Finsbury Growth & Income 30 January 2024
Disclosure – Independent Investment Research
This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.
Finsbury Growth and Income (FGT) has been managed by Nick Train since 2000. FGT’s mandate for the portfolio is to generate capital and income growth, and total returns in excess of the FTSE All-Share Index. However, the FGT portfolio is very different to other funds and to the benchmark. As we discuss in the Performance section, this difference has shown up in the strong degree of long-term outperformance delivered by the trust. However, the core of what makes FGT different is the significant degree of concentration within the portfolio, and the very low turnover.
Companies in the 23-stock portfolio are selected for their potential to generate high and sustained future returns on capital, which will compound into the future. As we illustrate in the Portfolio section, the top ten holdings represent 85% of the total, meaning NAV returns will be influenced by company specifics. For example, despite some elements of the portfolio performing strongly during 2023, poor share price performance from large holdings Burberry and Diageo contributed to a disappointing relative NAV performance in 2023. Nick’s willingness to be patient is legendary, with any new purchase in the portfolio making headlines in the trade press.
FGT aims to grow capital and income, but given the focus on growth and the high quality of the portfolio companies, FGT only yields 2.3%. As such, as we discuss in the Dividend section, it is something of an outlier in the UK Equity Income sector in which dividend yields are more often double this.
Over the last five years, FGT’s NAV performance has been pedestrian on a relative basis. FGT has performed almost exactly in line with the benchmark and the peer group average. In particular, performance over 2021, 2022 and 2023 has been disappointing, with each year seeing underperformance relative to the benchmark.
Since Lindsell Train took over the management of the trust in 2001, FGT has delivered a NAV total return of 631%, which compares to the FTSE All-Share Index benchmark return over the same period of 215.5%, representing a significant outperformance. This has been achieved with only slightly higher annualised volatility than the benchmark. As well as harnessing the strong growth of his portfolio companies, and allowing compounding over the long term to work its magic, the large-cap defensive nature of many of these companies has helped give the trust defensive characteristics when markets fall.
Shorter term, the last three years have been poor. This is a disappointing result for Nick, given his strong long-term track record is built on employing the same highly differentiated approach in a consistent manner. Since 2021, and perhaps as a result of this underperformance, FGT has traded at a persistent discount to NAV. The trust has a rigorous discount control mechanism, which means that the shares should trade between a 5% discount and a modest premium of 2%. This has had the effect of minimising discount volatility – certainly relative to the average for the AIC UK Equity Income sector. Currently FGT trades on a discount of 6.6%, in at the lower bound of the board’s target range, meaning that for those attracted to the Lindsell Train UK strategy, FGT could be an interesting opportunity.
- Unique and differentiated portfolio, backed by high conviction
- Strong long-term performance
- Discount to NAV at lower end of board’s target range
- Yield is very low when compared to peers
- Performance has been uninspiring over the last three years
- Concentrated portfolio means shareholders are exposed to specific risks