Nick Train: "Run Your Winners. I Am"

Veteran investor Nick Train talks about the new stocks he's added to the Finsbury Growth and Income investment trust portfolio and why he's not changed his strategy in 2020 

Holly Black 25 November, 2020 | 9:06AM
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Nick Train

While many investors may have been tempted to overhaul their portfolio in this year's stock market tumult, Finsbury Growth and Income Trust (FGT) manager Nick Train is keeping one piece of advice in mind: “When in doubt, do nothing."

Train is known for his buy and hold approach to investing, and insists his strategy has not changed this year, even with the volatility and uncertainty brought about by the Covid-19 pandemic.

The Silver-Rated trust focuses on large-cap FTSE 100 companies, with just 23 names in the portfolio, which are focused on four themes including “digital winners” and “aspirational consumer brands”.

Train says: “The shape of the portfolio hasn’t changed much during 2020 and why should it? Those are all winning ideas and we can’t see any reason why that shouldn’t continue.”

Taking Advantage of the Sell-Off

The manager has, however, taken advantage of the market sell-off to add some new names from his wish list into the portfolio. Credit reporting agency Experian (EXPN) now makes up 2% of the portfolio and Train says “there’s more to do” in adding to that. He says: “We see it as one of the UK’s rare, globally significant companies doing something smart with data.”

He also took the opportunity to invest in premium mixer drinks maker Fevertree (FEVR), whose shares fell to a low of 935p in the height of the sell-off and have since recovered to 2449p. Train is known to be a fan of investing in drinks companies and has been a long-time holder of Heineken (HEIA) and Diageo (DGE). He says: “If I had to pinpoint the trigger that convinced me we needed exposure to Fevertree, it was seeing the brand featured in Diageo’s marketing materials. That persuaded us that the Fevertree brand is truly valuable and has a long way to go.”

A top performer among his holdings this year has been RELX (REL), which reported in its third-quarter results that subscriptions to its education journals were up 25% from a year ago. He is also positive on its rapidly growing insurance and risk analytics division, particularly as motorist have now returned to the roads following the first national lockdown.

Elsewhere, accountancy software business Sage (SGE), which has been out of favour with the market for some time, retains its place in the portfolio. “A quarter of all VAT invoices in the UK were processed on Sage’s cloud business,” says Train. “It makes us wonder whether the firm’s transition to a fully-fledged cloud software provider is being underestimated by other investors.”

Run Your Winners

While the UK market has been largely out of favour with many investors since the Brexit vote, Train insists he is never short of investment ideas in the region. “The UK has been a wonderful place for investors. We have an innovative, shareholder-focused society.” He insists that many UK companies are comparable with others around the world but are being discounted for their London-listing. 

Of course, the trust has not been immune from this year's volatility; it is down by 11.23% year to date in share price terms, but that's considerably better than its benchmark, the FTSE All-Share, which is down 22.38% over the same period. And over the long-term the trust has excelled, delivering annualised returns of 13.5% over 10 years, compared with 5.92% from the benchmark. 

Meanwhile, Train remains confident in the investment case for Hargreaves Lansdown (HL). The company’s investment platform caused concern when it crashed earlier this year but Train points to the growth in user numbers, with mobile device transactions growing from 1.7 million a year ago to 4.2 million this year. “There aren’t many UK companies growing at double-digit rates this year,” says Train. The stock retains a place among the fund’s top 10 holdings, accounting for 7.31% of assets.

However, it is London Stock Exchange (LSE) that remains the largest position in the portfolio, with 12.67% of the trust’s £1.5 billion assets invested in the stock. Like other investors in the LSE, Train is waiting to find out whether LSE’s merger with Refinitiv will be approved by the Competition and Markets Authority. “We still see it as being very well-positioned even without Refinitiv, but I would prefer for that transaction to happen,” he says. “We have no doubt that ultimately the LSE’s destiny is to interact more with China and that is the big opportunity and one that is difficult for the US exchanges to pursue.”

But Train’s concentrated approach of holding big positions just a handful of stocks is seen by some as a risky strategy. While concentrated portfolios can deliver stellar returns if the manager picks correctly, a duff stock can derail performance.

Indeed, concerns about over-exposure to single stocks caused Morningstar analysts to downgrade the fund from a Gold to Silver Morningstar Analyst Rating in December 2019. At the time, analysts said: “This trust still benefits from a highly experienced and long-standing manager and a unique, well-structured investment approach. However, concerns over capacity management of the identically managed LF Lindsell Train UK Equity, and accordingly this trust’s ability to maintain purity of process with such a large asset base, have lowered our level of conviction.”

But Train is unconcerned about his concentrated approach, insisting the quality of the business is the most important consideration. “I’ve been queasier about the 1.4% of the portfolio we’ve had in Pearson than the 11% we’ve had in LSE,” he says.

He says the team will not actively add more to a position once it reaches 10% of assets, and will start to actively reduce positions once they get to 12.5%. Train adds: “This piece of advice is simple but so powerful: run your winners. That’s what we’re doing in 2020.”

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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About Author

Holly Black  is Senior Editor, Morningstar.co.uk