Nick Train said his “boring” portfolio companies are being undervalued by the market because other investors are “too busy trying to identify the next Tesla”.
Finsbury Growth & Income Trust manager Nick Train argued that investors will be rewarded for holding these stocks in the long run as he defended his positions amid a slump in performance that has caused the trust to decline faster than that of the broader FTSE All Share index.
Over the past month, the Finsbury Growth & Income Trust’s performance has suffered relative to the benchmark, down 3.9% versus a 0.5% fall for the FTSE All Share.
Despite the recent decline in short-term performance, Train reiterated his belief in his investment strategy of owning quality-growth companies for the long run.
“Our investment approach is based on owning durable and predictable companies, while avoiding the speculative and cyclical,” he said.
“The idea is that steady dependability is often undervalued by other investors because those other investors are, as a generalisation, too busy trying to identify the next Tesla or to time the next gyration of the economic cycle.”
Train (pictured) pointed to his track record and asserted that investors can be “well-rewarded over time for holding what others regard as boring companies”. 
Indeed, a year ago he told investors that he prefers his “dull plodders” over fast-growing tech companies despite their outperformance in the prior year.
Earlier this year he even noted that he was was “encouraged” that his portfolio had fallen in-line with some of the high-growth areas of the market, as it meant they were being viewed in the same ilk.
Performance of Finsbury Growth & Income over 3yrs
Source: FE Analytics
To explain why he remains confident in his holdings, Train shifted his focus away from recent performance towards his portfolio companies making increased commitments to return capital to shareholders.
He noted that 12 of his portfolio companies – which represent roughly 80% of the Finsbury Growth & Income Trust portfolio – announced either share buybacks, dividend increase announcements or both.
The trust’s top top-three holdings, RELX, Diageo and Mondelez – which make up more than a third of its assets – increased their dividends by 6%, 5% and 11%.
Train said he doesn’t think a dividend yield is a useful measure of value, but that it does say something about “company boards’ long-term confidence in future free cash flow”.
Indeed, he said he prefers companies retain as much of their earnings as possible to fund future growth.
“In other words, we prefer them to scrimp on dividends if they see better uses for internally generated cash,” he explained. “Nonetheless, dividend and capital return announcements do still convey meaningful information to shareholders, we believe.”
When it comes to share buybacks, he said they “really should signal boards’ perception about the intrinsic value of their company”.
He added: “And we are encouraged how many of our companies are buying back shares currently – because we agree with their boards. These shares being retired could well be undervalued.”
Train’s three biggest holdings all also announced major share buyback programmes to repurchase 1.2% (RELX), 6% (Diageo) and 2.5% (Mondelez) of their outstanding shares.
The investment manager also noted how Sage Group, the seventh largest holding in the trust, has recently completed a share buyback programme amounting to roughly 7.5% of its current market capitalisation.
Although Nick Train’s investments in financial firms Hargreaves Lansdown, Rathbones and Schroders did not announce share buybacks, they did announce dividend increases of 3%, 15% and 7.6% respectively.
Elsewhere, Heineken, the only other holding of the trust that did not announce a share buyback programme, increased its full-year dividend by 77% from the prior year, albeit from a Covid-affected calendar year.
Train said he hopes that his portfolio companies’ “steady progress”, as evidenced by dividend increases and share buybacks, would be “both consistent with shareholders’ understanding of our approach and reassuring about its prospects”.