View more on these topics

Danby Bloch: Lessons from a star fund manager

Danby Bloch white

I saw a brilliant presentation recently, in which Lindsell Train joint founder and portfolio manager Nick Train characterised the equity investment market in the words of the poet Ogden Nash: “Shake, shake, shake the ketchup bottle! First none will come, and then a lot’ll.”

If Train (whom I had not encountered before in person) was not top of the bill at said event, he ought to have been. Wisdom dripped from him as he gave us some of his maxims for successful investment. And with , I gather, an enthusiasm for Bob Dylan said to be bordering on idolatry, he is clearly an idiosyncratic character in the otherwise altogether grey world of fund management.

What is more, it turns out his investment track record (notably with the Lindsell Train UK Equity fund and a string of others, including Finsbury Growth and Income trust) puts him and his colleagues in the vanishingly small category of active fund managers with a consistent performance over a number of years.

Nash’s pithy verse helped to explain Train’s optimistic approach to equity investment. He is always bullish about equities. He has given up trying to guess when the returns will come and accepts for much of the time “none will” but then “a lot’ll”.

He argues his optimism has a rational basis. Taking the US market since 1928, there have been positive returns in 55 per cent of trading days, 65 per cent of months and 75 per cent of calendar years. Only nine years have shown losses of more than 9 per cent. So the odds are on the investor’s side if he or she can afford to hang on.

In this context, he approvingly quotes investment guru Ken Fisher: “Being out of stocks is one of the biggest risks long-term growth investors can take.” He adds  the greatest compliance risk is holding cash for clients looking for growth when markets are going up.

Train is especially keen advisers and their clients should not get hung up on trying to predict the outcome of things like the EU referendum or other big events such as interest rate movements, the future direction of the economy or stockmarket fluctuations. Even when you know the answer – which is not often, the future being one of the trickiest things to try to predict – you do not know the extent to which the outcome is already priced into the market. The market is a chaotic system that reacts to predictions about itself and so cannot be predicted.

His advice to investment managers is: look at the company, not the market. So how does he go about choosing stocks?

Train believes durable, cash-generative franchises are rare and most investors undervalue them. He mostly finds his target investments in a select group of industry categories, such as consumer branded goods, internet/media/software, pharmaceuticals and financials.

Old-style metal-bashers are anathema, with their low marks and thirst for capital. Another investment guru Train quotes is Leonard Licht, who said: “You should never buy any company that makes anything out of metal.” A bit over the top, perhaps, but one gets the point immediately.

Once Train and his colleagues have committed to a company, they are extremely reluctant to sell it, unless there is a significant breach of their valuation target or if they realise the premise for the investment has ceased to be valid. He believes long-term ownership of great companies is a sensible strategy, as transaction costs act like a tax on clients’ capital. They cannot avoid this leakage altogether but they aim to minimise it by dealing as infrequently as possible.

The upshot is their portfolios are characterised by unusually high concentration (20 to 35 holdings) and exceptionally low turnover, which is generally less than 5 per cent a year. Even fans of low-cost mutual funds and ETFs, like me, should applaud active managers of this stamp.

Right now the regulators of most European markets are concerned about closet trackers – funds that do little more than track their benchmark indices but charge full active fees for behaving in this herd-like manner. This is the very antithesis of closet tracking.

Danby Bloch is chief executive at Helm Godfrey



Closet trackers could be costing UK investors £1.8bn

Closet trackers could be costing UK investors £1.8bn a year by selling passive funds disguised as actively managed funds. More than a quarter (26 per cent) of funds sold in the UK are “closet indexed”, according to figures published in the Journal of Financial Economics. Investors lose out by being charged costs for active management […]

investment bid

Morningstar: 20% of funds are closet trackers

One in five European equity funds are closet trackers, but the number is falling, finds research from Morningstar. A report from the research and ratings house looking at the active share of European equity funds finds that 20 per cent qualify as closet trackers, despite charging active management fees. The report looked at the active share […]

FCA logo glass 3 620x430

FCA under pressure to crack down on ‘closet trackers’

The FCA faces mounting calls to crack down on so-called “closet trackers” after research revealed many funds are charging active fees for passive performance. Research published by the European Securities and Markets Authority last week suggested between 5 and 15 per cent of Ucits funds across Europe were closet trackers. Esma says it is concerned investors […]

Global income: preparing for a rate rise…

In the five years since we launched the Artemis Global Income Fund, its manager Jacob de Tusch-Lec has built a distinctive portfolio that is first among its peers. Here he explains why his “quality, cyclical and value yield” stocks, and flexible approach, leave the fund better placed to benefit from uncertainty than funds that depend […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm