Finsbury Growth & Income Trust (FGT) aims to generate long-term capital and income growth from a concentrated portfolio of primarily UK equities. Manager Nick Train has recently initiated a position in Manchester United, which is FGT’s first new holding since 2015. He believes that the football club has a very strong and valuable franchise, along with a history of generating positive returns for shareholders. FGT has a long-term track record of outperformance versus its FTSE All-Share index benchmark, with higher returns over the last one, three, five and 10 years. The trust has a progressive dividend policy; the FY17 dividend was 8.4% higher than in FY16, despite a meaningful dividend cut at portfolio company Pearson.
The manager invests in three broad themes: global consumer brands, owners of media/software intellectual property, and capital market proxies. His unconstrained approach means that he is invested in just four of the 10 sectors of the FTSE AllShare benchmark: consumer goods, financials, consumer services and technology. Train seeks to invest in “great companies and hold them forever”; selecting firms with durable business models, high returns and strong free cash flow. Turnover is low and the majority of holdings have been in the portfolio for more than 10 years. The manager prefers to be fully invested and employs a modest level of gearing: 2.0% at end-September, versus a maximum permitted 25% of net assets.
Share prices, both in the UK and overseas, have been supported by an improvement in corporate earnings. In a low interest rate environment, continued demand for equities has led to a positive revaluation. On a forward P/E basis, UK equities (as well as those in the majority of developed markets) are trading at a c 20% premium to their 10-year average. Given this backdrop, investors may be attracted to a concentrated fund invested in high-quality companies, which has a positive long-term performance track record.
FGT aims to ensure that its shares trade close to NAV, and as a result of strong ongoing investor demand, there is regular share issuance. The trust is currently trading broadly in line with its cum-income NAV, which compares to the 0.5% average premiums of the last one, three and five years. FGT’s progressive dividend policy has led to an average 7.7% increase in the annual dividend over the last five years. The current dividend yield is 1.9%.