Portfolio Managers
The Finsbury Growth & Income Trust (FGT) is managed by Portfolio Manager Nick Train and Deputy Portfolio Manager Madeline Wright. Nick co-founded the investment management company, Lindsell Train Limited (Lindsell Train), in 2000 and as part of Lindsell Train has been the investment adviser to FGT for over a quarter of a century.
Nick Train
Portfolio Manager
Madeline Wright
Deputy Portfolio Manager
Lindsell Train’s approach to investing
Lindsell Train’s primary aim is to protect and grow the real value of our clients’ capital over the long term. This is consistent with one of Lindsell Train’s key business principles, which calls it to invest its clients’ capital as it does its own (indeed the founders of Lindsell Train invest alongside clients in all the strategies). As an individual investor, Lindsell Train cares about maintaining or growing the real value of capital and income over time; for the Company, outperforming a given equity index, or failing to, is of secondary importance.
The members of the investment team are stock pickers. At the heart of their approach is a conviction that inefficiencies exist in the valuation of “exceptional” companies. Specifically, durable, cash generative franchises are not only rare but also appear to us to be undervalued by other investors for most of the time. Therefore, the characteristics that define a quality company for Lindsell Train are:
Durability
Companies that can prosper through business cycles for many years to come.
High return on equity
Companies with the ability to grow earnings year in, year out are favoured over those with rapid short-term growth but uncertain long-term prospects.
Low capital intensity/high free cash flow generation
Companies that do not have to make heavy balance sheet investment to generate earnings growth.
Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with managers of the highest integrity and ability. Then you own those shares forever.
What makes Lindsell Train’s investment approach distinctive?
The team is guided by four investment beliefs when constructing and managing portfolios for clients. It thinks that:
1. Investors undervalue durable, cash generative business franchises
2. Concentration can reduce risk
3. Transaction costs are a “tax” on returns
4. Dividends matter even more than you think
Lindsell Train finds the majority of its candidate investments in a select group of broad industry categories. These are Internet/Media/Software, consumer branded goods and financials.
The Company values all candidate investments using a variety of approaches, the most important being a discounted cash flow calculation. The candidate investments that appear to have the best value to Lindsell Train form the portfolio.
Once Lindsell Train has committed to a company it is extremely reluctant to sell it, except on a significant breach of the valuation target or when it realises that the premise for the investment is no longer valid. This reflects its conviction that owning great companies for the long haul makes sense and that transaction costs are a tax on our clients’ capital, a tax that cannot be avoided altogether but that can be minimised by dealing as infrequently as possible.
These features lead to portfolios that are constructed without reference to benchmarks and therefore look very different from the market index. Portfolios are characterised by a high degree of concentration (20-35 holdings) and unusually low turnover (generally less than 5% p.a.).
There is no question that our approach requires patience. Resisting the temptation to trade or just “do something” requires a high conviction in one’s investment thesis and also the ability to ignore market chatter and remain focused on a company’s competitive advantages.
For more information on Lindsell Train, please see its website: https://www.lindselltrain.com.
Responsible investment
The Board recognises that the most material way for the Company to have an impact on environmental, social and governance (ESG) issues is through the responsible ownership of its investments.
It has delegated authority to its Portfolio Manager to engage actively with the management of investee companies and encourage that high standards of ESG practice are adopted. Deputy Portfolio Manager, Madeline Wright, is also the Head of Investment ESG at Lindsell Train.
The Company seeks to generate long-term, sustainable returns on capital. The investee companies which consistently deliver superior returns over the long term are typically established, well-run companies whose managers recognise their impact on the world around them.
The Board does not believe it appropriate to set its own quantitative ESG targets for investee companies at this time. However, ESG issues are discussed at every Board meeting.
Additionally, Lindsell Train became a signatory to the UN Principles for Responsible Investment in November 2019.
The Company also complies with the AIC Code of Corporate Governance and has policies in place regarding Board diversity, integrity and business ethics.
In its Responsible Engagement & Investment Policy, the Portfolio Manager states that its evaluation of ESG factors is an inherent part of the investment process. These factors include, but are not limited to: “corporate strategy, operating performance, competitive positioning, governance, environmental factors (including climate change), social factors, remuneration, reputation and litigation risks, deployment of capital, regulation and any other risks or issues facing the business”.
The Board has delegated authority to the Portfolio Manager to vote the shares owned by the Company that are held on its behalf by its Custodian. The Board has instructed that the Portfolio Manager submit votes for such shares wherever possible and practicable. The Portfolio Manager may refer to the Board on any matters of a contentious nature.
Ultimately ESG presents a real risk of the permanent loss of our clients' capital and, accordingly, our job is to apply an ESG adjusted risk premium to what we analyse to be eternal assets. That way we work to ensure we observe Warren Buffett’s number one rule – don’t lose money!