Hargreaves sell-off on Vanguard launch is 'over-reaction'

Hargreaves shares finished down 8.5% on Tuesday after media reports that US passive fund specialist Vanguard had formally launched its UK direct-to-client platform with prices seemingly well below those of most UK operators.

Vanguard, which originally flagged the plans back in October, will offer investors in passive funds a platform fee of 0.15% compared to HL’s 0.45% for funds, up to a value of £250,000, which rises to an all-in cost of 0.3% when Vanguard's typical ongoing charge is added.

This would be capped at an annual platform fee of £375, equivalent to £250,000 of assets, though ShoreCap noted that the current average Hargreaves customer has around £80,000 in its Vantage platform.

Analyst Paul McGinnis said it was already the situation that investors wanting to hold only passive funds do not use HL as they would paying three times as much in platform fees as the cost of the underlying products.

HL's percentage of assets under administration in passives is in the low single digits, "and even these are generally owned by clients who typically also choose to hold active funds and indeed some direct individual shares/bonds within different ISA/SIPP tax wrappers", the analyst wrote.

"While it would be financially rational for a client to move any passive assets to Vanguard from a cost point of view, for the level of assets we’re talking about (3% of an average £80k balance, or £2.4k), the saving would be £7 per annum – this doesn’t meet the convenience test for us (even before HL’s forthcoming cash savings product makes that relationship even more sticky)."

With Hargreaves scheduling a 10 month trading update due on Thursday, McGinnis said he suspected "a good update may well settle a few nerves".