Nick Train: I Want 100-Baggers

The manager of the Gold-rated Finsbury Growth & Income Trust doesn’t want to take profits from his top-performers – he wants them to keep growing

Holly Black 15 May, 2019 | 2:13PM

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Nick Train is well known for his buy-and-hold approach to investing. Since 2011, he has only introduced three new stocks into the Finsbury Growth & Income (FGT) investment trust portfolio. It has been two years since his last new investment.

“I’m never sure if that’s admirable constancy or a momentous failure of our research,” says Train, who has run the £1.7bn trust since 2000.

A common strategy within investing is to take profits from your top-performing investments and plough them back into those that have underperformed, but Train doesn’t believe in this approach. He wants his 20-strong portfolio to be full of so-called 100-baggers, stocks which return £100 for every £1 invested, and he’s confident that he can achieve it.

“I’m not about to sell shares in Diageo just because it’s had a really strong run in the last six weeks and invest in something that’s underperformed. We’re waiting for the 50-bag,” he says.

Certainly, a number of his holdings are on track to deliver such performance. Shares in Diageo (DGE), the biggest holding in the portfolio accounting for 11% of assets, are up more than 70% over five years, Unilever (ULVR) 72%, and RELX (RELX) 95%.

Train’s trust has trounced rivals in recent years, delivering a return of 89.5% over five years compared with a sector average of 26.4%. Since he took the helm, it has delivered an annualised return of 11%. Train says he and co-manager Michael Lindsell have been “bewildered” by their success. “Frankly we haven’t the faintest idea whether this kind of performance is sustainable. We would guess almost certainly not.”

The strategy which has generated such strong returns could easily have yielded terrible results, he admits. The trust is incredibly concentrated, with just 20 holdings – the top 10 account for more than 80% of assets. “It gets worse, too”, says Train, who points out the portfolio is also incredibly concentrated in terms of sector, with all of its investments spread across just three areas: consumer branded goods, media and software, and asset management companies.

Is Unilever Boring?

Even despite the trust’s strong performance, Train says investors regularly question his decisions. Some have branded Marmite-maker Unilever as boring and said his investments in brewers such as Diageo and Heineken could get left behind as younger generations drink less.

“Would that we had more boring investments like Unilever,” is his response. The share price is up 19-times since 1988 and he is optimistic about its focus on the beauty and personal care part of the business, which now accounts for 40% of group sales.

Meanwhile, groups such as Heineken are staying relevant through sales of their 0% alcohol options and tapping into a shift towards quality not quantity among many younger drinks. “There is little evidence of this phenomenon that people aren’t drinking,” says Train. “Sales of Heineken grew 8% last year, that’s as fast as it’s grown in the past decade, so the company is doing something right.”

One area he is particularly excited comes through his investment in football club Manchester United (MANU), the most recent addition to the portfolio, added in 2017. While the club’s share price is down over the past year, Train believes that the growing competition among outlets for televising sport makes this a long-term opportunity. He believes global internet giants will be next into the fray to fight for the rights to broadcast events that attract billions of eyeballs across the globe. “We didn’t invest because we have a view about how the club will perform as a sports team but because we want access to the extraordinary influx of new capital into the industry,” says Train.

Morningstar analyst Peter Brunt says the five-star rated trust is a “standout choice” for investors who are comfortable with its highly concentrated approach. He says: “The crux of Train’s investment philosophy lies in the belief that a highly concentrated portfolio of high-quality, cash-generative, strong and easily understood business franchises will outperform the market and reduce volatility over the long term.”

Of course, not every investment is a success. Beleaguered education publisher Pearson (PSON) has held its position in the portfolio despite dragging on performance for some time. Shares in the group are down around 30% over five years. Train says: “The problem with being a patient, long-term investor is that you have to stay invested even when it’s very unpleasant. There are some occasions when the underlying investment case unravels entirely, and you’re left looking like a fool.” He is sticking with the stock for now, however, ever optimistic that his quest for another 100-bagger will succeed.

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
Diageo PLC3,318.50 GBP0.00
Finsbury Growth & Income Ord901.01 GBP0.34
Manchester United PLC Class A18.79 USD0.00
Pearson PLC804.20 GBP0.00
Unilever PLC4,857.00 GBP0.00

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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