Nick Train’s Finsbury trust ‘robust but not impervious’ after turbulent six months

Well-known fund manager reports on the ‘most distressing’ six months of his 39-year career.

Nick Train has described his £1.7 billion Finsbury Growth & Income investment trust, a Money Observer Rated Fund, as “robust but not impervious”, following the most turbulent six months in his 39-year career.

In a report for the investment company covering the six months to the end of March, Train said the period was the “most distressing” he has ever experienced, as Covid-19 took its shocking toll.

“The six months on which I report have been amongst the most turbulent and certainly the most distressing of my career,” he said. “Younger colleagues have looked to Mike Lindsell and me for guidance and reassurance during the first quarter of 2020. But we have had to shrug our shoulders and say ‘we have never seen anything like it’.”

Between 30 September 2019 and 31 March 2020, the trust’s share price fell 19.3% versus a 22% fall in its FTSE All-Share benchmark. Net asset value per share fell by 18.7%. The trust usually trades on a modest premium, but saw its discount widen to 6.4% in late March. It is currently trading on a small discount of 0.2%.

Gearing (using leverage or borrowing in the portfolio) is low at 1.5%, as the manager says he has no appetite for taking on extra risk. 

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The UK-focused trust has a concentrated portfolio of high-quality companies and is a good long-term performer, posting first-quartile performance over one, three and five years. Over the last three years, it has returned 19%, according to FE.

Subscription-based models

“Robust but not impervious sums up how I see your portfolio,” Train told his shareholders. His focus has been on the financial health of the companies in the portfolio, so as to guard investors’ capital. Around 27% is in companies with net cash on their balance sheets, such as investment platform Hargreaves Lansdown and asset managers Rathbones and Schroders. 

Train also has businesses in the portfolio such as software company Sage, publishers RELX and Euromoney, and the London Stock Exchange, which benefit from a subscription-based model that allows them to keep charging customers and generating regular revenues.

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There is little exposure in the portfolio to those sectors hit hardest by the crisis, such as retailers and airlines, although there are small positions in football clubs Manchester United and Celtic, which have seen play suspended, as have all sports clubs. The trust also has positions in two “empty” London pub companies making up 0.8% of the portfolio.

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Covid comfort

About 47% of the fund is in consumer brands such as Diageo, Heineken, Mondelez and Unilever, and Train said some of these have been resilient up to the end of March as consumers comfort-eat and drink their way through lockdown.

“Pubs and bars may be shut but, as the world hunkers down to isolation, beer and gin offer solace (always only in moderation). And it is said that consumption of chocolate actually increases during economic downturns, as people turn to comfort treats,” he said.

Dividends axed

Some of the companies he holds have already cut their dividends, and Train predicts there will be more cut to come as companies meet “unexpected challenges”. Boards will need to act quickly if they are to ensure firms’ survival.

“If the result is suspension of dividend payments, for instance, then so be it,” said Train. “Several portfolio companies have already announced such suspensions – namely AG Barr, Euromoney, Fullers, Heineken and Youngs. They have done the right thing and I will be amazed if they are not joined by other holdings.”

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Although it is housed in the UK equity income sector, the trust’s relatively low yield – currently 2.1% compared to a sector average of 5.6% – means it is categorised as a UK Growth Rated Fund.