Published: 07:09 GMT, 7 March 2014 | Updated: 07:09 GMT, 7 March 2014

View

comments

Experienced investors will tell you that choosing a good fund for your investment portfolio involves a lot of research. If you don’t want to be left paying for a poor performer or a manager that doesn’t really add any value to your returns, then you need to look beyond what’s hot or not right now.

The value in unearthing winning funds lies behind a cottage industry in DIY investing platform analysis of funds, which aims to highlight products that are tipped to outperform — and even sometimes offer them at a discount.

Perhaps the most famous funds list of all is Hargreaves Lansdown’s Wealth 150. Its power to deliver a rush of investors into the funds featured has led not just to rivals adopting similar lists, but also some industry experts raising questions about just how fair it is.

Now Hargreaves has responded by offering more explanation than ever before about how funds get in. We detail it below so you can decide whether this is really the way to pick winning funds.

Fund supermarkets: Picking the right funds for investors has become a cottage industry in itself

The Wealth 150 — why so controversial?

Criticism tends to revolve around the Wealth 150 selection process, with other brokers questioning funds included and how much commission from annual management charges on them that Hargreaves took.

The firm stands by the impartiality of the list. It says it is based above all on what is good for investors and how much money Hargreaves can make from those featured does not come into the decision-making process.

The financial watchdog’s overhaul of DIY investing platforms has banned the commission paid from fund managers to platforms that previously funded many of them.

This has led to platforms repricing and as part of that Hargreaves has relaunched the Wealth 150, adding a Wealth 150+.

The Wealth 150 currently has 91 funds in it, based on what its researchers say are the top funds across selected sectors.

From this list, Hargreaves compiles a best of the best in the form of the Wealth 150+. This currently has 28 funds in it.

The revised 150 list combined with new platform charges has arrived alongside Hargreaves negotiating lower fund fees for its customers — highlighting its considerable heft.

The annual management charges on its Wealth 150 funds are reduced to an average of 0.66 per cent from 0.75 per cent, while funds on its Wealth 150+ list now cost just 0.54 per cent compared with the standard unbundled price of 0.71 per cent.

Hargreaves Lansdown’s Wealth 150 was first launched in November 2003 to help clients choose the best funds for their portfolios.

Investors have definitely benefited from the selections with most of the Wealth 150 outperforming their Investment Management Association sectors since 2003.

The table below shows how the Wealth 150 funds have performed since the launch of the list in 2003.

It shows that Wealth 150 selections have delivered 193 per cent growth versus 139 per cent from the UK All Companies sector average, and 304 per cent compared with 227 per cent from the UK smaller companies sector average.

The selections have outperformed the sector average in 12 out of 13 sectors.

Wealth: The Wealth 150 has outperformed most IMA sectors

How to pick a winning fund Hargreaves Lansdown-style

Hargreaves Lansdown has sought to head off criticism by saying that it is unveiling how the list is researched, insisting no-one pays to get on the list and that the make-up is regularly reviewed.