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These markets aren’t scary, say star fund managers

Leading fund managers Nick Train and Nigel Thomas urge ISA investors not to be discouraged by the apparent volatility in stock markets.

 

by Gavin Lumsden, Jonathan Yarker on Mar 23, 2016 at 12:29

These markets aren’t scary, say star fund managers

Stock markets got off to a bad start this year but with the FTSE All-Share having clawed back most of its January losses in the past month, two leading fund managers are encouraging investors to hold their nerve.

Nick Train, manager of Finsbury Growth & Income (FGT ), the top-performing UK equity income investment trust over 10 years, recalled being recently asked by a journalist how he had coped with the ‘horrendous volatility’ in markets.

Speaking in a video on the investment trust’s website Train challenged the perception that stocks markets had been unusually turbulent this year.

‘I’ve looked back at the volatility markets for US and UK equities back to 1950 and the annual average volatility – the ups and downs of UK and US equities since 1950 –  is around 15% per annum. Today, right now, it’s running on an annualised basis of 13%.

‘So if anything the volatility is slightly below the long run average,’ he claimed.

Train (pictured), who began his fund management career in the early 1980s and who has run Finsbury since 2000, continued: ‘I think the point is this: that when you’ve been in the game as long as I have you come to realise that equities are always volatile.

‘There’s always something to worry about and I think it’s a psychological thing as much as anything. Investors seem to almost want to believe that today is a uniquely difficult or challenging or risky time. It’s just that the numbers, the statistics don’t support those kind of concerns.’

Train, who has delivered a 165% total return for Finsbury shareholders since 2006, pointed out that the UK stock market had a good long-term record having made a positive return in nearly three quarters of the calendar years since 1900.

While that was no guarantee equity prices would go up every year, he argued the figures presented ‘pretty good odds that despite that volatility, if you hang on for each full year, you’re much more likely than not to see a positive gain.’

For Train, it’s business as usual, saying he had taken advantage of share price weakness in companies he liked, such as Burberry (BRBY), Daily Mail (DMGOa) and Diageo (DGE), by buying more shares. A regular buyer of Finsbury shares, Train has recently bought more stock and now holds nearly 0.5% of the £770 million fund.

Nigel Thomas (pictured), the Citywire AA-rated manager of the AXA Framlington UK Select Opportunities fund, echoed these sentiments.

Thomas, who has also been a fund manager since the 1980s, said: 'I have been through all sorts of volatility but I have learnt throughout it to stick with good companies.'

Thomas said the forthcoming referendum on the UK's membership of the European Union had increased market uncertainty but that gave him an opportunity to top up his favourite holdings in the £3.9 billion fund.

'I think we will vote to stay as the Scots did when they were concerned over currency and pensions – there was a lot of uncertainty around key areas for them.'

With the flexibility to invest in any company on the UK stock market, Thomas is currently avoiding the largest names in the FTSE 100 due to his concerns over the sustainability of some of their dividends. ‘Lloyds (LLOY) is growing its dividend, but GlaxoSmithKline (GSK) and HSBC (HSBA) have skinny dividend cover,' he said.

Thomas prefers to hold broadcaster ITV (ITV), furnishings retailer Dunelm Group (DNLM) and property website Rightmove (RMV).

Thomas liked the way Rightmove brought efficiencies to both ends of the property chain, helping consumers and estate agents.

'[It has] a very high market share with low capital expenditure. It makes a real difference. There is a lot of runway to go on this. They charge a lot less for listings than estate agents used to pay for advertising,' he said.

Thomas has run the UK Select Opportunities fund since 2002. Over the past ten years he has generated a 117% total return, beating the FTSE All Share's 67.8% gain and the average 80.5% growth in UK All Company funds. His performance has earned him a Citywire rating every month for nearly six years. 

3 comments so far. Why not have your say?

mikest

Mar 23, 2016 at 13:04

'…......so if anything the volatility is slightly below the long run average', claims Nick Train. On an annualised basis he may well be right, but can he remember a time when FTSE 100 shares rose or fell regularly by 2 or 3%, sometimes on a daily basis? The advent of online trading has obviously contributed to this but would it be fair to say that Mr Market has decided that this 'volatility' is profitable and therefore here to stay? I think it was Benjamin Graham who said that, in the short term the market is a voting machine, but in the long term it is a weighing machine. Maybe the 13 – 15% average will stay but, in the meantime: 'let's make lots of money'.

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CUEBALL

Mar 23, 2016 at 18:31

scary as you want them to be ...simple as that...invest in quality well managed proven companies that provide you with the goods and services you couldn't do without..and remember there are 200 odd trading days in a year in which literally anything might happen...volatility...learn to love (live) with it...

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Gareth Harries

Mar 24, 2016 at 22:32

Yep agree with everything! The thing that scares most investors most is the fact that the FTSE 100 still can't maintain a level above 7000 since December 1999. So for Passive investors who are wholly in the market, not a joyful place to be and a definite argument for Active fund management or a strategy for share selection.

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