Switching from one fund to another in one dealing instruction with Hargreaves

tg99

Rather than selling a fund and waiting a day or so (thus being out of the market) before being able to reinvest the proceeds, there is a dealing option with Hargreaves to ‘transfer’ up to 100% of your fund Investment to another fund(s). Given funds are forward priced, I presume this fund transfer option will mean I will be out of the market for a day or so until Hargreaves purchase the new fund.

Been a few years since I did a fund switch with Hargreaves but from memory think there was an option where they let you sell and rebuy on same day (e.g. when both funds price at 12) as long as you only opt to invest up to max 90% of the sale proceeds and then the rest remains as cash for you to manually reinvest? Anyone know if this is correct and if so as long as I just select no more than 90% in the fund transfer dealing option then will they automatically time both the sale and purchase on the same day or do I have to arrange this specially with them by telephone etc?

bowlhead99

I don't have a HL account but help my dad out with his portfolio and he uses them. I'm not sure on how the mechanics of the "100% transfer" works, it quite likely requires the entire sale value to be known before the new purchase process can officially kick off, and the sale price can't be known at the time the sale order is placed, if you were literally trying to sell 100% of your holding rather than extract a smaller known amount of cash from it.

But the general concept of their 90% rule at HL or other platforms, is that if you put an order to redeem all of your units (last valued at £1000) they can't guarantee that you will actually receive as much as £1000 for those units, so they will only allow you to place an order to subscribe into another fund which is going to settle on the same day for up to £900 (with an assumption that the price of a fund may drop a few percent but won't fall 10% from one day to the next.

After both orders are placed and accepted by the managers, they will both settle on the same day, and hopefully there will be more than enough cash to settle the £900 purchase, even if the attempt to liquidate as much as £1000 from fund A wasn't successful due to value drop.

So with that sort of rule in place, if you are settling *all* of fund A and want to switch into fund B, and fund A was worth £1000, then £900 of fund B would be the practical limit of what you could order to settle on the same day, and then buy the rest later so you are only out of the market for the last £100ish until you know how much cash you're definitely getting from B, and then you can make a further order for A with it, if you want.

Whereas if you have £5000 of fund A and only want to sell 'x' percent of it (say, £1000), you could place an order to switch all of that £1000 into fund B with no issues, as long as the amount of X(£1000) is under 90% of your £5000 (which it is in that case), because if you're only trying to switch £1000 of your £5000 there shouldn't be an issue in getting the full £1000 of cash out of the first fund -if the price drops you will just be redeeming more units to get the £1000 of proceeds you requested.

If you just want to transfer <90% of your fund A into fund B, you shouldn't need to arrange by telephone. There should be an option online when you try to sell your £x of fund A which lets you say you want to buy another fund with the proceeds, and if the amount £x is under 90% of the value of your A holding as of its last valuation point, it should just go through fine with no "special request" needed. And you won't have any days out of the market. If the amount of A that you didn't switch is more than you really want to keep, you could do further 90% transfers later in the week until it's all been moved over, without ever being out of the market.

I haven't actually done a portfolio rebalance / fund switch at HL since last year so maybe they have changed the 90% to some other limit. But you would expect a limit as HL don't want to take the risk for themselves of funding your entire purchase transaction when you might have a lower amount of cleared funds on settlement date following a price fall.

A_T

I think it depends on the valuation points of the 2 funds but if, say, they are both at 12 noon if you place your (up to 90%) switch trade before 8am you normally get the same day's valuation point i.e. no time out of the market.

jamei305

You can switch up to 90% on a value basis in pounds and pence, but you can switch up to 100% if you do it by units. i.e. sell all of your 237.53 units and buy however many units of the new fund that the proceeds will buy.

aroominyork

jamei305 wrote: »

You can switch up to 90% on a value basis in pounds and pence, but you can switch up to 100% if you do it by units. i.e. sell all of your 237.53 units and buy however many units of the new fund that the proceeds will buy.

But if you place a switch order for all your units you will be out of the market for a day. Units are not switched 1 for 1, eg you cannot sell 100 units of VLS80 and say I'd like 100 units of Fundsmith in their place. HL need to know the value of the units you are selling before they know how many units of your new fund it will buy. The explanation is in the second and subsequent paras of bowlhead's reply.