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AJ Bell‘s stellar debut buoys Keystone as it awaits post-Brexit recovery

Online stockbroker AJ Bell's strong market debut gives welcome boost to Invesco Perpetual's Keystone trust, as manager James Goldstone awaits post-Brexit UK market recovery.

AJ Bell‘s stellar debut buoys Keystone as it awaits post-Brexit recovery

Online stockbroker AJ Bell’s (AJB) strong market debut has given a welcome boost to Invesco Perpetual’s Keystone (KIT) trust, as manager James Goldstone awaits a recovery in the UK market post-Brexit.  

It is a top 10 position in the £214 million UK All Companies trust, at 3.1%.

Since its market debut in December, AJ Bell has seen shares soar by nearly 40% and the stock entered the FTSE 250 for the first time last week, though Keystone was a backer long before it listed.

It was a holding when Invesco star UK equities manager Mark Barnett ran the trust, before he handed over the reins to Goldstone in 2017.

Barnett still holds AJ Bell in his Invesco income open-ended funds – it accounts for 3.7% in both the Invesco Income and Invesco UK Equity Income funds, according to the latest factsheets, along with a 1.4% position in his Invesco High Income fund, according to the annual report.

Goldstone continued to back the funds supermarket and was a fan of its low fee structure in giving it a potential competitive advantage as it seeks to challenge the dominance of Hargreaves Lansdown.

He also liked that AJ Bell offered its platform to financial advisers and invididuals managing their own investments. This allowed investors to take less of view on which side of the advised or non-advised market might dominate in coming years.

‘At the moment with advice, there are always people seeking advice for pension transfers but there's also a big market in DIY and you don't have to decide today which of those strands will be most successful because you get both with AJ Bell,’ he explained.

A strong trading update in January, saw customer numbers on AJ Bell’s platform increase by 4% in the final quarter of 2018, with 7,285 new users to the service. Platform inflows increased by 20% to £1.2 billion at the end of last year, up from £1 billion for the same period in 2017.

Value turnaround


Goldstone (pictured) changed a number of holdings when he took over the trust two years ago from Mark Barnett in order to make the portfolio more like a pension fund he also runs.

However, in the past year the trust has underperformed. Shareholder total returns fell 8.2% with a 7.6% decline in underlying net asset value, compared to a 3.8% fall in the FTSE All-Share index. However, he has maintained a healthy 3.5% yield in his time as manager.

He suggested the value style being out-of-favour was a key reason for this. Like Barnett, had also tilted the portfolio towards domestic cyclical and financial stocks as these looked cheap post-Brexit, which also played a role as uncertainty continued.

‘The market has decided not to re-rate those companies till we have more clarity,’ he said. ‘Value in the UK has been more difficult but also globally it's having really tough time.’ 

But he added value stocks had been out-of-favour for an 'unprecedented' period of time when considered as part of a historical pattern of market cycles and was 'excited' about its eventual snap back. 

'A lot to play for' in tobacco

Goldstone also disagreed with criticism of the traditional tobacco stocks that their vaping products failed to compete with the likes of Juul, which currently had a 75% share of the US market.

He believed there was still ‘a lot to play for’ in the vaping market for the likes of British American Tobacco (BATS), a 2.1% holding in his trust and Imperial Brands (IMB), which accounted for a 1.3% position as of Keystone’s year-end report in September.

He argued that much of Juul’s market share came from teenage users, a trend US Food and Drug Administration looked to crack down on, under commissioner Scott Gottlieb who stepped down earlier this month.

Both BAT and Imperial offered similar products to Juul but had better controlled distribution, more effectively ensuring vapes did not find their ‘way into the hands of all those young people’, he said.

For this reason, Goldstone said Juul’s dominance of the market did not represent ‘real share’, adding that this would also be affected by US tobacco giant Altria (MO.N) taking a 35% stake in the business in December.

‘So I think when the market settles down…it's almost like the transition from combustibles to vaping as the landing point for the people that are addicted to nicotine but there's a safer way to consume it,’ he said. ‘Once we're back into that being the target market, I think [BAT and Imperial] have got very credible products.’

While Goldstone was uncertain about the regulatory outlook following Gottlieb’s resignation, he said the gains in tobacco stocks on the announcement reflected a sense of relief about the policy the former commissioner hoped to implement. This included a proposed ban on menthol cigarettes, limiting the amount of nicotine in cigarettes and regulating the distribution of flavoured e-cigarettes. 

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