Another good year for FGT
2013 was another strong year for Finsbury Growth & Income Trust, (FGT) building on its successful long-term record; over the year NAV total return was 35.1% versus the FTSE All-Share benchmark return of 20.8% (10 years 292.3% versus 131.6%). Investor demand has seen the trust issue £70.3m of new shares during the year to manage the premium to NAV (average during the year 1.3%). This has provided cash flow to gradually increase holdings in the trust’s media and telecom investments, while allowing weightings in FGT’s more market-sensitive financial sector investments, strong performers over the past year, to naturally reduce.
Strategy: Undervalued quality UK-listed companies
FGT invests in large and medium-sized companies listed primarily in the UK. The manager seeks to identify companies that can be long-term winners across economic cycles; typically these will have strong franchises and 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 is focused, currently consisting of 25 holdings. Generally, at least 50% of the portfolio will be invested in FTSE 100 stocks (currently 68.8%), with at least 70% invested in the FTSE 350 (currently 95.7%). FGT’s strategy is to be permanently geared and is expected to be in the range of between 5% and 25% of net assets. Net gearing is currently 4.3% reflecting recent share issuance.
Outlook: Sentiment improving, valuations expanding
The UK equity market performed strongly during 2013 but volatility, particularly in reaction to talk of tapering, highlights that considerable uncertainty remains. Looking to 2014, there is evidence to suggest the economic outlook is improving
and press reports suggest an emerging consensus that the UK stock market will rise modestly during the year. FGT’s focus on quality companies has historically provided resilience in a challenging economic environment, while the substantial allocation to consumer-related stocks should benefit as employment recovers. The trust’s market related financial holdings would be more vulnerable to a market setback, but the weighting is coming down as new funds are largely deployed elsewhere.
Valuation: Persistently trading at a modest premium
Reflecting continued strong demand for its shares, FGT has issued 15.2m shares (raising £70.3m) during the last year. The current premium of 0.6% compares to its three-year average of 0.5%. For existing holders this share issuance should stimulate liquidity and spread fixed costs over a larger asset base.