Finsbury Growth & Income Trust
Edison | May 20, 2013 02:32PM ET
Finsbury Growth & Income Trust (FGT ) maintains a relatively concentrated portfolio of 25-30 stocks, with a focus on well-managed businesses with strong franchises. FGT has an experienced management team, which uses a bottom-up strategy to select positions that are held for the long term (turnover is just over 6% per year). It is moderately geared, aims to provide an above-average dividend yield, and its strong record of outperformance has continued during the last year. During the last 10 years, FGT has outperformed its benchmark, the FTSE All-Share, by 159.6% and 227.7% in terms of NAV and share price total return respectively.
Investment Strategy: Undervalued Quality UK-Listed Companies
FGT invests in large- and medium-sized companies listed primarily on the UK equity markets. The manager subscribes to the Buffett doctrine and looks for long- term winners able to withstand economic down cycles. Typically, these will have strong business franchises and sound management, will be acquired with patience when deemed to be underpriced and held with great conviction over the longer term (average annual portfolio turnover is just over 6%). The portfolio currently consists of 26 holdings. Between 50% and 100% of the portfolio is invested in FTSE 100 stocks; at least 70% invested in FTSE 350 stocks. FGT is mandated to be permanently geared. Net gearing is currently 5.7%, but can range between 5% and 20% of net assets.
Outlook: Insulated From Economic Headwinds
The stock picking approach of Lindsell Train, the investment manager, looks to provide FGT with a portfolio of quality companies to be held over the long term. By design, FGT’s portfolio should be relatively resilient to harsh economic conditions. The economic outlook has shown signs of improvement recently and currently the portfolio has a substantial allocation to consumer-related stocks, which should benefit as employment recovers and the pressure on real incomes abates.
Valuation: FGT Remains On Premium Rating
FGT’s discount management policy (repurchasing shares at discounts above 5% and issuing new shares at a 0.5% premium) continues to be effective and offers investors confidence that they will be able to enter and exit at valuations around this level. FGT is currently trading at a premium of 0.9% (average premium over three years is 0.6%; average discount over five years is 1.3%). FGT continues to issue new shares. This should benefit existing holders by stimulating liquidity and reduce ongoing charges by spreading fixed costs over a larger asset base.
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