Billionaire Peter Hargreaves is cross. Cross and pessimistic. But it is these two qualities which he says will make a success of his new business Blue Whale Capital.
After making his money – more than £2.3 billion – founding investment platform Hargreaves Lansdown, he is now making the foray into fund management, and even for a man as connected as him, it has not been easy to get started.
“I am quite cross at how difficult it has been to set up a fund management business,” he says. “The legislation and regulation has been vast.”
He is backing fund manager Stephen Yiu to the tune of £25 million, an investor who he met more than a decade ago when Yiu worked at HL, before moving on to New Star, Henderson and then Artemis. More recently Yiu worked for hedge fund manager Nevsky Capital.
The offering is Blue Whale Growth – a fund of 25 to 35 stocks predominantly listed in the US, but with UK and European equities too. It has a 1% annual charge and the starting portfolio is weighted towards consumer goods and technology.
Hargreaves feels the UK investor has far too much equity income in their portfolio already, especially UK equity income.
“This is where we think investors should be – global growth. Ever since the tech crash everyone has been pushed into equity income funds, but people have too much of it in their portfolios and as a result equity income stocks have become very expensive and yields have become low,” he explains.
Instead, Hargreaves advocates US equities, despite the market trading at all-time highs.
“UK investors have always been underweight US stocks – they should be invested there instead, it is the largest economy in the world. Yes, the market is up, but not all stocks are.
"Everyone knows the good companies, the largest companies; when the institutional investors buy India they buy Tata Holdings, Reliance Industries. The blue chips. The market is high but that is mostly the big stocks, there is actually a whole raft of opportunities to be had.”
Getting Brits Out of Cash and Into Stocks
Blue Whale is by no stretch Hargreaves’ largest investment, that remains his shares in HL at nearly £2 billion. Blue Whale Growth is not even Hargreaves’ largest fund holding – he has more in an Indian equity fund, and in several of the HL multi-manager funds – “I’m a great believer in multi-manager funds” he says – but he does want it to be the biggest holding for other investors. In fact, Hargreaves’ aim is for Blue Whale Growth to be many Britons’ first investment, the fund which initiates them into the world of investing.
“The problem is, in this country we are not interested in investment. They are in the US. In the UK, there are hundreds of thousands of people with £10,000, £20,000, even £200,000, saved in cash on deposit.
"Perhaps they don’t like their local financial adviser, or had their fingers burnt in the tech crash… But what we’re going to do is encourage those people to put a bit of money – £1,000, £5,000 – into Blue Whale Growth, and get involved in investing.”
Hargreaves says the firm will achieve this engagement through communicating regularly with unit holders, explaining why every stock is bought or sold.
“Fifty per cent of people won’t engage,” he says. “But we hope 50% will read it, and get interested. There is no doubt in my mind your best investment adviser is yourself. We’ve got to encourage people. Phantom portfolios are pointless. You need your own cash in the investment to become interested.”
He chides the “dreadful” investment products which promise downside protection, or use complicated instruments to smooth volatility; “HL never recommended products like that. You should just be in good quality investments, simple products.”
Don’t Believe Your Own Hype
Asked how he will avoid the pitfalls of the investment management industry – where managers fall in and out of favour, or self-sabotage performance, he becomes characteristically forthright.
“Optimists fail, pessimists prevail,” he says. “You’ve got to constantly think ‘what’s the downside?’, ‘what’s the worst that could happen?’. Don’t start believing too much in yourself, listening to your own hype. Having said that you should stick to your guns; ask is the market right, or am I?”
Hargreaves is clear that he is not a fund manager – “We’ve got three fantastic investors, Stephen’s two analysts are superb” – but he will step in to support the team in times of difficulty.
“My mum used to say, ‘why have a dog and bark yourself?’. Stephen is the fund manager. I will be there if things don’t go well. All funds go through good and bad times, but the good managers bounce back. Even when markets crash, there are still funds which make money.”
