Investment platform Hargreaves Lansdown (HL.) has dropped the LF Lindsell Train UK Equity (GB00BJFLM156) and Lindsell Train Global Equity (IE00BJSPMJ28) funds from its Wealth 50 list of favourite funds, to avoid a conflict of interests. Both funds hold Hargreaves Lansdown shares, and as they have grown in size their investment in Hargreaves Lansdown has also grown.
At the end of June, Hargreaves Lansdown accounted for 7.5 per cent of LF Lindsell Train UK Equity’s holdings. The company is not one of Lindsell Train Global Equity’s 10 largest holdings, but the fund’s annual report says that Hargreaves Lansdown accounted for 2.7 per cent of its assets at the end of 2018. And it accounted for 8.6 per cent of Finsbury Growth & Income Trust’s (FGT) assets at the end of May. This is not in the Hargreaves Lansdown Wealth 50 list because it does not include investment trusts.
In total, Lindsell Train funds hold around 12 per cent of Hargreaves Lansdown's shares.
Lee Gardhouse, chief investment officer at Hargreaves Lansdown, said: “Given the continued popularity of the funds, we anticipate their investment in Hargreaves Lansdown shares could grow further so are removing them from our favourite funds list at the end of the month in line with our procedures. We keep under review the proportion of Hargreaves Lansdown shares owned by a fund, or multiple funds controlled by a single manager, on the Wealth 50.”
But he emphasised that the decision to remove the funds was not due to their performance or future potential.
“The decision to remove these funds is not investment based. Both have performed very well and have the potential to do so in the future. Our analysis suggests stock selection has been the key driver of returns, and we continue to believe in the managers’ talent.
LF Lindsell Train UK Equity was added to the Wealth 50 list in September 2013 and has returned 102.4 per cent compared with 42.8 per cent for the FTSE All-Share index over that time. Lindsell Train Global Equity was added at launch in March 2011, since when it has returned 306.6 per cent, compared with 155.9 per cent for FTSE World index.
“We continue to have high conviction in managers James Bullock, Nick Train and Michael Lindsell, and their ability to outperform in the future," said Mr Gardhouse. "Nick Train and Michael Lindsell have managed a number of funds over the years, consistently outperforming their benchmarks. We continue to believe LF Lindsell Train UK Equity and Lindsell Train Global Equity are among the best in their fund sectors. This is not a decision based on a change in our view of the managers or a reflection of their performance. If the funds continue to meet your investment objectives we see no reason to sell, or alter any future investments you had planned.”
Nick Train, manager of LF Lindsell Train UK Equity and co-manager of Lindsell Train Global Equity, meanwhile, said: “We give consideration to and avoid any conflicts that might harm our clients. So we consider on an ongoing basis the possibility that the investment decision to invest in Hargreaves Lansdown, that Mike [Lindsell] and I first took as long ago as 2007, could lead to such a conflict. [But] we do not believe there is a conflict, because we cannot conceive how our investment in Hargreaves Lansdown's shares could influence that company’s investment experts to recommend purchasing or selling our funds to its customers. Is it really credible that Lindsell Train would openly pursue a business strategy that relied on us using our clients’ savings to try to persuade a reputable counterparty to recommend our funds against its better judgement? No. We made the investment precisely because we admire the integrity, independence of thought and investment acumen of the professionals who work there. But in the current environment we can understand why questions might be asked.”
Mr Train also argued that there remains a strong investment case for Hargreaves Lansdown.
“Hargreaves Lansdown’s shares fell 15 per cent in June and were the biggest detractor to our performance over the month," he said. "We were not surprised by the fall and agree that Hargreaves Lansdown’s reputation has taken a blow. We also agree it is appropriate that the media, regulator and politicians should review Hargreaves Lansdown’s role in [the events that led to LF Woodford Equity Income Fund's (GB00BLRZQB71) suspension from trading], if for no other reason than to help us all understand and address areas where we can better manage risks and serve the needs of investors.
“[But] as I write this report Hargreaves Lansdown's shares have recovered from the lows of June – up some 9 per cent from that level. We take this as investors coming to the conclusion that Hargreaves Lansdown’s reputation can recover – over time. We agree and accordingly have added to our holding over the past few weeks.”
Mr Gardhouse also said: “We have no influence over whether a fund manager buys or sells Hargreaves Lansdown's shares within their fund – it is the manager’s decision alone."
He added that if a Wealth 50 fund holds Hargreaves Lansdown's shares, its online fund fact sheet and fund research indicate this. Two other active Wealth 50 funds hold shares in Hargreaves Lansdown – Ballie Gifford Managed (GB0006010168) and Kames Ethical Equity (GB0007450884), but both own less than 1 per cent of the company’s shares.
