Nick Train: performance, AI ‘victims’, and navigating a bear market

The Finsbury Growth & Income investment trust manager talks to ii’s Dave Baxter about the recent turnaround in performance after a challenging five years. Train also explains why he believes companies perceived as AI victims are actually potential victors, and answers a question from an ii Community member.

Timestamps
00.29: Performance 
07.03: Are the AI “victims” winning out? 
12.18: How would the fund behave in a bear market

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Dave Baxter, senior fund content specialist at interactive investor: Hello, and a very warm welcome back to our Insider Interview series. I’m Dave Baxter here at ii. Today I’m joined by Nick Train, portfolio manager on the Finsbury Growth & Income Ord (LSE:FGT) investment trust. Nick, many thanks for joining us today. 

Nick Train, portfolio manager on the Finsbury Growth & Income investment trust: Dave, it’s good to be here and let’s hope that we can talk about some interesting stuff. 

Dave Baxter: So, let’s start by talking about performance. As people know, it’s been a challenging five years or so now. We have seen something of an uptick in recent months, but what would you attribute to these struggles, and what do you expect going forward? 

Nick Train: Well, listen, I have to acknowledge a period of disappointing returns for shareholders. They will be the most disappointed, but of course, me personally and my colleagues, we’re pretty disappointed as well. 

I think that the critical set of decisions that need taking during a period of unsatisfactory performance is, do you ditch the strategy and start again? Or do you, on a constantly-testing-the-thesis basis, say: actually, no, we may be out of step with other investors at the moment, but our theories, our hypothesis, is correct and we should stick to our guns?

I will talk about what’s caused the underperformance, but in a sense, I don’t mean to diminish this, it doesn’t matter, or there’s nothing that can be done about it. It happened. The question is what happens next, and does the portfolio have the potential for satisfactory returns? 

And to me, what I would want to convey in this forum - thank you for the opportunity of saying it - is two things. First, we have not capitulated. So, the portfolio structure, the underlying ideas that make up the portfolio structure, they have not changed. The major holdings haven’t changed.

And, actually, in the short term, that’s been a good thing because there has been, as you alluded to, something of a rally over the last three or four months. You think, well, thank goodness we didn’t commit the cardinal error, which is to sell at the bottom. Everybody knows, professional investors, amateur investors, if I can put it that way, how easy it is to capitulate and sell at the bottom. So, I’m just saying rightly or wrongly, we have not capitulated. 

The second thing, and I hope that we’ll explore this, is that as objectively as possible, and emotion does get involved in this, I think that the portfolio is constructed around some truly exceptional businesses with truly exceptional growth opportunities, and that they are currently extraordinarily undervalued. That’s our starting and end point here. 

Listen, this period of underperformance, which as you remark, maybe it’s the longest in my entire career, candidly. You always learn something new or this industry always throws something new at you. But maybe the last 18 months has seen possibly the most intense period of underperformance. I think it’s interesting just to establish why that is, because it’s probably where the inflection, where the recovery could be the strongest. 

Sorry, I’m getting long-winded here, but let me just say this. Let me just try and be as succinct as I can. Two to three years ago, we decided that we needed to construct a portfolio that would capture the benefits and the investment benefits of the propagation of artificial intelligence (AI), and to do that within the context of the investment guidelines for Finsbury Growth and Income Trust. 

Now, that is a UK equity vehicle. We don’t invest overseas. So, two or three years ago, we were looking for ways to capture what we believed, and still believe, is potentially very, very significant business growth and share price returns from a collection of London-listed companies with a big opportunity in AI.

Now, what’s happened over the last 18 months is that, let’s say, investors have more or less profoundly disagreed with our thesis. They’ve looked at the companies that we’ve chosen to capture this purported AI opportunity and said: do you know what, we’re worried that AI could be a headwind for these companies or disruptive to them and that they’re not going to be AI winners. And it’s that that’s really hurt the performance over the last 18 months.

I’m sure we are going to come on to this, but let me just complete my thought. I mentioned earlier, maybe there’s a turning point, an inflection here. Definitely what’s happened over the last three months, and candidly, particularly over the last month, is that there has clearly been a change of sentiment towards the AI phenomenon in general, but in particular towards the businesses that we’re invested in. And the pessimism about those businesses may be gradually turning into optimism, and that’s really exciting. 

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Dave Baxter: Data software and platform companies, names like London Stock Exchange Group (LSE:LSEG) make up a big chunk of the portfolio. You have argued for some time that these companies will benefit from the rise of AI because of their proprietary data. Clearly, that is a violent debate going on in markets in recent times. What do you think it would take to convince people that they are actually benefiting from AI? 

Nick Train: Well, I mean, let’s just be clear. And, again, I’m talking about the very short term but life is made up of short terms, and there has to be a turning point at some point.

From their lows, and these lows were hit over the last four or five months, since those lows, London Stock Exchange Group’s share price is up 30%. RELX (LSE:REL)’s share price is up around 45%. Sage Group (The) (LSE:SGE)’s share price is also up around 45%. So, from depressed, very disappointing low share prices, actually, there has been a marked rally. 

So, the way I think about this is that there is a debate raging. Everybody agrees that AI is likely to bring very, very significant efficiency gains for companies, for industries, it’s going to save a lot of time for consumers. But the debate is, will those efficiency gains be delivered by, let’s say, a handful of Large Language Models (LLMs)? Is it [the likes of]OpenAI who are going to deliver these benefits to companies and individuals? 

Or, contrarily, instead of just a handful of LLMs, might it be a myriad of companies that have deep domain expertise and competence in various industries, with existing clients and the ability themselves to take advantage of AI technology to deliver enhancements and efficiency gains to their customers?

I mentioned a big rally in Sage’s share price, a London-listed software company, quite a successful business. It’s not Microsoft Corp (NASDAQ:MSFT), but it’s quite a successful business. It’s been growing at 8%, 9%, 10 % per annum for a number of years.

Sage’s share price peaked in 2025 at, I don’t know, £13.25, let’s say. The 25 doesn’t [matter]...it peaked at £13. By May of this year, it had fallen from £13 to £7.80. So, a serious drawdown, over 40% fall in the share price. And why was that?

Well, it was because investors were saying that [a company], say, could just take Sage’s business away from it. It’s just so powerful that Sage’s software, its expertise, would just be irrelevant. 

The contrary view is that Sage has got two million-plus small and mid-sized company customers around the world. And surely no entity on the planet is better positioned than Sage to deliver AI enhancements to its existing customer base. And, actually, that’s exactly what Sage is doing. It is delivering cost savings, time saving to its customers, and its customers are paying more for that, and Sage’s business growth is accelerating.

And that perception that there might be a counter-argument that [another company] might not just bulldoze everything away in front of it, that perception has taken Sage’s share price - sorry, I’m talking about share prices again here - from a low of 780 to today back to, I don’t know, £11.20 or something. So, there’s been a big rebound as the company has been able to demonstrate that it is still in the game, put it that way. 

Dave Baxter: So, I canvassed ii customers ahead of this chat using our social trading network ii Community, and I’m now going to paraphrase one of the questions. 

So, there have been some potential alarm bells ringing in markets recently. We’ve had multiple, quite violent tech sell-offs, we’ve had a big bond sell-off. One customer has asked how defensive would Finsbury Growth & Income be in the event of a bear market? What kind of defensive qualities does the trust have? 

Nick Train: It’s been very notable, particularly in 2026, and particularly, as you remark, investors begin to worry that there are bubble-type characteristics here. And I’m not saying there are or there aren’t. I don’t have a particular view about that. 

I believe in the efficacy of the technology and I think that it will bring significant efficiency gains, but...there could still be a bubble. The railroads created huge efficiencies for the world in the 19th century, but there were successive huge wipeouts of railway stocks along the line. I don’t know where we are with that. 

But what I will note is that every time there’s been a wobble in the big chip stocks or in the data centres, actually, my portfolio has outperformed during those wobbles. I’m not happy about that, by the way, in a sense, because I would rather that our portfolio was participating in the wealth that’s being created, or was being properly perceived as participating in the wealth that’s being created by AI. 

But I kind of think it makes sense. I mean, think about this. There was a day in mid-October when Microsoft made an announcement that their latest in-house LLM tool was, according to Microsoft, as powerful as OpenAI’s latest model. And yet it only needed to use a quarter of the computing power that OpenAI’s model needed itself. 

And, you know, you read a story like that, and you think, well, that doesn’t sound great if you’re OpenAI. OK, OpenAI is not quoted yet, but people [are] wanting to make bets on which of these big LLMs is going to emerge as the ‘big daddy’.

Actually, maybe it’s not that obvious yet that any one of them is going to emerge as the dominant one. Maybe they’ll just compete away against each other their efficacy, because the technology is changing so quickly, and who knows?

I can absolutely assure you that for Relx or for Rightmove (LSE:RMV), say, the fact that the power of the models is increasing and the cost of using the models is falling, that’s great news for those businesses because they can access that technology to apply to their proprietary data, that no one else has, to derive more insights for their customers.

So, in a way, I do think that any deflation in the optimism around the chip companies or the data companies, actually, that probably is good for the businesses that we’ve chosen to invest in to participate.

I mentioned LSEG earlier. I just want to quote one statistic from LSEG’s third-quarter trading update 10 days ago. The stock went up 10% on that third-quarter trading update. And, to me, the key statistic that drove that rally was Dave Schwimmer, CEO, pointing out that 95% of the top 200 customers for LSEG, that’s global financial institutions, are using at least one of LSEG’s own in-house created AI tools.

To me, that’s a major proof point that people operating in the global financial industry will look to a business like LSEG, not just for the data, but for the tools that they can apply to that data to make the data even richer and more valuable for those customers.

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We were talking about what might happen in a setback. Maybe I introduced that point at an inappropriate moment, I don’t know, but it’s so important that the companies can demonstrate, and we can help our investors recognise that the businesses that we’re invested in have AI strategies. They have credible strategies, they have a right to participate, and they are delivering business growth as a result of their AI strategies. 

I will say in passing, when there was the wobble on Nasdaq, not only did our data businesses rally, but actually, some of the consumer-staple investments that we have - the long-term holdings we’ve had, say in a Unilever (LSE:ULVR) or a Diageo (LSE:DGE) - they too rallied as Nasdaq wobbled.

I need to be careful what I say here, because, again, I don’t want to make a prediction about a bubble or a crash - I have no idea. But I can’t help remembering, as I’m sure anybody with experience of going through bubbles and cycles will acknowledge, back in 2000, we were at the peak of another tech bubble or boom. And particularly tech hardware companies and telecommunication companies had had an extraordinary boom up to 2000. They were growing very, very quickly. But all of a sudden, they stopped growing quickly and, actually, revenues started to fall, and some of them went bust.

I’m not saying that that’s going to happen again, but one has to be alert to what’s happened in previous episodes. The point I want to make, though, and I think it explains why Unilever and Diageo, for example, have rallied when markets are wobbling there, is because these sort of consumer staples, they just grow steadily. 

At no point in time does the growth look exciting. A lot of the time it just looks too boring for words, but there’s a kind of inexorability about their growth that can generate very attractive long-term returns. 

I well remember that Unilever and Diageo were friendless in 2000, because who cared about their 3% or 4% or 5 % per annum growth? But actually, that growth was sustained and those businesses delivered virtually a two-decade bull market as people warmed to the consistency of their businesses. 

Put it this way, that’s a reason why as a counterbalance to the more tech exposure that we have with some of these names, it seems to make sense to us to retain those positions. 

Dave Baxter: Nick, many thanks for your time. 

Nick Train: Indeed, thanks very much. 

Dave Baxter: And thank you for watching. As ever, do let us know what you think in the comments, and if you’re a fan this series, hit the like button and the subscribe button. Thanks and take care.