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Train rejects hope stronger pound to boost domestic earners

Train rejects hope stronger pound to boost domestic earners

Falls in value of some of the UK's largest consumer stocks are the result of technological shifts and won’t be helped by a stronger sterling, according to Nick Train, who runs the £1.2bn Finsbury Growth and Income Trust.

Sterling's weakness versus other currencies that begun in the aftermath of the EU referendum result in June 2016 has receded in recent months, with the currency hitting its highest level for 18 months on 15 January.

The strength of the pound contributed to UK inflation falling slightly in December, to 3 per cent.

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Many UK shares focused on the domestic consumer suffered in the immediate aftermath of the referendum result, with the market deciding it would lead to higher inflation that would dampen consumer spending.

But Mr Train said the problems faced by a host of high-profile companies exposed to the UK consumer are not merely “cyclical”, but instead are a result of technological disruption.

He highlighted how retailer Marks and Spencer has struggled, with its share price at around the same level it was twenty-five years ago.

Mr Train does not hold Marks and Spencer shares, but said the fact the company’s market cap - its value at a point in time of the shares outstanding - has been overtaken by online rival Asos is a sign of the long-term disruption being wrought on traditional businesses, one that doesn’t relate to currency movements.

Mr Train said: “It seems to me that the incidence of profit warnings from UK companies picked up through the year and that the punishment beatings for the miscreants got more brutal. If those profit warnings were merely a result of a traditional cyclical slowdown you’d argue that the share price reactions were excessive.”

“But there is a good case to argue that 2017 was the year when investors really got to grips with technology as a secular challenge to businesses. These profit warnings, therefore, may have more meaning than usual."

He gave the example of advertising giant WPP, which had a tough 2017.

"UK TV viewing by 16-24 year-olds has declined by 30 per cent since 2010," Mr Train said.

"This is not because the youth of Britain are watching less than in 2010. The success of Netflix – shares up 55 per cent in 2017 – tells us entertainment is as sought out as ever. People are watching differently and less often via advertising-funded TV. That’s a problem for WPP.”

Mr Train gave another example, this time  pub company Greene King, in which he is invested and the shares of which are down 20 per cent over the past year.

He said: “There are a variety of factors here and some are temporary. But I was interested to hear the company acknowledge the unanticipated impact on its dining business of the success of the online food delivery companies.”

Eric Moore, who runs the £190m Miton Income fund, said the pound has not been strong, it has more been a case of the dollar being weak.