Nick Train hits out at hedge fund bets against Hargreaves

Train Nick Lindsell Train 2014

Fund manager Nick Train has hit out at hedge funds shorting Hargreaves Lansdown arguing the stock is the single most profitable in the FTSE index when property companies are excluded.

According to regulatory filings, US fund AQR Capital Management and London-based Odey Asset Management have both taken short positions in Hargreaves.

Analysts have attributed the net short positions to the increasing competition coming from large asset mangers entering the direct-to-consumer market as well as retail banks launching robo-advice offerings.

But Train points out Hargreaves has an operating profit margin of 60 per cent and that its running costs have fallen from 32 basis points to 16 basis points in years.

That makes it the fifth most profitable in the FTSE after four property companies, including British Land and Land Securities.

The Finsbury Growth & Income trust currently has a 6.5 per cent portfolio weighting in Hargreaves.

“I’m told the hedge funds are shorting Hargreaves Lansdown at the moment on the assumption its margins are unsustainable and that competition’s coming.”

But Train says the company reminds him of Amazon.

“Throughout Amazon’s extraordinary ascent, people have said it’s too expensive, it’s unsustainable. But these platforms offer so much convenience to their customers and there’s an exponentiality about the way costs are collapsing, about the economics of the business,” Train says, adding: “It makes me want to be long rather than short.”

Train says: “Five years ago the total running costs of Hargreaves Lansdown expressed as a percentage of assets under management was 32.5 basis points. Today, five years later, it is 16 basis points. In other words, the cost of running the company has halved over five years.

“That is of course a result of assets increasing. But it is also a result of the increasing efficiencies the company is deriving from becoming more and more digital.”

Its website visits rose 19 per cent to 105m in 2016, Train points out.

“As it digitises itself, the cost of running itself collapses. Each pound of new assets is marginally more and more profitable. Of course, competition is going to intensify for these assets.”

Train’s support for Hargreaves comes despite it being the Finsbury Growth & Income trust’s worst performing stock last year falling 20 per cent.

As “one of the purest UK earners” in the index, Train suggests Brexit would have turned sentiment against the stock.

“I suspect that on screens people do for factors, people looking for companies with high UK earnings, Hargreaves would have been right at the top of that list,” Train says.