Train holds a small position – 0.2 per cent of his fund – in Celtic Football Club, which was one of his strongest-performing stocks in December. The manager says that if there were more sports clubs of that ilk available he would add them to his portfolio, because their global reach and value to advertisers and networks make them exciting prospects.
“The reason we are investing in it is that entertainment, the value of entertainment worldwide, is rising exponentially and the reason is because there are just more and more competing platforms for a lot of consumers,” he said.
“Twenty-five years ago there was just free-to-air TV, just three channels, and now there are literally hundreds of channels and lots of devices, and what that’s doing is putting an ever increasing premium on that entertainment which can attract millions of viewers, which is so valuable to owners and cable stations.”
“So we are interested in finding companies that own or create entertainment. It’s clear that sports entertainment, and particularly soccer, must be the most exciting entertainment as it’s global, arouses passion and appeals to all generations.”
“We were interested to see what’s available and quoted that would give us participation in that increase in the value of sports rights.”
“There are very few quoted clubs and sports entities at all, and it’s clearly a historic club with great tradition, one of the biggest stadiums in Britain and one of the best-supported teams, and with a clean balance sheet.”
Celtic had been a dull performer over the past few years before sparking into life at the end of 2013.
Performance of stock vs index over 5yrs
Source: FE Analytics
Along with Train’s holdings in Hargreaves Lansdown and Sage, his Celtic shares appreciated 10 per cent in the month of December alone.
Train says that all three are examples of companies being carried along by technological change, although in Celtic’s case it is the content side of television and the internet rather than the hardware and infrastructure.
The manager is appreciative of the risks in holding football clubs, which he says have a chequered history.
He points out that he is only prepared to take a small stake in Celtic, despite its attractions.
“The investment is about 0.2 or 0.3 per cent of assets, so it’s on the edge of being de minimis.”
“It has a tiny market cap, tiny relative to where it could be, but that means that the stock is quite illiquid and even for a small fund management company like us to get a significant exposure is difficult.”
The other British club that fits his characterisation of Celtic is Manchester United, which he has held in the past.
“We have some previous history in Manchester United. We were investors when the Glazers took it over, and in previous employment I owned Manchester United in the 1990s,” he said.
“So I know something about the value of pre-eminent sports clubs: Manchester United is virtually sui generis, only two or three clubs are the same size globally.”
The manager says that the $3bn enterprise value of the club demonstrates the potential value in “storied” sports franchises of its type.
However, the stock is listed outside the UK, which makes it harder to buy, and he considers it too early since its flotation.
“It’s important that a club doesn’t have debt: debt will kill them,” he said. “The Glazers loaded debt on the club, although it’s coming down, but it’s critical to us that the club is well managed and conservative so there’s no financial risk.”
Investors often worry that holding football clubs leaves them exposed to the strength of the team on the field, which is notoriously unpredictable.
Manchester United’s recent share price decline has been traced back to disappointing results on the pitch after the exit of a well-regarded manager.
However, Train says that the strength of a club is determined by its popularity among fans.
“The key is: do tens of thousands of people want to come and watch them every week? Do hundreds of thousands of people want to watch on TV?”
Celtic, like Manchester United, benefits from a global fan base, he notes.
“The interesting thing is that it is obviously part of the Irish Catholic diaspora, so it has a huge following in Ireland and the USA – genuine global support.”
The manager has also considered investing in rival Rangers, but that too was only floated recently.
Giles Hargreave is one FE Alpha Manager to have bought into it when it floated on AIM, but Train has so far held fire.
Shares in the club have struggled since launch, losing 63.49 per cent in total, although Train says that long-term the stock has its attractions.
Performance of stock vs index since launch
Source: FE Analytics
“It’s another global support base that’s potentially very valuable,” he said.
However, Celtic is the only British team that ticks all the boxes at the present time, as there are relatively few opportunities abroad, the manager explains.
“We do have a position in Juventus in our global fund. It’s really the Manchester United of Italy, with support throughout Italy, not just Turin,” he added.
The manager also has a position in WWE wrestling as well as in International Speedway, which owns roughly half the NASCAR racetracks in the US.
“Ownership of these racetracks brings TV rights,” Train said. “But we couldn’t find anything else in the UK in terms of entertainment – there are no major movie studios to invest in in the UK, not even many quoted opportunities in video games.”
Train says that his position in Daily Mail Group is playing a similar theme through the Mail Online website, the most popular editorial site in the world.
“If you have 120 million visits a month to your website, that’s so valuable, it brings so many people together in one place and that place is very valuable,” he said.
The manager says it is frustrating that there aren’t more ways to invest in the incredible success of football through UK-listed companies.