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Hargreaves Lansdown is to launch a UK shares fund to be managed by head of equity research Steve Clayton.
The fund will be the online stockbroker's first shares fund and a departure from the multi-manager approach it has employed for its existing £7 billion fund range.
Charges for the fund have been set at 0.6%, on top of the up to 0.45% Hargreaves Lansdown platform fee.
The HL Select UK Shares fund will invest in around 30 stocks that the manager deems to have ‘exceptional products and services’ as well as recurring revenues, high margins, healthy returns, strong cash generation and ‘little or no debt’.
Despite the focus on quality firms, Clayton said the fund would not solely be made up of defensive stocks or mimic the investment style of Citywire AA-rated Nick Train, manager of the CF Lindsell Train UK Equity fund, or Citywire AAA-rated Terry Smith, manager of the Fundsmith Equity fund.
‘We are not going for defensives in the sense of packing the fund full of utilities and drug companies but what we are trying to do is find companies with business models that provide high margins and profits that make them defensive in their own industry,’ said Clayton.
‘What we are trying to do is protect on the downside and focus on quality. In the last big downturn it was the leveraged businesses that got taken out and shot. If you can avoid those sorts of pitfalls then you can preserve as much as possible on the upturn.’
Clayton (pictured) said financial services or commodity-related stocks were unlikely to be a major feature of the fund.
‘We are trying to avoid highly-leveraged sectors, so large swathes of financial services are out…because it is hard to be different when your stock in trade is money,’ said Clayton.
‘We have a natural aversion to commodities because adding value is very difficult. One man’s pile of coal is much the same as another’s. If we find someone whose marginal costs of production is way below average then we may look at it but so much what happen to commodity companies is outside of their control. We are looking at companies that are in control of their own destiny.’
Clayton said he was not concerned that quality stocks were overvalued, arguing they were still attractive in a low interest rate and low inflation environment.
‘If you look at the opportunity available for outstripping bond yields then I do not think investor demand for those areas will recede given the greater uncertainties in recent weeks,’ he said. ‘I am not too concerned. We are asking: does a company have the ability to keep compounding? If it does then everything will be alright.’
As well as being low-cost the fund will try and demystify what Clayton describes as the ‘black art’ of investing.
The fund will disclose all shareholdings, not just the top 10, and break down exactly why it holds each stock. When a position is purchased or sold investors will be informed via blog entries straightaway and portfolio performance reports will be issued every month.
Clayton said he also wanted to avoid the benchmark-hugging that had become a feature of many funds.
‘If you take the industry as a whole there has been way too much focus on benchmarks and not enough innovation in how funds are structured,’ he said.
‘We want to focus on what is best for the investor.'