Nick Train flagship fund posts best month in its history as software bet starts to pay off

Nick Train’s flagship fund has posted its best single-month performance in its 20-year history, in a sign the star stockpicker’s contrarian bets on unloved software stocks are fuelling a change in fortunes for the flagging vehicle.

The £1bn Lindsell Train UK Equity fund returned 10.8 per cent to investors in October, in its best month relative to its peers and its second-best in absolute terms since its 2006 launch.

In a letter to Lindsell Train investors seen by City AM, Train hailed the performance as a turning point for his portfolio after five years of under-performance.

The feted fund manager, who also manages the £808m FTSE 100 Finsbury Growth and Income Trust, has taken outsized non-conformist punts on major software-as-a-service (SaaS) firms – including Relx, Experian and the London Stock Exchange Group – despite many analysts and investors fearing they could be victims of the rise of artificial intelligence.

His fund was forced to shoulder consecutive months of losses earlier this year, as software stocks suffered a historic rout dubbed ‘the SaaSpocalypse’. Investors dumped the category indiscriminately, amid fears AI would upend and undercut software companies’ lucrative seat-based pricing model. Finsbury posted a 14.4 per cent loss in the six months to April.

But since the historic sell-off, Finsbury and Lindsell Train’s software portfolio have staged a major recovery, with the likes of Relx and Sage rallying more than 50 per cent since their late-February lows.

“We hope this is not just a bounce, but an inflection point in investor sentiment toward our holdings that could presage a long period of better returns,” Train wrote, adding that his fund is increasingly acting as a counterweight to artificial intelligence-exposed rivals.

“We do not view our portfolio as simply a hedge against AI bullishness – we have far greater ambitions for it,” he added.  “Crucially we continue to maintain that, in fact, our digital companies are not losers from AI; instead, we think they will more likely be multi-year beneficiaries from it.”

Relx, Experian and Sage power Nick Train’s recovery

Shares in Relx, Experian and Sage all rose by more than 20 per cent in October, after the latter pair posted more positive trading updates. Along with the London Stock Exchange Group, the four companies make up more than 40 per cent of the fund’s unusually concentrated portfolio.

The rally also helped Finsbury, which boasts a near-identical portfolio to Train’s flagship equity fund, post the best performance of any investment trust in October according to Morningstar data. Shares in what is one of the UK’s largest trusts climbed 11.8 per cent over the month, but remain five per cent lower over a five-year period.

“The better performance results from a rally in major portfolio holdings that have been under share price pressure over the last 18 months,” Train wrote. “In other words, rightly or wrongly, we did not capitulate during that period of underperformance and sell these holdings and this means we have, at least, captured their bounce for fundholders.”

Nick Train, who at one point in his career was dubbed Britain’s Warren Buffett, boasts one of the best track records of any UK fund manager. Since he took over Finsbury in December 2000, the trust has generated returns of nearly 750 per cent, double that of the index.

But since the pandemic, the fund has consistently under-performed relative to its peers, amid a slowdown in consumer goods stocks like Diageo and Unilever.