Nick Train increases ‘skin in the game’ during short-term performance pain

Meaningful 'skin in the game' ensures fund managers participate both in a fund or trust's fortunes and misfortunes.

While it does not guarantee success, fund managers having ‘skin in the game’ aligns their interests with investors.

At interactive investor, we think it is important for investors to know if their fund manager is eating their own cooking, which is why we ask every manager we interview whether they personally invest in the fund or investment trust they oversee.  

There’s no requirement for fund managers to declare their hand. Currently, only investment trust fund managers with very large stakes (holding more than 3% of the shares) are obliged to report their shareholdings. 

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However, Nick Train, one of Britain’s most well-known fund managers, makes a point of notifying investors when they purchase more shares below this 3% threshold. In an update to the stock market earlier this month, Train said that he had purchased 50,000 ordinary shares of 25p each in Finsbury Growth & Income (LSE:FGT), at an average price of 812 pence per share. As a result, Train now holds 2.2% of the company’s issued share capital.

Train also bought in May, acquiring 25,000 shares at 25p each at a price of 782.4 pence per share.  

The share purchases come at a challenging time for investors with exposure to growth stocks, and the move will arguably give shareholders comfort that Train is also taking the rough with the smooth.

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Train’s investment strategy is to buy companies that have durable brands and steady growth, such as drinks company Diageo (LSE:DGE) and consumer goods firm Unilever (LSE:ULVR).

However, Train pays a high price relative to profits for these companies.

As inflation and interest rates have risen, investors have punished firms that are richly valued and moved into stocks that are cheap relative to earnings. This “rotation” from growth to value shares has hurt Train.

Earlier this year, when Finsbury Growth & Income reported its half-year results (to the end of March), Train apologised for his short-term performance.

In 2022, Finsbury Growth & Income’s share price total return shows a loss of -4.9% versus a return of 0.5% for the FTSE All-Share index, according to FE Fundinfo.

Over longer time periods, including five years, Finsbury Growth & Income is ahead of the index, up 24.3% versus 20.1%.

Train has managed Finsbury Growth & Income for more than 20 years. A couple of months ago he pledged to continue running money for at least another seven years.