Nick Train says working out which companies will survive digital disruption is the most important call for managers.
Working out which companies will survive digital disruption is more important than whether shares are ‘cheap’ or ‘dear’, according to star fund manager Nick Train.
The veteran investor says the notion of stocks being either ‘growth’ or ‘value’ is outdated. Writing to investors in his £1.3 billion Finsbury Growth & Income Trust (FGT), Train says he believes in the saying: ‘In the future all companies will be internet companies’.
His faith in companies that are digitising comes at a time when concerns abound about the ability of the so-called FAANG (Facebook, Apple, Amazon, Netflix, Google) stocks to continue to climb.
He says: ‘In 2018, it looks as though working out which companies are advantaged and which challenged by digital disruption may deliver better returns than establishing what is currently “cheap” or “dear,” or whether macro-economic trends favour “cyclical value” or “quality growth”.’
But investing in the move to digital doesn’t just mean backing traditional tech stocks. Retail and financial services firms embracing the move online can also thrive within their industries. Some 45 per cent of the FGT portfolio is in consumer goods firms such as Diageo and Unilever, 25 per cent in financials and 20 per cent in consumer services. Just 8 per cent is in technology companies.
Among Train’s largest – and most successful – holdings are fashion brand Burberry and investment group Hargreaves Lansdown. This, he points out, is despite the fact that these shares have been characterised as ‘expensive’ in recent months.
He says: ‘The fact is, it is the success of the strategies of these companies – strategies with technology at the heart of them – that has mattered much more to stock market investors than the valuations.’
Meanwhile, two shares which had been lagging – Daily Mail and Pearson – have gained more than 20 per cent over the past six months, which Train attributes to the investment and time both companies have put into digitising their products. He says: ‘The evidence of transformative digital success is still tentative, but it is another illustration of the paucity of credible digital strategies in the UK stock market that both shares have rallied so soon and so much.’
Meanwhile, his worst-performing stock is software firm Sage, which is down almost 20 per cent in the first half of the year. Train says this is because of the challenges the company is facing in digitising its business and migrating to the Cloud.
The trust has returned 17.2 per cent over the past year, compared to an average of 5.9 per cent in the IT UK Equity Income sector. Its NAV has grown 15.9 per cent over that period.
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