Hargreaves slams IFAs' use of equity income

Hargreaves slams IFAs' use of equity income

Hargreaves Lansdown’s billionaire founder Peter Hargreaves has criticised advisers' and investors' reliance on equity income as "misguided", as fund managers which have dominated the sector begin to underperform. 

Mr Hargreaves said equity income share are "too expensive and people are too overweight".

He said that since the bursting of the dotcom bubble in 2001 crisis "investors, advisers, everyone has thought that equity income shares are the only place to be".

"Everyone has been overweight equity income funds and shares. It is a great story and has done well," he said, but added that was no longer the case.

He gave the example of Neil Woodford who runs a £10bn UK equity income fund.

"He owns equity income shares and I think they are too expensive and that is causing people like him, people who have very fine track records to underperform,” Mr Hargreaves said.

He also said some investors were choosing the sector for the wrong reasons.

"If an investor doesn’t actually need the income, and the focus of their investment portfolio is to increase their capital, then the aim should be to buy the shares of companies that reinvest their income to growing the business," he said.

However the latest data from the Investment Association showed the tide is starting to turn for UK equity income.

Investors pulled £86m from UK Equity Income products in July, according to the figures.

Mr Hargreaves spoke to FTAdviser having just deployed £25m of his personal wealth into launching a new fund and fund management company, called Blue Whale.

The fund house will invest in global equities, and in addition to being a home for some of Mr Hargreaves' family money, the Hargreaves Lansdown founder said he is very determined to develop the company to the point where the great majority of the capital in it is not his money.

The company's flagship Blue Whale Growth fund is managed by Stephen Yiu, who has worked at fund houses New Star and Artemis.

Mr Hargreaves said Mr Yiu had actually worked at Hargreaves Lansdown around a decade ago, and helped the firm to develop its fund manager research capabilities.

He said: “The fund research tools Stephen worked on are still important to what we do today, though we keep improving them.

"But Stephen left because he was absolutely determined to be a fund manager.

"When I asked him would he like to manage some family money for me he said he would be delighted, but he is a very, very ambitious man.

"The first priority is to get this fund launched, but in the long-term I would be interested in Blue Whale becoming a very significant fund management group.”

Mr Yiu has not been a lead manager on a fund in his career, but Mr Hargreaves said: “Everyone has to have a chance to step up at some stage, and if I didn’t believe Stephen could do it I wouldn’t have put £25m into this.