Finsbury Growth & Income Trust — 2 videos in collection
In this episode of Edison’s Vantage, Nick Train, portfolio manager of Finsbury Growth & Income Trust, speaks to Neil Shah, executive director and market strategist at Edison Group. They discuss Nick’s large personal stake in the trust and what he has learned since January’s continuation vote. Nick explains why he believes proprietary data businesses such as RELX, London Stock Exchange Group, Rightmove and Sage Group stand to benefit from AI, and covers recent investments in Clarkson, TP ICAP, Spirax Group and Games Workshop Group. The conversation also covers Diageo and Burberry Group, the trust’s gearing and the discount to NAV, and what the UK could do to support companies investing for growth.
Welcome Nick Train. Please tell us about your investment background, why you hold a large personal stake in Finsbury Growth & Income Trust, and how you see the next decade?
Nick Train: The next decade – that’s the important one. Neil, thanks. I don’t want to make this session all about me, but since you’ve asked, I think the relevant thing to say about me is that a long time ago I studied a history degree, and I was fascinated then about what the past could tell us about the future. I’m still fascinated. I’ve been a professional investor for 40 years plus and, just on this point about history, my best ideas over my career have definitely been when I’ve got big historic trends right. Is that enough as an introduction to where I’m coming from?
You’re right, Finsbury Growth & Income Trust is also a historic entity – 100 years old. Sincerely, the biggest privilege of my career is having run it for a quarter of a century. That doesn’t happen very often. I never, ever take it for granted, but I’m still here doing it.
You’re right, I have quite a large personal stake in the company. I’ve built up that stake over the last quarter of a century and I’ve never sold a share. I think there are two perspectives on my shareholding in Finsbury. The first is that, as I expect we’re going to explore, we take risk with Finsbury. We’re trying to generate an exceptional return, and the iron laws of investment say you can’t do that without taking risk. We do take risk, and I wouldn’t feel comfortable if I wasn’t taking that risk myself as well. Actually, I have more personal risk to Finsbury than anybody else, and to me that feels right.
The second thing I’d say – and of course I would say this – is that, since you asked about the next decade, I’m thrilled to have this exposure to Finsbury right now. I think, and let’s hope this comes out in our conversation, that there is a viable chance the next 10 years could be the best 10 years for Finsbury for a very long time. That’s because we’ve got more exposure to secular growth businesses in this portfolio, in my opinion, than ever before.
What have you learned since Finsbury’s January continuation vote, and are you doing anything differently after a difficult few years?
Nick Train: I would just reiterate what I said in my previous answer: it’s a privilege to be in the position that I’m in, and I’ve never taken it for granted. It’s a performance industry. I – and let’s say my team as well – frankly, we’ve not performed for too long. At any point, the shareholders and the board have got to make a judgement about whether or not what we’re doing could work. That’s my attitude. We carry on doing what we’ve always done and we’ll see what comes. If it doesn’t perform, then there will be ramifications, and that’s fine. That’s the way I’ve always looked at this industry and my role in it. It’s a performance game.
Have I learned anything? An observation – I’m not sure what use you can put this to – but I think what I take from the last couple of years, amongst other things maybe, is that the companies that you’re invested in don’t necessarily know any better than you or anybody else what’s coming down the line. You can listen closely to the executives of businesses, observe their actions and sometimes feed off their confidence about the future, but they can be wrong. So what does that mean? It means you’ve got to be perpetually testing your thesis.
Actually, we’ve not sold any substantive investments over the last couple of years. We’ve had a couple go through takeovers, but fundamentally we’ve not had to change our view about any of the businesses that we’re invested in. We’ve been a bit disappointed by their short-term business performance, but the underlying rationale for owning them is, I think, still intact. So let’s hope our patience will be rewarded.
Are proprietary data businesses such as RELX, Rightmove, Experian and Sage beneficiaries or victims of AI, and is Finsbury’s portfolio too concentrated on one outcome?
Nick Train: We’re believers in AI as a transformative technology. In a sense, it’s the same as saying we’re believers in the internet – AI is just the internet on steroids, isn’t it? We think it’s creating enormous opportunities for industries and companies, and we think it’s going to generate a lot of wealth. At some point, it’s going to be very right to be optimistic about consumer spending again, because consumers will have more wealth as a result of this transformative technology.
From the perspective of a UK equity strategy, which is what Finsbury is, we’ve been so keen over the last two or three years to try to find UK-listed companies that offer participation in this – to reuse the word I was using earlier – historic industry shift. And how do you do it within the context of the UK stock market, where we don’t have Nvidia and we’re not going to have OpenAI?
You’ve alluded to the way we’ve chosen to address this, and the market is testing this proposition right now. But let me just say it. There are three components to the AI phenomenon. There are the chips and the computing power. There are the LLMs competing against each other for efficacy and attention. And then there’s the data. Now, the data is a big, overarching concept, but everybody agrees that LLMs are only as good as the data they can train on.
Our perspective is that, as I said, we can’t own Nvidia in the UK, but on the London stock market there are a number of world-class data businesses that aggregate enormous amounts of proprietary data that LLMs can’t get their hands on. And that data is, as you say, constantly replenishing. In theory, that ought to be the source of extraordinary future value. So I guess the thesis we’re testing is: can the data-type businesses we’ve chosen to invest in utilise AI themselves to accelerate the growth rate of their businesses? And the truth is, for all of the ones that we own – the ones that you’ve mentioned – their growth rates have accelerated over the last two years. They are demonstrating that AI is a tailwind, a benefit to their business.
People say that RELX’s legal division, LexisNexis, is vulnerable to AI disruption. We’ll see. But we have to note that over the last two years, the growth rate of that division has more than doubled, from 4% to 10%. And when you look at why the growth rate has doubled, it’s because RELX is successfully selling AI-enhanced services to its captive customers.
London Stock Exchange Group is, on some measures, the biggest supplier of financial data to the world’s financial institutions. Once machines start accessing LSEG’s data, as they’ve begun to – and machines use 10x more data than humans do – you can see the acceleration in the growth rate as AI tools get to work on LSEG’s vast trove of financial data.
Just one more, because it is so important: Rightmove, which you mentioned. The shares have been hit, I get it. But it’s also worth considering that Rightmove has developed its own AI conversational search tool, partly powered by Google Gemini, which is in beta testing at the moment. When visitors to Rightmove use that conversational tool, they are twice as likely to generate an actionable lead for an estate agent as people who aren’t using the tool. It does look as though that company – and indeed this range of outstanding businesses that we’re invested in – is successfully exploiting the new tech.
Now, I’m not dumb enough or hidebound enough not to notice that the share prices aren’t moving with the companies’ performance. And maybe it’s right that AI is just so big, so disruptive, so powerful that in two or three years’ time all of this is going to be irrelevant. But I don’t know what else we can do except observe how the businesses are performing. We’re very sensitive to it. If we see signs that they are losing their franchises, then maybe we’ll change our minds. But right now that’s absolutely not happening.
I feel it’s a fair question on portfolio concentration, particularly on this theme. Maybe we’ve got roughly half the portfolio exposed in one way, shape or form to this big idea. I’m not sure I feel so justified saying this right now, but I think I should say it: we’ve done something very different here. I’m not aware of any other strategy that is trying to capture this potential decade-long growth opportunity to the extent that we have. I feel that if we’re right, we’ve created an opportunity for investors to participate in something that could be very rewarding and very different from the average.
In a sense, looking back over the quarter of a century that I’ve been responsible for Finsbury, that’s what we’ve done throughout. So I’m apologetic to shareholders that it hasn’t worked yet. But I would say to shareholders that what we’re doing is consistent with what we’ve done in the past, and we’ve created the optionality for exceptional performance if it turns out that we’re right. So let’s pray that we are.
Following the takeovers of Intertek and Schroders, what links Finsbury’s investments in Spirax, TP ICAP and Games Workshop?
Nick Train: I’ve never been in the camp that says that because there are a lot of takeovers, it proves an entire stock market is undervalued. I don’t know about that. But what I do know, and feel passionately about, is that the UK stock market is home to many world-class businesses. And the long period of neglect, particularly by domestic institutions, to be honest with you, may have resulted in some mispricing of some truly world-class franchises. So that’s important. In answer to your interesting question about the three companies that we’ve recently initiated or added to, I think they’re all examples of truly world-class London-listed companies that are arguably undervalued. So maybe that’s the common theme.
But this is what I really want to say. We took the view two or three years ago – to quote David Schwimmer, the chief executive of London Stock Exchange Group – that in an AI world, data is more important than ever. That’s his proposition. We already had big holdings in the major data businesses listed on the London stock market. Having maxed out on those holdings, it was interesting for us to think: what other businesses can we find listed on the London market that also have important, growing datasets that might be increasingly valuable as we go deeper into an AI era?
We’ve had a tough time with performance, but one of the relatively few new ideas that has really worked for us over the last 18 months is a company called Clarkson. I don’t know if you know Clarkson – shipping, the world’s number one shipbroker. It’s an important strategic position: it dominates an important global asset class, the maritime fleet. No question, one reason why Clarkson has been successful as a business is that it has a better data asset than any of its competitors. It uses its data, which is constantly replenishing, refreshing and growing, to derive more insights for its clients than competitors can. Clarkson shares don’t trade like an AI data business – absolutely not. But when you look at the business, the data is becoming more important and there are new sources of value from that data. So we’ve been interested in our research efforts to find other businesses with a similar opportunity.
Now, TP ICAP – maybe that’s easier to understand compared to Clarkson. TP ICAP, like Clarkson, is a big broker. It sits in the middle of another huge financial pool of assets: the over-the-counter instruments, which are 20x the size of the global equity market. This company is the world’s number one, with a 45% market share, sitting at the heart of that market. In the process of these transactions, it is creating data, and TP ICAP, like Clarkson, actually has its own specific data division, which is a strongly growing part of the company. Again, it’s not perceived as a data company, but it is a company where data is valuable to the franchise and becoming more and more valuable.
Spirax has millions of industrial components installed around the world today. The company is endeavouring to ensure that every time one of those components wears out, it is replaced with a smart device. Those smart devices generate data, and that data is of enormous value to Spirax and the underlying customer, helping create more efficiencies in their industrial processes. Again, I’m not saying that Spirax is an AI winner, but I am saying it’s a business with a data angle – a great, growing data angle – which is interesting in a world where, if Schwimmer is right, data is more important than ever.
I can’t argue that Games Workshop fits into that perspective. I’d just say, again, it’s a truly world-class entertainment asset that is only just getting going outside its home market of the UK, with potentially decades of growth to go.
How do you distinguish between a great franchise going through a difficult period, such as Diageo or Burberry, and an investment thesis that is breaking down?
Nick Train: Burberry’s doubled, actually, over the last 18 months. You’re right, it did test everybody’s patience three years ago.
At an early and impressionable stage of my career, I got exposed to Berkshire Hathaway and Warren Buffett, and that’s been a blessing for me and my clients over the full sweep of my career – maybe less so over the last five years, but there we are. There are certain Buffett-type qualities that we’ve learned to look for, and that’s what we do. Our performance will judge us.
But to my mind, an absolutely core and crucial Buffett perspective is that, by and large, investors underestimate and undervalue eternal or semi-eternal businesses. Things that can endure for 20 years, 40 years, are actually extremely rare and extraordinarily valuable. Buffett also says somewhere else that no business grows in a straight line. He says even a great business will have its share price halved at some stage. Stuff happens, and maybe you’ve just got to put up with that and live through it.
The questions that we’ve asked ourselves through the Burberry episode and the Diageo episode – and it is so unfortunate that they both happened at roughly the same time, that’s our bad – are these. Has Burberry’s core franchise been irreparably compromised or damaged? We don’t think it has. And what is the likelihood that Guinness, Johnnie Walker, Tanqueray, Don Julio, Hennessy Cognac will still be drunk in 10, 20 years’ time? To us, the answer is pretty damn good – it’s pretty likely that they will be.
Some people say Rightmove’s franchise might disappear in five years’ time. Some people say that Meta’s Muse LLM is going to disintermediate ChatGPT. Who’s going to win? You don’t know. But it’s about trying to find an asset – that Burberry trench coat – that is still going to be a thing in 20 years’ time. I don’t know whether ChatGPT is going to be a thing. Guinness will still be a thing in 20 years’ time. I just think, for us, at the very least, you need part of your portfolio in stuff that’s going to be a thing in a couple of decades’ time.
We’ll see what Sir Dave [Lewis, CEO of Diageo] can do. With Joshua Schulman at Burberry, as we said, the share price has doubled since he became CEO. I think his vision for the business is the right vision, and it’s great to see the share price responding. It’s too early to say for Lewis, I think, but my goodness, when you look at how Tesco has recovered as a result of his insights and strong interventions in that business, I think there are grounds to say this is going to be fine.
How is Finsbury using its higher gearing – now up to about 10% – and what is being done to narrow the discount to NAV?
Nick Train: On the last point – what are we doing about the discount? – I’m going to be really clear constitutionally here. The discount is nothing to do with me. That is the board’s remit, the board has taken the discount seriously and has taken a number of measures in an attempt to deal with it. I hope that they work, but that’s absolutely their ambit of responsibility.
Frankly, it’s going to be about performance. If that core thesis about the value of data in an AI world is correct, then the structure of Finsbury’s portfolio is going to deliver very strong returns over the next three to five years, and performance will close the discount. I don’t have performance today; that’s why the discount pertains. Everything hangs on performance.
Just on the gearing: we discussed this with the board earlier this year. With the NAV and the valuation of the portfolio at such a low ebb, I felt, with the agreement of the board, that if we were ever going to use the leverage, it made sense to take advantage of the big sell-offs earlier in the year to access more equity in these outstanding businesses that are growing. Maybe it’s wrong, but it just seemed like the rational thing to do.
What would you put on a wish list to the chancellor to help the UK stock market?
Nick Train: I don’t have a silver bullet. I just feel strongly – and all I can do is try to exemplify this – that there are British companies with a substantive and credible opportunity to accelerate their growth in an increasingly digital era. And it worries me when companies investing for growth see their share prices get hit. I can’t tell other investors how they should invest; it’s their prerogative. But I just feel this polity, this economy, has been bad over the last 20 years at encouraging businesses to invest aggressively for growth. Too often the ‘reward’ for investment has been a share price de-rating.
I’d put it this way. Going back to these companies where we’ve made these big judgements, our constant mantra to them is: there is a huge opportunity, but you’ve got to invest to capture that opportunity. If that means reducing profit margins in the short term, it doesn’t matter. Look at the evidence of the United States: purportedly we’ve got $2tn companies about to be listed that have never made a profit, that are making huge losses, but they are investing successfully for growth. That’s the lesson to be learned.
With Finsbury’s NAV up 11.6% in the three months to August against 5.1% for the index, what do you need to see over the next 12 to 24 months, and what is the key takeaway for patient shareholders?
Nick Train: It’s kind of you to point that out. I’m most reluctant and cautious to say anything like that myself, because it’s not enough, there’s been a long period of underperformance and the market isn’t telling me – I don’t feel today that there’s yet been a fundamental change in the fortunes of the share price. But that rally does at the very least show that if sentiment turned towards these companies, there is scope for a big rally.
Sage, for example, is a big holding for us, and Sage was up nearly 50% over that two-month period. There is a critical debate: is Sage a winner or a loser from AI? If it’s a winner – and currently the business looks as though it’s doing well from its AI initiatives – that 50% is just the start. It’s a massive opportunity for Sage. So again, I’m not saying, ‘Oh look, the corner’s turned’, but I think it is important to say that if sentiment turns, there could be significant upside.
All I can say is that no one except me ought to have all of their UK exposure in Finsbury’s portfolio. I do, but I need to – it’s my responsibility. But if you were looking at the UK stock market and wanted diversified exposure to the themes and opportunities within it, I would say think about owning a bit of Finsbury in the context of a set of other strategies. Because you’re not getting the index – you are getting something which is growing in a secular sense, and that ought to be extraordinarily valuable.
This transcript has been lightly edited for clarity and readability. Verbal fillers, false starts and minor repetitions have been removed from the interviewee’s responses only. Punctuation, spelling and formatting have also been standardised in line with Edison house style. No substantive changes have been made to the meaning of the discussion.
