Nick Train manages the £ 1.8 billion Finsbury Growth & Income investment fund
Fund manager Nick Train has added credit company Experian to its UK portfolios, including the top-rated £ 1.8 billion Finsbury Growth & Income trust.
In the trust’s latest report, Train, who is considered one of the UK’s leading investment managers, said he had built up the position with the UK accounts of his boutique firm Lindsell Train last summer.
This includes the popular trust as well as its £ 6.3 billion open-end Lindsell Train UK Equity fund.
While this is the third new position he’s taken in the past year, this number of new positions is ‘unusually high’ for Train, who is widely known for his lengthy ‘sit-and-wait’ approach.
The manager said there are two types of businesses he likes to own.
The former are British companies with luxury, premium or ambitious brands, such as long-standing high-end fashion brand Burberry and beverage company Fever-Tree – the latter of which was a new purchase this year.
The second category, which includes Experian, is ‘substantial UK companies with credible and globally competitive technology, data and analytics assets’.
Train said hHe should have owned Experian years ago and says colleague Madeline Wright, “who has stubbornly and rightly defended the investment case for the company,” admits that she finally convinced him to add it.
He said: ‘The rationale for owning Experian is consistent with one of Lindsell Train’s key investment themes: we are always seeking to increase exposure to world-class technology companies, especially those that hold rich, unique and valuable data.
“Since Experian’s founding in 1968, it has built such a cache of unique consumer credit data, which is absolutely critical to the decision-making processes of its lending clients.”
Wright said the team has been following the company for a number of years, but began a more in-depth review in 2017.
This included meeting senior staff multiple times, as well as competitors TransUnion and Equifax, to better understand the broader credit bureau industry.
The team said Experian has a strong business model and operates on a ‘give to receive’ basis
Wright said all three companies have strong business models and an attractive give-to-get basis, in which customers provide them with raw credit history data for free, the agency collects it, applies analysis and tools, and sells it back to the customers as a credit report.
She added: ‘Renewal rates are around 90 percent and competition is minimal as each company’s data set varies and so most banks use reports from all three.
The cost per report is low, just one or two dollars, so there’s little incentive for either the existing three to engage in price wars, or for a fourth player to join.
“This is especially true because it would take more than 10 years for a new entrant to gather enough data to compete effectively, and strict regulation across all regions adds a new barrier to entry.”
Instead, the biggest risk Experian could think of is suffering a security breach, something that happened to Equifax in 2017, when data was seen from nearly 150 million Americans and 15 million Britons.
Wright said, “This was clearly a very large, very serious breach, but while the event had serious repercussions, including the CEO’s departure and numerous lawsuits, it had no longer-term impact on Equifax’s business. We think this ‘test case’ indicates the resilience of credit bureaus. ‘
Most importantly, the team thinks Experian will benefit from the shift of simply selling data to data enhanced with software decision tools.
Train said, “This means Experian is investing heavily in the development of proprietary algorithms and data management tools that enhance the usability of the underlying data and increase the” stickiness “of customer relationships.
At the moment, 55 percent of turnover comes from what the company calls ‘data’. large credit history databases from which reports are generated.
But the ‘decisive’ segment, that is. advanced analytics and tools on top of Experian’s data sets are now 25 percent of revenue and growing rapidly.
“We expect this shift to decision-making tools to drive Experian’s growth over the next decade.”
Over five years, Nick Train’s Finsbury Growth & Income trust and Lindsell Train UK Equity Income fund have returned nearly 60 percent, significantly ahead of the FTSE All Share
Train said the increase in new positions is the result of a long period of disappointing absolute and relative returns from the UK stock market and therefore opportunities many seem to have given up.
“I’m not exaggerating when I say give up,” he added. Have you seen the industry data showing the monthly outflows from all open-end UK equity funds? They are substantial and sobering. ‘
In September, the net asset value of Finsbury Growth & Income was up 2.2 percent on a total return basis, and its share price was up 1 percent, while the index was down 1.7 percent.
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