Here’s a very brief report on the AGM of Finsbury Growth and Income Trust (FGT) held yesterday (4/2/2016) – there is a much longer one here. This very successful, and hence popular, investment trust is managed by Nick Train and colleagues and has been for many years.
I’ll skip over the concerns about this trust such as the Chairman having too many jobs and there are way too many directors who have been on the board too long, and focus on Mr Train’s presentation. He gave a forceful speech explaining his approach to investment which we can all learn from.
He initially thanked shareholders for the continued privilege of investing money on behalf of the investors, and displayed the performance data last year. The Trust was up by 11.7% in the year to December 2015, while the FTSE-AllShare was only up 1.0%. Annualised return from 2001-2015 was 9.7% versus 4.5% for the FTSE.
Mr Train said that over Christmas he had read Mark Dampier’s book on investment – a recent excellent book. Mr Dampier is apparently teased by colleagues at Hargreaves Lansdown because when the market falls, he always calls it a “buying opportunity”. And it’s true 99% of the time! In the light of difficult conditions in the last 6 months, Mr Train has invested more personally in the company (while unsuccessfully trying to find the bottom of the market). Plus he has initiated a new holding in the fund – the first time in 4 years (purchased Remy Cointreau). He said you don’t need a constant stream of hot new ideas to generate good returns – you just need to be holding good old ideas.
Why Remy Cointreau? Mr Train said that he and Michael Lindsell are alcoholics. They love investing in beer, wine, spirits and even mixers. Rhianna named Louis Treize (a Remy brand) in her recent hit single – it costs £2,000 per bottle (that’s two thousand pounds, not a typo). That reinforces how rare and valuable their brands are.
You can invest in Remy at the same share price as it was 25 years ago. There are few such opportunities around the world, he said. The company is very old and family controlled and they really like such companies. It was founded 292 years ago, but the best times may still be ahead of it.
Mr Train apologised for the dreadful loss of value in Pearson, due to his stupidity. But they have continued to add to their investment in the company. It’s bigger than any of its competitors and it has invested more in digital products than them.
Mr Train also talked about their holding in A.G.Barr – again a family run company. A case of dynastic investment in brand building he noted. He also mentioned Hargreaves Lansdown and Mondelez, and said that the internet is changing the way companies relate to their customers. Two of the best performing stocks they held last year were Hargreaves Lansdown and Sage who are examples of that.
He quoted someone as saying that “investors fear $20 oil”, but Mr Train simply thinks “come on” – there would be nothing better for companies. It’s equivalent to a $3 trillion tax cut. This will sooner or later power growth.
Mr Train mentioned the wisdom of investment guru Ken Fisher. Namely that it is best to be optimistic. The market goes up 55% on average on trading days, 65% on average over a month, and 75% on average over a year. This is a “buying opportunity”!
One shareholder asked about Burberry – another loser in the portfolio – down 25% – do they plan to keep it? Mr Train: Yes it’s a hallmark of our investment process that we are stubborn! He has some doubts about Pearson but has no doubts about the calibre and potential of Burberry. It is one of the world’s unique brands. If he had known Hong Kong sales would fall by 20%, perhaps he would not have invested so much.
Another question was about the valuation of the portfolio relative to the market. Mr Train said he does not know what the correct valuation is of any company. He backs the calibre of the business rather than the valuation. But he does look at the dividend yield and growth rate. It is true the yield on the portfolio has been coming down and also down relative to the market – but the growth has been extremely encouraging.
A shareholder asked about his selling discipline. Mr Train responded that the answer is it’s best never to sell. They try to do as little as they possibly can. They can sell if the valuation becomes absurdly high, or they lose confidence in the business or its board.
In general this was a useful if rather short meeting. Mr Train and his partner clearly run a very focussed investment portfolio – no index tracking here. And he certainly gives his views in a straightforward way.
I share the general admiration for Nick Train’s long-term investment performance. But his dogged commitment to Pearson, which a year ago was Finsbury’s third biggest investment, raises questions in my mind over his ability to assess the quality of some of the managements of the companies in which he invests.
In my humble view Pearson’s problems are just as much to do with its management, as with cyclical causes such as the downturn in US student enrolments, or the structural challenges resulting from the switchover from print to digital of its important text book publishing business.
Nick Train will have had far better access to John Fallon, Pearson’s CEO, than ordinary investors who only have the opportunity of the AGM to assess whether Fallon is the right man for the job to lead Pearson, a global player in the education market.
Train’s continuing faith in Fallon’s stewardship of Pearson raises questions in my mind as to whether he has spent too much time analysing the supposed long-term growth characteristics of the education markets in which Pearson operates, and not enough time in assessing whether Pearson’s management is up to the job of exploiting these challenges.
The following link gives one analyst’s bearish thoughts on Pearson – a view shared by an increasing number of investors.