Last week we reported why Nick Train, highly regarded manager of LF Lindsell Train UK Equity (GB00BJFLM156) and Lindsell Train Global Equity (IE00BJSPMJ28), holds listed broker Hargreaves Lansdown (HL.) in these funds. Despite recent concerns over the company he believes there is still a strong investment case for it over the long term.
But other investors are not convinced. In June, the broker’s share price fell due to fears that the company could be adversely affected by the Financial Conduct Authority’s (FCA) investigation into the suspension of LF Woodford Equity Income Fund (GB00BLRZQB71). Hargreaves Lansdown had included this fund on its Wealth 50 list of favourite funds and the regulator is also looking at how impartial fund supermarket buy lists are.
Oliver Brown, lead manager of MFM UK Primary Opportunities Fund (GB00B905T773), has reduced his holding in Hargreaves Lansdown. “Following the suspension of LF Woodford Equity Income Fund and the close ties with Hargreaves Lansdown, we took the decision to reduce our holding as the company faces some short-term uncertainty and potential closer scrutiny by the FCA over its buy lists,” said Mr Brown. “We continue to consider it a high-quality business, but with a demanding rating we felt it prudent to reduce our exposure.”
LF Woodford Equity Income Fund [had] been performing poorly for some time and was on Hargreaves Lansdown’s buy list. Bad headlines and publicity regarding [private investors] concern the FCA, and Hargreaves Lansdown customers’ exposure to that fund was high. And news that could affect the future earnings of a company on a higher rating could also affect its share price. In the worst case scenario, Hargreaves Lansdown could have to alter its business model, which its share price would not take well in the short term.
We also bought shares in AJ Bell (AJB) recently, [another player in] the consumer platform market, and because these are similar investments this was another reason to reduce our holding in Hargreaves Lansdown. AJ Bell is an investment platform company that provides stockbroking, wealth management, custody and dealing services, principally to [private] investors. We acquired the shares at a discount as part of a placing by its largest shareholder, Invesco.
That said, although we are uncomfortable with the negative headlines and criticism [of Hargreaves Lansdown], we accept that it could be short-term noise. Hargreaves Lansdown still has around 40 per cent market share [of the consumer platform market], very good technology and a good app. Customers will not necessarily move away from Hargreaves Lansdown because they can buy funds on it other than LF Woodford Equity Income. We have not sold out of Hargreaves Lansdown completely because we have confidence in the long-term [investment case for the company].
However, while we don’t think Hargreaves Lansdown customers will flee in their droves there may be short-term pressure on the company’s share price and sometimes these things build momentum.”
Hargreaves Lansdown was on a price/earnings (PE) ratio of 40.16 as of 16 June, according to Thomson Reuters data.
