Nick Train and Terry Smith are considered to be two of the best fund managers in the UK right now.
Since its inception, Smith’s Flagship Fundsmith Equity fund has produced an annualised return for investors of 18.3%. Meanwhile, Train’s Lindsell Train Global Equity Fund has returned 19.5% per annum over the past decade.
So without further ado, here are three stocks these two City legends have been buying recently.
Growth trust
Last year, Train splashed out £2.4m of his own money buying shares in the Finsbury Growth and Income Trust (LSE: FGT).
Managed by Train himself, the goal of this trust is to achieve capital growth and income over the long term by investing in high-quality UK stocks. Finsbury has returned 76% over the past five years, excluding dividends.
Top holdings include blue-chip champions such as the London Stock Exchange as well as Relx. These two account for more than 20% of total assets. The ongoing annual charges amount to 0.4% per annum and the trust currently offers investors a dividend yield of 1.9%.
Also, unlike other high-quality investment trusts which tend to trade at a substantial premium to net asset value, Train’s offering is currently dealing at a very acceptable premium to NAV of 0.4%.
All in all, this looks to be a great way to invest alongside Train without breaking the bank.
Quality growth
Smith has been buying accounting software provider Sage (LSE: SGE) during the past 12-months.
Sage is going through somewhat of a transition. The company used to rely on CD’s to sell its software, but has been trying to build its cloud software business during the past few years.
According to a trading update at the end of November, cloud software subscription revenue has now passed the significant £1bn milestone.
Management is now focusing on building out Sage’s online offering to give customers “a comprehensive digital environment that includes products, services and partners.” This investment will weigh on profits in the short term, but it looks as if Smith is betting it will pay off in the long term.
The stock is currently dealing at a forward P/E of 25, and analysts don’t expect much in the way of growth from the business in its current financial year. However, that could change if Sage’s online investment starts to pay off.
Struggling for growth
Smith has also been buying Reckitt Benckiser (LSE: RB) recently. This blue-chip stock has fallen on hard times over the past 12-months. After losing around a quarter of its value since the middle of 2017, the stock now looks cheap.
Shares in this fast-moving consumer group giant are currently changing hands at a forward P/E of 18, that’s compared to around 20 for peer Unilever and Reckitt’s five-year average of 25. It seems the market has deserted this company because its growth prospects aren’t as good as they once were.
The company once boasted earnings growth in the 10-17% per annum range but, for the next two years, analysts reckon profits will standstill.
It appears Smith is willing to look past this problem patch and focus on Reckitt’s long-term potential. It seems to me as if he’s taking advantage of the market’s dislike of the company to increase his position in this highly profitable, defensive business.
