Nick Train’s performance boosted by three stocks hitting record highs

The past two years have been a challenging period for the investment trust, so the recent pick-up in performance will be welcomed by shareholders.

Veteran investor Nick Train described recent performance as “encouraging”, as Finsbury Growth & Income (LSE:FGT) reported its latest half-year results (to 31 March 2023).

Over the period, the investment trust saw the value of its underlying investments – the net asset value (NAV) – rise by 12.3% and its share price total return come in slightly higher, at 12.5%. This was in line with its benchmark, the FTSE All-Share Index, which rose by 12.3%.

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The past two years have been a challenging period for the investment trust, so the recent pick-up in performance will be welcomed by shareholders.

Last May, Train issued an apology on the back of Finsbury Growth & Income undershooting its benchmark.

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 has negatively impacted the way Train invests, which is to back well-established growth companies that are dominant players in their respective industry or sector.

Such companies Train favours typically have big brands, intellectual property, and captive customers due to providing essential products or services. These firms are classed as high-quality growth stocks, and typically have high price tags in terms of their valuations. 

In addition, certain sectors of the market that Train does not invest in, particularly oil and mining companies, have seen their share prices soar over the past two years on the back of higher raw material prices. This has proved a headwind to performance versus the index.

However, despite Train’s investment style being out of favour, the six-month period saw a number of his stock selections pay off, with three holdings hitting all-time share price highs, namely Burberry Group (LSE:BRBY), RELX (LSE:REL) and Mondelez International (NASDAQ:MDLZ).

In common with other luxury goods stocks, Burberry’s strong pricing power has proved to be resilient against a backdrop of high inflation. This trend has also helped boost the performance of Terry Smith’s Fundsmith Equity fund.

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Train commented that Burberry is “well-positioned to benefit from wealth being created, notably in Asia and the Americas”.  

RELX, the professional information and analytics firm, reported a stronger-than-expected set of final results, Train noted.

In the case of Mondelez, the owner of global confectionery and biscuit brands such as Oreo, Milka, Toblerone and Belvita, Train said that it is a “predictable business” given that “the world loves chocolate”.

He said: “It is interesting to note Mondelez has now outperformed the Nasdaq over the five years to the end of March 2023; a period that contained both a big bull market for tech shares and a subsequent sell-off. My point? Although finding tech winners is a worthwhile exercise, it is also risky and that holding a predictable business like Mondelez makes sense for part of a portfolio too.”

In providing an outlook for the months ahead, Train said his “basic economic assumption is that things for the world (including the UK) will keep gradually getting better”.

He added: “We expect technology will deliver productivity gains and drive steady GDP growth everywhere and the fruits of that growth will be spent by consumers on products and services that improve their quality of life. 

“The assumption may indeed be trite, but at least it provides an uncomplicated backdrop to investment decision-making. And that usefully discourages us from excessive trading of your portfolio, based on guesses about the ups and downs of economic life. 

“Much more importantly, if you work with our assumption then the business performance of the companies in your portfolio and their share prices in the first half of the company’s financial year are not a surprise, but they are encouraging. Things really do seem to be gradually getting better.”

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Train, who seldom trades, recently bought more shares in Experian (LSE:EXPN)due to “temporary share price weakness” brought about by the market reaction to the banking turmoil.

He said: “As a credit bureau there is certainly a correlation between banks’ use of Experian’s services and their ability to extend credit (which would be compromised if problems in the bank sector are deep-seated).

“Economic history is littered with brief panics associated with bank runs, most of which are localised and soon forgotten. We hope this is a similar episode and have been adding to Experian through this temporary share price weakness.”