Finsbury Growth & Income (FGT) fund manager Nick Train has revealed he had been “definitely thinking about” investing in Rolls-Royce (RR), the UK aerospace and engineering group that has made a stupendous three-year recovery under chief executive Tufan Erginbilgic.
News that Train has held off buying a stock that has soared from 106p to nearly £13 from its exposure to increased defence spending and excitement over small modular nuclear reactors may open the former star investor to further criticism ahead of the investment trust’s first continuation vote on Thursday.
Responding to the comment made on a webinar last week, one investor said on X that the famous buy-and-hold fund manager “overthinks and under acts.”
To be fair to Train, he is not the only UK equity income fund manager to have missed out on Rolls-Royce, which only resumed dividends last June with a 6p per share final payment for the 2024 financial year, its first payout since April 2020.
Rival Merchants Trust (MRCH), managed by Simon Gergel at Allianz Global Investors, admitted in September that its half-year underperformance was partly caused by not holding Rolls-Royce.
However, Train is under intense pressure over the trust’s slump in performance. According to The Times, which reported the manager’s comments at the weekend, Train reiterated his apology for the trust’s underperforming the FTSE All-Share in each of the past five years. Train, who achieved strong outperformance of the index in 2000-2020 before the prolonged downturn, said he feels “humble and acutely disappointed”.
However, as previously, the portfolio manager insisted he would not change his quality growth focus on financially strong consumer franchises. This may reassure investors whose number one fear is an underperforming fund manager chasing returns with a change in strategy.
Train told the online seminar that worries over artificial intelligence damaging the prospects over portfolio companies LSEG, RELX, Experian and Auto Trader, were wrong. Their ownership of valuable data and intellectual property would put them in a “privileged position”, he said.
“They are not just sitting ducks for AI agents,” he said.
“Strategic decision point”
A five-year total shareholder return of 4.5% makes the £986m investment trust the worst performer in a UK Equity Income sector where the average return of 18 listed funds has been 57.5%, while the best, Temple Bar (TMPL), has generated nearly 140%.
The board, chaired by Pars Purewal, has had to buy back £710m of shares from September 2023 to 1 December, its annual report showed, shrinking the trust in a bid to stop its share price discount widening too far. The trust, which was historically a big issuer of new shares, currently stands 5.6% below net asset value.
Amid a broader buyers’ strike, Train has shown his personal conviction by regularly purchasing the trust’s shares, lifting his stake to 4.9% last week.
He and Lindsell Train co-founder Michael Lindsell have said they will not take part in the vote to avoid accusations of a conflict of interest.
The board last month reported “significant support” from several large investors for the company which celebrates its 100th anniversary this year. It has recommended shareholders vote for continuation, describing the vote as a “strategic decision point” to allow shareholders to express support for its investment philosophy.
The result will be announced after the company’s annual general meeting at the Guildhall in the City of London on Thursday. If the vote is against continuation, the board will consider “alternative strategic options”.
