Interactive Investor

The share caught in the banking sell-off that Nick Train has been buying

18th April 2023 12:43

by Kyle Caldwell from interactive investor

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The star stock picker took the opportunity to buy more shares in a favoured holding due to ‘temporary share price weakness’ brought about by the market reaction to the banking turmoil.

Nick Train new 600

Investor sentiment is a key driver of share prices, particularly over short time periods, and we saw the impact of this once again last month when a couple of US banks and European lender Credit Suisse (SIX:CSGN) fell on hard times.

The collapses sent ripples across financial markets, causing a sharp sell-off for banking stocks amid fears the sequel to the global financial crisis could be on its way.

Other bank-related stocks were caught in the sell-off, one of which handed star stock picker Nick Train an opportunity to ‘buy low’.

In his latest update to investors in LF Lindsell Train UK Equity and Finsbury Growth & Income (LSE:FGT) investment trust, Train disclosed that he had been buying more shares in Experian (LSE:EXPN) due to “temporary share price weakness” brought about by the market reaction to the banking turmoil.

He said: “As a credit bureau there is certainly a correlation between banks’ use of Experian’s services and their ability to extend credit (which would be compromised if problems in the bank sector are deep-seated).

“Economic history is littered with brief panics associated with bank runs, most of which are localised and soon forgotten. We hope this is a similar episode and have been adding to Experian through this temporary share price weakness.”

Train added that Experian, whose share price fell 5% in the first quarter of 2023, is expected to deliver 8% to 10% revenue growth this year. This would be ahead of the circa 6% per annum revenue growth it has delivered since listing on the UK stock market in 2006.

Train concluded: “Experian’s earnings have compounded at nearly 9% per annum since 2007 and we hope there is much more to come over the next 16 years and beyond.

“Evidently, as the biggest credit bureau in the world, including being the biggest in the US, Experian is another attractive UK-listed play on long-term global growth.”

The consensus among investors is that bank issues are confined to just a handful of companies, rather than something that will spread to the entire banking system.

BlackRock Investment Institute, a research team at the world’s largest asset manager, argues that the market gyrations of past weeks are not rooted in a banking crisis, but are rather evidence of financial cracks resulting from the fastest interest rate hikes since the early 1980s.

It says that markets have woken up to the damage caused by rapidly rising interest rates and are now pricing in recessions.

Nick Brind, fund manager of Polar Capital Global Financials (LSE:PCFT) investment trust, agrees that interest rate hikes were a key factor. He called the recent turmoil a “mini banking crisis” rather than the makings of a systemic bank crisis.

Speaking on interactive investor’s On The Money podcast, Brind explained: “Ultimately, we know the reasons why those [US] banks were seen as susceptible, but the weakness with all of them was that they had a high percentage of their depositors uninsured.

“This was much higher than their competitors and peers. Consequently, they were susceptible to that loss of confidence. So in that sense, it is not a systemic banking crisis.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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