Interactive Investor

Finsbury Growth & Income half-year results: the ii analyst view

16th May 2022 15:21

Tracy Zhao from interactive investor

Skin in the game ensures Nick Train serves up far more than just platitudes to shareholders.

For the six months to 31st March 2022, Finsbury Growth & Income (LSE:FGT) investment trust’s net asset value per share total return was -2.2% and the share price total return was -3.0%, underperforming its benchmark FTSE All-Share Index which returned 4.7% over the same period.

The Board declared a first interim dividend of 8.3p per share with respect to financial year ended 30 September 2022. Compared to previous financial year, the interim dividend has risen by 0.3p per share or 3.75%.

During the six months under review the Company has bought back a total of 1,660,421 shares into treasury at a cost of £14.4 million. These are the trust’s Unaudited half-year results for the six months ended 31 March 2022.

Portfolio Manager Nick Train said, with characteristic candour: “This is the third consecutive six-month period I have had to report disappointing returns to shareholders. I am sorry that the longstanding Lindsell Train investment approach and the longstanding major holdings in the portfolio have failed to deliver acceptable performance for your Company over what is now no trivial period.”

Chair, Simon Hayes, said: “Our portfolio manager continues to believe in the Company’s investment strategy, which has delivered attractive returns to investors over many years.

“The Board supports this view and, notwithstanding current economic and geopolitical headwinds, continues to believe that shareholders with a long-term outlook will be well rewarded.”

The ii view:

Tracy Zhao, Senior Fund Analyst, interactive investor, says: “Nick Train summed up the disappointing results with characteristic candour, and his sizeable holdings in this trust means he is serving up far more than platitudes to shareholders. The most recent report and accounts states that at the end of September 2021, he held £3.6 million shares, up from £3.1 million the year before. Investors in open-ended funds would struggle to find this level of transparency and would find it near-impossible to know whether they are suffering in silence.

“It’s going to take more than a Johnnie Walker from his second-largest holding Diageo (LSE:DGE) to sweeten the pill, but while Train admits to a third consecutive six-month period of disappointing performance, investors who follow his strategy know that this is far too short a time period to get unduly introspective.

“While we don’t know Train’s his current skin in the game up to the end of March 2022, it is meaningful that Nick Train appears to have been increasing his exposure to the trust last year.”

Launched in 1926, the trust has current market value of 1.9 billion, with Nick Train as portfolio manager for the past 20 years. Despite recent setbacks, the trust has delivered a total NAV return of 296% more than double the FTSE All-Share, which has gained 113.8%, over the past 15 years ended 30 April 2022. Its long-term performance consistently puts it in the top 5% among its Morningstar peer group. The trust’s 12-month yield is around 1.96%, which is lower than its Morningstar peer group.

The trust runs a very concentrated portfolio of around 30 holdings. As of 31 March 2022, the portfolio consists of 22 stocks across no more than five sectors. Half the trust currently sits in consumer staples, with the other 24% invested in financials and 15% in consumer discretionary. Such limited holdings and sector spread are prone to market noise, despite this Nick has high confidence in their healthy balance sheet and strong return on capitals. This has been reflected on the trading discount of the trust, widening from 6.2% as of 31 March 2022 to 8.0% as of 12 May 2022 against the effort of deploying share buybacks. 

Amid the rise in inflation and monetary policy tightening, the large allocation to staples and financials appears to be positioned to benefit these headwinds. On the flip side, weakening in consumer confidence may put pressure on the consumer discretionary portion of the portfolio. Of course, in this time of uncertainty, investors’ patience is set to be tested in order to enjoy the trust’s long-term performance. 

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