Professional investor Nick Train, portfolio manager of the Finsbury Growth & Income Trust, picks three UK stocks to invest in the British boom.
Finsbury Growth & Income Trust’s (FGT) strategy is based on the premise that one way to achieve competitive investment returns is to run a concentrated portfolio built around positions in world-class companies that offer access to long-lasting and money-making global investment themes. This strategy is not so unusual, although there is no doubt that FGT’s portfolio really is concentrated, by most investors’ standards, with the top ten holdings accounting for 75% of the whole.
What is more unexpected is that FGT has a UK equity mandate, yet we claim it gives exposure to global growth themes via world-class companies.
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I say unexpected because many investors – both global and domestic – question whether many or enough of such companies are actually listed on the London market. We think they do exist, and note that the best of them have already earned their owners great returns over many years, with big opportunities still to come.
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UK stocks, world-class companies
1. Experian (LSE: EXPN), the world’s biggest credit-rating agency, is one of FGT’s top holdings and unquestionably a world-class business.
Its shares have risen sixfold since they listed in London in 2006. Experian owns and continues to gather a lot of data on businesses and individual consumers. That data has always been valuable for Experian’s customers – financial institutions – but it is becoming even more valuable. This is because developments in digital technology are allowing Experian to create new insights and now build software tools that make their customers’ work more accurate and efficient. As a result, Experian’s revenue growth is accelerating.
2. Diageo (LSE: DGED) has struggled in the aftermath of the pandemic as rising interest rates and inflation have crimped consumer confidence. In the long run, though, we expect Diageo will deliver the sort of steady business growth that has, for instance, taken its shares up fivefold since the start of the century. Diageo benefits from three tailwinds: growth in the world’s population; the multi-decade trend towards consumers drinking less beer and wine and more spirits; and, within spirits, a clear tendency for consumers to consume less volume, but higher-quality liquor.
We also like the fact that Diageo earns nearly half of its profits from the US, where it also has the biggest market share. Of course, the US is a dynamic economy with a growing population and mounting wealth. Being invested in Diageo’s premium brands offers a proxy participation in that dynamism. It is no surprise to us that nearly half of Diageo’s shareholders are American. They know a world-class business when they see one.
Domestic UK stocks for the British boom
3. Rightmove (LSE: RMV). Our newest holding is actually a domestic UK, as opposed to global, business. This is a company we have long admired and sought to own a stake in. Its shares have now been dull for a few years as interest rates have hit the UK housing market and as a new entrant threatens to take market share from Rightmove.
Nevertheless, Rightmove has continued to innovate and grow. Like Experian and other important holdings in the trust (for instance, London Stock Exchange Group, RELX and Sage), Rightmove has an opportunity to apply new digital tools, including artificial intelligence (AI) enhanced ones, to its proprietary data to create new and must-have insights for its customers.
That’s the sort of opportunity that has made investors in successful digital businesses so much money in the 21st century and we hope that Rightmove has much more growth ahead.
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