The £1.5bn trust ended last month on a better footing than in December with net asset value up 2.7% and the share price up 2.3%, both on a total return basis, compared with the index which was up 4.2%. Over five years the trust has returned more than double the FTSE All-Share, with its share price up 69.6% against the index’s 31.2%.
During the busy January reporting period Train noted share price reactions to his holdings were mixed but said “genuinely, we were encouraged by them all”.
However, he said the market had been particularly harsh in its response to results from Hargreaves Lansdown, Unilever and Pearson, which were the biggest detractors from performance over the period. “Yet, to our mind, you don’t have to work too hard to see the bright side to what each company had to say. Even if other investors chose to focus on the negative,” he said.
Hargreaves’ ‘explosive growth’ potential
He said this was particularly apparent in the case of platform business Hargreaves Lansdown which he believes has the potential to “deliver explosive growth” and continues to win market share in the D2C and stockbroking spaces.
“It is undeniable that growth slowed at Hargreaves Lansdown, during a very tricky time for UK politics and global stock markets,” said Train. “Nonetheless the business did grow and, importantly, took share – now representing 39% of the D2C platform market and nearly 32% share of the stockbroking market.”
Hargreaves’ share price took a hit after revealing assets under administration had fallen 6% to £85.9bn, after factoring in weaker net inflows and £8.2bn of negative market movements. Its shares have fallen 11% year-to-date and are down from their record high of £22.62 last autumn.
Train has taken advantage of share price weakness to double his position in the broker this year. He is now the largest institutional shareholder in the business, owning a 10.18% stake. Hargreaves is currently the eighth largest holding in his Finsbury Growth & Income trust at 6.9% of the portfolio.
He continued to commend Hargreaves for investing heavily in its client service, highlighting the 30% growth in the number of clients to 1.1 million over the period and rise in the volume of transactions from 5.4 million to 6.1 million per annum (pa) as two key figures.
Train also touted the level of Hargreaves’ human interactions. “The number of calls to the help desk has increased from 680k to 890k pa, while – and I love this statistic – the time taken to answer a client call has fallen from 30 to 18 seconds.”
Unilever and Pearson
Elsewhere, he noted Unilever’s shares fell 3% despite delivering “its best volume growth in three years,” while Pearson’s stock is only marginally higher than it was in 2007 despite having “a much better year in 2018”.
Though he noted the Anglo-Dutch consumer goods giant’s revenue growth from emerging markets has steadily declined every year since peaking at 11% in 2012, he found solace in a research note from Bernstein.
“As Bernstein argues, 5% growth for 59% of your total revenues isn’t so bad,” he said. “And you can make up your own minds about the prospects for reacceleration over the next few years. The double-digit revenue growth Unilever was able to report from its Indian subsidiary last year inclines us to optimism.”
As for beleaguered academic publisher Pearson, Train said he was “thrilled” to hear Fidelity Special Situations manager Alex Wright echoed his sentiments about the “undiscounted change at Pearson” and the success of its growing digital services.
“Thrilled, but somewhat mortified to recall myself arguing for the same more than 10 years ago,” he said. “Let’s hope Fidelity’s timing – already much better than mine – turns out to be inspired and that it will be a special situation for all the right reasons. Certainly, the next couple of years, as Pearson’s Global Learning Platform is rolled out, will be critical for the company.”