Nick Train has defended Hargreaves Lansdown’s underperformance in his Finsbury Growth & Income trust and blamed weakness in the share price on naysayers who think Vanguard poses a threat to the platform’s profitability.
Train’s £1.8bn trust saw its share price fall 0.1% in June while the FTSE All Share rose 1.5%. Its net asset value was unchanged on a total return basis.
Hargreaves was the biggest detractor from performance, according to the trust’s June factsheet, with shares plunging 11% over the month. The D2C giant is among the trust’s top 10 holdings and currently makes up 6.8% of the portfolio, the same weighting as luxury retailer Burberry.
Train said the platform group’s share price had taken a hit from pessimists who think its profitability is under threat by the arrival of new challengers “notably Vanguard”. The fact its shares have been deemed expensive has also not helped matters, he added.
Hargreaves was overtaken by Vanguard and AJ Bell Youinvest in Which?‘s latest annual platform rankings in light of the Neil Woodford scandal. Which? also highlighted it as one of the most expensive platforms for client portfolios of £50,000 or more.
See also: Hargreaves U-turn on fund discounts throws platform charges into the spotlight
On whether Vanguard could successfully snatch market share away from Hargreaves, Train said, “we will see”.
Year-to-date its shares have fallen 16% which Train called a “modest outperformance” compared with the FTSE All Share’s losses of 19% and “doubtless reflects Hargreaves’ cash-rich balance sheet, recurring revenues, currently strong profitability and the expectation its business is actually growing in 2020”.
During the coronavirus sell-off, Lindsell Train loaded up on Hargreaves Lansdown stock increasing its stake a percentage point to 13%.
‘Apparently expensive’ Remy Cointreau defies analyst and hedge fund bets
While Train said “in general concerns that any company’s shares are ‘too expensive’ have not been particularly helpful over the last few years and into 2020,” he notes this hasn’t stopped Remy Cointreau, another of the trust’s “apparently expensive” holdings, from delivering double digit share price growth.
The French drinks maker, which now makes up 4% of Finsbury Growth & Income, was the trust’s strongest performer last month, with shares up 15%.
“Analysts and hedge funds have been arguing and betting that Remy is ‘too expensive’ all year and are perhaps perplexed that the shares have done well. It is not so surprising to us,” Train said.
See also: Nick Train fascinated by coronavirus alcohol consumption trends
Train said Remy had taken advantage of the virus crisis to acquire “a couple of small but exclusive cognac and champagne brands” and had seen sales recover “in its important Asian markets”.
He added the fact that it owns “eternal prestige brands” means it “will likely generating profits in centuries to come”.
Problem child Pearson turns performance around
Academic publisher Pearson, which has for years been one of the trust’s biggest disappointments, saw a reversal of fortunes last month after Swedish activist investor Cevian Capital snapped up a 5% stake in the company hot on the heels of chief executive John Fallon’s departure.
Shares in Pearson finished the month up 24% at 585p and was the biggest percentage gainer in the trust though shares were still down 10% from the start of the year.
“Those of us who committed client savings to Pearson many, many years ago – and that means me – must hope that Cevian’s investment proves insightful and timely,” Train said.
On the other side of the spectrum Young & Co became the first of Finsbury Growth & Income’s portfolio holdings forced to raise additional funds in order to weather the effects of the coronavirus crisis. The British pub chain raised more than £88m by issuing new shares equivalent to 19.2% of its existing share capital at around a 10% discount.
“We sympathise with the executives of the company – having to confront no revenues, but unavoidable daily business costs and rising debt,” Train said. “Youngs’ shares fell after the placing – perhaps reflecting the dilution to historic NAV that the issue occasioned.”
