Nick Train: My 3 Top Investment Themes

VIDEO: Nick Train talks about the three big themes dominating the Finsbury Growth & Income investment trust portfolio

Holly Black 22 September, 2020 | 11:30AM

 

 

Holly Black: Welcome to Morningstar’s “3 Stock Picks”. I'm Holly Black with me is Nick Train, he's manager of the Finsbury Growth & Income Trust. Hello.

Nick Train: Good morning to you Holly.

Black: So we're not doing three stocks today. We're doing three themes in the portfolio. Where would you like to start?

Train: As a long term follower of the UK stock market, there was actually for me a really shocking realisation in 2020. And that was the realisation that just one US technology company, Apple, just one US technology company is today worth more than the entire UK stock market put together. And, to me, I'm not sure I needed the wake up call. But it was another really stark reminder that if you want to achieve investment success for your clients. As we get into the third decade of the 21st century, you have to be invested in companies that are going to be digital winners. I just don't think that there's any alternative to looking to populate your portfolio as intelligently as you can with companies that are going to be able to exploit this new transformative technology. So, to me, that's the most important part of Finsbury’s portfolio. Today we have something like 40% of the portfolio invested in UK companies, but UK companies that we think have a credible digital strategy. I've mentioned The London Stock Exchange in our earlier exchange. I'd also highlight what I think is one of the U.K.’s unique and very valuable companies RELX, which is arguably or we would argue, the leading business-to-business data company, not just in the UK, but in the world.

Black: So, I think a lot of people might be surprised that 40% of the portfolio is in digital as a theme because most people might not associate the UK with tech. We think of the Nasdaq for that, but you clearly think differently.

Train: Well, again, as a career investor in the UK stock market, it's a source of disappointment to me, as I'm sure it is for many UK citizens who have patriotically, let's say, invested in the UK stock market. It's a great disappointment that the UK for whatever reason, hasn't created these gigantic global digital champions. But that doesn't mean that the UK isn't an entrepreneurial, scientific, innovative economy and culture.

Black: Okay, let's move on to theme two, which is big, trusted brands.

Train: We’re particularly drawn, and again, this is another very, very long term theme for us. We're particularly drawn to beverage brands, soft drinks, beer brands, spirits brands that people have drunk for generations, and look quite likely to continue to drink for generations into the future. So, just to pick up an important holding for us and actually one that's not done so well for us this year, Diageo. But I don't think there's any debate about this. Diageo is the best collection of alcoholic beverage brands in one company that exists anywhere in the world. We're lucky that it's a UK company. And it's quoted on The London Stock Exchange for a whole variety of reasons of which Covid is a very important one. Diageo shares today, are down something like a quarter from their peak. That's okay. Obviously, it's just our opinion. That's an incredible opportunity to invest in brands of the caliber of Guinness or Johnnie Walker or Tanqueray, because those brands are going to be around not just next year, but in fact, probably in 50 years, those brands are still going to be around. And that's sort of permanence and durability, that's how you protect wealth and you continue to get rich steadily.

Black: And moving on to your final theme, and it's still kind of in the consumer area, but luxury and the premiumization of products is something that you invest in as well.

Train: I think it is evident as we get deeper into the 21st century that consumers are becoming more choosy. They care more about provenance. They care more about heritage, they care more about the products that they eat or wear doing good things in the world. You know, again, we have a number of investments here, of which the largest single holding is Burberry. Again, a very valuable, very rare asset. There's probably only six companies on the planet that have the same sort of luxury heritage that Burberry has, and it happens to be a UK company. It's the only luxury company quoted on the UK stock market. A relatively new holding initiated you said earlier, we don't often change things we occasionally take advantage of share price weakness. A new holding for us that I think really fits the theme well is Fevertree. Fevertree share price got hit very hard at the start of 2020. We've been following it for five years hoping to find an access point, here was an access point. And actually Fevertree really I think it well understood the premium nature of that product is hugely attractive to consumers, and it should be therefore to investors as well.

Black: Five years, that is incredibly patient of you to wait, was that frustrating?

Train: Everybody has a bench, don't they have all, new possible ideas and you just wait, you just wait for a setback or a misapprehension about a business or that's the way that we try to do it and yeah, you know, Fevertree, 18 months ago was trading at £37, which we thought was too expensive. You know, we were able to buy some at £9 in March. And yeah, good things do come if you're prepared to wait.

Black: Nick, thank you so much for your time. For Morningstar I'm Holly Black.

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.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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