Nick Train: ‘the Americans have discovered Guinness!’

Lindsell Train UK Equity and Finsbury Growth & Income manager Nick Train sits down with ii’s Sam Benstead to discuss his investment approach.

He speaks about a recent period of underperformance and what he’s doing to boost returns, as well as the impact of activism in the UK trust space. Train also discusses Diageo, which is one of his largest positions, and why the shares can bounce back.

Lindsell Train UK Equity is one of ii’s Super 60 investment ideas.

• Invest with ii: Top Investment Trusts | ii Super 60 Investments | Open a Trading Account

Sam Benstead, fixed income lead, interactive investor: Hello and welcome to the latest Insider Interview. Our guest today is Nick Train, who manages Finsbury Growth & Income Ord (LSE:FGT) investment trust and the WS Lindsell Train UK Equity Acc fund. Nick, thank you very much for coming into the studio.

Nick Train, manager of Finsbury Growth & Income and Lindsell Train UK Equity fund: It’s my pleasure Sam, I think. Let’s find out.

Sam Benstead: Performance over the short run has been disappointing and that’s something that you’ve apologised for. So, why have returns lagged the benchmark and what could be a catalyst for better returns?

Nick Train: It’s been such a privilege for me over my career to have the responsibility, the stewardship, of other people’s precious savings. And I know how precious people’s savings are because my savings are also invested in these strategies that we’re talking about.

It’s both disappointing and almost mortifying for me that for a period of time we can’t keep up with an index, that we can’t make money. Maybe people disagree with me, I don’t know, but I just feel that when you can buy a tracker fund and get index performance, and we don’t do as well as a tracker fund, personally, I feel disappointed by that and I feel that I should apologise for it.

I hope, in what I’ve said now and what we’ve written, people recognise that the commitment, the energy that we put into getting it right, it’s still there and there’s no complacency. Markets are tough and they will find ways to bite you. I think part of the issue, looking at it completely candidly,  and this is something that all investors should be aware of, sometimes your greatest successes become the basis for your subsequent disappointments.

We talked about Diageo. I look at Unilever (LSE:ULVR), which has been a bit disappointing over the last two or three years as well. We’ve owned those for nearly a quarter of a century, actually probably longer, at Lindsell Train. And, actually, if you’d held them for a quarter of a century, you would be delighted. They’ve done really well.

But they haven’t done so well over the last five or six years. And we’ve needed to think through why they’ve not done so well and decide whether we’ve been willing to stick or add or exit, and that complex of consumer-branded goods companies that had all done so well, we’ve had to consider.

• Watch our video: Nick Train: ‘generational’ opportunity to buy UK growth firms
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Sam Benstead: So, sticking with these companies, what could be a catalyst for a turnaround there?

Nick Train: At the moment, the big concern about Diageo (LSE:DGE), as I understand it, is that its biggest profit generator, which is North America, has been a bit disappointing. And there are uncertainties about alcohol consumption in North America.

But the fact is that Diageo derives nearly half its profits from the United States and the US is, by common consent, the most dynamic, technologically advanced, strong population growth, wealth-creating economy on the planet.

I think that it wouldn’t take a great deal - I don’t know when or quite how - for people to suddenly say, at the moment they are saying, ‘Diageo has got a problem because half the profits come from the US’. Well, maybe in 18 months’ time people will say, ‘Do you realise that Diageo gets half its profits from the US? The economy is growing, people are back in the bars, premium tequila is going gangbusters. Oh, by the way, the Americans have discovered Guinness’, which they have. Guinness is growing very strongly in the US, as it is elsewhere in the world. Guinness is becoming a major brand in the US. We need to buy, we need to invest in this company. So, that’s kind of what I would hope for.

I don’t want to talk about politics. I don’t want to talk about individual politicians, but conceptualising what the current president of the United States wants, which is a strong US economy and a strong dollar, that is a massive strategic benefit for Diageo over time.

Sam Benstead: Is this one of the hardest periods of your long investment career, and what lessons from your career are you applying now to manage money well in 2025?

Nick Train: I observe that in different phases of stock market cycles, experience can be the most valuable thing. And at other times, and this is true, experience can be a huge drag on performance and decision-making. There are times when you need a brand new perspective, and that’s much better brought to bear by a younger individual, do you know what I mean? So, I don’t know. I don’t know actually how valuable my experience, or anybody’s experience, is.

What I do know is that to the extent that we have a chance of meeting our aspirations, we have to adhere to the stated process that we have. And you’re kind enough to say that the long-term track record is still competitive. Let’s hope we can keep that longer-term track record going, although that means better performance this year and next year.

That long-term track record has come from running a highly concentrated portfolio focused on investments in what are clearly substantive, world-class companies. And I think when you look at Finsbury’s portfolio today, I actually don’t think anybody would disagree that what we’re invested in, it’s definitely concentrated and it’s definitely concentrated on what are clearly world-class companies. In the past, that’s been a very rewarding thing for my investors. Let’s pray for everybody’s sake that it proves to be the case in 2025 and beyond.

• Final Baillie Gifford investment trust rejects US activist
• Could ‘Bed & ISA’ spare you a hefty tax bill?

Sam Benstead: The trust Finsbury Growth and Income is on a -6% discount, and it’s traded a premium in the past. One of the big themes in the investment trust world at the moment is Saba Capital, a US activist hedge fund looking to close discounts on a number of investment trusts. So, has this changed how you approach the discount, and what is the board doing to narrow that discount?

Nick Train: I don’t think specifically the advent of the hedge fund that you’ve mentioned, I don’t want to say the name, really, affects the board’s thinking. Finsbury has been a dedicated and committed ‘buybacker’ of shares. What’s the right terminology for that?

The company has bought back a lot of shares and buys back shares regularly, and I think that the board deserves tremendous credit for their willingness to retire equity. Every time they buy back shares, they increase the value of the remaining shares for those shareholders who haven’t sold.

We’ve been talking about disappointing performance. Actually, I think I’m allowed to say this, over the last three or four months, performance has been rather better. And as a result, both the NAV and the share price have gone up. And what it means is that the board has retired a lot of shares at a lower share price than today. That’s hugely accretive for shareholders who don’t sell. And I encourage the board. I know the board will continue to behave in that shareholder-friendly way.

Listen, it’s been quite an extreme instance over the last year of activists on investment trust share registers, but it’s not new. For as long as I can remember, underperforming investment trusts, I’m not saying any or all these were underperforming, but underperforming investment trusts have always attracted potentially hostile stake-building.

And what I would say as an investor in an investment trust, is that one of the major competitive advantages that investment trusts offer you, that there is often a market-sanctioned discipline for disappointing performance, which is that if it goes on for too long, somebody’s going to step in and make boards create value for owners. So, I think that’s a feature of investment trusts, and it’s one that investors should be grateful for.

Sam Benstead: On the topic of governance, there is a continuation vote scheduled for early 2026 on Finsbury Growth & Income. So, why is there a vote and how would you urge shareholders to vote?

Nick Train: I would say read the report and accounts and see what the chair has said. It’s his and the board’s decision. And I would urge shareholders to vote in a way that they think maximises the long-term value of their investments.

• ISA ideas: around the world in 10 funds in 2025
• ISA ideas: experts name a dozen funds that consistently deliver

Sam Benstead: You run two UK portfolios, Finsbury Growth & Income is the investment trust and Lindsell Train UK Equity is the open-ended fund and that’s a member of our Super 60 ‘best buy’ list. So, what are the differences between these two vehicles?

Nick Train: They’re both my babies. I love them both. It’s a matter of public record that my own personal investment is in the shares of the investment trust. That is in no way disparaging the investment opportunity presented by the open-ended fund. But what I would say is that the open-ended fund, of course, offers instant liquidity at NAV. And if that is of importance to an investor, then the open-ended vehicle is superior.

I’m not proposing ever to sell my shares in Finsbury Growth & Income trust. Therefore, I don’t need the liquidity and therefore for me to access the shares at a modest discount to net asset value, it just enhances the long-term return that I’m hoping to earn for me and my family.

Sam Benstead: And finally, although it’s something that we’ve touched on already in this interview, do you personally invest in your portfolios?

Nick Train: I do, I do, yes. I have been talking about that a moment or so ago. I mentioned earlier that it’s such a privilege to have this stewardship, responsibility, for other people’s savings. One of the ways, I hope that I’ve responded to and thanked investors for that privilege is by committing my capital alongside those other investors. And I’ve no doubt that, proportionately speaking, I personally have more of my net worth invested in this UK equity strategy than anybody else.

I bought a few shares actually yesterday. I told my wife and she asked why I had done that. And I said, well, because I think really that it’s a great investment opportunity. I mean, the poor performance, the fact that the NAV has gone sideways for three or four years, in my mind that’s a big opportunity. It’s an investment opportunity. But that is my way of saying to fellow investors how grateful I am for the privilege they’ve given me to look after this capital.

Sam Benstead: Nick, thanks very much for coming into our studio.

Nick Train: It's been delightful, thank you.

Sam Benstead: And that’s all we’ve got time for today. You can check out more Insider Interviews on our YouTube channel where you can like, comment, and subscribe. See you next time.