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Hargreaves unveils stocks in UK shares fund

Online stockbroker reveals stocks held by HL Select UK Shares fund, after manager Steve Clayton's £168 million shopping spree.

 
Hargreaves unveils stocks in UK shares fund
 

Hargreaves Lansdown has revealed almost all the stocks bought for its HL Select UK Shares fund, after manager Steve Clayton embarked on a spending spree with the £168 million raised from investors.

Aping Citywire AA-rated Neil Woodford, the online stockbroker has published nearly every single stock owned by the fund, going beyond the fund manager tradition for reporting only top 10 holdings.

A sector breakdown shows travel and leisure stocks make up 14.8% of the fund, followed by media at 12%, support services at 11.1%, personal goods at 9.4% and 9.2% of managed funds.

The biggest holding in the fund is currently an exchange-traded fund, the iShares Core FTSE 100, and makes-up 9.2% of the holdings. However, this will reduce as Clayton is holding money in the ETF rather than in cash as he waits to buy smaller, more illiquid companies.

‘Stock markets have a tendency to rise over time, so holding cash in a fund is more likely, we believe, to end up acting as a drag on performance,’ said Clayton.

‘As we find parcels of shares in the smaller companies we want to buy, we will sell down the exchange-traded fund until only a small holding remains, to keep a little powder dry for times when opportunities pop up.’

There is a focus on quality, defensive names, in a portfolio that bears a likeness to those run by Citywire AA-rated Nick Train and Woodford.

Luxury goods retailer Burberry (BRBY) and advertising group WPP (WPP) are tied for top spot in the list of shares holdings, with both making up 4.8% of the fund.

Burberry has suffered this year due to a slowdown in Asian markets and earlier this month batted off a merger approach from American fashion label Coach (COH.N).

However, Clayton said the strengths of Burberry were ‘very attractive’ and luxury goods makers earned high margins as they controlled their prices tightly in order to preserve an image of exclusivity.

‘The strong margins generate good cashflows and the group has over £500 million of net cash on the balance sheet,’ said Clayton.

‘So Burberry is in a strong place and can easily fund its expansion plans. At the moment, the group is managing costs tightly to offset the near term pressures stemming from lower spending in China and by Chinese tourists abroad. But we believe longer term prospects look bright for the brand.’

Cash is also a mainstay of WPP, which Clayton (pictured) said had ‘prolific cash generation’ that enables it to fund a ‘growing dividend, earnings-enhanced share buybacks and acquisitions’.

‘Marketing budgets are often the first to be cut in a recession, so we would expect WPP to suffer in a global economic downturn,’ he said. ‘But the group’s tremendous cashflow should enable it to weather any bouts of economic weakness, while capitalising on more favourable conditions, and we still see a long runway of growth ahead.’

The next six largest holdings each account for 4.7% of the fund: Experian (EXPN), British American Tobacco (BATS), Unilever (ULVR), Intercontinental Hotels Group (IHG), Diageo (DGE) and Compass Group (CPG).

Clayton said Experian could benefit from the election of Donald Trump as president as it relies on the US for two-thirds of its sales and Trump has announced his intention to loosen bank regulations which ‘could bode well for Experian’s US revenue growth’.

The US will also be a source of growth for British American Tobacco, which is set to buy US peer Reynolds American (RAI.N).

‘The US is an attractive market for tobacco businesses because cigarettes are lightly taxed over there,’ said Clayton.

‘The combination of US and emerging market growth has allowed BATS to increase its dividend every year this century…the company will have significant debt, especially if the Reynolds merger proceeds, but with BATS having generated an average of around £3 billion of free cashflow for the last eight years, this should not be too troubling. ’

Stocks with strong brands are a favourite of Clayton and the reason he is backing Diageo, which owns Johnnie Walker, Smirnoff and Guinness.

‘Turning water into wine, or spirits, and charging consumers a princely sum, earns the group huge margins, and means the business throws off cash,’ said Clayton, adding that it had increased its dividend every year since 1999.

He said progress had been ‘relatively uninspiring in recent years’ due to economic and currency pressures as well as ‘weak execution’. Clayton is expecting a new management team to improve distribution and grow volumes and productivity.

Clayton said his portfolio had a ‘very international flavour’, with most of the companies earning the majority of their income overseas, giving some protection from any Brexit fallout.

‘If the UK economy flips and flops toward Brexit, the fund has some insulation,’ said Clayton. ‘Most of all, we’ve focused on the financial strength of our chosen names to give a further layer of protection.’

6 comments so far. Why not have your say?

J Thomas

Dec 13, 2016 at 15:23

I thought someone had published my own portfolio, its virtually identical to my own UK holdings. I suppose imitation is the sincerest form of flattery after all.

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The Pensioner

Dec 13, 2016 at 15:59

HL has always been a big supporter of Neil Woodford. It will be interesting to see how the fund performs relative to Woodford's equity income fund. The charges are similar.

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FrankFrank

Dec 13, 2016 at 16:06

Everybody is copying Fundsmith now and Terry Smith should be kicking himself for broadcasting to his competitors the secrets of his success. Has he never heard the word arbitrage?

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Dennis .

Dec 17, 2016 at 09:44

"‘Stock markets have a tendency to rise over time,’ said Clayton."

So what has happened since 1999?

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Dennis .

Dec 17, 2016 at 09:48

Interesting that Domino's Pizzas is in there, it's one that Fundsmith offloaded as he thought it was overvalued.

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Greyinvestor

Dec 17, 2016 at 14:28

Hello Dennis. The Dominos Pizza held by Fundsmith was the US parent company and the one held by Hargreaves Lansdown is the UK Domino's Pizza which holds the UK and Irish franchises for Dominos and has recently expanded into other countries including Scandinavia. Terry Smith mentions that it is easy to get these two companies confused but they are substantially different investment propositions. There is also the AIM company, Dominos Pizza Poland, which is different again as this is an early stage company.

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  • Experian PLC
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