Nick Train has admitted heavy redemptions from his UK equity fund played a part in his recent decision to significantly slice his stake in longstanding laggard Pearson.
He had been the academic publisher’s biggest backer, owning 9.9% of the company via his eponymous fund boutique Lindsell Train. However, on 21 January he sliced his position to 4.9%.
While Train refused to comment then on why he gave Pearson the chop, at the AGM for his Finsbury Growth & Income trust (FGT), attended by Portfolio Adviser, he revealed an exodus of client cash from his Lindsell Train UK Equity fund was the deciding factor that led it being cut from the trust.
The £5.7bn fund, which is the open-ended equivalent of FGT, saw one of its weakest years on record in 2021 thanks to its lack of exposure to software and tech names and defensive positioning in “steady plodders” like Unilever.
Over the year, Lindsell Train UK Equity rose 12.7%, well behind the IA UK All Companies 17.3% average and the FTSE All Share’s gain of 18.3%.
This prompted investors to vote with their feet and withdraw over £1.1bn from the fund last year, according to Morningstar estimates. This was over two and half times higher than the £435m pulled from Lindsell Train Global Equity.
‘When you have outflows, you have to sell something’
Commenting on Pearson’s removal from the FGT portfolio, Train told shareholders: “Listen, the rock bottom truth to this is last year, in line with other UK strategies, we saw some outflows from our UK funds. And when you have outflows, you have to sell something!
“And what are you going to sell? Are you going to take a clip out of each holding or are you going to say where is my conviction higher?”
Train added he was also inspired to pare back his weighting after Pearson’s share price performance in the first half of the year. Shares were up at 869p by the end of July but by December had plunged back down to 613p.
Train defends Unilever
Train also addressed recent criticism lobbed at FGT’s fifth largest holding, Unilever.
Shares in the consumer goods giant fell 6.8% last year, making the company one of Train’s biggest losers, and in 2022 it has seen a further 4% wiped following a failed £50bn bid for Glaxosmithkline’s consumer arm, which has been panned by major shareholders, including Terry Smith.
Train admitted Unilever is “not the most exciting company on the planet or even in the UK”, but said he stands behind his conviction as it is a “formidable, durable asset”.
“I promise people, in the years when the world is considerably tougher, you’ll be grateful that parts of your portfolio is invested in a business with Unilever’s characteristics.”
He also defended its recent failed bid for Glaxosmithkline’s consumer arm as “rational” even if the timing wasn’t right, adding that the shareholder backlash was “unfair”.
“Two and a half years ago when Unilever was trading at closer to £50 a share if that opportunity had been available, I suspect investors would have applauded it to the rafters.
“Two Covid-impacted years later, maybe some less than brilliant capital allocation by the company, the shares are £38 rather than £50 and the thing is held in derision. I think it’s a bit unfair frankly.”