It’s been a while since The Armchair Trader wrote about popular UK Equity Income investment trust, the Finsbury Growth and Income Trust [LON:FGT] managed by Nick Train co-founder of Lindsell Train, a specialist investment manager established in 2000.
Over 10-years, FGT has been the second-best performer in the Association of Investment Companies’ UK Equity Income sector, with a 100.9% return.
The investment trust has GBP1.7bn assets under management, again number two in terms of assets in the AIC’s UK Equity Income sector.
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Over five years, the Finsbury Growth & Income Investment Trust, just misses out on a podium finish in terms of annual dividend growth, coming fourth in sector with 4.43%. However, that dividend yield isn’t much to write home about, at 2.29% ranking FGT 20th in sector – in last place.
Short-term performance issues
Comparative performance over shorter time periods is also underwhelming. According to the AIC, FGT returned 9.2% over five-years. The sector average was 24.8% and FGT ranked 18th. Over one-year, the sector average return was 2%, but FGT fell -4.9%, by far not the worst over one-year – that accolade belongs to Chelverton UK Dividend Trust [LON:SDV] which fell -14.1% – but still saw Finsbury Growth and Income Trust in 16th spot.
The fund trades at a 7.45% discount to premium. The ongoing charge is 0.61%.
FGT principally invests in the securities of UK listed companies with the objective of achieving capital and income growth and providing a total return in excess of that of its benchmark, the FTSE All-Share Index (net dividends reinvested).
A concentrated portfolio of 30 stocks
The fund runs a concentrated portfolio of up to 30 stocks with a low turnover and says it uses a bottom-up stock picking approach looking to invest in a universe of listed companies that its management believes are undervalued. Up to 20% of the portfolio can be invested in quoted companies outside the UK. The fund manager’s policy is to invest no more than 15% of its gross assets in other listed investment companies (including listed investment trusts).
Train recently wrote to the fund’s investors. He said: “In February, the [investment trust’s] NAV was up 1.7% on a total return basis and the share price was up 2.3%, on a total return basis, while the index was up 0.2%. Four of our ‘magnificent five’ outperformed the FTSE All-Share last month; not that that was too much of a challenge because the index itself was effectively unchanged. Those five are the holdings in [the] portfolio of more than 10% of NAV and are ‘magnificent’ in the sense they are world-class and substantive businesses, each with a clear secular growth opportunity. And in the sense, we hope they will be drivers of value for our investors for years to come.”
Finsbury Growth and Income Trust top five holdings
Investment | Weighting | Sector |
RELX LON:REL | 12.8% | Consumer Discretionary |
London Stock Exchange LON:LSEG | 12.0% | Financials |
Experian LON:EXPN | 11.6% | Industrials |
Sage Group LON:SGE | 10.9% | Technology |
Diageo LON:DGE | 10.5% | Consumer Discretionary |
Source: Finsbury Growth & Investment Trust as at 29th February 2024
Train did admit that the London Stock Exchange LON:LSEG was the one negative outlier in performance. He said: “We were surprised it lagged a bit, when its global peers were going up. And particularly because LSEG’s listed US subsidiary TradeWeb NASDAQ:TW was up 11% in February to its own all-time high. This matters because the value of LSEG’s majority stake in TradeWeb is now over GBP10bn, or over 20% of LSEG’s own market capitalization. Tradeweb’s success and its increasing significance for LSEG’s own valuation is a further endorsement of the 2021 Refinitiv merger. The merger has resulted in LSEG becoming a systemically important global growth business and, to us, it looks increasingly anomalous that LSEG’s shares are still no higher than they were at the time of the transaction.”
Performance regulated by global forces
The team at FGT can’t rest on their laurels, basking in ten-year performance, and needs to turn around performance quickly. Part of Train’s explanation of the recent underperformance was that the fund does not have exposure to mining and energy. Power has obviously been the place to be over the past few years since the conflict in Ukraine kicked of a spike in electricity and gas prices. The lack of exposure to the sectors is out of choice, as philosophically Train and his team specifically ignore the resources sectors, as in their belief their performance is regulated by global forces – not by what the company is actually doing – which is fair comment. However, not having them in the portfolio has been negative on performance.
Although the manager says he is a stock-picker looking for undervalued companies, the larger cap makeup of the portfolio suggests that the fund has a more top-down approach to portfolio construction. Moreover, the manager does not like churn, so tends to hold onto lower-performing companies for longer that is necessary.
Questions still remain on whether the next ten years will be as profitable as the last decade.
- Find the latest research for Finsbury Growth and Income Trust on the AIC website