Nick Train has blamed share price volatility in holdings Hargreaves Lansdown and Pearson on hedge fund “shenanigans” as retail traders launched coordinated efforts to pile money into heavily shorted stocks during the Gamestop rally.
Beaten up and heavily shorted companies like AMC, Blackberry and Nokia took off toward the end of January after amateur traders on Reddit waged an all out war on short sellers who had overly bet against struggling video game retailer Gamestop.
In the January update for his £1.9bn Finsbury Growth & Income trust, Train indicated that Hargreaves and Pearson had also got caught up in the short-squeeze frenzy.
Hargreaves’ shares jumped to £17.88 on 27 January, the day Gamestop shares hit an all-time high, a 6% rise compared with Tuesday’s close and up 19% compared with its starting price this year of £14.99.
Pearson enjoyed a similar spike that day, climbing from £7.61 the day before to £8.67 as markets closed on Wednesday. This was 27% higher than its £6.82 share price at the beginning of January.
‘We ignore the share price volatility’
“Shenanigans in the world of hedge funds led to big price spikes in two heavily shorted stocks in your portfolio – Hargreaves Lansdown and Pearson,” Train said in the update.
“We ignore the share price volatility and focus on the progress being made in the underlying companies.”
Disclosures of net short positions from the Financial Conduct Authority show around 1.9% of Hargreaves and Pearson’s shares are currently being shorted.
Earlier this week Hargreaves’ short position was closer to 2.4% but AQR Capital, which had shorted the stock since 2014, closed out its position.
Shorts out on Hargreaves are much smaller than they have been historically. In 2019 the Financial Times reported hedge funds were shorting around 6.2% of its stock months after the fallout over Neil Woodford’s Equity Income fund.
‘It is evident the UK stock market is not in a bull market’
Finsbury Growth & Income saw NAV fall 0.7% in January, while its share price fell 3.4%. This was worse than the FTSE All-Share which was down 0.8%.
Fourteen of Train’s portfolio companies reported during the month, representing 60% of the trust’s total assets.
While holdings like Remy Cointreau and new addition Experian saw encouraging sales growth, others like AG Barr, Daily Mail & General Trust and Euromoney saw a double digit hit to revenues due to the effects of the pandemic.
Despite the setbacks for some of his biggest investments, Train remained sanguine about the UK’s prospects.
“It is evident that the UK stock market is not in a bull market,” Train said. “We continue to note a disparity between the share price performance and valuations of comparable UK and global companies – suggesting that investors still require a discount to invest in a London-listed company.
“Because I am an optimist, I don’t find it hard to envisage a different set of circumstances,” he continued. “Circumstances where global investors are piling into UK companies, backed by a stable pound and with UK corporate earnings recovering rapidly, as the pandemic eases and, even more importantly, as businesses of all types benefit from technology-driven productivity gains. Perhaps a couple of takeovers might change the mood.”
