As
star
UK
equities
manager
Nick
Train
once
more
bemoans
the
disappointing
performance
of
his
flagship
Finsbury
Growth
&
Income
Trust
(FGT),
it
appears
three
stocks
in
particular
are
weighing
on
his
portfolio:
Burberry,
Remy
Cointreau
and
Schroders.
In
the
six
months
to
March
31,
2024,
the
investment
trust
delivered
a
net
asset
value
per
share
total
return
of
5.9%
and
a
share
price
total
return
of
2.7%,
underperforming
the
FTSE
All
Share
Index,
which
saw
a
rise
in
its
total
return
by
6.9%
over
that
same
period.
The
strategy’s
net
assets
also
dropped
to
over
£1.7
billion
as
of
March
31,
2024,
from
£1.8
billion,
as
of
September
30
2023.
Continuing
a
recent
trend
of
apologies,
Train
once
more
said
sorry
to
shareholders.
“As
a
career-long
UK
Equity
manager,
I
am
frustrated
by
the
malaise
gripping
the
UK
Equity
market,”
he
said.
What’s
Causing
Nick
Train’s
Underperformance?
Over
the
last
six
months
British
luxury
giant,
Burberry
(BRBY),
has
been
the
biggest
detractor
to
the
trust’s
performance.
The
stock
lost
52.9%
over
the
one
year
to
May
28
2024,
tumbling
from
previous
highs
of £22.08
to
its
current
price
of
£10.36.
According
to
Morningstar
analysts,
the
company
is
currently
undervalued –
its
fair
value
estimate
is
£16.80
per
share.
However,
Morningstar
has
assigned
Burberry
a
High
Uncertainty
Rating
as
the
business
grapples
with
lower
profits
after
a
slowdown
in
demand
for
its
luxury
goods
in
both
Asia
and
the
Americas.
In
the
middle
of
May,
Burberry
reported
a
pre-tax
profit
of
£383
million
for
the
year
to
March
30,
a
40%
fall
on
the
£643
million
it
posted
in
the
previous
12
months.
With
42%
of
the
stock’s
revenue
coming
from
Asia,
it
has
been
hit
by
the
nosedive
in
sales
from
the
continent,
and
in
particular
China,
where
sales
dropped
by
around
19%
for
the
final
quarter
of
2023.
China
sales
have
been
particularly
affected
by
the
growth
slowdown
and
crackdown
on
gifting
luxury
goods
to
public
officials.
Key
Morningstar
Metrics
For
Burberry
• Fair
Value
Estimate: £16.80
• Morningstar
Rating: ★★★★
• Morningstar
Economic
Moat
Rating:
Narrow
• Morningstar
Uncertainty
Rating:
High
Remy
Cointreau
(RCO),
meanwhile,
the
French
family-owned
distiller
of
Cognac
and
other
beloved
spirits,
has
experienced
a
share
price
slump
of
40.68%
over
the
last
year.
Shares
in
the
company
dropped
in
value
to €88.15
from €148.60,
and
are
currently
below
Morningstar
analysts’
Fair
Value
Estimate
of €117.06.
At
the
beginning
of
January
the
company
reported
€956.6
million
in
organic
revenue,
a
drop
of 22.7%.
In
particular,
its
world-renowned
cognac
division
took
a
big
hit
amid
“destocking”
in
China
and
declining
demand
in
the
US.
Luxury
stocks
like
Burberry
and
Remy
Cointreau,
which
boomed
in
the
pandemic,
have
succumbed
to
the
same
problems
besetting
the
wider
European
consumer
sector
such
as
sluggish
demand.
High
inflation
has
eaten
into
shoppers’
disposable
income
and
they
are
making
much
tougher
choices
about
what
to
eat
and
drink.
Schroders
(SDR),
the
British
asset
manager,
has
also
caused
a
decline
in
FGT’s
performance,
with
the
fund
house’s
share
price
losing
14.28%
over
the
one
year
period
to
May
28
2024.
Its
shares
are
currently
trading
at
£3.94,
a
fair
distance
from
Morningstar
analysts’
fair
value
estimate
of
£5.74.
Like
many
other
active
asset
managers
globally,
Schroders
has
struggled
to
contend
with
the
rise
of
cheaper
passive
investing,
as
well
as
a
shift
in
investor
appetite
from
public
to
private
markets.
It
has
also
played
witness
to
the
impact
of
UK
pension
funds
moving
away
from
holding
domestic
shares.
The
firm
is
currently
trying
to
replace
outgoing
chief
executive
Peter
Harrison,
who
is
set
to
retire
next
year.
Harrison
has
sought
to
reverse
the
decline
of
the
company’s
traditional
business
model
by
diving
into
private
markets,
but
his
Schroders
career
has
seen
a
fall
in
the
firm’s
share
price
and
profit
margins.
What
Else
Did
Nick
Train
Say?
In
Nick
Train’s
statement
to
shareholders,
he
also
said
that
FGT’s
performance
was
hit
by
its
lack
of
ownership
of
UK-listed
oil
and
mining
companies.
Both
have
been
bosted
in
the
post-pandemic
era
after
an
energy
crisis
sent
demand
rocketing.
“The
portfolio
did
not,
with
the
benefit
of
hindsight,
have
enough
exposure
to
companies
with
products
and
services
likely
to
become
more
relevant
and
valuable
to
their
customers
as
we
proceed
deeper
in
the
21st
century,”
Train
said.
“I
also
believe
the
portfolio
needs
exposure
to
consumer-serving
companies
whose
products
consumers
aspire
to
purchase
and
enjoy
(Luxury
and
premium
consumer
goods).”
However,
despite
the
disappointing
run,
Train
is
still
backing
RELX
(REL)
and
Sage
(SGE) in
the
trust’s
portfolio.
He
believes
both
have
“transformative
profit
potential
ahead.”
Among
the
mid-
and
smaller-cap
names
in
the
trust,
he
remains
bullish
on
Fever-Tree
(FEVR),
Hargreaves
Lansdown
(HL)
and
Rightmove
(RMV),
arguing
they
all
have
plenty
of
opportunities
in
the
years
ahead.
Investment
platform
Hargreaves
has
recently
rejected
a
takeover
bid,
which
sent
its
share
price
soaring.
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