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.
"When he was at Artemis none of the funds needed a new lead manager, and they didn’t have new funds to launch. I think perspiration is much more important than inspiration for a fund manager, and Stephen is a very very hard working guy. He is one of the most reliable and dedicated people with whom I have worked.”
Mr Hargraves described himself as “probably the largest owner of equities in the UK”, with about £2bn invested in the asset class.
Most of that is accounted for by his around 30 per cent stake in Hargreaves Lansdown.
Looking back over his long career in financial services, he said the two major routes to investment underperformance are when a fund gets too big, or when the fund manager gets too involved in the performance of the wider company.
He said: “I knew a fund manager in the 80s and 90s who had an excellent track record, but the company he worked for had a culture of internal meetings, and he spent his days in meetings, and that’s no good. Committees don’t decide things, they don’t make good decisions."
Mr Hargreaves will not be involved in the day-to-day running of the Blue Whale fund, but said the portfolio will be concentrated with between 25 and 35 stocks, all of which will be very liquid.
He said: “It is my opinion UK investors are very underweight US shares, people say that market is expensive, but that is exactly the time to buy a market, when people say it is expensive. The time to sell is when people say a market will keep going up.”
He anticipates around 15 of the stocks in the fund will be US-listed, with no particular sector bias.
