Train is known for a particular style of running money, based on owning very concentrated portfolios of large companies, focused on a small number of sectors.
He began his career at GT Management and spent 17 years there before leaving when the firm was acquired by Invesco. He then spent three years at M&G, latterly as head of global equities, before setting up his own shop in 2000.
Train manages the Finsbury Growth and Income Trust, and UK and Global equity funds.
The results have generally been strong, with the trust returning 245 per cent over the past decade, compared with 138 per cent for the average trust in the sector in the same time period.
This approach is often called quality growth, but is a long way from how he began his career in the City.
He says: “The first mandate I was ever given to run was something which had a very high dividend yield and I had to run it that way, and really I was a deep value investor, and my job was to buy companies, a lot of crap companies to be frank, which had high yields.
"But the market knew the companies were crap, which is why the share price was so low, and the yield so high. Frankly I was very lucky that when that was happening, it was the start of a period of a lot of M&A activity in the UK as a lot of those terrible businesses consolidated.
"If I was still owning some of those companies now, I would not be sitting here, as I would not have a very good track record. But after that time, I said I would never again buy a stock just for the dividend, as it is not in the best interests of shareholders.”
Growth and value
Train’s success over the past decade has coincided with a world of low interest rates and low inflation, conditions that have prompted many market participants to question whether his performance will be as strong in the years to come, as those conditions may be about to reverse, if inflation rises and people switch to stocks that are more economically cyclical and are known as 'value stocks', with the sort of investments favoured by Train usually called 'growth stocks'.
Investor wariness about what comes next for the mandates run by Train can be seen in the downward movement of the share price since May 2021, when it was above £9, as inflation worries have gripped the market.
Train is a hugely experienced interviewee, but gets animated at the mention of growth and value investing, a topic that permeates most conversations about equity markets today.
He says: “Value versus growth is not the correct distinction. In our opinion there are only two valid ways to think about investing: there is momentum investing, where people are constantly trying to preempt what happens next to a share price in the short term – and there is nothing wrong with being a momentum investor, some of the great hedge fund managers are great at this – and the other style of investing is about the long-term value of an asset, whether it is fast growing.
"So some people buy Tesla because they think it will go up in a month, and others buy it because they think in the long-term it will justify its valuation now. And I repeat, there is nothing wrong with being a momentum investor, but it is important that people understand what each type does.
"The problem with the growth versus value style is that companies constantly move between the two categories. So I would say to clients, look at the intrinsic characteristics of a portfolio, at the level of predictability of the growth and value. We think the largest holding in our portfolio for example, Diageo, a premium spirits maker, is a company that has shown over many decades that it can protect its owners from inflation.”
Train was head of equities at M&G in 2000, before quitting to set up his own firm. The venture has been conspicuously successful for himself and business partner Mike Lindsell.
The duo collected a combined dividend of more than £35m in the year to the end of January 2021.
But Train says “the biggest dividend Mike and I received” is the “ability to run the money our way, so there are no style constraints. It means we have to sink or swim, but whatever happens next, at least we know we did it the way we believe in”.
As the fund management world emerges into an era that might best be described as 'post-Woodford', there is increasing scrutiny of the attitudes and constraints on 'star' fund managers and how they operate.
Train is known for maintaining many of his stock positions for a very long time and has several times been questioned at the trust’s annual general meeting about the length of time he has held onto some underperforming holdings.
He says: “Another investor said something about this recently, which I wish I had come up with. He is one of the people who runs the very successful Scottish Mortgage Investment Trust, and he said: ‘People always ask about my sell discipline, no one ever asks about my hold discipline.’ Over the years that trust has been very successful because they can take the pain of holding onto a stock, and that’s how I look at it. We have had some very painful holdings, but over the past 20 years we have held onto more good things than bad things, and that is all we can do.”
He says he cannot know what the future direction of inflation will be, and says “anyone who thinks they do know is deluded”.
Train says the biggest threat to the future prospects of his largest holdings comes from the rapid digitalisation of the world, as this means new brands can grow rapidly and disrupt the existing big players in a sector, reducing the potential value of the brands of companies such as Unilever and Diageo, which are among the largest of his investments.
Train adds: “It is true that digitalisation is having this impact, but I think the companies that are there now are well run, and one should not underestimate the skill they have, and how appealing that skill may be to the challengers.
"Over the past 20 years one of the biggest lessons I have learned is that companies in the 21st century need less, and in some cases almost no, physical capital in order to grow, and that makes the companies of the 21st century that are successful more valuable than the successful companies of the 20th century.”
David Thorpe is special projects editor at FTAdviser