Nick Train has defended the underperformance of his trust, saying his optimism about UK equities was “misplaced”.
The £977m Finsbury Growth & Income trust returned 12.5 per cent last year, lagging behind the FTSE All Share index which scooped up a return of nearly 17 per cent.
However, Mr Train pointed out that this was the first time in a “number of years” that the Lindsell Train investment strategy had led to underperformance, suggesting some investors might worry that his success had made him complacent.
Speaking at a shareholder event today (26 January), the trust manager said: “If anyone is going to feel warm and fuzzy about a prolonged period of easy times, it might be me.”
The Lindsell Train co-founder said perhaps it was not so much of a surprise that “sooner or later” the trust would go through a “leaner” period after years of outperformance.
Mr Train, who also runs Lindsell Train’s £3bn UK Equity and £2.1bn Global Equity funds, said it was up to shareholders to decide how much this recent underperformance mattered to them, but emphasised that it mattered to him.
“We hate underperforming for our clients over any time period, and at the end of last year we felt particularly grumpy about it.”
The manager said at the beginning of 2016 he was optimistic about the outlook for the UK stock market, despite him being one of the few investors to take this view.
“I was full of confidence that I had structured the portfolio to participate fully in this expected return from the UK equity market.”
“But my optimism was misplaced,” he said, pointing out that sectors which he doesn’t invest, such as commodities, oil and mining, had a “blowout” year.
“That divergence accounts for the squeeze on our relative performance last year.”
Mr Train said Hargreaves Lansdown’s share price had been particularly disappointing, falling 17 per cent, which hit his exposed trust.
This share price plunge, he said, was the largest single detractor from the performance of the trust, adding however Hargreaves was the sixth most profitable company in the entire FTSE 100 index.
“As a business, we thought Hargreaves Lansdown had a pretty acceptable year; it certainly grew as a company.”
“If it continues to grow then it will generate a lot of value for its owners,” he said, adding he has been investing heavily in the company over the past three to four months.
Another stock to suffer last year was publishing group Pearson, with Mr Train branding its performance “horrendous” after it dented his exposed trust.
“I have no silver bullet answer about what we are going to do,” he said, pointing out that his strategy is to see things through, even when times get tough for certain companies.