In a recent survey of investment performance over 30 years, the Finsbury Growth & Income Trust (LSE: FGT) came out near the top, with a compound return of around 12.5%. Most of the credit for that belongs to Nick Train, manager of the trust since 2000 and his highly focused, very long-term investment style.
Thirty years ago, the trust was called Scottish Cities, and had just £20m of assets invested in a few eclectic smaller companies and in cross holdings in other trusts in the stable. Shortly afterwards, the investment policy was changed to UK larger companies, but the last of the eclectic smaller companies was only sold in the late 1990s.
Train focused the portfolio further, introduced “income” into the trust’s title (though the dividend yield is under 2%) and invested in a portfolio which has since changed little. Strong performance resulted in the shares moving to a premium to net asset value (NAV – the underlying value of the portfolio), allowing for further issuance, so that the trust now has assets of nearly £1.2bn. Remarkably, given that the FTSE 100 index is now little higher than it was at the start of 2000, over 80% of the fund is invested in UK-listed companies.
Train invests in companies with “brands or franchises that have been around for a long, long time” and which he expects to endure. “There just aren’t that many companies that meet those criteria”, he says, which is why the portfolio only has 26 holdings, chosen from a global research database of 175 companies.
The list of holdings is headed by Unilever, Diageo and RELX (formerly Reed Elsevier), with about 10% of the portfolio in each. Nearly half the portfolio is invested in consumer goods and a quarter in financials, though this means the London Stock Exchange, fund supermarket Hargreaves Lansdown and asset managers Schroders rather than banks. Twenty per cent is in consumer services, such as RELX, and the rest in technology, notably the accounting software company Sage.
Portfolio turnover is extremely low – in one year it was just 0.5%, excluding the impact of takeovers. New holdings are rare. More recently, Train added a stake in Manchester United to the portfolio, noting that its $2.7bn valuation was barely half the nine times sales implied by the recent sale of the Houston Rockets basketball team, yet the value of its global TV and branding rights was potentially significantly higher.
Train has stuck with educational publisher Pearson, despite its struggle to transition from being a conventional publisher into educational software services. Having sold key assets such as the Financial Times, it barely meets Train’s criteria anymore. Perhaps he retains it to remind himself that he is fallible.
Given that FGT’s shares have returned 130% over the last five years, double that of the FTSE All-Share index, this might seem necessary, but the trust’s closest competitor is Terry Smith’s £12bn Fundsmith Equity unit trust. With a more international portfolio (under 20% in the UK), this has returned an even higher 170% over five years. Messrs Smith and Train won’t be around for the next 30 years, but the companies in their portfolios should be. Practise what they preach, and hold both funds for the long term.
When Carlos Rodriguez, the chief executive of ADP went on CNBC to call Bill Ackman, of hedge fund Pershing Square, a “spoiled brat” who “doesn’t know what he was talking about”, it was clear that Ackman’s campaign against the US HR and payroll giant had become rather personal.
Now Rodriguez tells the Financial Times that Ackman told Rodriguez to quit, saying, “I’m only second to Donald Trump in terms of number of clicks on the internet, and hence you will lose if there’s a public relations battle”. Ackman, who denies saying this, has an 8% stake in ADP, representing 25% of Pershing Square. He wants to get three nominees on ADP’s board, but other investors seem sceptical about his proposals for improving the firm.
In the news this week…
• Ahead of new EU rules that will require asset managers to make clear to investors how much they are being charged for research, some US investment banks want to charge $15,000 for one phone call to a star analyst, reckons research firm Third Bridge. The typical price for a call with an analyst can range from $800 to $10,000, with a global average of $2,000, says Jennifer Thompson in the Financial Times.
However, these prices may be unsustainable: the “conditions for a price war” have been created by a glut of research and asset managers’ drive to cut costs, says Jane Fuller of the Centre for the Study of Financial Innovation.
• Saudi Arabia is hosting the “titans of investing and finance” at a summit that aims to raise the profile of its Public Investment Fund, which is central to the government’s effort to diversify the economy away from oil, reports Bloomberg. The PIF could eventually control more than $2trn, according to Mohammed bin Salman, the crown prince, if the kingdom goes ahead with its plan to transfer ownership of state-owned oil company Saudi Aramco to the PIF.
An IPO of a small Aramco stake – probably just under 5% – could raise about $106bn, pushing the fund’s assets to that $2trn mark. However, PIF’s assets will be illiquid until the Saudis sell Aramco shares, leading some analysts to call the $2trn figure “misleading”.