Hargreaves Lansdown PLC (LSE:HL.) and AJ Bell PLC (LSE:AJB) are in line for a boost from money starting to flow out of cash ISA again, according to new analysis from US bank Jefferies.
UK investment platforms generally de-rated as rates increased with flows into lower-margin third-party bank cash accounts diluted flows.
There was also a general headwind to inflows due to retail investors putting cash into bank-held cash ISAs, which have been offering attractive returns for the first time in 15 years.
“We think a double tipping point is coming, which could be good for flow volumes and mix.
“Cash ISAs look set to become less popular: Rising rates had many effects, but two of the effects felt by D2C platforms were that customers began to divert flows into cash ISAs (individual savings accounts) at banks, and people paid down debt in order to mitigate the reversion of a fixed rate mortgage to a floating rate.”
Jefferies said AJ Bell’s chief executive said recently that retail investors do act on a forward-looking basis.
“If they think rates will stay high, they will choose ISAs, which take advantage of them with little volatility or hassle and with high liquidity.
“Rates are still high enough that mortgages are expensive, and consumers will be aware that better deals may be available if they can wait for a couple of years.
“With rates coming down then, we think that the twin headwinds of house buying and putting money into cash ISAs may have abated for the next two years or so
This should be good for the D2C platforms' flows.
Both AJB and HL/ have called out cash ISAs as a headwind to flows while rates have been high; the same is true for mortgages.
“With that in mind, we think the next several quarters could see a resurgence in flows for the sector in general, and for these two leaders in it in particular.
“At the current prices, we prefer HL.”
Shares in Hargreaves eased lower to 1,064p with AJ Bell flat at 375p.