Should investors stick with Finsbury Growth & Income?

Finsbury Growth & Income has suffered another spell of underperformance but star fund manager Nick Train has said the uncertainty in global markets could present a buying opportunity.

The Lindsell Train co-founder, who has managed Finsbury Growth & Income for 20 years, has built up a loyal following among retail investors. 

But in the trust’s half-year report published this week Train apologised to investors for Finsbury’s ‘disappointing returns’.

The investment company underperformed the benchmark FTSE All-Share Index which returned 4.7 per cent over the period. Its NAV per share total return was -2.2 per cent while the share price total return was -3 per cent.

It is the third consecutive six-month period of underperformance for Train.

Star stockpicker Nick Train has apologised for Finsbury Growth & Income’s period of underperformance

‘I am sorry that the longstanding Lindsell Train investment approach and the longstanding major holdings in the portfolio have failed to deliver acceptable performance for your company over what is now no trivial period,’ said Train.

The trust’s chair, Simon Hayes, said markets had focused on macroeconomic and geopolitical factors which have ‘contributed to the current negative outlook for consumption, inflation and investors’ risk appetite.

‘As a result, the returns earned on our concentrated portfolio of high quality stocks have failed to reflect the underlying strength and performance of the companies we own.’

Train adopts a bottom-up stock picking approach and has a preference for companies with high margins, dependable profitability and low levels of debt which can generate high returns.

It means the concentrated portfolio of the trust, which has an ongoing charge of 0.6 per cent, is made of up recognisable brands like Burberry, Diageo and the London Stock Exchange.

As of 31 March, the portfolio consisted of just 22 stocks across just five sectors; half of the trust is in consumer staples, 24 per cent in financials and 15 per cent in consumer discretionary.

Mick Gilligan, partner at Killik & Co said: ‘The recent derating in Finsbury Growth shares may be justified by stock specific setbacks and by broader concerns of a rotation away from quality growth stocks towards out of favour value stocks. 

‘Growth stocks tend to struggle in a rising interest rate environment.’

Despite the lacklustre returns, Train said he remained confident in his strategy which prizes ‘long-term ownership of ‘sound common stocks’’.

‘The duration and effects of war are uncertain. There may be a speculative bubble deflating in technology company shares. It is possible inflation and interest rates will go higher. We have no particular perspective on any of these issues that would give us an edge in timing the markets.

‘Often events don’t work out as badly as people fear; but even if they do, owning shares in solid companies is a good strategy to see you through to the better days to come. The company’s strategy will continue to prize long-term ownership of “sound common stocks”’.

Finsbury Growth & Income trust’s top ten holdings list features many household names

The trust has no exposure to UK banks, which returned 15 per cent during the period largely because of HSBC’s 38 per cent return. 

London Stock Exchange, the trust’s biggest financial position, returned 7 per cent over the period but Hargreaves Lansdown dragged the sector down with a share price decline of 29 per cent over the period.

Relx was the top contributor over the period, as shares returned 11 per cent and added 1.2 per cent to NAV.

Tracy Zhao, senior fund analyst at Interactive Investor said that while the trust’s performance is disappointing ‘investors who follow his strategy know that this is far too short a time period to get unduly introspective.’

Finsbury Growth & Income has suffered after its initial Covid rebound fizzled out but its share price is up substantially over the past decade

Despite a period of underperformance, the trust has delivered a total NAV return of 296 per cent over 15 years, more than double of FTSE All Shares which has gained 113.8 per cent over the same period.

Gilligan added: ‘The FGT NAV may not keep pace with the market against a backdrop of steeply increasing rates. However, many of the holdings have experienced a material derating and are now starting to show better share price performance.

‘The top five holdings have outperformed the FTSE All Share Index over the last three months.

‘Those wishing to take a long-term view and add some FGT to their portfolio should find some reassurance in the underlying portfolio profitability and the ongoing support from the board to buy back stock around current levels.’