Investment platform Hargreaves Lansdown (HL) is expanding its range of managed funds with a cheaper, index-focused alternative. The new funds are a partnership with $10 trillion asset management firm, BlackRock.
The fund launch includes four ready-made, expert-managed portfolios, which will be available from 6 June, 2024. Clients can hold HL’s new products in a range of wrappers, including ISAs and SIPPs.
These new index portfolio funds are cheaper than HL’s other ready-made option, launched last year, which can invest in actively-managed funds and direct investments as well as passive funds.
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This latest offering from HL joins a suite of ready-made products from other investment platforms, such as Vanguard, Wealthify and AJ Bell. Just last week, interactive investor launched a new managed ISA service, which is similar to HL’s new offering insofar as it predominantly invests in passive funds.
We share some analysis on how the major platforms compare.
How do Hargreaves Lansdown’s ready-made index funds work?
HL’s new service helps clients get started on their investment journey by matching them with a ready-made portfolio. Solutions like this can be a good idea for investors who don’t have the time, confidence or expertise needed to research and manage their own investments.
Investors can choose from four different portfolios, each with a different risk profile – “cautious”, “balanced”, “moderately adventurous”, and “adventurous”. Each portfolio invests in a selection of index funds.
The underlying funds are managed by BlackRock, while HL looks after the asset allocation. This means that, while the underlying funds passively track a benchmark, HL’s fund managers will take an active approach, choosing which index funds to include in the portfolio.
The fund managers will aim to select the best balance of equity and bond funds, investing across a range of sectors and geographies. They will also rebalance your portfolio regularly, ensuring it stays on track and keeps aligned to your chosen level of risk.
The riskier portfolios in the range have a higher allocation to equities, while the more risk-averse portfolios focus primarily on bonds:
- HL Multi-Index Adventurous: Typically 100% invested in shares.
- HL Multi-Index Moderately Adventurous: Typically a 80/20 split between shares and bonds.
- HL Multi-Index Balanced: Typically a 60/40 split between shares and bonds.
- HL Multi-Index Cautious: Typically a 30/70 split between shares and bonds.
Equities are typically more volatile than bonds, but they almost always deliver stronger long-term returns. As such, younger investors might be inclined to opt for the more adventurous portfolios. They should have enough time ahead of them to smooth out any short-term ups and downs.
Meanwhile, mature investors who have a shorter horizon ahead of them before accessing their funds might opt for a less volatile portfolio with a bigger allocation to bonds.
Why has Hargreaves Lansdown launched this managed index solution?
According to Toby Vaughan, chief investment officer at HL, this latest product launch is born out of popular demand.
He says: “HL clients’ investment in index funds has risen by more than two and a half times over the last 7 years and the number of clients holding index funds as their main investment has increased by 80% over the last 2 years.”
“Our new ready-made multi-index investment portfolios add further choice for investors to meet that demand and are an easy cost-efficient solution for those looking to get started with investing.”
Passive products have grown in popularity with investors in recent years, in part due to the lower fees associated with them. Some investors have grown sceptical about a fund manager’s ability to consistently beat a benchmark – particularly by enough of a margin to justify a high management fee.
HL’s ready-made index funds come with considerably lower fees than their equivalent active product, as the below comparison shows:
| Fund | Account fee | Investment costs | Total annual costs on a £20,000 investment |
|---|---|---|---|
| HL’s new managed index portfolio | Up to 0.45% | Capped at 0.30% | £150 |
| HL’s existing managed portfolio (which includes active products) | Up to 0.45% | 0.91-1.00% (depending on which investment style you choose) | £272-290 |
How does Hargreaves Lansdown’s managed index solution compare on fees?
There are lots of things to consider when picking an investment platform, but fees are one of the main things you should look at. High fees can erode your investment returns over time.
The below table compares similar products from five different providers. All of the providers in question offer managed accounts which invest primarily (or entirely) in index funds.
The table compares the fees they charge on a £20,000 investment.
| Provider | Account fee (including any management fee) | Investment costs | Total annual costs |
|---|---|---|---|
| HL (managed index solution) | Up to 0.45% | Capped at 0.30% | £150 |
| Interactive investor | £4.99 per month | 0.19% | £98 |
| Vanguard | 0.45% | 0.15% | £120 |
| Wealthify | 0.60% | 0.16% for the original plan, 0.7% for the ethical plan | £152 (original plan); £260 (ethical plan) |
| Nutmeg | 0.45-0.75% (depending on the fund you go for) | 0.20-0.31% (depending on the fund you go for) | £130-212 |
As you can see, HL’s fees sit somewhere in the middle of the table. Vanguard comes in slightly cheaper overall, while Wealthify’s original plan comes in at a similar price point – although its ethical plan is considerably more expensive.
Both Wealthify and Nutmeg vary widely in price, depending on which investment style you opt for.
Meanwhile, platforms like interactive investor offer a flat account fee. This makes it the cheapest provider on an investment of £20,000. However, if you are investing less money (£10,000, for example), a flat fee may become less attractive.
Here is how the different providers measure up on a £10,000 investment:
| Provider | Account fee (including any management fee) | Investment costs | Total annual costs |
|---|---|---|---|
| HL (managed index solution) | Up to 0.45% | Capped at 0.30% | £75 |
| Interactive investor | £4.99 per month | 0.19% | £79 |
| Vanguard | 0.45% | 0.15% | £60 |
| Wealthify | 0.60% | 0.16% for the original plan, 0.7% for the ethical plan | £76 |
| Nutmeg | 0.45-0.75% (depending on the fund you go for) | 0.20-0.31% (depending on the fund you go for) | £65-106 |
Of course, the idea is that your investment will grow over time – and you will probably want to top your investment account up with additional savings further down the line. You should weigh this up when thinking about whether a percentage fee or a flat fee is best for you.
We delve into the argument for flat versus percentage fees in a separate MoneyWeek article.
What investment wrappers do these funds come in?
Clients can hold HL’s managed index funds in a range of wrappers, including a regular ISA, a lifetime ISA, a junior ISA, a SIPP or a regular fund and share account.
The account fee varies depending on the wrapper in question:
| Wrapper | Account fee |
|---|---|
| ISA | Up to 0.45% |
| Lifetime ISA | Up to 0.25% |
| Junior ISA | No account fee |
| SIPP | Up to 0.45% |
| Fund and share account | Up to 0.45% |
ISAs and SIPPs offer generous tax incentives, so it is worth maximising these allowances first before opening a regular fund and share account.
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