Hargreaves Lansdown has dropped the £2.1 billion M&G Recovery fund from its Wealth 50 buy list after a prolonged period of poor performance.
M&G Recovery is rooted to the bottom of the Investment Association’s UK All Companies sector over the last 10 years, with a return of just 42%. Funds in the sector have delivered an average return of 144% over the same period, while the FTSE All-Share is up 121%.
Hargreaves Lansdown’s move ends the fund’s 12-year run in its buy list. Manager Tom Dobell had outperformed the stock market for 10 years in a row at the beginning of the century but has endured a sharp downturn in fortunes.
‘Even the best fund managers go through poor periods, and we’re usually happy to support them through weaker periods, providing we retain conviction in their ability to perform well over the long run. But we’ve started to doubt Tom Dobell’s ability to outperform,’ said Hargreaves Lansdown investment analyst Dominic Rowles.
Rowles said that while Dobell’s value style had long been out of favour, the fund’s performance issues ran deeper than that, and had continued to lag rivals even during periods when value stocks have rallied.
‘Since September, value-style companies have been back in vogue,’ he said. ‘This boosted the performance of other funds with a similar approach but we’re disappointed that the M&G Recovery fund again appears to be missing out.’
Rowles also took issue with Dobell’s increased exposure to early-stage businesses, also a feature of the Woodford Equity Income fund, which was dropped from the Wealth 50 after its suspension in June.
‘The danger is that these smaller investments take up too much of the manager’s time and the rest of the portfolio suffers,’ he said.
‘They’re also more difficult to buy and sell than their larger counterparts.’
Hargreaves Lansdown said earlier this year that it shared customers’ ‘disappointment and frustration‘ with the fund’s poor performance, saying it was ‘closely monitoring progress’.
A crash in the shares of top 10 position Tullow Oil (TLW) last week delivered the latest blow to M&G Recovery. Dobell was a longstanding backer and one of the largest shareholders in the stock, which tumbled 70% on a disastrous production update.
Hargreaves Lansdown has faced increasing scrutiny of its fund recommendations in the fallout from the suspension of the Woodford Equity Income fund, which is set to be wound up.
The online stockbroker’s inclusion of Neil Woodford’s flagship fund in its buy list helped drive billions of pounds of its customers’ money into the fund. Hargreaves kept the fund in its buy list earlier this year despite poor performance and concerns over the fund’s exposure to unquoted companies, as it slashed the number of fund recommendations, rebranding the Wealth 150 as the Wealth 50.