Shares in FTSE 100-listed Hargreaves Lansdown (HL) took a hit this week as investors in the retail investor platform braced themselves for further fallout from the suspension of trading in embattled active manager Neil Woodford’s flagship LF Woodford Equity Income Fund (GB00BLRZQB71)
Hargreaves, which holds a stake in the fund through its multi-manager funds and listed it in its “Wealth 50 list” up until the suspension, has previously faced criticism for its continued backing of Mr Woodford’s funds. During the past year, poor performance and investor outflows have reduced the size of the Equity Income Fund from £6.8bn to £3.7bn.
Separately, the platform decided to remove the Woodford Income Focus Fund from its top fund picks ahead of a “resolution to the dealing suspension in the Woodford Equity Income fund”. That isn’t expected for up to 28 days, although the reputational hit to Hargreaves remains in question.
“The drop in the Hargreaves share price probably reflects some reputational risk,” Shore Capital analyst Paul McGinnis said, but suggested that the platform’s clients “have already been able to switch out of Woodford into other funds”, and that it was not obvious from Hargreaves' net flow data “that clients have been leaving the platform entirely”.
Hargreaves’ head of investment, Emma Wall, said that while the group advocated long-term investing and backed Mr Woodford for his “compelling” track record, she acknowledged “the disappointment investors must feel with Woodford's recent performance”.
Whether regulators could apportion some blame to Hargreaves is a moot point. Earlier this year, a Financial Conduct Authority (FCA) investigation into the investment platform market concluded that recommended fund lists tended to help investors. Potential calls for another review in the wake of the Woodford fund gating may therefore meet some resistance. “The selection methodology and track record on such lists looks pretty solid,” said Mr McGinnis.
Shares in key Woodford holdings including Burford Capital (BUR), Redde (REDD) and Allied Minds (ALM) also fell on the news, as investors anticipated forced sales by the fund manager could provide more attractive entry points in the coming weeks. The FTSE 250-listed Woodford Patient Capital Trust (WPCT) also suffered a shareholder exodus, dropping as much as a fifth on Tuesday morning.