Providing his analysis on the Finsbury Growth and Income Trust’s performance during May, Portfolio Manager, Nick Train of Lindsell Train, comments:
In May, the Finsbury Growth and Income Trust’s NAV was down 4.9% on a total return basis and the share price was down 4.2%, on a total return basis, while the index was down 4.6%
The strong rally in US technology shares so far in 2023 picked up intensity during May, as investors rushed to get exposure to companies likely to benefit from the propagation of Artificial Intelligence. NASDAQ ended the month up 25% year-to-date.
Doubtless NASDAQ will continue to offer a wild and unpredictable ride, but the lesson of its recent surge seems clear to me, as I write here in the context of being the portfolio manager of a UK Equity Trust. That lesson is that any portfolio manager who hopes to earn satisfactory returns as we move deeper into the third decade of the 21st century must find ways to offer his/her clients exposure to the secular growth and, often, exceptional profitability of companies that are winning with Technology. Famously and regrettably that lesson has proven difficult to act on for investors in UK equities, because of the paucity of substantive UK-listed tech winners.
However, just because such winners are rare does not mean they are non-existent. Indeed, while always acknowledging the highly concentrated nature of LTL’s investment approach, we have been able to allocate circa 40% of your portfolio to the shares of UK-quoted Data, Analytics, Software and Platform Service companies, all of which have been highly successful businesses over time – certainly in terms of delivering growth and exceptional profitability. There are five of them in the portfolio – Experian, Hargreaves Lansdown, London Stock Exchange Group, RELX and Sage. And, by the way, all these can credibly claim to be beneficiaries of Artificial Intelligence, at least in terms of being able to harness AI’s power to enhance their own products and services.
RELX in particular looks well placed to utilise AI to enrich its proprietary datasets to the benefit of scientists, lawyers and risk professionals around the world. You may have seen the widely reported news story toward the end of May about the US lawyer who recently used ChatGPT to help submit a court filing, but to his chagrin discovered several of the legal case precedents he referenced did not actually exist. The AI had invented them. RELX shares ended May down 5%, as investors worried about the possibility of AI eating its lunch, but that anecdote must be a salutary reminder to professional data users that sticking to data delivered by reputable professional data service providers is probably best for your career prospects. In fact, even after May’s fall, RELX shares are still up 10% in 2023. (They are also up 4.5-fold since the start of the 21st century, which is actually rather better than NASDAQ over the same period. See, the UK is home to at least one digital winner!).
Sage was the best performer in the portfolio in May, up 6% and now up 17% in 2023, as its shares hit a 22-year high. Management seems increasingly confident the company has entered a new phase of growth, providing cloud-delivered software services to small and mid-cap companies worldwide. The 16% organic revenue growth it reported at its Interim results this month in its biggest market, the USA, is certainly supportive of that confidence. It’s nice to see a UK software company doing well in the home of tech.
Burberry was a poor performer in May, down 17%, as it and other global luxury companies suffered from profit-taking after a strong run. To put the fall in context, Burberry’s shares are still up over 40% from their lows of mid-2022. In our mind, luxury goods companies remain a good proxy for participating in the growth and new wealth created by technology worldwide and if that is right, Burberry shares ought to be a good long-term proxy for NASDAQ too. The 26% increase in Burberry’s final dividend, announced last month, along with a new £400m share buyback (that is worth nearly 5% of the current outstanding equity) suggest that the Burberry board remains optimistic about its business prospects and in the undervaluation of its shares.
