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Investment trust research

Finsbury Growth & Income Trust: February 2023 trust update

In this investment trust update, Senior Investment Analyst Joseph Hill shares our analysis on the manager, process, culture, ESG integration, cost and performance of the Finsbury Growth & Income Trust.

Important information - 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.

This article is more than 2 years old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

  • Manager Nick Train has over three decades of investment experience under his belt
  • Train runs a concentrated portfolio of high-quality companies with a long-term focus
  • The trust has a great long-term track record, delivering significant outperformance, but it has underperformed the broader UK stock market over the past two years

How it fits into 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 investment portfolio, either to complement other trusts or funds investing in unloved companies, or alongside those investing overseas.

The income goal of this trust isn’t to provide a high yield, but rather to grow dividends steadily over time.

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, the Lindsell Train Investment Trust and co-manages the Lindsell Train Global Equity fund alongside 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 crossover 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. These are businesses that are durable, with the ability to grow in different economic environments to deliver attractive returns to investors and are run by strong management teams.

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

Train invests in companies for the long term and once invested, lets the power of compound growth get to work. Investing in a relatively small number of companies means each holding can have a meaningful impact on overall returns, but it’s also higher risk. Train also invests part of the trust outside of the UK, with companies listed in the United States representing the largest overseas exposure.

Investors should be aware the trust can borrow money to invest with the intention of increasing returns (known as gearing), but this could magnify losses in a falling market and therefore increases risk. At the end of the trust's last financial year in September 2022, gearing stood at 1.2%. The manager can also use derivatives, which if used, adds risk.

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

Culture

Nick 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 through all their funds and trusts, and the entire business is geared towards running the portfolios the ‘Lindsell Train way’. Our due diligence recently highlighted some areas for improvement in the firm’s corporate governance processes, which improved quickly following our engagement.

Train and his team spend a lot of their time reading, learning and compiling information on companies they own shares in and those on their watchlist. They have tended not to recruit experienced people, preferring to train and develop graduates who can be moulded into the Lindsell Train way of thinking.

ESG Integration

All Lindsell Train funds seek to invest in exceptional companies for the long term. These companies tend to be well-managed with responsible business practices. Lindsell Train fund managers avoid capital intensive industries (such as energy, commodities and mining companies) and those judged to be sufficiently detrimental to society that they might be vulnerable to burdensome regulation or litigation (such as tobacco, gambling and arms manufacturers).

Fund managers are responsible for voting and engagement. Their long-term approach means they are generally supportive of company management teams. If the fund managers disagree with the management team’s approach, they will try to influence the company to adopt a different course of action - if it’s in clients’ interests. Voting and engagement case studies are available in the firm’s annual Stewardship Report and their ESG & Engagement Report.

Cost

The trust’s annual ongoing charge to the end of September 2022 was 0.60%. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure.

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 and Share Account. As investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges within any Hargreaves Lansdown account.

Part of the trust’s annual charge is taken from capital, which can increase the yield but reduces the potential for capital growth.

Performance

Since Train took over the trust in December 2000, he’s delivered excellent long-term returns for investors. During his tenure the trust’s gained 670.62%* compared with the FTSE All Share index’s 199.66% rise. This is no guarantee of future returns though. All investments and any income they produce can fall as well as rise in value so you may get back less than you originally invested.

Over the trust’s last financial year to the end of September 2022 it delivered a return of -5.63% to investors, compared with a return of -4.00% for the FTSE All-Share index. Among the key detractors over the year, were the trust’s investments in the UK wealth management businesses Schroders and Hargreaves Lansdown. Beverage companies Diageo and Heineken, as well as food manufacturer Mondelez and software business Sage were among the main contributors to performance.

In the trust’s financial year to the end of September 2022, total dividends paid to shareholders amounted to 18.1p per share. This is a 5.8% increase on the dividend per share paid in the previous year.

At the time of writing the trust trades at a discount of 4.65% and has a dividend yield of 2.07% although remember yields are variable and aren’t a reliable indicator of future income.

Annual percentage growth
Jan 18 – Jan 19 Jan 19 – Jan 20 Jan 20 – Jan 21 Jan 21 – Jan 22 Jan 22 – Jan 23
Finsbury Growth & Income Trust 4.29% 17.67% -2.89% 4.77% 2.85%
FTSE All Share -3.83% 10.67% -7.55% 18.90% 5.20%

Past performance is not a guide to the future.Source: *Lipper IM to 31/01/2023.

FIND OUT MORE ABOUT The Finsbury Growth & Income Trust PLC INCLUDING CHARGES

VIEW The Finsbury Growth & Income Trust PLC KEY INFORMATION DOCUMENT

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Written by
Joseph Hill
Joseph Hill
Senior Investment Analyst

Joseph is part of our Fund Research team. Having joined HL in 2017 initially on a graduate scheme, he's now integral to our analysts who select funds for our Wealth Shortlist. He also analyses the UK Growth, UK Equity Income and UK Smaller Companies fund sectors, providing expert insight for our clients.

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Article history
Published: 7th February 2023