Nick Train says the performance of his popular Finsbury Growth & Income investment trust has improved after the valuation ally spiraled out of control in the spring.
The £2 billion trust managed by Train – one of Britain’s best-known fund managers – has a concentrated portfolio of up to 30 companies. It took a hit earlier this year when the vaccine rally sent previously struggling stocks soaring.
Train said: “A simple and broadly accurate way of understanding our performance so far in 2021 is to say that we underperformed in the first quarter as investors chased beaten UK value and recovery stocks – which we don’t own.” .
“However, as the year has progressed, many of our long-standing holdings in growth companies have started to outperform – either because their underlying business growth has accelerated, or because it appears they have been hit harder by the pandemic than understood and enjoyed their own “recovery” bounce .’
Nick Train manages the £2 billion Finsbury Growth & Income investment trust
Finsbury Growth & Income’s portfolio includes many well-known companies with a quality and growth orientation, ranging from Guinness maker beverage giant Diageo to consumer brands Colussus Unilever, the London Stock Exchange and leader of DIY investment platform Hargreaves Lansdown.
The investment trust’s share price rose 2.7 percent from the beginning of the year to the end of June, while its net asset value rose 7.3 percent, but lagged the benchmark FTSE All-Share Index return of 11. 1 percent.
Over year to June 30, 2021, Finsbury Growth & Income saw a total share price return of 9.5 percent compared to the FTSE All-Share’s total return of 21.5 percent.
Much of that slowdown, however, is due to the vaccine rally in cheap beat up stocks, and in calendar year 2020, Finsbury Growth & Income fell just 2 percent compared to the minus 9.9 percent return of the FTSE All-Share .
Train noted that in the second quarter of the year, between April and June, there were strong price gains from some of the companies held in confidence, primarily digital companies and premium consumer brands.
Newcastle-based software company Sage rose 12 percent in the period, while Experian, DMGT (the parent group of This is Money) and RELX outperformed the market with a 7 percent gain.
Meanwhile, Diageo rose 16 percent, Fever-Tree 21 percent, Remy Cointreau 11 percent, Burberry 9 percent and Heineken rose 13 percent.
Similarly, Cadbury and Oreos owner Mondelez rose 7 percent during the quarter, hitting a record high.
A long-term theme for Finsbury Growth & Income is the UK asset management sector
Another long-term theme for Finsbury Growth & Income is asset management, where Train said there is “great growth and consolidation opportunities in the UK”.
Two of the three holdings underperformed in the second quarter: Hargreaves Lansdown and Schroders, up 3 percent and 0.4 percent respectively.
The other, Rathbones, rose nearly 6 per cent after the £150m deal to buy Saunderson House, a financial planning firm, which has £4.7bn in assets under management.
Train said JP Morgan’s recent acquisition of robo-advisor Nutmeg, which provides simplified investment advice, confirms that at least one global bank sees opportunities in the UK wealth sector.
“JP Morgan’s entry into the space is a reminder of the joint venture Schroders has created with Lloyds Bank, which we hope will become a source of strong marginal capital appreciation,” Train said.
“Meanwhile, confirmation that Schroders was considering a merger with M&G is somewhat spot on, indicative of the consolidation options being considered by boards across the industry.”
Finsbury Growth & Income (red line) beat industry average confidence (blue line) over the past 12 months until the vaccine rally kicked off from November last year, AIC figures show
However, over the past decade, Finsbury Growth & Income (red) has far outperformed the industry average (blue)
Finsbury Growth & Income Confidence
• AIC sector: UK equity income
• Launched: 1926
• Lindsell Train appointment date: December 2000
• Net Assets: £2,074.8 million
• Invests in shares of companies predominantly listed in the UK, with the aim of achieving capital and income growth.
• Concentrated portfolio of up to 30 low-turnover stocks.
• Bottom-up approach to stock selection.
• Appears to invest in a universe of publicly traded companies that tend to appear undervalued.
While Finsbury Growth & Income’s performance has improved after lagging the stock market recovery for much of the past year, it could be further tested if inflation fears trigger another sell-off in growth stocks.
However, the trust’s heavy weight on consumer goods and financial services could mean it proves to be an inflation winner, as many of its major brands have significant pricing power. The trust has 49.8 percent of its investments in consumer goods, 25 percent in financial services and 17.6 percent in consumer goods.
Confidence is in the AIC’s UK Equity Income sector, but is currently returning just 1.9 percent, compared to the industry average of 3.8 percent, thanks to Finsbury Growth & Income’s more growth-oriented investment approach.
The best-performing large trusts to invest in UK companies in the sector over the past year are Gervais Williams’ more small- and medium-cap Diverse Income Trust, which is up 46.6 percent, and the value-focused Merchants Trust. , which is up 46.1 percent, Lowland Trust, up 44.4 percent, and Temple Bar, up 43.3 percent.
Finsbury Growth and Income, with an ongoing charges of 0.6 percent, is the ninth best performer in the industry over five years, up 56.8 percent, compared to an industry average of 40.7 percent.
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