Finsbury Growth & Income manager Nick Train is looking to luxury brands and premium spirits makers to enjoy a resurgence as the UK enters a “roaring 20s” boom period.
Speaking at Frostrow’s investment seminar last week, Train (pictured) remained upbeat about the prospects for the UK market which he noted has even outshone the Nasdaq this year.
“I don’t know if it’s the Pfizer talking but I feel really quite stoked about the much improved performance of the UK stock market in 2021,” he said.
Train went on to say “possibly the world may be experiencing a kind of roaring 20s”. But rather than being driven by the Covid re-opening trade, he thinks a period of “roaring consumer consumption” would be down to the “extraordinary trend of wealth creation by new industries” that have sprung up due to digital innovation.
“If there is going to be a roaring 20s it will be because new technology is creating new wealth and that new wealth is being spent on luxury products and services,” Train said.
Burberry and Diageo part of roaring 20s boom
He highlighted top 10 holding Burberry as one of the luxury businesses which may see a boost as people have more cash to splash thanks to tech driven growth.
Though the British fashion house, which makes up 8% of the portfolio, was “absolutely clobbered” last year during the Covid crisis, Train notes the firm has shown it can rebound from financial crashes. From its nadir in 2008 amid the global financial crisis, Burberry’s share price rose sevenfold over five years as confidence returned and the global economy recovered and Train is banking on it doing the same again.
Burberry’s share price has already risen 48.5% since its low in March 2020 to 2107p but this is still 10% below its mid-January 2020 high of 2329p.
On top of this, Train said investors had failed to appreciate investments made by the current management team over the last three years to shift Burberry’s products and image to the higher end of the luxury market, something which he believes may begin to pay off over the next couple of years.
See also: Nick Train braces for tough period as Finsbury Growth & Income hit by value rotation
Finsbury Growth & Income’s largest holding Diageo is poised to be another beneficiary of “any possible roaring 20s,” Train said. The spirit maker, which was 10.8% of the portfolio at the end of April, has seen its share price more than quadruple over the past 20 years.
While Train noted globally consumers are drinking less alcohol by volume, they are simultaneously choosing more expensive tipples including those made by Diageo and fellow portfolio holding Remy Cointreau.
This is especially true in emerging economies in Asia where premium beverage companies are acting as a “proxy for wealth creation”.
See also: Nick Train fascinated by coronavirus alcohol consumption trends
LSE drags down performance
Despite remaining positive about the UK’s prospects, Train said he was “less than delighted” by the more recent relative performance of Finsbury Growth & Income’s NAV especially over the last six or seven months.
The trust’s share price total return was 12.7% over one year, underperforming both the IT UK Equity Income returns of 40.8% and its benchmark, the FTSE All Share which returned 23.4%, according to FE Fundinfo.
Train attributed poor performance to structural problems, as well as stock specific issues, singling out London Stock Exchange as an example.
LSE has fallen from the trust’s biggest holding at the start of the year to the fourth largest holding at 8.6% after its shares saw one fifth of their value wiped.
Though investors were initially supportive of its acquisition of Refinitiv, confidence in the $27bn deal has waned after LSE revealed the integration would be more costly and complicated than anticipated.
However, Train said that the company is targeting 50% operating margins which seems “to be credible aspirations for an acceleration in revenue growth from 4-5% to 5-7% over the next couple of years”.
Train said the group has turned into “exactly the type of business that UK equity investors have been moaning about the shortage of over the last three or four years of poor or disappointing UK equity market performance”, adding that as a “globally substantive data and analytics business, it is “a very rare company in the context of the UK stock market”.
