The trading suspension on Neil Woodford’s Equity Income Fund has raised questions about regulation of best buy funds lists, according to the chief investment officer of digital wealth adviser, Nutmeg.
Neil Woodford froze his flagship equity fund after investors withdrew over £500m in the last four weeks.
It is now uncertain when investors who have not yet withdrawn their money from the fund will be able to do so.
The fund was launched five years ago, giving investors an 18% return in its first year, making it a darling of best buy lists compiled by companies such as Hargreaves Lansdown.
“The impact of the trading suspension on Neil Woodford’s Equity Income Fund is much further reaching than just one fund,” says Shaun Port, chief investment officer at Nutmeg.
“While investors who bought the Woodford fund based on the recommendations of a best buy funds list are left wondering when they will be able to redeem their investments, it calls into question the broader appropriateness of [such] lists.”
“As the Financial Conduct Authority highlighted in their 2017 study, there are concerns around links between funds on best buy funds lists and the platform providers as well as their performance over the long-term.
“It’s time the regulator revisited best buy fund lists and whether they are acting in the best interest of consumers.”
Best buy funds vs Nutmeg?
The Equity Income Fund was included in the Wealth 50, compiled by Hargreaves Lansdown, which ranks the fund platform’s top recommendations.
Neil Woodford’s £3.7bn fund, 38% of which was owned by Hargreaves clients at the end of last year, has been subsequently dropped from the Wealth 50 list.
Best buy funds lists are commonplace in the retail investment space with AJ Bell, Charles Stanley, Fidelity and Interactive Investor all providing them.
Platforms such as these are popular among retail investors, enabling a broad array of stocks and funds at competitive brokerage rates.
This is a market that digital wealth platforms such as Nutmeg may be looking to gain a share of, but catering more for the absolute beginner for whom a best buy funds list would carry little water.
Nutmeg and its peers do not enable clients to pick and choose specific funds, but rather operate a discretionary service, investing based on the client’s attitude to risk and experience of financial markets.
Nutmeg is one of the market leaders in this burgeoning industry, boasting around 65,000 customers and over £1.5bn in assets.