Majedie UK Equity
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40%
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L&G UK Index
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25%
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The AXA fund doesn't have a Vintage rating – it is in a different universe to the one we use. We cover 6/7 of the funds featured. Of those, only 1 has a Vintage rating
In our analysis, there are 20 Vintage rated funds in the UK All Companies sector.
And using Vintage Ratings to build a portfolio gives some great results. If you selected funds using Vintage from July 2004, your portfolio would have returned 294%.
The sector average was only 170%.
That’s 124% more growth - chunky extra returns.
Global
It’s a similar picture if we look at the Global sector.
These are the HL50 funds in the Global sector, along with our Vintage ratings. There is only one Vintage rated fund – Rathbone Global Opps. Cracking long-term performer
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HL50 Funds
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Vintage rating
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Lindsell Train Global Equity
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-
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Jupiter Global Value Equity
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0%
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Rathbone Global Opps
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64%
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Newton Global Income
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37%
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Artemis Global Income
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44%
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L&G International Index
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52%
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In our analysis, there are 14 Vintage rated funds in the Global sector.
If you had started selecting Global funds using Vintage in July 2004, your portfolio would have returned 286%. The Global sector average was 193%.
That’s 93% more! Extra growth. Substantial. Having an objective rating system works.
So remember, any process to rate funds MUST have these criteria:
- Straightforward to identify top-rated funds.
- The underlying process must be objective, clear and understandable.
- It must be easily repeatable.
- There must be a volume of long-term evidence of it generating extra growth.
These are straightforward criteria for a fund rating system. Both our Dynamic Fund Ratings and Vintage Fund Ratings meet these criteria.
There is no seat of pants - it is objective. Important in the age of cynisicm. No fund recommendation by proclamation "because I'm an expert". No recommendation based on how many times I have sat in front of a (very smart) fund manager who knows how to impress me.
We have produced a full report, which you can download
here. And do keep an eye out for the Vintage Funds report, which will be released in the coming weeks.
FURTHER READING