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Finsbury Growth & Income Trust (LSE: FGT) reported its half-year results today (29 May), and investors shrugged their shoulders. As I type, shares of the FTSE 250 investment trust are down 0.4%.
This mirrors the ‘meh’-like performance of Finsbury in recent times. It’s only up around 10% in five years and, disappointingly, was higher in August 2019 than it is today.
Between 2010 and 2020 though, the UK-focused trust easily beat the market, making investors richer along the way. Should I invest in the hope that manager Nick Train gets his mojo back? Let’s dig in.
Two sides
In the six months ended 31 March, Finsbury delivered a net asset value (NAV) per share total return of 2.1% and a 4.2% share price return. The benchmark, the FTSE All-Share Index, rose by 4.1% over the same period.
Therefore, while the share price basically matched the benchmark, the portfolio didn’t keep pace. This highlights how there can be a disparity between investment trusts’ underlying performance and their market valuation. The current discount to NAV is just under 8%.
Scratching his head, Train commented: “I look at FGT’s portfolio and I think — here is a collection of outstanding, predominantly global, companies, with obvious growth opportunities. Then I look at our NAV performance and wonder why it isn’t better.”
When I look at the portfolio, I see two sides. There’s the software/data part, which includes stocks like RELX, London Stock Exchange Group, Experian, Sage and Rightmove. I like this side, as AI should strengthen these businesses due to their valuable proprietary data.
Then there’s the other side dominated by consumer stocks like Diageo, Unilever, Burberry, and Rémy Cointreau. These have all struggled since the pandemic as high inflation and interest rates have ripped a hole in consumers’ pockets.
Here, I’m less certain a turnaround is imminent, as they rely on a recovery in consumer spending power. Unfortunately, UK inflation is on the rise again, and might spike in the US once tariffs work their way through the system.
Might these consumer stocks be stuck in a lost decade, much like FTSE 100 banks after the Financial Crisis? This is my concern, especially as Train is committed to buying more Diageo shares.
President Trump has promised to dramatically cut US taxes and that could benefit Diageo, whose largest market is America. But passing the bill, let alone achieving a booming US economy, isn’t guaranteed.
Finally — and perhaps symbolically — Finsbury also holds Manchester United shares. Like Train, the club used to be a serial winner, but performance in recent years has been disappointing, along with the share price.
Should I invest?
The dividend yield is just 2.2%, so this is more of a growth-focused trust. Around 60% of it is concentrated in just seven stocks. I like this high-conviction strategy because having hundreds of shares in an actively managed portfolio is pointless.
Then again, this approach risks a few duds dragging down performance. And Finsbury has held some stinkers — Diageo (down 45% in three years), Burberry (-52% in four years), and Rémy Cointreau (-56% over five years). These have negatively offset the software/data winners.
Weighing things up, I think a massive turnaround is unlikely. Yet while I won’t be investing, I’m still rooting for a return to form for Finsbury Growth & Income.
