Finsbury Growth & Income is a highly-concentrated investment trust with a portfolio of mainly UK stocks, aiming to achieve capital and income growth in excess of that produced by the FTSE All-Share.
Fund manager Nick Train ignores the benchmark entirely - investing in companies which he believes will perform well regardless of their weighting in the index. The trust tends to invest in companies that have been resilient over various cycles and exhibit steady earnings growth over the long term.
He runs a highly-concentrated portfolio which stood at just 22 stocks when last reported in February, and Nick is renowned for his very long-term, low-turnover approach. For example, the most recent addition to the portfolio was Manchester United last summer, and he has only added one other new stock to the portfolio over the past four years. This, along with his focus on high-quality, cash-generative companies with strong franchises means his portfolio is highly differentiated to his peers in the AIC UK Equity Income sector.
Over the past five years (to the end of March) the trust has delivered an NAV return of 78.9%, beating the AIC UK Equity Income sector by 44.5%and more than doubling the returns of the FTSE All Share. The trust’s returns over the longer term have been equally as strong, with it having beaten the index in nine of the past ten calendar years.
The trust is known for trading at a slight premium to par, however, in recent times we have seen this gap narrow. At the time of writing the premium is just 0.2%, relative to the three year historical average of 0.6%.
Finsbury Growth & Income Trust has a highly-concentrated portfolio. While this brings with it greater stock specific risk, it is impressive that over the past ten years the trust has outperformed its index nine times, showing that there have always been more and bigger winners than losers. In our view, this is far from luck, and his ability to find hidden gems that will continue to grow over the long term is a skill few managers demonstrate.
Although the trust has one of the lowest yields in the sector at 1.9%, dividend growth rates are high relative to peers and the trust shies away from some of the most popular UK dividend-paying stocks, which often have the most challenged dividends. As such and given its strong track record of consistent capital growth, the trust can be used as a diversifier for those concerned about overall levels of concentration in the UK equity income market.
|Consistently delivering strong returns relative to the benchmark and sector
||Vulnerable to rising rates
|The unique and diversified portfolio offers very different exposure in comparison to the peer group
||Trading at a premium
|A world renowned, and valuation disciplined portfolio manager
||Yield is unspectacular relative to its peers
|Delivered the one of strongest dividend growth rates in the sector over five years (7.8%)