"Be fully invested in equities" says Nick Train of Finsbury Growth & Income
In his latest podcast, the manager of this investment trust, which is a member of Moneywise’s First 50 Funds for beginners, tackles the question: “Why is it, given that Brexit is seen so potentially damaging for the UK economy, that the UK stock market is going up and up?” And, while, in trademark style, making no predictions about the future, he concludes: “Why shouldn’t it carry on going up?”
“The FTSE 100 is barely higher today than it was 16 years ago in 1999 and early 2000. That’s a long time for a major stock market to go nowhere or to go sideways,” he explains.
“I’m just going to say what I often say on these occasions. Do what we do. Look to be as fully invested in equities as you can and then hang on for the ride.”
“It’s the job of the stock market to be surprising”
He adds: “There is an overlap between the economy and the stock market but it’s a far less deep overlap than most people think. It’s a straightforward category error to think that the domestic macro-economics of the UK can have too much influence on this collection of substantial global international businesses that make up the bulk of the value of the UK stock market. Of course, when sterling falls the value of those global assets, those global earnings, just goes up and up.”
“The second thing to say though is you should never be surprised at how surprising the stock market is and that’s because it is virtually the job of the stock market to be surprising and unpredictable.”
Mr Train goes on to give some interesting observations on three companies in his portfolio gleaned from his research and reading over the summer.
- “In the countries where software company Sage operates there are 70 million small businesses. But only one in every five of those small businesses has any kind of accounting software or takes any sort of software service at all.”
- “Burberry remains among the top 5 luxury brands in the world. It makes the company strategically very attractive.”
- “Pearson has more signed up and paid for subscribers to its digital products than all of its competitors put together.”
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.