It’s very easy for cynics to pick on the top dog and sometimes I sense that much of the criticism of Hargreaves Lansdown is of a very English nature – top dog blunders is a great tag line after the Woodford affair and ‘issues’ related to Lindsell Train funds.

But HL has become top dog because its service levels are excellent, and its products whilst not always lowest cost, are certainly in the middle of the pack. Add in a reliable brand name and you have the makings of a cracking business. That said although I used to be a customer I am no longer largely because I find its weak spots just too difficult to ignore.

We investment journalists also like taking pot shots at HL because it has always had a firm view of what works in funds land. That’s largely because the likes of Mark Dampier have never been afraid to say what they think. Obviously this prompts the usual grumbling about ‘commercial priorities’ versus what’s best for the customer but in my experience HL  have always carefully walked the line and still ended up with a more than decent product.

But I’ve always thought HL was on slightly less safe ground when it came to their top list of 50 funds, the Wealth 50. Having done my own share of investment lists I’m painfully aware of the pitfalls of any list building exercise but I suspect that when it comes t a commercial platform that sensitivity needs to be dialled up.

If you look down the list of 50 funds – – you see a solid bunch of funds. To their credit HL have even started to include passive funds, which is a real advance, given the firm’s ambivalence around passive funds in the past. But one also senses that the list is a tad top heavy with bigger asset management brand names and does not feature a large quantity (some but not many) of the smaller boutiques. Also, there are some questionable inclusions and exclusions. I note the very large number of equity income funds compared to other asset classes. And in UK equity growth I find the exclusion of the MI Chelverton UK growth fund  utterly inexplicable especially when one see’s what funds are included(Franklin mid cap UK and Axa WF Framlington UK, come on!).

What I haven’t had time to do is to test whether the 50 funds in aggregate have returned decent numbers over the last few years. But web based research site Yodelar has done exactly that and I have to say their conclusions aren’t positive. They reckon that 42.59% of the funds featured in the list underperformed compared to their peers. Further they found that 8 out of 10 Hargreaves Lansdown’s Multi Manager funds have consistently performed below the sector average and have ranked among the worst performers in their sectors.

You can see more about this report HERE and the table below nicely sums up Yodelar’s take –

The Yodelar team also highlight their own highlights and lowlights in terms of funds to include, notably in Japan with Man GLG Japan Core Alpha fund and the iShares Japan Equity Index fund.

Although they represent Hargreaves Lansdown’s favourite Japanese funds, they both have a history of poor performance in comparison to their peers. Over the past 12 months the Man GLG Japan Core Alpha fund managed to return painful losses of -19.64% even though the average within the sector for the period was -2.54%. This poor performance saw the fund rank 489th out of 492 in the IA Japan sector, which begs the question as to why it has been included in the Wealth 50 list? It wasn’t just the recent year were this fund has struggled. Over the past 3 & 5 years its returns of -17.91% and 5.22% ranked among the worst in the sector and well below the average for these periods.”

I’d agree with this criticism and suggest that the lack of any reference to the Baillie Gifford Japanese funds in this space bizarre in the extreme. I;d suggest private investors treat the Wealth 50 with considerable caution and make sure they do their own research before committing any capital.

US Trade war with China doesn’t look too positive in this chart

I’ll lay my cards on the table. I am by nature a liberal, free trader who has almost no time for protectionism. I set some store by the criticism of academics such as Dani Rodrik but on balance I think globalisation is a net positive even for poorer Brits and Yanks. I also think that the WTO has over the last few decades done a great job and Trump’s trashing of its juridical function is a travesty.

So I’m not a big fan of Trump’s trade war with China – though I am no China fan at the political level. Still, I can’t quite see the economic logic of the Trump tariffs though of course the political logic is obvious. Still the chart below from analysts at DWS does nothing to allay my fears that the current trade war will end up being counter productive and will actually hurt the US, not China.

DWS’ “Chart of the Week” shows that although Chinese exports to the United States have held up pretty well in value terms since both sides started to impose tariffs in July 2018, by contrast U.S. exports to China have slumped since the start of hostilities, and remain 8% lower than in January 2017.

Why the disparity? The DWS analysis suggests that the United States mainly exports a mix of commodities such as oil (where China was swiftly able to find new suppliers elsewhere, at little cost) and higher-value products and services.

“The latter are suffering as increasingly stringent U.S. technology export controls make U.S. businesses look like unreliable suppliers). “. So more Americans buy fewer cheap Chinese goods but many more Chinese buy disproportionately fewer higher value US exports! I’m not sure that there’s much economic logic there unless of course you live in the Mid West and believe that the coastal elites in your own country aren’t really part of the same country and you gain no benefit from their high value exports?