Investors should avoid the temptation to become bearish despite a host of concerns around markets, according to Nick Train, manager of the Finsbury Growth & Income investment trust (pictured). 
Markets have broadly rallied for more than seven years since they bottomed out in March 2009 although the last three months or so have been some of the most precarious on record.
While they dropped heavily in January and February, they are just in positive territory since the sell-off at the beginning of the year after a short rally.
According to FE Analytics, all the major developed world stock market indices are up significantly since the financial crisis with the S&P 500 leading the way, having almost tripled investors’ initial stake over seven years.
Performance of indices over 7yrs
Source: FE Analytics
But these lofty valuations and concern over the EU referendum has led many investors to reduce risk by selling down equity exposure in favour of greater holdings in cash and other ‘safe assets’.
For example Mike Deverell, investment manager at Equilibrium, recently said he was selling down global equity exposure in favour of absolute return funds.
Train, who has headed up the Finsbury Growth & Income investment trust since 2000, is renowned for consistently beating the market over recent times.
He has outpaced the FTSE All Share in each of the last eight calendar years and is number one in his sector in 2016 so far as well as over 10 years.
Performance trust, sector and index in 2016
Source: FE Analytics
While he says this is not guaranteed, or even likely, to continue for ever, he argues the rational thing to do as investor is still to take risk and be bullish.
“20 years ago I took a conscious decision to always be bullish about equities. Whatever the valuations, whatever the circumstances, and whatever the macroeconomic concerns I will always be bullish,” he said.
“I am the person who, when you get the survey, I always tick the box that says raging bull. It makes sense for everybody to be consistently looking on the bright side, at least so far as equities are concerned.”
“Being bearish about equities is dangerous. The biggest sin in our industry is holding too much cash in a rising market. No one can predict the future but there is still a rational basis for being a raging bull. Since 1928 the US has gone up 55 per cent of all trading days. It has gone up 65 per cent of all months. It has gone up 75 per cent of all calendar years.”
Since 1900 the UK has gone up in 73 per cent of calendar years, he adds, and it has only fallen by more than 10 per cent in 9 per cent of all 115 years.
“Those odds are attractive and say you should be a bull.”
A case in point, he says, is increasing jitters leading to bearishness in the run up to the EU referendum, which brings with it the potential Brexit scenario and its implications for markets.
“From an investment perspective, every five minutes you spend considering the implications of Brexit is a wasted five minutes. That is because nobody can yet know the outcome of this vote. But actually even if you did know, it still wouldn't be that helpful,” he said.
“What you don't know is how much is already reflected in prices. Forget Brexit, forget all macroeconomic issues and concentrate instead on the calibre of what you own and don’t worry about the things that are inherently unpredictable.”
“How often have do you hear people say 'the markets are so tricky at the moment' or 'there is so much uncertainty out there’? Markets are not just difficult to predict, they are impossible to predict but that is always the case.”
Train has one of the more enviable records of any UK equity manager of recent years. Over one, three, five and 10 years his trust is also top quartile with it being the best in the sector since he took over more than 15 years ago.
Performance trust, sector and index since 2000
Source: FE Analytics
Train also believes there are plenty of other beneficial reasons to be bullish on equity markets.
“Being bullish keeps you young. Old people get bearish. My heroes in this industry are the Buffets and John Templeton. Warren Buffet is still going strong and Templeton was still actively investing into his 90s. They remained constructive, and bullish about what they owned and they remained constructive and bullish about capitalism and about humanity in general.”
“They were correct to be optimistic. Physiologically it is just much, much healthier for you to stay optimistic.”
Finsbury Growth & Income is on a premium of 0.5 per cent, has ongoing charges figure of 0.78 per cent and is 3 per cent geared.
