Famously very much a ‘long-term buy and hold’ investor, Nick Train is one of the most respected investment managers in Britain.
On a total return basis, his Lindsell Train UK Equity Fund has produced a total return of 352% since being launched in 2006, compared with 83% for the FTSE All-Share.
Finsbury Growth & Income Trust, the investment trust that he manages, has done equally well. Over the five years to 31st August, for instance, its shareholders saw a 65% total return, versus 17% for the FTSE All-Share index.
He’s certainly not an active trader, though: many of the stocks that he holds have been in his funds’ portfolios for over ten years.
But just recently, he’s been on something of a buying binge, taking stakes in soap manufacturer PZ Cussons, drinks firm Fever-Tree, and now credit rating agency Experian. PZ Cussons, when he bought it late last year, was the first new UK-listed stock that he’d bought in nine years, according to Citywire.
Train’s latest quarterly update for investors in the Lindsell Train UK Equity Fund makes for fascinating reading.
Noting that Experian was the third new holding to have been initiated in the last 12 months, Train openly joked that this was “an unusually high rate of actionable new ideas” for him.
What’s interesting is why.
“I genuinely believe this in part reflects the long period of disappointing absolute and relative returns delivered by the UK stock market,” he wrote. “It’s simply that more opportunities are being presented to us as other investors give up on the UK. I don’t exaggerate when I say ‘give up’: have you seen the industry data showing monthly outflows from across all UK equity funds? They are substantial and sobering.”
In other words, a valuation gulf has opened up between global investors’ attitudes to the UK stock market, and Train’s own assessment of the prospects it offers for the sort of high-quality UK stocks that he likes.
The subtext: normally unapologetic about sitting on his hands for years a time, Train is right now seeing opportunities – and so expect more purchases in the months ahead.
I pointed out at the beginning of September that huge international disparities could be seen in stock valuations. The S&P 500 index, I wrote, was higher then than it was back in late March, when America and Europe went into lockdown – likewise the Dow Jones index, and Nasdaq.
But whereas those indices had risen 60% or so since late March, the Footsie’s performance has been far more anaemic. As I write these words, in fact, the FTSE 100 is up just 20% over the same period.
And it’s not just this year, or the Covid-19 pandemic, that’s to blame, either. Citywire, for instance, points out that the FTSE All‑Share is up just 15.9% over five years, versus a 93.1% gain for global stock markets.
The UK, in short, is on sale right now – and if investors don’t buy UK shares, then overseas predators are happy to step in. Security firm G4S, for instance, is now the subject of unwelcome attention from not just one but two foreign firms. Both of them, what’s more, are substantially smaller than G4S itself.
What I’ve been buying
Where to look? What to buy? In a market like this – despite the turmoil caused by Covid-19 – investors are really spoiled for choice.
Steer clear of the worst-hit sectors, such as travel and hospitality, and even the most conservative of investors is likely to find stocks with obvious appeal.
Personally, I think that a number of property-based investments – especially Real Estate Investment Trusts (REITs) – look oversold right now, and I’ve been taking the plunge.
Since the end of September, for instance, I’ve taken positions in Supermarket Income REIT, the Schroder Real Estate Investment Trust, HICL Infrastructure, and Regional REIT.
Non-property purchases have included beaten-down banking giant HSBC, and specialist pensions and insurance firm Chesnara.
I’ve still a little cash left to play with, and I suspect that most of it will find its way into REITs.
Will Nick Train join me? It’s unlikely: property plays aren’t the sort of business that attract him. But even so, I bet he can see the value. Right now, as he says, many investors seem to have just given up on the UK stock market – and that includes its REITs.
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Malcolm owns shares in Supermarket Income REIT, the Schroder Real Estate Investment Trust, HICL Infrastructure, Regional REIT, HSBC, and Chesnara. The Motley Fool UK has recommended HSBC Holdings, PZ Cussons, Experian and Fever-Tree.