Nick Train says UK equities could stay cheap ‘for a very long time’

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Fund manager Nick Train has said that UK equities are “abysmally” out of favour with investors and could remain “frustratingly cheap for a very long time”.

Train, who is one of the UK’s best-known fund managers and runs the £4.4bn Lindsell Train UK Equity fund, said that UK valuations far below other developed markets did not necessarily make it a good time to scoop up bargains.

“I am cautious because I know that one person’s ostensibly low valuation is another’s moribund value trap. In other words, markets can stay frustratingly cheap for a very long time,” he said.

The FTSE All-Share index trades at 10 times earnings, according to Bloomberg, compared with the S&P 500 at 22 times earnings, the largest gap on record according to Train. The S&P 500 returned 11 per cent in the first half of the year in sterling terms, compared with 2.6 per cent for the FTSE All-Share.

Train’s comments come as UK policymakers attempt to boost the attractiveness of the City of London, which has been struggling with a dearth of initial public offerings. Cambridge-based chipmaker Arm in March chose New York for its upcoming listing, in a big blow to the London market.

Train said that the UK’s lack of big technology companies was one of the reasons the market continued to trade at a low valuation, although he also pointed to the decline in domestic pension funds investing in London-listed shares.

Richard Buxton, UK fund manager at Jupiter, said the composition of the UK index, in which older industries such as oil and gas have a high weighting, meant it would “always likely trade at cheaper valuations than other markets”.

“The discount across other sectors has widened in recent years as Brexit has damaged the economy and its prospects,” he added. “Our trend growth rate is materially lower than it was 30 years ago. For a number of years now, there has been and remains political instability and uncertainty.”

Henry Dixon, UK fund manager at Man GLG, said the UK stock market was shrinking partly because of share buybacks and mergers. “You could argue the UK is a finite asset with less than 10 years to live,” he said last week at a conference hosted by Morningstar. “If I presented those demand dynamics and those supply dynamics about copper, we’d be talking about copper prices doubling. But we never talk about UK equities doubling.”

Train, who invests in the London Stock Exchange Group, said that the negative sentiment meant there were opportunities to snap up “wonderful companies that are wrongly priced”, citing cloud-software provider Sage as an example.