Neil Woodford’s troubled fund: what I’d do with Hargreaves Lansdown shares now

Hargreaves Lansdown’s share price fell 22% over last month due to its support for Neil Woodford’s fund, but is it worth buying?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Online fund supermarket and broker Hargreaves Lansdown (LSE: HL) has been a market sweetheart, with a price increase of more than 10 times since its IPO in 2007. The company’s activity, which consists in directing investors’ money to the “best-buy” funds, has mainly benefited from the pension reform and the growth of SIPPs to gain a 40% share of the UK self-directed investment market.

The development of online brokers has made investment in asset-managed funds and ETFs more widespread. The freedom to invest in alternative pension funds was a major innovation at the time, and allowed Hargreaves Lansdown to attract 1.1m people to invest through its platform.

Loss of investor confidence

Until recently, Neil Woodford’s Patient Capital Trust was one of Hargreaves Lansdown’s favourite funds.

Hargreaves’ customers accounted for about 20% of all the money invested in Patient Capital. Despite the disappointing performance of Mr Woodford’s fund, Hargreaves supported him until the end. This is a loss of credibility from my point of view, and trust is central to this business.

Investor confidence (and a lot of money) has been lost in this case. Hargreaves’ customers, who hold £2.1 billion invested in WPCT, have lost about a third of their investment in the last month alone. I do not think that Hargreaves Lansdown’s reputation can recover from backing Woodford’s judgement through these troubled times  and I fear that investor confidence in the company might be lost forever.

My view

These two shares will now follow two different paths, in my opinion. I am much more optimistic about WPTC because the shares trade at a discount of the fund’s assets value, and if Mr Woodford leaves then the investors might return.

On the other hand, Hargreaves Lansdown is not cheap. The shares started trading at about £2 in 2007 and, at the current price of £18.80, this represents a performance of around 850% over the 12-year period or about 25% per year.

Despite the Equity Income Fund scandal and WPTC’s poor performance, Hargreaves Lansdown is still up by about 3% a year to date. With a current price-to-earnings ratio of 38.17, Hargreaves appears expensive and its dividend yield of 1.62% isn’t all that attractive, either.

What next?

The next earnings season in August promises to be interesting because Hargreaves has the highest revenue target in its history, with an expected turnover of £245m.

I don’t see how this objective could be achieved because the extent of the damage is not yet known, and this uncertainty might penalise the share price until then. The decision to cut fees, announced by the company’s CEO, for clients who have invested in WPTC reinforces this view. And, in the long term, the loss of investor confidence might well further depress the share price.

CORRECTION: The original version of this article incorrectly stated that “WPCT… regularly ranked at the top of  the Wealth 50 list”.  However, it has never been on this list.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jean-Philippe does not own shares in any company mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »