- Fourth year of underperformance
- Consumer brand exposure reduced
- Train optimistic for better future returns
Veteran fund manager Nick Train, manager of the well-followed Finsbury Growth & Income Trust (FGT), insisted he is more enthused by the company’s prospects than at ‘any time this century’, despite the company reporting a fourth consecutive year of underperformance versus the benchmark.
Chairman Simon Hayes conceded that while the FTSE 250 company’s long-term track record remains impressive, this will provide ‘little solace to more recent investors for whom returns will be substantially below what they may have hoped for’.
Nevertheless, the board continues to ‘fully support’ Train’s strategy of long term investment in high quality companies which own ‘durable and cash generative franchises’, and remains committed to buying back shares to bring in the discount to net asset value (NAV).
TRAIN STAYS ON TRACK
For the year ended 30 September 2024, Finsbury Growth & Income’s NAV total return of 8.2% was behind the 13.4% from the benchmark FTSE All-Share Index.
The 3.4% share price return over the same period reflected a widening of the discount to NAV, which currently stands at 8.5%.
With Finsbury Growth & Income’s 100th anniversary looming, Train stressed ‘periods of lacklustre performance are inevitable for all investors. When you are in the midst of such a period, as we are, it is important to keep your nerve and stick to your investment principles.’
LESSONS LEARNED
Sometimes known as the king of buy-and-hold investing, Train claimed the portfolio was a victim of its previous success.
‘The peak of our relative performance was in 2020. What drove the strong performance for much of the preceding decade were the strong returns from our investments in consumer branded goods owners’, among them Johnnie Walker-owner Diageo (DGE), British luxury goods brand Burberry (BRBY) and Dove soap-to-Marmite maker Unilever (ULVR).
Train added: ‘As a result of that success the combined weight of the holdings in consumer brands was 50% of the whole portfolio as at year-end September 2020. In hindsight, this was too high. Covid-19 and its inflationary aftermath have been unhelpful for many consumer companies and their share prices have fallen or stagnated, hurting our overall investment performance.’
He was also at pains to point out the portfolio’s consumer brands exposure has been markedly reduced to 32%.
Finsbury Growth & Income has maintained and even increased exposure to both Diageo and Unilever on recent share price weakness, but the exposure has been tilted towards London-listed data, software and technology platform companies, which now comprise 60% of the portfolio.
Citing research by Bank of America, which notes that the top criteria for AI success is the ownership of large amounts of proprietary data, Train is therefore bullish about the prospects for portfolio holdings Experian (EXPN), LSEG (LSEG), RELX (REL) and Rightmove (RMV) given the proprietary data that they curate.
BIG BUYING OPPORTUNITY
Optimistic for better future returns, the markets veteran remains convinced the best way to get the NAV and share price moving up again is to continue running a concentrated portfolio built around exceptional UK companies.
He also believes this is a buying opportunity for Finsbury Growth & Income and has ‘put my money where my mouth is by buying more shares’, boosting his stake in the trust to 3.5%.
‘When I look at the portfolio today, I am more enthused about its prospects - and by association the UK stock market - than at any time this century,’ commented Train. ‘I have increased my holding because LSEG, Experian, Diageo, Sage and RELX (and I could go on) not only happen to be listed on the London market, but are genuine world class companies with substantive growth opportunities in front of them. Finsbury Growth & Income holds those businesses in big quantities, and if our analysis of them is right, the impact on returns in the coming years will be very significant indeed.’
