Interactive Investor

Out-of-form pros back their cooking by upping personal holdings

30th May 2022 12:34

Kyle Caldwell from interactive investor

Despite there being no regulatory requirement to disclose it, two high-profile fund managers have recently declared that they have been increasing their personal investments. 

Both Nick Train and Dale Nicholls have responded to spells of short-term underperformance by increasing ‘skin in the game’ in the investment trusts they manage.

Last week, Finsbury Growth & Income (LSE:FGT) disclosed that Train had purchased 25,000 shares at a price of 782.4 pence per share. Overall, Train owns 4.3 million shares, which is 1.9% of the issued share capital.

Fidelity China Special Situations (LSE:FCSS) also revealed in an update to shareholders last week that Nicholls has been increasing his personal holdings, although no further details were provided.

Finsbury Growth & Income has underperformed the FTSE All-Share index (its benchmark) over the past 18 months. Addressing shareholders earlier this month, Train pledged not to change his investment approach, saying: “As a significant shareholder myself, I remain convinced that our investment philosophy – of running a concentrated, low turnover portfolio, comprising shares in outstanding companies held for the very long term – remains the best way for me to deliver the returns we all hope for.”

Fidelity China Special Situations, a member of interactive investor’s Super 60 list, has lost 42% over the past year, while other China-focused trusts have posted similar losses, with JPMorgan China Growth & Income (LSE:JCGI) and Baillie Gifford China Growth Trust (LSE:BGCG) down 48% and 45%.

China-focused funds and trusts were rocked last summer when the Chinese government unexpectedly launched a crackdown on its own technology and education industries.

Over the past couple of months, investor sentiment has soured further amid fears about a slowdown in economic growth in China, as the country retains its zero-Covid policy.

In the update to shareholders, Nicholls noted “the risks from maintaining a zero-Covid policy need to be factored into one's risk/reward assessment”.

He said: “I expect the short-term outlook for the consumer sector to remain difficult; and this is partly reflected in the trust's current underweight to consumer discretionary positions. I believe there will be increasing pressure to move away from current Covid policies given both the significant economic and social impacts.

“However, I remain positive on the long-term potential of the Chinese consumption theme and believe that there is good potential for the unleashing of spending power as the country comes out of the pandemic.”

In the UK, there’s no regulatory requirement for fund managers to disclose whether they invest in the fund or investment trust they manage.

Directors and fund managers having their own personal investments in the companies they direct or manage aligns interests with shareholders. Bear in mind, though, that this does not guarantee success. 

Since last July, interactive investor has been putting the ‘skin in the game’ question to fund managers appearing on our Funds Fan podcast and those interviewed for our Insider video seriesBelow are five of the best responses we have had. You can examine the 15 other responses here.

Andrew Bell, chief executive officer of Witan (LSE:WTAN) investment trust, said: “I think it is very important [to have skin in the game]. You don’t poison people if you eat the same food. My personal holding is disclosed in the annual reports and having doubled in value since purchase, it’s worth more than six times my annual salary. So, I share both pain and pleasure when the shareholders do.”

Laura Foll, co-manager of Lowland (LSE:LWI) investment trust, said: “I do, indeed [have skin in the game]. Myself and James Henderson (the other co-manager) always declare what we hold in terms of our shares in all three of the trusts we manage in the annual reports. So, if anyone wants to know how much we own in any of the trusts, it is always there and we update it every year. I think it is really important. Quite a lot of my savings are in not just Lowland, but all of the trusts I manage. So I’m right there with the shareholders in terms of that.”

Mark Slater, fund manager of Slater Growth and Slater Income, said:I’m a very substantial shareholder in all our funds, and always have been, and I think it’s incredibly important that fund managers do eat their own cooking. You wouldn’t go into a restaurant where the chef refused to eat his own food, and I think it’s exactly the same with fund managers.”

Mike Fox, Royal London Sustainable Leaders and Royal London Sustainable World (both ACE 40 rated): “Yes, I do [have skin in the game]. I have my pension in Royal London Sustainable Leaders and the Royal London Sustainable World fund as well. I also have my ISA money in Royal London Sustainable Leaders. I wouldn’t ask anybody to invest in something I wasn’t prepared to invest in myself. [Most] of my savings and my wealth is invested in Royal London Sustainable Leaders and the sustainable range in general.”

Claudia Quiroz, lead manager of the Climate Assets Fund (ACE 40 rated), said: “Absolutely. More than half my savings are invested in the fund. It is not required in the UK to disclose (skin in the game), but in the US, the SEC (Securities and Exchange Commission) has required that type of disclosure, that transparency, for many years. So it might be something that it would be very natural for us to disclose going forward.” 

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