Nick Train says the past six months have been the most “turbulent” and “distressing” of his career. The manager of the Silver-Rated Finsbury Growth & Income (FGT) investment trust said 39 years of investing experience had done little to prepare him for the volatility seen during Covid-19 crisis, admitting: “We have never seen anything like it.”
Commenting on the half-year report for the trust, for the six months to March 31, 2020, Train says investors are in “uncharted territory”.
Train is known for his buy-and-hold approach to investing, taking long-term stakes in businesses and rarely adding new names to his portfolio. It’s a strategy that has delivered stellar returns for investors over the long-term; indeed, the trust has delivered annualised returns of 14.41% over 10 years.
In the six months to March 31, which covers the outbreak of the coronavirus pandemic, the trust fell 19.3%. The net asset value of the trust dropped 18.7%, compared to a 22% fall in its benchmark, the FTSE All Share. Anthony Townsend, chairman of the trust, said: “[This] demonstrates the resilience of the companies in our portfolio. The negative return over the period as a whole reflects growing uncertainty in the market about the impact of the Covid-19 global health crisis and the unfinished Brexit negotiations.” Despite the outperformance, Train said he takes “little pleasure” in reporting a negative return for the period.
Don't Expect Big Changes
With just 24 names in the portfolio – and the top 10 investments account for 83% of assets – share price weakness in any holding is keenly felt in performance. But investors in the trust should not expect to see any radical changes as a result of the recent volatility. Train said he was too “focused on the day-to-day demands of guarding shareholders’ capital” as well as assessing the financial health of the companies in which he invests. The portfolio remains fully invested with modest gearing of around 1.5%. Train added: “We have no appetite to take extra risk with the balance sheet. But being fully invested means the portfolio will participate in any eventual rally and recovery.”
Train has spoken recently of assessing the “survivability” of companies and assessing stocks based on the question: is this business still going to be around in 10 years’ time? The veteran investor has long favoured consumer stocks with strong brands, which customers continue to use even at times of uncertainty. Top holdings in the portfolio include chocolate giant Mondelez (MDLZ), Guinness-maker Diageo (DGE), and Unilever (ULVR), the company behind favourite household brands such as Dove and Gaviscon.
But it is the three asset management firms he invests in that has proved to be among the most resilient in recent weeks; Hargreaves Lansdown (HL), Rathbones (RAT) and Schroders (SDR) all have net cash on their balance sheets.
Strong Brands and Subscriptions
Elsewhere, he is also confident in companies with regular, subscription-type revenues that make up around half of the portfolio. These include London Stock Exchange (LSE), accountancy software firm Sage (SGE), and analytics business RELX. “These all benefit from being able to charge their customers at regular intervals for continuing services that, by and large, those customers need to stay in business,” says Train.
Still, the portfolio is not immune to the economic upheaval that a countrywide lockdown has caused. Train has small positions in Celtic (CCP) and Manchester United (MANU) football clubs, which have suffered as sporting events have been cancelled. Pub companies Fullers (FSTA) and Youngs (YNGA) are also feeling the effects of a nationwide shutdown; the two, along with a handful of other names in the portfolio, have already announced plans to suspend their dividends.
But Train was keen to point out that some 47% of the portfolio is invested in “beloved or essential consumer brands” such as premium mixer drink maker Fever-Tree (FEVR) and Carex hand soap creator PZ Cussons (PZC). “It is said that consumption of chocolate actually increases during economic downturns, as people turn to comfort treats,” Train added.
While luxury brands such as cognac maker Remy Cointreau (RCO) and fashion business Burberry (BRBY), which is currently making personal protective equipment, have seen sales slide as footfall has fallen and tourism has tumbled, Train expects “a burst of hedonism on the other side of the virus”, which should aid their recovery: “I look forward to downing several bottles of Louis XIII [cognac] with you all. And I might even buy myself a Burberry trench.”
