Investment trust manager Nick Train draws on his three decades of expertise, which cover a number of market cycles. Having started his career as an investment manager at GT Management in 1981, he was appointed to run Finsbury Growth and Income in Dec 2000, just a few months after founding Lindsell Train, together with Michael Lindsell. That was a leap of faith on the part of the board, in that the newly formed firm was launched at a difficult time in markets, following the TMT-led crash, but it’s a move that has paid off.
Train’s process managing Finsbury Growth & Income (FGT) is thorough and well-proven over a number of market cycles—another reason for our conviction. It’s an approach that’s been applied consistently and results in a concentrated list of stocks. Train selects companies from the bottom up and looks for unique and strong franchises that can prosper through a number of business cycles. He sells a stock only if he no longer considers it of sufficient quality, or when its growth in value causes it to become too large a proportion of the portfolio, at which point he will trim it.
This process has led to excellent returns, and a Gold Rating from Morningstar analysts. The fund has comfortably outperformed its Morningstar UK Flex-Cap Equity Category peers since Train’s appointment in Dec 2000. Given his emphasis on quality companies, he has also kept risk well in check. The fund’s standard deviation, a statistical measure of risk, is significantly lower than its category average over the mid-, and long term, and that’s despite the use of gearing.
We also like the board’s approach to managing the fund’s discount. They operate a strict discount control mechanism that keeps the fund’s discount below 5%. Conversely, they have been very proactive at issuing shares when the fund has traded at a premium. We like the clear guidance and follow-through on their approach. Further, the board members share a wealth of investment experience and all five members are shareholders in the fund. There are some long-serving directors in situ and we wouldn’t be surprised to see some succession-planning take place in the near future.
One slight hesitation is that, in addition to his responsibilities as a portfolio manager, Train also has duties as a founding partner. However, the firm has thus far stuck to only its core competencies and not tried to gather assets. While there’s a conflict in his role as partner and investment manager, we think this is well-managed and isn’t a cause for major concern. Indeed, we commend the firm for its transparent approach regarding the investment in the firm’s shares in its other listed fund.
All told, we think there is much to like here: an experienced manager, a tried-and-tested process that has delivered excellent returns, and a competitive fee structure.
