Nick Train Backs "Survivor" Stocks

Veteran investor Nick Train tells investors in his Silver-rated Finsbury Growth & Income Trust that strong brands and low debt are crucial to companies ability to survive

James Gard 16 April, 2020 | 11:12AM
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Nick Train

Fund manager Nick Train says the resilient performance of his Finsbury Growth & Income Trust (FGT) during the March sell-off supports his philosophy of owning strong companies with low debt and loyal customers.

In a monthly update to investors, he says recent stock market volatility has put a premium on “survivable” companies, ones with strong brands and good balance sheets. That has helped the investment trust comfortably beat the index – Finsbury’s share price was down 4.4% in March against a 15.1% fall for the FTSE All-Share. Year to date the trust's share price, which has a Morningstar Analyst Rating of Silver, is down 16% from 905p to 757p, whereas the index is down 27%.

Train says the starting point for his investment process is always the question: “Is this business still going to be around in 10 years’ time?”, and this is especially relevant in the current uncertain environment.

The trust's portfolio is concentrated, with just 22 holdings - the manager is renowned for rarely adding new names. Among these, Train points to RELX (REL), Sage (SGE) and London Stock Exchange (LSE) as examples of companies with loyal customer base and reliable subscription revenues for services that “customers need to stay in business”.

Strong brands are another favourite attribute of Train's investments, evident in his holdings in food and drink companies such as Diageo (DGE), Cadbury's-owner Mondelez (MDZL) – and premium mixer drinks firm Fever-Tree (FVR). The trio have proved resilient even despite a global shutdown of pubs and restraurants, says Train: “As the world hunkers down to isolation, beer and gin offer solace (always only in moderation) … and consumption of chocolate actually increases during economic downturns, as people turn to comfort treats.”

Companies with no debt are also better prepared to hold up during a crisis, and Train flags holdings in asset managers Schroders (SDR), Rathbones (RAT) and Hargreaves Landsdown (HL.) here. “We have always been attracted to companies with conservative balance sheets and even better those with positive cash balances,” he says.

Stay Invested - and Don't Time the Market

“A lesson from previous episodes of stock market panic is that it is impossible to identify the bottom and almost as difficult to get money invested after the market has turned,” says Train. At the trust’s AGM at the end of February – before the coronavirus crash – he insisted that market timing is “impossible” even for professionals, and it’s better to remain fully invested to take part in any rally. The veteran investor is known for his buy-and-hold approach and for running winning stocks for as long as he can. Indeed, he has previously said his ideal investments are so-called 100-baggers, those which return £100 for every £1 invested.        

Stock markets rebounded sharply from their March lows; indices entered a bear market in record time but their strong recovery has taken many investors by surprise – the Dow Jones, for example, is up 5,000 points since March 23 at 23,500.

“Being fully invested means the portfolio will participate in any eventual rally and recovery,” insists Train, although he is not keen to take on further risk by increasing gearing, a form of borrowing that trusts use to enhance returns on the upside.

Lindsell Train funds overall have proved resilient in the sell-off – Lindsell Train UK Equity, which has a Morningstar Analyst Rating of Bronze, was the best performer against its category in March.  While the fund still posted negative returns in March when stock markets were at their most volatile, the -6.33% monthly return was more than 13 percentage points higher than the average return loss of funds in the UK Flex-Cap category.

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.

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James Gard  is content editor for Morningstar.co.uk