Finsbury Growth & Income is back on the up

Speaking at Frostrow Capital’s annual investment seminar, Nick Train thanked Finsbury Growth & Income shareholders for their patience.

It’s a recurring theme in his updates to investors following an extended period of underperformance.

But investors in Train’s flagship stock may have quietly applauded it lately as it has risen steadily to record a one-year price return of 13.5 percent and climb back to all-time highs.

Finsbury growth and income is a household name in the mutual fund world, with the best stock picker Train having delivered strong returns since his appointment in 2000.

Last year, however, FGT suffered its second consecutive year of underperformance after a 5.8 percent drop in net asset value (NAV).

It meant the trust underperformed the benchmark FTSE All Share, which fell 4 percent over the same period.

‘Happy [underperformance] hasn’t happened too often in the 22 years… nevertheless I can assure you it was an unpleasant experience,” Train told investors this week.

FGT also suffered from choppy share price performance, falling 8.5 percent to 800 pence in the 12 months to Sept. 30.

But over the past year, confidence is up 13.5 percent, and at 902p, it’s trading not far off 2019’s high share price of around 940p.

Train expressed his frustration in his update to investors, saying the performance was “disappointing,” especially given that the business performance of most of the companies in the portfolio met or exceeded my expectations.”

There is a glimmer of hope for patient investors as shares creep higher and the discount narrows to -4.45 percent.

So what has changed? Portfolio turnover at FGT remains extremely low. It has a concentrated portfolio of 22 holdings and the trust has not added any new names since early 2020 when it added Experian and Fever Tree.

Could it be that Train’s strategy is finally paying off again?

“When you’re executing a strategy as focused as this, it really matters what you focus on and it’s our contention that Finsbury’s portfolio focuses on a collection of exceptional companies, mostly UK companies,” said the stock picker.

The trust invests in four main types of companies: digital winners, luxury brands, mass market consumer goods and financial services.

They have largely fallen out of favor in a higher interest rate environment and investors’ aversion to investing in UK equities has not helped.

Despite being a largely UK-focused fund manager, Train made headlines when he called UK equities the “back water” of global equities after a long period of “dismal capital performance”.

Speaking to investors last week, however, he remained optimistic about the portfolio’s outlook.

He said: ‘Contrary to popular belief, [and] despite the natural self-contempt that Britons tend to have, there are actually some really excellent companies listed on the London stock market and we’ve invested in many of them.’

In March, Burberry and RELX both hit all-time highs in share prices and performance continued their upward trajectory.

RELX, the trust’s top holding company, has been a particular highlight for Train, who says it is “one of the best growth companies available to investors around the world,” outperforming All Share and the Nasdaq since 2000.

Other holdings include Diageo and Heineken, which have performed well despite the current environment given their strong pricing power.

Train could also get a boost from its stake in Manchester United, which, if reports are to be believed, will be sold for billions.

While Train is not involved in the sale discussion, he told investors that a bid of up to £5bn shows “the value of unique sports franchises”.

It’s been a rough ride for FGT and while investors may have been disappointed in recent years, the longer-term returns are impressive.

Total share price returns over 5 years outperformed the AIC’s UK Equity Income sector by 25.9 percent to 22.6 percent. Over 10 years, FGT has achieved a return of 138.4 percent, well above the industry’s share price return of 80.8 percent.

More impressively, the trust has outperformed the S&P 500 since Lindsell Train acquired the trust in 2001.

‘[Our] Our approach has not only produced returns that are competitive with its own benchmark, but returns that have been globally competitive, even though the market from which we select securities has been bland and out of favor.”