Nick Train: Returns will keep confounding consensus

But the Finsbury Growth and Income manager says there remains a case for looking at UK companies ‘constructively’

Nick Train


December proved a bit of a bump back down to earth for the £1.8bn Finsbury Growth & Income Trust after an inexplicably buoyant November.

The trust’s NAV was down 3.6% on a total return basis in the final month of 2022, having jumped 8.6% in November. As a result, FGT’s share price was down 2.4% in December, while the index returned -1.4%.

Manager Nick Train’s (pictured) closing sentiment in its November factsheet can best be described as cautiously optimistic. “I am not saying that November 2022 marked a turning point in the relative fortunes of the unloved UK stock market; because no one can make such an assertion with any confidence. But I submit it is not idle to suggest that UK equities could offer positive surprises to investors for some time to come. I hope this comes to pass and that our chosen holdings participate fully.”

FGT’s December factsheet, however, heralded a return to the word that has dominated Train’s experience with the trust last year: “Frustration.”

“In November 2022 alone, the FTSE All Share was up 7% and for no apparent reason. But when any index or individual share price has been depressed or out of favour for a long period, that’s what happens.”

But he remains adamant that the “UK stock market is home to some fine companies”.

“As a result, we see no structural reason why the UK stock market shouldn’t deliver attractive absolute and relative returns in 2023 and beyond. That would be a surprise. But it is virtually the definition of financial markets that they deliver returns that confound consensus.”

With the FTSE All Share up 3% at the start of January, Train points to two recent developments that reinforce the case for looking at UK companies constructively.

The first relates to the rumours surrounding a takeover of Standard Chartered Bank. The story broke in early January and its fate is yet to be determined, but Train said, “the revelation that First Abu Dhabi Bank had given serious consideration to making a bid […] shouldn’t be dismissed as an aberration”.

“It should be seen more as an indication of the likelihood that serious corporations around the world are noting the value offered by serious corporations whose share prices happen to have been handicapped by their UK stock market listing in recent years.”

He added: “This is a £20bn institution and there are many other substantive UK companies with similarly disappointing long-term share price histories. That makes the vulnerable to bid approaches.”

The second point is the joint venture and alliance between the London Stock Exchange Group (LSEG) and Microsoft.

“As part of the arrangements, LSEG is to welcome a senior Microsoft executive as a non-executive director and Microsoft [is] to acquire a circa 4% stake in LSEG. The relationship is clearly intended to be more than a casual date,” Train wrote.

Turning to FGT’s holdings, Train noted: “Whatever the share price performance of some of our holdings—and there were some that dismayed me in 2022—the actual business performances of the underlying companies were for the most part satisfactory.”

He said, by value of the portfolio, more than 90% of the holdings increased their dividends during the year, with around 85% either paying a special dividend or instigating a share buyback.

“Only companies with strong balance sheets and cash flows can do this. Share buybacks are particularly valuable for long-term shareholders when the shares repurchased are temporarily depressed, as we hope is the case for many of our holdings.”

See also: Equity income managers size up UK’s buyback bonanza

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