Finsbury Growth & Income (FGT): Has Nick Train lost it?

I noticed Nick Train’s Finsbury Growth & Income investment trust had trailed last year’s market:

FGT’s share price currently sits where it was in July 2019…

… and six months from now the trust’s three-year performance may not be attracting many investors.

Longer term of course, Mr Train’s long-term buying and holding of quality companies has performed well:

But it’s always worth double checking what FGT has been doing – just in case something is up.

FGT’s 2020 and 2021 annual reports provide handy portfolio details:


My tables below show FGT’s main purchases for the years to Sept 2020…

Share Purchase price (£) Recent price (£) Change
Unilever 43.87 39.35 (10.3%)
Diageo 27.02 38.75 43.4%
Heineken 113.06 83.49 (26.2%)
Fever-Tree 12.73 25.60 101.1%
Experian 28.52 34.14 19.7%

…and Sept 2021:

Share Purchase price (£) Recent price (£) Change
Diageo 26.49 38.75 46.3%
RELX 17.20 22.33 29.8%
Fever-Tree 23.48 25.60 9.0%
Experian 29.84 34.14 14.4%

So Mr Train has not been buying complete duffers. The largest disappointer, Heineken, is down in part due to GBP-EUR fluctuations. ‘Safe haven’ Unilever was in hindsight not the best stock to pile into when the pandemic created many ‘recovery’ opportunities elsewhere (e.g Fever-Tree).

Mr Train’s big investment idea of 2020-21 seems to be Experian. He writes in FGT’s 2021 annual report:

Experian is one of the newer holdings in the Company, initiated in mid-2020. It is, like RELX and LSE, a globally important data/ analytics company that happens to have its primary listing on the London Stock Exchange. Frankly I should’ve invested in it years ago, but finally the pleading of my younger colleagues prevailed and we are now building what I expect will become one of the top holdings in the portfolio.

All fair enough. But he seems to have paid 30x or more for the stock…

EXPN sharepad daily pe

…and the danger is the share price treads water as earnings catch up with the valuation.

FGT’s portfolio value declined by £169m during 2020 and rebounded by £164m during 2021 giving a net decline of £5m.

The biggest gainers and losers in absolute monetary terms during those two years were:

Share Change (£m)
Diageo 27,351
Remy Cointreau 26,009
RELX 24,885
Schroders 23,032
Fever-Tree 14,602
DMGT 12,217
HL (45,601)
Unilever (34,966)
Burberry (23,740)
Heineken (20,743)
Euromoney (12,776)
Other 4,855
Total (4,875)

A possible explanation for FGT’s modest progress is that some of the quality names held (e.g. Hargreaves Lansdown, Unilever Burberry) are presently pausing for breath after their past valuations became too optimistic.

Form this quick look, Nick Train has not obviously lost it. I doubt anyone two years ago would have predicted Diageo strongly outperforming Unilever and Schroders strongly outperforming HL. As well as the laggards recovering, Mr Train requires larger standstill holdings such as the LSE, Mondolez and Sage to pick up.

Mr Train’s latest factsheet (
FGT_Factsheet_November_2021.pdf (295.8 KB)
) does not suggest his LTBH style will be changing:

We have held Remy since 2015 and it has, thankfully, been a wonderful investment – its shares quadrupling over the period. The investment case is simple – there is a strong correlation over time between growing global wealth and the consumption of premium cognac…

I remember when we first bought shares some clients wondered if Remy wasn’t “expensive”, because its P/E was higher than the sector and market averages. It transpires Remy wasn’t expensive in 2015, because growth has been delivered, but also because consumers’ growing propensity for luxury and aspirational products and experiences promises to keep on growing. So, although Remy’s shares continue to look “expensive” today, we expect they are not actually so and, indeed, we continue to add to the holding.

So patience required. Anyone here keeping the faith and holding FGT?

Maynard

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Maynard, thanks for the helpful write up. FGT is one of my ITs. With a concentrated portfolio there will always be volatility from year to year. I still think that over any reasonable term, say 5-10 years, FGT has a very good chance of outperforming. Ironically, I would only sell if Nick Train suddenly changed his approach. He explains himself well in fact sheets and annual presentations. The only investment I don’t really understand is the LSE, which is in the process of migrating from an exchange into and information business after a large acquisition. Too complex and profound a change for me. Thanks MTIOC

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Hi Maynard, I agree with your basic point. 1yr is far too short for any meaningful conclusions and my guess is Nick Train and his team haven’t lost the plot just yet.

However, if the trust underperforms over one and three years then a lot of investors might exit the “sinking” ship in which case the discount might become attractive.

John

I pondered the question of whether Nick Train might have lost it as I listened to him telling us about Burberry’s recent foray into the NFT space towards the end of the FGT AGM video.

Nick tells us that Burberry recently collaborated with a video game company to create non-fungible tokens (NFTs) representing game characters dressed in Burberry gear. These tokens were sold to players who could then use the Burberry styled character in the game.

Two things surprised me about this. The first thing was that this was happening at all and just how successful it had been. Burberry’s NFTs (being sold for $300 each) sold out within 30 seconds.

The second thing that surprised me was that Nick Train thought that this was both “encouraging” and “smart and interesting” and chose to highlight it as part of an investment thesis.

The use of NFTs in video games is controversial and unpopular in the gaming industry. Just last week Team17 announced an NFT project linked to the IP of one of its games and days later had to reverse that decision after a significant backlash from its partners and customers. Given the above, I would say that the case for luxury fashion NFTs probably doesn’t lie in video games despite Burberry’s recent success.

Burberry are not the only luxury brand experimenting with NFTs. Dolce & Gabbana recently sold a collection which included NFTs for $6 million. There are also some interesting copyright issues around their use.

My take is that NFTs in the real word (usually representing digital art) are analogous to "The Emperors New Clothes". Prices will at some point collapse. In the virtual world there may be potential value. It may not be in video games given the current backlash in the industry, but there is another potential case - the metaverse. Morgan Stanley believes the metaverse could be the catalyst for NFT’s to become a $56billion dollar market by 2030 in which people pay for NFTs to give their digital avatar representations a unique look.

I however am very miserly. If I ever make it to the metaverse, my avatar will be wearing whatever comes for free. If that means that I’ll be naked in the metaverse, then at least I’ll know I’m naked. Unlike the Emperor.

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