From time to time we will be taking a look at some of the best investment trusts available on the UK market. In the first of this semi-regular series, we visit the Finsbury Growth & Income Trust [LON:FGT], now managed by superstar fund manager Nick Train of Lindsell Train. The trust enjoys its pride of place at the top of the five year rankings, and is yielding ground to few trusts over 12 months (e.g. Dunedin Income Growth if you are interested).
Finsbury Growth & Income Trust: the numbers speak for themselves
The numbers speak for themselves really, and Train is rightly acknowledged one of the brightest stars in the UK asset management galaxy at the moment. He has been around the block a few times and was managing money at GT Management in the 1990s when I was writing at the FT group. Before founding Lindsell Train in 2000, he was Head of Global Equities at M&G.
Finsbury Growth & Income Trust invests in UK stocks with the objective of achieving capital and income growth and it needs to try to beat the FTSE All-Share Index. Train, and his colleague Michael Lindsell, are both wedded to the idea of investing in durable, cash-generative businesses that they think are under-priced by their valuation analysis. This is easier said than done, but it is this skill that has formed the basis of Train’s reputation in the City.
At the time of writing, Finsbury Growth & Income Trust was up 59.7% over five years and +277% over the last 10 years. It has a five year dividend growth of 8% per annum and a 2% dividend yield. Over the last 12 months it is down slightly, -4.1%, but few investment trusts in this category are in positive territory yet, although Dunedin Income Growth has managed to claw its way marginally back into the black (and will bear further analysis in the future). This is to be expected after the historic sell off in stocks in March.
Train likes his consumer goods stocks at the moment, and the investment trust holds substantial positions in the likes of Unilever (LON:ULVR), Diageo (LON:DGE), Mondelez (LSE:0R0G) and Burberry Group (LSE:BRBY). Its current largest holding, at 12%, is London Stock Exchange Group (LSE:LSE).
The trust has tended to invest in what Train calls historically conservative, cash generative companies. Investors will obviously be concerned about what the corporate dividends situation will look like for the portfolio in the teeth of the current COVID-19 crisis.
“We have now had virtual meetings with most of our portfolio holdings and have conveyed to them this message – that dividend holidays are one thing and can be temporary, but far more serious is to issue permanent capital at depressed share levels,” explains Train. “The dilution is a significant drag on eventual earnings recovery and should not be contemplated lightly.”
Train is forgiving of those companies – like Burberry – that have decided to withhold their dividend – and is heartened by the rationality of the response of investors to temporarily suspending dividends. The market seems to accept this. Like us here at The Armchair Trader, he is hoping that Burberry can make more out of the recovery in the Asian economies.
Train wants to see companies in the Finsbury Growth & Income Trust doing more with their money to enhance their digital marketing capabilities. Some companies in the portfolio, like Mondelez and Sage (LSE:SGE), are already doing this.
Ultimately, Train remains optimistic about many of the companies he has chosen for this portfolio as the global economy starts to come back out of deep freeze. “Be optimistic,” he says. “Underneath, many businesses are improving.”