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London stock market gripped by ‘malaise’, warns star fund manager

Mr Train has admitted to making an 'obvious failing' by not investing enough in British technology companies
Mr Train has admitted to making an 'obvious failing' by not investing enough in British technology companies - Lindsell Train

Star fund manager Nick Train has apologised for poor performance at his flagship investment trust as he warned of “malaise” gripping the UK stock market.

Mr Train, who manages the £1.7bn Finsbury Growth & Income Trust, admitted to making an “obvious failing” three years ago by not investing enough in British technology companies. In the US, technology companies such as Tesla and Nvidia have been the big winners of the bull market.

The Finsbury Trust has persistently failed to keep pace with the FTSE All Share Index, with Mr Train forced to apologise for “yet another” six-month period where performance was poor.

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In an update to investors, he bemoaned the parlous state of the UK stock market, which is trading at a significant discount to other global stock markets around the world.

The Trust delivered investors a 2.7pc return to shareholders for the six months to April, versus 6.9pc for the FTSE All Share Index during the same period.

Mr Train wrote: “We really should be able to do better than this and if we can’t, then I absolutely share shareholders’ growing impatience.

“At the same time, as a career-long UK equity manager, I am frustrated by the malaise gripping the UK equity market. A malaise which is, in my opinion, only partly justified.

“What I find difficult to write is not the acknowledging of our poor investment performance or apologising for it. We do acknowledge and apologise for it.

“What is difficult is finding a credible way to convey to shareholders why we remain optimistic about the company’s investment portfolio. It is difficult, because I am conscious that I have been vocally optimistic about its prospects throughout the three years and more of underperformance. So why should I be right this time?”

As one of Britain’s best-known fund managers, Mr Train’s funds group, Lindsell Train, is responsible for running more than £6bn of savers’ cash across several funds.

Mr Train founded the fund with Michael Lindsell in 2000.

The funds group runs the Lindsell Train Investment Trust, which is also listed on the stock market.

warren buffett
Like US investor Warren Buffett, Mr Train holds a small selection of companies over long periods of time - AP Photo/Nati Harnik

A dismal streak for stocks in Mr Train’s portfolio has contributed to his fund’s poor performance.

Like US investor Warren Buffett, Mr Train holds a small selection of companies over long periods of time rather than trading in and out of dozens of companies.

The 65-year old said the “overarching” problem for the trust was the failure to own technology companies.

In 2020 Finsbury had about 30pc invested in data or tech stocks, which he said was too low. Mr Train has since hiked that number to 55pc, buying more shares in companies such as RELX, Sage, the London Stock Exchange Group, and Rightmove.

He said malaise in the UK stock market was typified by the lower valuation UK tech stocks have versus US peers.

While UK investors value Rightmove at 22 times its prospective earning, a similar rival CoStar trades at 60 times, Mr Train said.

In an update for the Lindsell Train UK Equity Fund last month, Mr Train said the £34bn approach for Anglo American by BHP and takeover of Darktrace showed that the UK market was “pregnant with value and opportunity”.

Hargreaves Lansdown, in which Lindsell Train owns a 12pc stake, has also recently been approached about a £4.7bn takeover bid by Abu Dhabi and CVC.

Mr Train has declined to comment on the approach so far.

Aside from tech, luxury brands such as Burberry and Diageo are also a key component of the trust and have dragged down performance.

Lindsell Train has consistently avoided oil and gas companies, such as BP and Shell, over many years. However Mr Train admitted the lack of oil and gas stocks in his fund had been a “persistent drag” on performance.

Mr Train said it was “mortifying” that Burberry shares were worth 50pc less than they did at their peak in May 2023.

The luxury brand has been hit by weak demand among Chinese shoppers.

James Carthew, head of investment company research at QuotedData, said Mr Train’s funds began to suffer in the aftermath of Covid when his investments failed to benefit from a surge in public markets.

He said: “Nick’s approach is focused on quality and growth. When the pandemic hit, these were desirable qualities. However, as markets started to recover, Finsbury was left behind – its quality stocks hadn’t suffered much so there was no recovery to get excited about.”

Mr Carthew added that a sharp sell-off in AI stocks or takeover bids for some of Mr Train’s investment could help revive performance at the Trust.

The Finsbury Trust has been run by Lindsell Train for the past 24 years, and over the longer terms has performed well.

Since Lindsell Train took over the management of the trust in 2001, the trust has delivered a total return of 631pc versus FTSE All-Share at 216pc, according to Kepler research.