New passive multi-manager funds from Hargreaves Lansdown and interactive investor – which is best?

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The two giants of the platform world, Hargreaves Lansdown and interactive investor, are taking on the growing trend towards passive investing with the launch of new fund ranges. 

Passive investing aims to track or replicate the performance of stock market indices such as the FTSE 100 (made up of the biggest companies listed on the London Stock Exchange) or S&P 500 (made up of the largest companies listed on stock exchanges in the United States), and is one of the simplest and lowest-cost ways to invest.

Passive funds have been around since the 1970s in the form of index tracker funds. But exchange traded funds (ETFs), a type of investment fund that is traded on stock exchanges, were introduced to the UK in 2000 with the launch of the iShares FTSE 100 UCITS ETF by Barclays Global Investors (now part of BlackRock), and have become increasingly popular too. In 2023, total global assets under management in passive funds surpassed active funds (that aim to beat average stock market performance through stock selection) for the first time. 

Hargreaves Lansdown reports that over 10% of its clients’ investments are now held in index funds, while the number of customers choosing passive funds as their main investment is up 80% over the last two years. And so the platform, which has long championed active investing through its multi-manager funds, is launching a new range of low-cost multi-index funds in partnership with asset management firm, BlackRock. 

Toby Vaughan, chief investment officer at Hargreaves Lansdown says: “Our new ready-made multi-index investment portfolios add further choice for investors to meet that demand and are an easy cost-efficient solution for those looking to get started with investing.”

The firm announced on 13 May that these new funds will start trading on 6 June. 

Not to be outdone, interactive investor swiftly followed the announcement with the news that its new Managed ISA will invest mainly in passively managed funds, and be available to existing ii customers from 15 May, and to new ii customers from 20 May. Richard Wilson, chief executive, interactive investor, called it “a game-changer for the many who want some support in choosing and managing their investments, or perhaps just want that extra level of convenience”. 

So how do the launches compare? 

The Hargreaves Lansdown Multi-index range comprises 4 funds, available to buy within its fund and share account, Individual Savings Accounts and Self-invested personal pension. By contrast, the interactive investor Managed ISA range has 10 funds, but is only available within its ISA.

The Hargreaves Multi-Index funds differentiate by four risk levels, starting with Adventurous with 100% in shares, Moderately Adventurous (80% in shares and 10% in bonds), Balanced (60/40 split between shares and bonds) and Cautious (30/70 split between shares and bonds). They are all invested exclusively into index funds and ETFs managed by BlackRock. 

interactive investor’s Managed ISAs have five levels of risk to choose from, plus two investment styles, making 10 portfolios in total.

The index investment style provides exposure to a diversified range of investments by investing mainly in passive funds. The sustainable investment style does the same but also seeks funds that integrate environmental, social, and governance (ESG) criteria into its investment selection and will add neutral assets such as cash and bonds. 

interactive investor’s portfolios are managed by the investment team at asset management firm abrdn, which owns interactive investor. Although the portfolios include a lot of abrdn-branded passive funds, they also include passive funds from other investment firms such as L&G, iShares and M&G. 

As the products are new for both firms, neither has yet published an investment track record. 

Costs

Now for costs. The Hargreaves Lansdown portfolios have ongoing charges of 0.30% of the investments a year, while the interactive investor portfolios are cheaper at 0.19% for the index style and 0.28% for sustainable. 

On top of that you also pay the platform fees. With Hargreaves Lansdown, these are free for Junior ISA and up to 0.25% for Lifetime, but a hefty 0.45% with Hargreaves Lansdown’s ISA, Sipp and its fund and share account (£225 a year on £50,000 investments or £450 on £100,000). With interactive investor, the platform fees are £4.99/month (£59.88 a year) – for those investing up to £50,000 and £11.99/month (£143.88 a year) for amounts above £50,000. 

Combining fund and platform fees, the interactive investor proposition could work out cheaper overall than Hargreaves Lansdown. In fact, interactive investor claims its Managed ISA customers are “much better off than they are with competitors who also have managed ISA propositions like Vanguard, Nutmeg, and Wealthify, saving up to £54 a year on unnecessary fees”.

Over time, even small differences in costs can make substantial differences to investor outcomes, so before making a decision, use Compare and Invest to find out what you’d be potentially charged for your type of investing style, including products and tax-wrappers held, plus trading frequency.