In December, the investment trust’s net asset value (NAV) was down 2.7% and the share price down 2.8%, both on a total return basis, while the index was down 3.8%.
Train described it as “a rotten month to end a dispiriting year”.
He continued: “We’re pleased we outperformed, for the month and 2018, but as my wife reminded me on Christmas morning – relative performance butters no parsnips.”
During 2018, the investment trust fell 0.91%, much lower than the 9.47% fall in the FTSE All Share over the period.
M&A opportunities in 2019
Train pointed to Finsbury Growth & Income holdings that are trading at much lower valuations than rivals recently swept up in M&A deals.
For example, Burberry, which accounts for 7% of the trust, is trading at circa 2.5x annual sales whereas Michael Kors last September bought Versace for $2bn, representing 4x sales. Meanwhile, private equity house KKR is currently bidding for MYOB, an Australian accounting software company, at 5x sales, while Train holding Sage is trading at 3x. Sage represents 5.8% of Train’s portfolio.
The takeovers are noteworthy both as comparators but also because M&A activity helped Finsbury Growth & Income performance in 2018, he said.
In July, a merger saw UK shareholders in Dr Pepper receive a special dividend and shares in Keurig Dr Pepper and the following month Ion’s bid for Fidessa went unconditional.
Hargreaves helpdesk drives value
Meanwhile, Train highlighted the helpdesk as a resource that drives value at both Hargreaves Lansdown and Sage.
The fact 71% of Hargreaves Lansdown’s client base has spoken to a human being on its helpdesk is “not trivial”, he said. At Sage, the company receives circa 25,000 requests for help or advice every single day of the year, he said. “That creates high switching costs for its customers reliant on this service.”
Hargreaves is the fourth largest holding in the investment trust representing 8.1%.
Last week, Hargreaves chief executive Chris Hill said the 300 people on its helpdesk were part of the reason investors were ditching advisers for the D2C platform giant.
He added: “The telephone may be ‘old’ technology, but nonetheless that interaction builds trust – which is exceptionally valuable for accounting and financial service franchises.”
Queen rocks Burberry
On a lighter note, Train highlighted royal fashions in the investment trust update.
“The Queen wore a stylish Burberry scarf as she arrived at King’s Lynn Station for her holidays. You don’t get many better celebrity endorsements than that – and it’s free.”
The Queen isn’t the only person whose Burberry endorsement Train highlighted, noting his wife is also taken with the new collection from Riccardo Tisci, he said.
Train has previously said Burberry is part of his stable of “beloved brands”. “We’re very, very interested in luxury brands but there are very few of them available on the UK stock market,” he told Portfolio Adviser in December, pointing to Mulberry as one UK leather goods business he’d love to own but potentially never will due to its ownership structure.