Portfolio +: Hargreaves Lansdown launches ready-made portfolios

Hargreaves Lansdown has launched a new service aimed at UK investors that don't want to pay for investment advice.  

Portfolio + is aimed at 'non-advised' investors - those who are unwilling or unable to pay for bespoke financial advice.

According to Hargreaves Lansdown, in just 10 minutes online, investors with a minimum of £1,000 to spare - including transfers from existing ISAs, pensions and investments to Hargreaves Lansdown - can use Portfolio + to be directed to one of six ready-made portfolios which they can then invest in. This entails going through three easy steps:

1. Select your investment goal: growth or income.
2. Select your level of risk: conservative, balanced or adventurous.
3. Select your preferred account: ISA, SIPP, fund account or Junior ISA.

Once you have completed these three steps, you will be directed towards one of six pre-set portfolios, which are:

1. Adventurous Income: designed to generate a rising dividend income, plus capital growth. The focus is on UK shares, but it also includes some overseas investments. The estimated yearly dividend yield is 3.03%.
2. Balanced Income: holds a mixture of shares and bonds, aiming for income and capital growth with less volatility than adventurous options. Yield estimated at 3.03%.
3. Conservative Income: an income portfolio diversified across a number of different investments, such as shares, bonds and also total return funds to reduce risk. Estimated yield of 2.38%.
4. Adventurous Growth: includes exposure to areas with greater growth potential and higher risks, such as emerging markets and smaller companies.
5. Balanced Growth: holds a mixture of shares, bonds and total return funds, so as to be less volatile than adventurous options.
6. Conservative Growth: diversified across a number of different investment areas to manage risk, such as shares, bonds and total return funds.

After being directed to one of these six portfolios, investors are, in effect, distributing their monies in pre-set proportions across five Hargreaves Lansdown Multi-Manager funds:the Balanced Managed, Equity & Bond, Income & Growth, Special Situations and Strategic Bond funds.

The fees

Here are the fees for each of the six Portfolio + funds, to which you should add the 0.45% yearly charge for using its Vantage platform. There are no additional fees for using Portfolio +.

* Total expense ratio, per year

With TERs ranging from 1.34% to 1.46% a year, plus the yearly Vantage fee of 0.45%, Portfolio + investors will pay between 1.79% and 1.91% in annual fees for using this service. In the current low-return environment, this could mean investors surrendering as much as a third of their total returns in fees to the fund managers.

[SPOTLIGHT]As well as paying for the building and managing of these portfolios and funds, the above fees also pay for portfolio 'rebalancing' at half-yearly intervals. This is where the portfolios are adjusted so that they are not overly exposed to areas which have previously performed well.

Invest in funds via a Stocks & Shares ISA

Three downsides: fees, fund-pickers and rebalancing

Portfolio + might suit first-time investors who are new to capital markets, plus those who are unable to afford the upfront cost of paying for face-to-face financial advice from qualified advisers. However, given its fairly hefty underlying fund fees, Portfolio + is unlikely to appeal to experienced investors used to buying market returns using low-cost tracker funds charging as little as 0.1% a year.

To put their faith in Portfolio +, investors must also back the fund-picking ability of Hargreaves Lansdown's own fund-management team. History has taught us that, just as with stock-picking, there is very little evidence that so-called 'experts' can identify future top-performing funds any more than they can pick the star shares of the years ahead. Indeed, in the past, Hargreaves Lansdown has enthusiastically recommended funds that later crashed spectacularly during the post-2000 dotcom crash or in the global financial crisis of 2007/10.

Finally Hargreaves Lansdown promotes rebalancing as a positive feature of Portfolio +, but this remains to be seen. The big problem with rebalancing is that there is, at best, mixed academic and real-world evidence to suggest that this strategy actually improves long-term returns.

Although rebalancing can reduce risk, it can also reduce future returns. For example, lowering portfolio exposure to, say, rising shares every six months will mean that investors will lose out on long bull markets when equities enjoy multi-year rises. Likewise, during this multi-decade bull market in bonds, investors would capture only some of the spectacular returns to be had, because of regular rebalancing away from bonds in favour of other asset classes.

Invest in funds via a Stocks & Shares ISA

Nutmeg is much cheaper

Of course, there are other choices for private investors who are neither DIY investors nor keen to pay for advisory or discretionary management. Non-advised, ready-made portfolios are already available from a number of sources, including Nutmeg.

Like Portfolio +, Nutmeg offers online investment management, but its service is discretionary, so Nutmeg makes all portfolio investment decisions on behalf of its customers. Although Nutmeg's service includes investments in shares, bonds, commodities and other asset classes, it minimises costs by mostly using ultra-low-cost exchange-traded funds (ETFs) to gain diverse market exposure.

As Nutmeg uses low-cost building blocks, its fees are much lower than the Portfolio + charges. Nutmeg's fees vary from 1% on the minimum investment of £1,000, up to 0.3% on portfolios valued above £500,000. Adding in typical ETF fees of 0.19% means that Nutmeg's service can be had for as little as 0.49% a year, with maximum yearly fees being around 1.19%, still considerably cheaper than Hargreaves Lansdown's Portfolio +.

Invest in funds via a Stocks & Shares ISA