Transcript
Speaker: Welcome back to Vantage. Now the UK is a market that we continue to focus on. Takeovers, market reforms, continuing calls that the market looks cheap. I am delighted to have a really well-known figure in the UK investment community. Welcome to Vantage, Nick. Nick, um for viewers who don't know you, um perhaps you could introduce yourself and Finsbury Growth and Income. and a fund which I believe you have a 5% personal stake in. um Love to understand what you think investing in the trust ah is is about and what it it says about you in terms of your own holding and how you see it evolving over the last decade, the the next decade. The next decade, that's the important one. Neil, thanks and and morning. um Look, I don't want to make this session all about me, yeah yeah but since you've asked, I think the relevant thing to say about me, okay, just about me quickly is that a long time ago I studied a history degree and I was fascinated then about
Speaker: what the past could tell us about the future. yeah And I'm still fascinated. and And I'm 40 years plus as a professional investor.
Speaker: And just on this point about history, definitely my best ideas over my career have been when I've got big historic trends right. yeah So is that enough as a ah kind of introduction about where i'm where I'm coming from? You're right.
Speaker: Finsbury Growth and Income Trust is also a historic entity, 100 years old. yeah um Absolutely, sincerely, the biggest privilege of my career is having run that for a quarter of a century.
Speaker: you know That doesn't happen very often. now um Never ever take it for granted. But I'm still here doing it. um What I would say is that you're right. um i I have quite a large personal stake in the company.
Speaker: um I've built up that stake over the last quarter of a century. I've never sold a share and I think there's two perspectives on that shareholding that I have in Finsbury.
Speaker: The first is, as I expect we're going to explore, um we take risk. with Finsbury. You know, we're trying to generate an exceptional return and the iron laws of investment say you can't do that without taking risk. We do take risk.
Speaker: I wouldn't feel comfortable if I wasn't taking that risk for myself as well, do you know what i mean? yeah Actually, I have more personal risk to Finsbury than anybody else and to me that that feels right. yeah um Second thing I'd i'd say, and and of course I would say this, but you asked about thinking about the next decade.
Speaker: I'm thrilled to have this exposure to Finsbury right now because I think, and let's hope this comes out in our conversation, that there is... a viable chance that the next 10 years could be the best 10 years for Finsbury for a very, very long time.
Speaker: And that's because we've got more exposure to secular growth businesses in this portfolio, in my opinion, than ever before.
Speaker: Okay, interesting. was that I mean, you were you know you were pretty candid about the last few years being difficult and you know you you set that out ah to shareholders in May. The board has put their trust in you, backed effectively you. There was a continuation vote in January which won very comfortably.
Speaker: um We've had sort of nine months since that sort of January continuation vote. um Firstly, have you learned in that period? um And is there anything you're doing differently um now than perhaps you were doing in the last couple of years? look I would just reiterate what what I said in my previous answer that please it's a privilege took to be in the position that I'm in. I've never ever taken it for granted.
Speaker: It's a performance industry. i and let's say my team as well, we've not performed, yeah frankly, for too long. yeah And at any point, you know um the shareholders and the board have got to make a judgment about whether or not what we're doing could work. and you know That's my attitude. We carry on doing what we've always done yep and we'll see what comes and if it doesn't perform then there will be ramifications of that and that's kind of fine.
Speaker: That's the way I've always looked at this industry and my role in this industry. It's it's a performance game.
Speaker: Have I learned anything? An observation, i I'm not sure what use you can put this to particularly. But I think what I take from the last couple of years, amongst other things maybe, is is that the companies that you're invested in don't necessarily know any better than you or anybody else what's coming down the line. Do you know what I mean? And you can listen closely um to the executives of businesses, observe their actions and
Speaker: sometimes feed off their confidence about the future but they can be wrong. ah So what does that mean? um It means that you've got to be perpetually testing your thesis.
Speaker: Now actually we've not sold any substantive investments over the last couple of years. We've had a couple go through takeover but Fundamentally, we've not had to change our view about any of the businesses that we're invested in. We've been a bit disappointed by their short-term business performance, but the underlying rationale for owning them, I think, is is still intact. So that let's hope our patience will be rewarded.
Speaker: Okay, and a very candid answer in that, you know, sometimes the companies you are investing in know no better than you do in terms of where the future is going. and It's a great segue effectively into the next question i was I was going to get you to talk about. So it's the AI question, which has been on everyone's minds over the last couple of years.
Speaker: um and is a key driver for the trust now. So some of the stocks that you are invested in, Rightmove, Relics, Experian, Sage, all got hit by fears that AI would disintermediate the data business.
Speaker: um But through the summer, you know some of these companies have been you know your largest contributors to the fund. Now, you have consistently argued that proprietary constantly replenish data are beneficiaries of AI-run victims, right? that I needed to read that off my page. um What is it that you're hearing from the companies and the reporting that's sort of coming coming out from the companies that support that? um And how do you would how would you answer the criticism that perhaps you've become too concentrated on one outcome as a bet? We're believers in AI um as a transformative technology. i mean it
Speaker: In a sense, it's the same as saying we're believers in the internet. I mean, in a sense, AI is just the internet on steroids, isn't it? yeah we're We're believers in it. um We think that it's creating enormous opportunities for industries and companies.
Speaker: We think it's going to generate a lot of wealth. um at some point in time it's going to be very very right to be optimistic about consumer spending again because consumers will have more wealth as a result of this transformative technology we're we're we're sure you know from the perspective of a UK equity strategy, which is what Finsbury is, yeah we've been so keen over the last two or three years to try and find UK listed companies that offered participation in this
Speaker: to reuse the word I was using earlier, this historic industry shift. And how do you do it within the context of the UK stock market where we don't have Nvidia and we're not going to have OpenAI?
Speaker: And the way that we've chosen to address this, you've alluded to it, and the market is testing this proposition right now, but just let me say it, there are three components to the AI phenomenon.
Speaker: There's the chips yeah and the computing power. yeah There's the LLMs competing against each other for efficacy and attention. And then there's the data. Now that's a big overarching concept, the data.
Speaker: But everybody agrees that LLMs are only as good as the data that they can train on. yeah yeah Now, our perspective is that, as I said, we we can't own NVIDIA in the UK, but actually in the London stock market there are a number of world-class data businesses that aggregate enormous amounts of proprietary data that LLMs can't get their hands on and that data is as you say constantly replenishing and that ought to be
Speaker: in theory, the source of extraordinary future value. So I guess the the thesis that we're testing is can the companies that we've chosen to invest in, these data type businesses,
Speaker: can they utilise AI themselves to accelerate the growth rate of their business? And the truth is, for all of the ones that we own, the ones that you've mentioned, over the last two years, their growth rates have accelerated. yeah you know They are demonstrating that AI is a tailwind, a benefit to their business.
Speaker: So... I don't know. um People say that RELX's legal division, LexisNexis, is vulnerable to AI disruption.
Speaker: We'll see. We'll see. But we have to note that over the last two years the growth rate of that division has more than doubled yeah from 4 to 10 percent and when you look at why has the growth rate doubled it's because Relix is successfully selling AI enhanced services to its captive customers.
Speaker: London Stock Exchange Group, the the the biggest, on some measures, the biggest supplier of financial data to the world's financial institutions. Once machines start accessing LSEG's data, as they've begun to,
Speaker: machines use 10 times more data than humans do. And you can see the acceleration in the growth rate as AI tools get to work on LSEG's vast trove of financial data.
Speaker: Just one more because it is so important. Rightmove, you mentioned Rightmove. The shares have been hit. I get it. But it's also worth considering.
Speaker: Rightmove has developed its own AI conversational search tool part powered by Google Gemini, which is in beta testing at the moment.
Speaker: And when visitors to Rightmove use that conversational tool, they are twice as likely to lead to a actionable lead for an estate agent than people who aren't using the tool. It does look as though that company and indeed this wreck range of outstanding businesses that we're invested in are successfully exploiting the new tech.
Speaker: Now I'm not dumb enough or high bound enough to to not notice that the share prices aren't moving with the company's performance and Maybe it's right, maybe it's right that AI is just so big, so disruptive, so powerful that in two or three years time, all of this is going to be irrelevant.
Speaker: um But I don't know what else we can do except observe how the businesses are performing. We're very sensitive to it. If we see signs that they are losing their franchises, then maybe we'll change our minds.
Speaker: But right now, that's absolutely not happening. just I feel it is a fair question on the portfolio concentration particularly on this theme. you know Maybe we've got roughly half the portfolio in one way shape or form exposed to this big idea and
Speaker: in a way I I'm not sure I feel so justified saying this right now at this moment, but I think I should say um we've done something very, very different here. yeah And there aren't many other strategies, in fact I'm not aware of any other strategy that is trying to capture this potential decayed longer growth opportunity to the extent that we have. I feel
Speaker: if we might be right, that we've created an opportunity for investors to participate in something that could be very, very rewarding and very, very different from the average.
Speaker: And in a sense, you know looking back over the quarter of a century that I've been responsible for Finsbury, that that's what we've done throughout. I'm um apologetic to shareholders that it hasn't worked yet, but I would say to shareholders what we're doing is consistent with what we've done in the past and we've created the optionality for exceptional performance if it turns out that we're right. So let's pray that we are. Yeah, it's interesting. and I think the key thread there is you're looking at a sort of ah change over a decade. I was listening to a radio program over the weekend talking about family-owned enterprises and how founders are thinking not about the next quarter, about where is the world going to be if they invest in here 10 years, 20 years down the track. So i I do think that you know it's a perspective of it doesn't need necessarily need to come out in the next three months, but these are but potentially fundamental changes to businesses. so And so far, they're they're delivering. So the growth rates are sort of coming through and you're monitoring them. So that that I think is really interesting.
Speaker: You've had bids. The UK has been subject to a number of bids. Your portfolio has had a couple of takeouts. Intertech and Schroeder's have led to a kind of reinvestment challenge for you.
Speaker: You then put money into Spirax, TPI cap, and extended your position in Games Workshop. So you got an engineering group, an inter-dealer broker and a fantasy miniatures company.
Speaker: um On the surface they've got nothing to do with each other, but I would love to understand the the thread and it feels like these are sort digital winners. what What's drawing you to these companies um and how are you sort of finding what I guess people are considering underappreciated intellectual property?
Speaker: i'm not I've never been of the camp that says because there's a lot of takeovers it proves that an entire stock market is undervalued. I mean i don't know about that. yeah but But what I do know and feel passionately about is that the UK stock market is home to many world-class businesses and um It may be the the long period of neglect, particularly by domestic institutions to be honest with you, may have resulted in some mispricings of in fact some truly world-class yeah franchises. So so that that that's important.
Speaker: So, in answer to your interesting question about the the three companies that we've recently initiated or or added to, i think they're all examples of truly world-class, London-listed companies that are arguably undervalued.
Speaker: So maybe that's the common theme. But this is what I want to say. This is what I really want to say. we We took this view two or three years ago that to quote David Schwimmer, the chief executive of London Stock Exchange Group, to to quote him, in ah in an AI world, data is more important than ever. yeah that That's his proposition. yep we We already had, still have, big holdings in the major data businesses listed on the London stock market.
Speaker: And it was interesting to us, having sort of maxed out in those holdings, to think, well, what other businesses can we find listed on the London market that also have important growing data sets that might be increasingly valuable as we go deeper into an AI era?
Speaker: And one of the, you know, we've had a tough time with performance. One of the relatively few new ideas that really has worked for us over the last 18 months is a company called Clarkson.
Speaker: i don't know if you know Clarkson? Yeah, shipping. World's number one ship broker. I mean, it's an important strategic position. It dominates an important global asset class, the maritime fleet.
Speaker: No question, one reason why Clarkson has been successful as a business is that it has a better data asset than any of its competitors. And it uses its data, which is constantly replenishing and refreshing and growing the whole time, to derive more insights for its clients that that its competitors can't. So so that's, you know,
Speaker: Clarkson shares don't trade like an AI data business. Absolutely not. But when you look at the business, the data is becoming more important and there's new sources of value from that data. So we've just been interested in our research efforts to find other businesses with a similar opportunity. Now, ICAP, TPICAP, maybe that's easy to understand compared to Clarkson. TPICAP, like Clarkson, is a big broker. It sits at the middle of another huge financial pool of assets, the over-the-counter instruments that are 20 times the size of global equity markets. This company is the world's number one, 45% market share, sitting at the heart of that market and in the process of these transactions that it sees, creating data.
Speaker: um and actually TPI Cap, like Clarkson, has its own specific data division which is a strongly going growing part of the company. Again, it's not perceived as a data company but it is a company where data is valuable to the franchise and becoming more and more valuable.
Speaker: Spirax. Spirax has millions of industrial components installed around the world. Today the company is endeavouring to ensure that every time it replaces one of those components, if it's worn out, to replace it with a smart device. yeah And those smart devices generate data and that data is of enormous value to Sparax and the underlying customer to help create more efficiencies in their industrial processes. Again, I'm not saying that Spirax is an AI winner, but I am saying it's a business with a data angle and a growing data angle that is kind of interesting in a world where if Schwimmer is right, data is more important than ever.
Speaker: um I can't argue that Games Workshop fits into that perspective. I'd just say again, it's a truly world-class entertainment asset that is only just getting going outside its home market of the UK and potentially decades of growth to to to go.
Speaker: Okay. Let's talk about um some companies which have gone through transitions, have had challenging times, so Diageo and Burberry, which you know have tested shareholders' patience over the last two, three years. um Burberry's doubled, actually, over the last 18 months. Yeah, it it has come back. you have ah You're right, it did test it it did everybody's patience yeah um um three years ago. Yeah, and and you know Dave Lewis has sort of come Diageo.
Speaker: There's a change of guard, number of senior departures as a consequence. I guess it's the thought process I'm interested in, rather than the holdings. What are the sort of two or three things you watch very very closely that help you differentiate between what is a great franchise and something that is temporarily out of favour or is is doing a sort of turnaround effectively with the business because of some issues. um So what makes you think about I'm sticking with this because it's a great franchise or the thesis is breaking down and and I need to sort of exit
Speaker: So, you know, at ah at an early and impressionable stage of my career, I got exposed to Berkshire Hathaway and and Warren Buffett. yeah and That's actually been a blessing for me and and my clients over the full sweep of my my career. maybe Maybe over the last five years, less so, but but but there we are.
Speaker: that There are certain Buffett-type qualities that we've learned to look for and it's it's what we do. okay um Our performance will judge us.
Speaker: but you know I think a core, absolutely core and I still think to my mind absolutely crucial Buffett perspective is that by and large investors underestimate and undervalue eternal businesses or semi-eternal businesses.
Speaker: think things that actually can endure for 20 years, 40 years are actually extremely rare and extraordinarily valuable. and Also Buffett says somewhere else, you know no business grows in a straight line. He says even a great business will have its share price halved at some stage. yeah you know the Stuff happens, stuff happens. and Maybe you've just got to put up with that and and live live live through it.
Speaker: But I would say that the questions that we've asked ourselves through the Burberry episode and the Diageo episode, and it is so unfortunate that they both happened roughly the same time, it's our bad, yeah but the question we asked ourselves is,
Speaker: Has Burberry's core franchise been irreparably compromised or damaged? um We don't think it has.
Speaker: And is the what is the likelihood that Guinness, Johnny Walker, Tanqueray, Don Julio, Ennesee Cognac, what's the likelihood that those will still be being drunk in 10, 20 years time?
Speaker: And to us, the answer is pretty damn good. yeah Pretty likely that they that they will be. and you know absolutely you know it some people say right moves franchise might disappear in five years time some people say that Meta's Muse LLM is going to disintermediate ChatGPT who's going to win who's going to win I mean you don't know you know but but trying to find an asset I you know that Burberry trench coat, that is still going to be a thing yeah in 20 years time. I don't know whether ChatGPT is going to be a thing.
Speaker: Guinness will still be a thing in 20 years time. And I just think for us at the very, very least, you need part of your portfolio in stuff that's going to be a thing in a couple of decades time.
Speaker: And yeah, um
Speaker: We'll see. We'll see what Sir Dave can do. I think Joshua Schulman at Burberry, as we said, the share price has doubled since he became CEO.
Speaker: I think his vision for the business is the right vision and it's great to see the share price responding. Too early to say, I think, for for for Lewis. but My goodness, you know when when when you look at how Tesco has recovered as a result of his insights and it you know strong interventions in that business. I think there's grounds to say this is going to be fine.
Speaker: okay I think it's noticeable that, and I think this is general for the sort of trust sector as a whole, that there is more responsiveness towards shareholders. And you know the board has said it will do whatever it takes. um That's using gearing, and gearing has gone from sort of 3% towards the sort of full £100 million sort of facility. so up to about 10%. Yeah. The dividend has been rebased to about 30p. You are buying back stock. um So you know there is action that you're taking.
Speaker: And there is still a discount, a sort of 8% discount to NAV. um Firstly, i mean what do you walk us through this is you know how you use gearing. So what are you using um the higher gearing for? um And what he what other things, or what do you say to a shareholder in terms of what you're doing to sort of narrow the discount to NAV? I mean, on the LASA point, what are we doing about the discount? um We've got be really clear constitutionally here. i mean, the the discount is nothing to do with me. yeah that That is the board's remit.
Speaker: yeah And as you remark, the board has has taken this discount seriously and has taken a number of measures. in an attempt to to to deal with that discount. I hope that they work, but that's absolutely their ambit of of responsibility.
Speaker: Frankly, it's going to be about performance. yeah um If that core thesis about the value of data in an AI world is correct, then the structure of Finsbury's portfolio is going to deliver If it's correct, it's going to deliver very strong returns over the next three, five years and performance will close the discount. I don't have performance today, that's why that's why the the discount pertains.
Speaker: Everything hangs on performance. just just well On the gearing, um you know we discussed this with the board and earlier this year, at a low ebb for the NAV and the valuation of the the the portfolio, I felt with the rumours of the board that it made sense if we were ever going to use the leverage to take advantage of the big sell-offs earlier in the year yeah to access more equity in these outstanding businesses that are growing. yeah Maybe it's wrong, but it it just seemed like the rational thing to do.
Speaker: Okay. um I was going to ask you you about what the bids say about UK, but but I think you've answered that, you know, in that in terms of, you you it's I think it's a case-by-case sort of story rather than ah a general market comment.
Speaker: I might ask it in a slightly different way, which is you there's plenty of noise in the market about you know what can the UK do to help itself. um And that might be going to market reform, stamp duty changes, etc. if if i if if If you had to pen a letter to the Chancellor and put your your your top three wish list, what would be on that wish list in terms of helping the UK market?
Speaker: I don't have a silver bullet. yeah um i i just I just feel strongly, and ah and all i can do is is try and exemplify this, i just feel that
Speaker: that There are British companies with a substantive and credible opportunity to accelerate their growth in an increasingly digital era. And it worries me when companies investing for growth see their share prices get get hit.
Speaker: um like I can't tell other investors how they should invest, and it's their prerogative, but I just feel this polity, this economy has been bad over the last 20 years, i don't understand why, at encouraging businesses to invest aggressively for growth. yeah Too often the reward, in inverted commas, for investment has been a share price derating.
Speaker: I just put it this way, again, just going back to these companies that where we've made these big judgements, our constant, constant mantra to them is there is a huge opportunity, but you've got to invest to capture that opportunity. If that means, you know, in the short term, reducing profit margins, it doesn't matter. if The evidence of the United States You know, purportedly, you know, we've we've got $2 trillion dollar companies about to be listed that have never made a profit, that are making huge losses, but they are investing successfully for growth. That's the lesson to be learned. Okay. You you talked a lot about sort of performance and actually ultimately, you know, you're going to be judged on performance.
Speaker: um it It feels better. so you know When I looked at the sort of numbers, three months to August, NAV was up 11.6%. So it feels like things are starting to come together. And that was, again, sort of index performance of 5.1%. So you are outperforming.
Speaker: um On a long term basis the gap's still a little bit wider. um And you've talked about, look, you know this is a three, five year sort of journey. So what would you like, and what what do you need to see, I guess, over the next 12 to 24 months to be confident that, you know,
Speaker: um how you're positioned is is right and what you want to... ah Ultimately, I'm trying to get to the point of if you're a patient shareholder of the trust, what's your sort of key takeaway from today?
Speaker: Look, it's kind of you to to point that out. um I'm most reluctant and cautious to to say anything like that myself because it's not enough and there's been a long period of underperformance. so so And the market isn't telling me, I don't feel today that there's been as yet a fundamental change in the fortunes of i of the share price. yeah but but but that rally at the very least does show that if sentiment turned to these companies then there is scope for a big rally. I mean Sage, you know which a big holding for us, I mean Sage was up nearly 50% over that two month period and
Speaker: There is a critical debate, is Sage a winner or a loser from AI? If it's a winner and currently the business kind of looks as though it's doing well from its AI initiatives, that 50% is just the start. you know that's that's what i would It's only just the start. It's a massive opportunity for Sage.
Speaker: um so Again, so I'm not saying, oh look, you know the corners turned, but i I think it is important to say, look, if the sentiment turns, there could be significant upside.
Speaker: i mean, I think all I would say, all I can say is that no one, except for me, ought to have all of their UK exposure to Finsbury's portfolio. yeah I do, yeah but I need to. It's my responsibility to.
Speaker: but But I think that if if you were looking at the UK stock market and you wanted to gain a sort of diversified exposure to themes and opportunities within the UK stock market,
Speaker: I would say think about owning a bit of Finsbury in the context of ah of a set of other strategies because you're definite you're not getting the index and you are getting something which is which is growing in a secular sense and that ought to be extraordinarily valuable.
Speaker: Nick, it has been a thorough pleasure having you on Vantage. Thank you very much for coming. And I hope you come back. You know, i think I'd love to see how these... I'll come back if it's worth. Which means I'm sure you will be back. ah Nick, thank you so much for being on the show. Okay. No, thank you.
Speaker: Thank you.
