Another period of underperformance has made it even more difficult for Finsbury Growth & Income (FGT ) manager Nick Train to find a ‘credible way’ to convey his optimism about the UK portfolio to shareholders.

Outgoing chair Simon Hayes said that the board took the recent performance record ‘extremely seriously’. Early next year, Hayes will hand over to Pars Purewal who has sat on the trust’s board since November 2022 and is also a director of Law Debenture (LWDB ). 

Over five years, FGT is second bottom of the AIC’s 19-strong UK equity income sector having gained only 6% compared with 36% from the FTSE All-Share.

Train and co-manager Madeline Wright have previously said that they were slow to buy into technology names.

The sector now makes up 55% of the £1.6bn portfolio, but it was a lack of exposure to oil and gas companies that dragged on performance over the six months to the end of March.

Shareholder returns of 2.7% compared with 6.9% from the index, while underlying returns were 5.9%.

The picture is similar for the open-ended Lindsell Train UK Equity  fund, which has the same positioning. 

Former star manager Train, who lost his Citywire rating in 2021, admitted he struggled to find a ‘credible way’ to convey to shareholders why he remained optimistic about the 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,’ said Train (pictured below). ‘So why should I be right this time?’

Reasons why Train is bullish

Train has struck a bullish tone though. In particular, he notes that the exposure to technology names could still increase to deliver strong returns differentiated from the benchmark, which has only an 8% weighting to the sector.

He also expects shares in luxury brands to rise again once China’s economic picture improves.

Illustrating how several holdings could see their market capitalisations grow multiple times over the coming decades, Train pointed to Sage (SGE), London’s largest listed software company.

The shares have jumped 58% over the last three years, driven by its AI-powered accounting assistant developed with Microsoft and delivered using Amazon Web Services technology. This could bring productivity benefits to the millions of existing small and mid-size companies that already subscribe to Sage software.

He also pointed to the UK’s leading online real estate agent Rightmove (RMV), which saw revenues rise 10% in 2023, despite completed housing transactions in the UK being at a ten-year low.

Drinks mixer brand Fevertree (FEVR), whose shares have dropped 58% over five years, has continued to grow internationally, with 2023 a significant milestone as its revenues in the US exceeded those of the UK for the first time.

Train emphasised that while UK valuations remain well below their US peers, this sets them up to potentially treble profits over the next decade, pointing to larger companies Sage and data peer Relx (REL), which ‘have truly transformative profit potential ahead’.

Investors still need convincing. The trust’s discount to net asset value has widened from 4.4% to 8.4% since the beginning of the recent six-month period despite the board spending £185m on share buybacks.