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Train of thought

FundWatch, This is Money
2 May 2003

RESPECTED stock-picker Nick Train reckons stock markets will return to good health in the next few years. He is set to toast their recovery with large holdings in whisky distiller Glenmorangie and West Midlands brewer Wolverhampton & Dudley.

Other key share plays include HBOS and Bradford & Bingley banks, football club Manchester United and other companies, such as Reed Elsevier and EMI that might finally make big money from the Internet.

Nick Train made a name for himself running the large GT Income fund from 1992 until the firm was taken over by Invesco in 1998. Train had a less successful spell at M&G before teaming up with former GT colleague Michael Lindsell to set up their own fund management firm Lindsell Train in 2000.

Train has run Finsbury Growth Trust and Lindsell Train Investment Trust for nearly two and a half years. Performance has been promising, with the funds keeping down losses during the recent global market slide. The Lindsell Train trust, which invests internationally, has kept losses to 16% in the past two years compared with 32% for the average global growth investment trust. The Finsbury Growth fund, which picks UK stocks, has fallen 28% compared with an average 35%.

HBOS is by far Finsbury Growth's biggest bet. 'HBOS has getting on for double the number of customers of any other UK bank,' says Train. 'It's the most widely recognised banking brand in the UK - people trust the Halifax.'

Train hunts out companies that have 'durable businesses' that continue to make profits in tough times. 'I want companies where I can shut my eyes for 18 months and not have to worry about what they are doing,' he says. 'These are very long-term plays - my hope is that the portfolio should look pretty much the same in two years.' Most managers, in contrast, tend to buy and sell stocks frequently.

Cadbury Schweppes is another major holding. The chocolate-to-drinks maker offers the exact durability Train is looking for. 'My parents and grandparents bought Cadbury's chocolate and so do I and my kids,' he says. 'It's a similar story for their Dr Pepper brand in America.'

Glenmorangie is valued at less than £100m, a stock market minnow, but it makes the top three in Train's portfolio. He says demand for single malt whisky is growing faster globally than for any other tipple.

AG Barr, which makes the soft drink Irn-Bru, is another smaller play. Train says the drink is Scotland's top-selling grocery item. 'Even Diet Irn-Bru is at number seven,' he adds. He expects expansion south of the border, where sales grew 15% last year, will filter through to far higher profits.

The popularity of Banks's bitter in the West Midlands inspired a large investment in Wolverhampton & Dudley. He says the business is very stable - drinkers rarely slow their intake for a recession. The brewer has also impressed Train by increasing income dividend payments by more than 10% every year since 1976. 'You'd struggle to find that anywhere,' he says.

Bradford & Bingley is included as another trusted brand. He also likes the way the firm is branching out as a financial adviser and believes it will be well placed to take advantage of the UK's increased need to save for retirement. He says the bank's status as a takeover target could also boost the share price.

Reed Elsevier is Train's major internet play. He says only AOL and Amazon make more money from the web. The company, which sells essential documents to lawyers and scientists, has a 'virtuous circle' of making products more accessible to customers whilst being able to send them out more cheaply.

Train also backs EMI based on the belief the company will work out a way to profitably sell music on the internet.

While not a top ten play, Train also heavily backs Manchester United. He says the club, which has become a global brand, will one day wholly own the rights to show its own matches. 'In 20 years' time, fans around the world may be forced to pay MUTV to watch a game - not Sky or anyone else,' he says.

Train believes that while stock markets are unlikely to bounce back, he believes growing yields will help contribute to reasonable returns that will beat bonds or gilts or any other type of investment.

'There's no reason,' he says 'why returns from shares should not return to how they have been for 20, 30 or 100 years.'

FundWatch is written by Andrew Oxlade