A concentrated portfolio with a convincing record
Finsbury Growth & Income Trust (LONDON:FGT) is differentiated by its concentrated portfolio, low turnover (c 6% a year over 13 years) and strong long-term record of outperformance. Manager Nick Train looks to buy mainly UK companies with strong brands and intellectual property, and hold them for the very long term to achieve growth in both capital and income. The trust has increased in size significantly over the past three years, with an active programme of share issuance to manage the premium to net asset value.
Strategy: Long-term capital and income growth
FGT aims to achieve capital and income growth from a portfolio of mainly UK stocks, with a focus on buying companies at less than their intrinsic value and holding them for the very long term to allow returns to compound. It is a concentrated portfolio, currently with 24 quoted equity holdings, around 50% of which are FTSE 100 stocks, although it holds none of the mega-cap oil, banking or pharmaceutical companies. The strategy has extremely low turnover, with no new stocks bought since 2011, and only one position exited over the past year.
Market outlook: Patience needed to bypass volatility
After a strong performance from UK stocks in recent years, the FTSE 100 is beginning to flirt with the all-time high reached in December 1999. But higher-yielding stocks in particular (as measured by the FTSE 350 Higher Yield Index) look favourably valued relative to their history since 2000, suggesting further total return upside for value investors with a long-term horizon. Volatility may persist in the short to medium term, exacerbated by uneven policy action in both developed and emerging markets, with the US and UK beginning to look to monetary tightening just as China and the EU move to a more accommodative stance.
Valuation: Premium kept in check by issuance
Demand for FGT’s shares has been consistently strong, reflected in an average premium to net asset value of 0.6% (including income, with debt at market value) over the past year and also over three years. In order to manage demand and maintain liquidity in the trust’s shares, the board has put in place an active programme of share issuance. Over 12 months to 6 June 2014, 16.4m new shares were issued at a premium to net asset value, raising £81m and increasing the number of shares in issue by 21% to 94.6m. At 11 June the shares stood at a cum-fair premium of 0.1%. Based on the 11 June share price, FGT has a yield of 2.1%.
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