Finsbury Growth & Income: Nick Train Dismisses Brexit Risk

Gold rated investor Nick Train dismisses the impact of Brexit on markets, and is optimistic about the outlook for equities - on the whole

Emma Wall 1 August, 2016 | 11:24AM

“Every minute you spent worrying about the effect of Brexit on stock returns was a minute wasted,” says Gold rated investor Nick Train.

“There have been millions of pounds wasted on determining which direction people would vote in, and how it would impact markets, for what?”

The Finsbury Growth & Income Trust (FGT) manager admits that he is rarely pessimistic on markets, but he says he has good reason to dismiss the current political threat.

“We have got a reputation of always being positive on markets but there is a fundamental category error with stock markets and the economy – comments about quoted companies are not the same as comments about macro and vice versa, of course there were dips post-Brexit and we took advantage of that,” he said. “But we are optimistic about equity markets.”

Profiting from Technology by Proxy

What is driving these continued gains? Train points to technology stocks.

“Facebook, Amazon and Google. Three of the biggest companies in the world – and they didn’t exist 15 years ago. We probably have not yet heard the names of the stocks which will be the biggest of the next decade. Technology has revolutionised our lives.”

The potential problem for Train and shareholders in Finsbury Growth and Income is that the trust’s mandate specifies these types of stocks are out of bounds. The emphasis is instead on established companies – many of the holdings have been around for more than 100 years.

Instead he looks to get exposure by-proxy; investing in asset manager Schroders (SDR) which benefits from rising equity markets and heritage names which embrace new technologies. He also holds Rathbones (RAT) and Hargreaves Lansdown (HL.) for these reasons.

“We don’t have the capabilities or mindset to take on the risk of start-up investing, and our approach explicitly states we won’ invest in those sorts of companies. I am not under any illusions,” he admits. “But we can find companies that are innovative within their fields. Look at the success the Daily Mail (DMGT) has had online – that is an extension of what the company has been doing for the past century.”

Another example is Burberry (BRBY) whose social media presence boasts upwards of 40 million followers across various platforms, a success digital marketing strategy for a company founded in 1856. Although this company has seen considerable share price volatility over the past 18 months Train says “there is only one Burberry, a company who is named unprompted on surveys on the world’s most recognisable brands”. Train has bought more in recent months, adding on the market dips.

Taking a different tack Train also seeks out businesses that will not be usurped by technological advancements. Stocks such as A G Barr (BAG), who make sugary soft drink Irn Bru. His collection of alcohol producers also fall into this category; Remy Cointreau (RCO), Fullers, Heineken  and Diageo.

Lack of inflation also adds to Train’s positive outlook – Reed Elsevier (REL) most recent growth figure of 4% may not sound like much historically, but when inflation is 0% or less, real returns look much more attractive.

“We are Gritting Our Teeth Over Pearson”

It is not all good news however. At the trust’s last annual general meeting Train admitted he had come very close to selling publishers Pearson (PSON), and the love affair is still turbulent.

“The shares are down 11% today,” he sighs. “We try to have a disciplined approach to stocks – we have to have conviction; they have to be either a buy or a sell. Pearson is probably the exception to that rule. We have been adding to the holding but through gritted teeth. We had not conceived how worrying a stock it would be when we bought it. Will it be a success? We are more unsure now than ever. But we don’t think at this stage there are any existential risks to the company, we don’t think it will go bust.”

Train is in talks with the board, who have promised certain strategic milestones will be hit over the course of this year, such as an increase of 15% in digital revenues. Train says it is important these are delivered on if he is to continue investing.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barr (A G) PLC623.00 GBX-28.31
Burberry Group PLC2,277.00 GBX14.39
Daily Mail and General Trust PLC Class A776.00 GBX-0.51
Pearson PLC893.20 GBX3.40
RELX PLC1,965.00 GBX-0.03
Rémy Cointreau127.30 EUR-0.31
Schroders PLC3,016.00 GBX1.14

About Author

Emma Wall

Emma Wall  is Editor for Morningstar.co.uk

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