Nick Train is “encouraged” a high proportion of his portfolio is perceived to be in “growth” stocks as his consumer brands and “digital winners” slid in tandem with the Nasdaq in the January tech sell-off.
Finsbury Growth & Income lagged the FTSE All Share last month, according to the trust’s latest factsheet, with net asset value and shares down 5.4% and 5.3%, respectively, compared to the index which fell 0.3%.
Several of Train’s largest holdings stomached double-digit share price falls over the period, as the tech-heavy Nasdaq posted its weakest January performance since 2009 amid fears of rising inflation and geopolitical tensions.
Though more obvious tech names in the portfolio like enterprise software firm Sage (-14%) and consumer credit reporting company Experian (-15%) were hit hard so were his investments in luxury brands.
Fevertree was the biggest detractor from performance, with shares down 21%, while spirits makers Remy Cointreau and Diageo slid 14% and 8%, respectively. This is despite all three posting rosy trading updates over the month, including a “spectacular” set of interims from Diageo, which showed net sales up 20% and earnings growth of 24%.
Meanwhile top 10 holdings Burberry and Mondelez reported modest share price gains of 3% and 2%, respectively.
FGT has many ‘growing’ companies
Far from being despaired, Train said he was “encouraged” by the pessimistic share price reactions.
“It turns out your portfolio is even more growth oriented than I thought,” he wrote to shareholders in the latest update.
“I am encouraged that such a high proportion of the portfolio is perceived to be ‘growth’, because I certainly intend it to be. Deliberately the portfolio is constructed around companies with strong franchises, strong intellectual property or strong brands, all with the potential for strong profitability and secular growth.
“To the companies mentioned above I would add Hargreaves Lansdown, Heineken and Relx as further examples of major, growing companies in the portfolio whose shares also fell in January, caught up in the growth sell-off. And all these companies are those which we expect will generate business and share price value for FGT into the future,” he added.
Train said the benefit of backing UK growth stocks is they have not been “caught up in a speculative mania”, which has seen the valuations of US companies soar.
“We have been pointing out for months there was a deep value gap between UK and US growth stocks. This is in part explained by the lacklustre performance of the overall UK stock market in recent years, that has prompted asset allocators to divest from the UK, even at modest valuations.
“As a result, we hope our holdings will fall less, recover more quickly and go up correspondingly further, as global investors are inspired to find compelling growth stocks in neglected markets.”
Train tops up holdings with DMGT cash injection
Train added he was able to use cash from the buyout of Daily Mail & General Trust to take advantage of weaker share prices.
In particular, he added to his holdings in Experian and Fevertree which he said have now become “important positions”.
Experian is now in FGT’s top 10 holdings at 5.1% of the portfolio. Fevertree has not yet broken through, according to the latest factsheet, but was 2.6% of NAV at the end of December.
FGT shares currently trade at a 4.5% discount to NAV, according to the Association of Investment Companies.
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