After Woodford, where is the contrition from Hargreaves Lansdown?
What does Hargreaves Lansdown, Neil Woodford’s former cheerleader-in-chief, make of its old hero’s decision to throw in the towel?
Surely this is an ideal moment for the investment platform’s chief executive, Chris Hill, to share the “learnings and improvements” that apply to his own firm. He’s been promising to reveal the fruits of this exercise almost from the moment Woodford’s flagship fund was suspended in June.
There was near-silence from Bristol on Wednesday. Hargreaves relayed the latest grim updates for Woodford investors on its website, but that was all. Hill must still working on his “learnings”.
This is odd, though, because Peter Hargreaves, one of the firm’s founders and still its biggest shareholder, has been clear about one lesson to be drawn. “The reality is platform buy lists, especially the Hargreaves Lansdown one, have been key to the fortunes of some fund managers,” he told FT Adviser this month. “Maybe the Woodford issue will mean people take them with a pinch of salt in future.”
Well, yes, investors definitely should keep a cellar of salt handy when reading Hargreaves’ Wealth 50 report. Woodford’s Equity Income Fund retained its star status until the gates were shut, despite the platform revealing afterwards that it had been fretting since late 2017 about the number of illiquid stocks in the portfolio.
But you’ll struggle to get Hill, or Hargreaves the company, to concede there’s a fundamental problem with best buy lists that blur the line between promotion and research. Instead, Hill has defended current practices, arguing that recommendations are valued by the punters and that “the shortcomings on one fund should not detract from the benefits”.
Nobody, obviously, expects only winning funds to be included. But, come on, the one-dimensional fan-club tone of best buy lists is grating. Where’s the scepticism? Where are the counter views? Where’s the acknowledgement that the cult of the star fund manager, which has been hugely profitable for Hargreaves, may not be all it’s cracked up to be?
Where, indeed, is the admission that Hargreaves, having prodded many clients in Woodford’s direction, had a duty to ensure governance was more robust than the cosy-looking set-up seen at the Patient Capital investment trust?
One lives in hope that Hargreaves’ promised self-examination will produce something more meaningful than the early but vague apology for the “disappointment and frustration” suffered by clients. But it’s starting to look as if Hargreaves just hopes the whole Woodford thing would blow over. Regulators must not let that happen.
Asos still has a way to go
Good news from Asos: there have been no more self-inflicted calamities with the automated warehouses since the last episode. Full-year profits still collapsed, but only to the degree that embattled chief executive Nick Beighton had indicated in his last profits warning in July – they fell 68% to £33.1m. The share roses 28% on Wednesday. The only way is up.
Well, maybe. For all the hype around Asos, the company’s stupendous investment spree – £700m spent in the past five years – has so far succeeded only in demonstrating that cheap and cheerful fashion lines are popular. Revenues last year were £2.7bn.
The harder part is making decent money from global expansion and ensuring that new hubs in Atlanta and Berlin earn their keep. Asos’ operating profit margin last year was a skinny 1.3%. In the old days, meaning half a decade ago, Asos aspired to 6%-8%.
It’s hard to tell if that long-term ambition remains wholly intact because Beighton has adopted a pose as a man of mystery and has abandoned the policy of offering year-ahead guidance on profits and sales. Actually, though, the new stance is probably sensible for two reasons. First, Asos’ forecasting record was reliably terrible. Second, competition has become stiffer since those long-ago days when Asos seemed to have the twentysomething fast fashion field to itself.
Boohoo, with its PrettyLittleThing and Nasty Gal brands, has planted itself on the same patch. Meanwhile, Next’s online operation is rapidly expanding into the world of third-party brands and never seems to suffer the warehousing hiccups that have plagued Asos in the past year.
Beighton says the problems at Asos have now been fixed and, if so, investors may eventually discover the answer to the profit margin riddle. The reassurance for investors is that Asos has beefed-up its cast of non-executive directors, led by chairman Adam Crozier, the former ITV chief executive, and they surely won’t tolerate an operational relapse. The prickly Beighton still has a lot of lost ground to recover.
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