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Finsbury Growth & Income Trust: September 2020 update

Investment Analyst Dominic Rowles shares our analysis on the manager, process, culture, cost and performance of the Finsbury Growth & Income Trust.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • Nick Train champions investing in a small number of high-quality companies for the long term
  • He’s only made one new investment in the past 12 months
  • The trust held up better than the broader UK stock market recently but still made a loss

How it fits in a portfolio

Finsbury Growth & Income Trust aims to deliver long-term growth in capital and income by investing in a small number of high-quality UK companies. It could work well as part of a diversified portfolio, either to complement trusts or funds investing in unloved companies, or alongside those investing overseas. The income goal isn’t to provide a high yield, but rather to grow dividends steadily over time. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to NAV.

Manager

The trust is managed by Nick Train, one of the founding partners of Lindsell Train. He’s a veteran investor with over three decades of experience under his belt. Train was previously head of Global Equities at M&G Investment Management, where he’d worked since 1998. Before that he spent 17 years at GT Management in various senior roles including investment director and chief investment officer for Pan-Europe.

Train also manages the Lindsell Train UK Equity fund and the Lindsell Train Investment Trust, and co-manages the Lindsell Train Global Equity fund along with Michael Lindsell and James Bullock. This trust is run using the same approach applied to all Lindsell Train portfolios, and there is a fair amount of cross over between them, so we think Train can devote enough time to each.

Process

Train seeks out a small number of high-quality UK companies that he believes can deliver good long-term total returns – growth in both capital and income. Most of the portfolio is made up of large, well-established businesses, and nearly half is currently invested in the consumer goods sector. Snack maker Mondelez, everyday household goods company Unilever, and alcoholic drinks company Diageo are examples.

Although the trust aims to deliver a growing income over time, investors shouldn’t expect high yields. Train believes the reliability of the long-term growth in dividends is more important than a high but potentially unreliable yield. He’s therefore willing to accept lower yields if he believes dividends will carry on growing in the long run.

Train has become a well-known advocate of the buy-and-hold-approach – investing in companies for many years and letting the power of compound growth get to work. Over the past 12 months he’s not sold a single company from the portfolio, and has only made one new investment – tonic maker Fevertree. He’d admired the company for many years and saw an opportunity to invest in it at an attractive price during recent volatility.

Investing in few companies as Train does means each holding can have a bigger impact on overall returns than a more diversified approach, but it’s also higher risk. He can use gearing (borrowing to invest), which could help boost gains but increases losses so it’s also a higher-risk approach. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

Please note the trust currently holds shares in Hargreaves Lansdown PLC.

Culture

Train is a founder and one of the major owners of the Lindsell Train business. We view this positively as ownership of the business aligns his long-term incentives with the interests of investors. The distinct investment philosophy that he and Michael Lindsell have created runs strongly though through all their funds and trusts, and the entire business is geared towards running the portfolios the ‘Lindsell Train way’.

Cost

The trust has an annual ongoing charge of 0.7%. We think this is good value for access to a manager with such a long and strong track record. If held in a SIPP or ISA the HL platform fee of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies. Our platform fee doesn’t apply if held in a Fund & Share Account.

Performance

It’s been a tough time recently for the UK stock market and the trust hasn’t escaped the turbulence. Over the past 12 months it fell 9%*. It held up better than its benchmark though, as the FTSE All Share index lost 12.7%. This is over a short period of time though, and remember past performance doesn’t indicate future performance.

The trust’s share price currently trades closely to its net asset value (NAV), which it’s usually done over the long-term. There’s no guarantee of that though, as was the case during the pandemic-induced volatility in March when the trust fell to more than a 10% discount.

The yield is just shy of 2%, which is significantly less than the UK stock market’s yield, reflecting Train’s focus on the sustainability of dividends over time. Yields are variable and income isn’t guaranteed.

Since Train took over the trust in December 2000 he’s delivered excellent long-term returns for investors. During his tenure the trust has gained 659.9% compared with the FTSE All Share index’s 122.4% rise. This is no guarantee of future returns though. All investments can fall as well as rise in value so you may get back less than you originally invested.

Chart showing Finsbury Growth & Income performance under Nick Train

Past performance is not a guide to the future. Source: *Lipper IM to 31/08/2020.

Annual percentage growth
Aug 15 -
Aug 16
Aug 16 -
Aug 17
Aug 17 -
Aug 18
Aug 18 -
Aug 19
Aug 19 -
Aug 20
Finsbury Growth & Income Trust 19.9% 17.7% 13.8% 13.0% -9.0%
FTSE All-Share 11.7% 14.3% 4.7% 0.4% -12.7%

Past performance is not a guide to the future Source: Lipper IM to 31/08/2020.


Find out more about Finsbury Growth & Income Trust

Finsbury Growth & Income Trust Key Investor Information

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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