How to buy great British shares

Sorry seems to be the hardest word in the investment sphere. Even dire performance may be glossed over.

But this week, former star fund manager Nick Train did an unusual thing.

He apologised for the poor results of his UK investment trust which focuses on well-known British stalwarts.

Train attributed the decline to the trust’s lack of holdings in mining, oil and technology.

Large stakes in the luxury goods group Burberry and asset manager Schroders – which Train and his team believed would be ‘meaningful positions’ – failed to deliver.

Over the past six months, the return from his Finsbury Growth & Income trust has been 3.8 per cent, against a sector average of 12.8 per cent. His Lindsell Train UK Equity fund, whose portfolio is identical to that of the trust, has also trailed behind. This is bad news for the thousands who backed Train when his reputation could not have been hotter: he began to fall from grace in 2021.

Yet while repentant, Train is also upbeat, mindful that his next steps will be closely scrutinised.

He and his team ‘sense that the UK market is pregnant with value and opportunity’.

An upswing is already under way as investors ask why shares in solid British businesses are so unloved, calculating that many could succumb to takeovers. For new investors, Finsbury Growth & Income could be a cheap-ish route to backing Britain, since the trust’s share price stands at an 8.6pc discount to the net value of its assets. Existing investors may be riled but Dan Boardman-Weston says the high quality companies Train favours will shine again. As we outline, some among the trust’s substantial holdings are laggards, but may look alluring to bargain-hunting predators. Other shares are already recovering and are tipped for further appreciation.

Leaders

Relx: A holding in this £81.5billion analytics, data, exhibitions and publishing group makes up 12 per cent of the trust’s portfolio.

Shares have climbed by 41 per cent over the past 12 months to 3,415p, partly driven by excitement over the exploitation of artificial intelligence AI at its legal services arm. The analysts at Goldman Sachs and UBS are among those who rate Relx a ‘buy’, targeting a price of 4,000p.

London Stock Exchange: This £48.6billion business has been under fire for its apparent inability to prevent London-listed companies from departing for the razzmatazz of Wall Street. But shares are up by 7 per cent over the past year, thanks to the view that the business has some of the characteristics of a tech giant, due to its acquisition of financial data group Refinitiv and partnership with Microsoft.

Experian: Demand for global credit rating group’s services has been boosted by the improving economy – plus the expectation that interest rates will be cut, which should make borrowers keener to take out loans. The shares are up by 29 per cent over the past year to 3,653p.

Laggards

Burberry: Shares in the luxury fashion group have slumped by 56 per cent to 1,056p over the past year, brought low by a slowdown in spending among the affluent.

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Hyper-luxury top-tier brands like Hermes, favoured by the fabulously wealthy, are proving more resilient in what has been termed ‘brand bifurcation’. Burberry, founded in 1856, is aspiring to appeal through its ‘Britishness’.

Its latest bags now bear names like Knight and Rocking Horse. But hopes focus less on a turnaround than on the emergence of a buyer. This is why most analysts rate the shares a ‘hold’.

Schroders: Train contends that Schroders has a ‘differentiated and winning strategy’. If it can deliver ‘even a smidgen of secular growth’, the share price could reverse its 15 per cent decline to 389p over the past year. The upturn has already begun, with a jump in recent weeks. Against this background, UBS has upgraded its rating of the shares from a ‘hold’ to a ‘buy’. Other brokers consider the shares a ‘hold’.

Schroders, an active management operation, has been hit by the belief that ‘passive’ index funds provide reasonable returns at a low cost. As an active manager, Train needs to prove that he is worthy of investors’ trust.