Nick Train, a 40-year veteran of investment markets, has been the manager of Finsbury Growth & Income Trust (LSE: FGT) for 19 years but thinks that “the next 19 are going to be more successful, owing to the calibre of the companies in our portfolio”.
Under his management, FGT’s investment returns have compounded at 10.4% per annum, twice the pace of the FTSE All Share index, while dividends have grown by 10% a year. The trust has grown to £1.8bn of assets.
A concentrated portfolio
Train manages a concentrated portfolio of long-term growth companies in the consumer, financial and technology sectors. There are just 23 holdings, all but three of which are UK-listed. The ten largest account for 85% of the portfolio. The long-term average portfolio turnover is just 4.3% per annum.
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“We run our winners,” says Train, “as it’s not just difficult to get the sell decision right, it’s impossible.” That means holding the type of share which, owing to a strong brand name or business franchise, never has to be sold. The average age of the companies is 148 years; 13 are family controlled. Top of the list is London Stock Exchange, accounting for 11.5% of the portfolio. Train first bought the shares in 2001, since when they have risen nearly twentyfold. “We have barely sold a share in 18 years. It has been bid for at least five times, including by the Hong Kong Stock Exchange, which helped the share price rise by 90% in 2019,” Train says.
RELX, formerly Reed Elsevier, accounts for 11% of the portfolio and has successfully migrated its legal and business publishing from print to digital. The same cannot be said for educational publisher Pearson, a recurring thorn in Train’s side, which has “invested hundreds of millions of dollars in a digital learning platform comparable to Spotify and Netflix.” Its text books are not redundant but students have taken to buying them secondhand online rather than new, resulting in a crash in Pearson’s sales. The firm is now optimistic but Train is wary, keeping the holding below 2%.
Train expects growth at drinks group Diageo, 9.4% of the portfolio, to continue. “Its top-selling brand by volume is not Guinness nor Johnny Walker but McDowell’s, India’s leading premium whisky brand. Though India accounts for just 10% of Diageo’s sales compared to 35% for the US, it could become the bigger market, being already the largest whisky market on the planet.”
Two new picks
The portfolio has two new, though currently small, holdings. The share price of PZ Cussons has fallen 60% in the last five years as profits from Nigeria have fallen from 40% of the total to zero, but it has three strong brands: Imperial Leather soap, Carex with 30% of the UK hand-care market and St Tropez, a rapidly growing provider of fake tans. Fever-Tree “has fallen 65% since 2018 for good reasons”.
Though overseas sales continue to grow, UK sales have flattened out. Fever-Tree has developed a range of mixers for dark spirits such as whisky and rum but has been very slow to roll them out. “It needs to be about more than tonic water,” says Train, seeing potential for it to regain momentum.
Despite the sharp falls in equities this year Train refuses to be drawn into commenting on markets. “Our rule of thumb,” he says, “is that everything will work out fine in the end, probably.”
His only advice is “you shouldn’t sell in a panic”. The fall in the share price, now 20%, provides a rare opportunity to buy into what should be a core holding in any investment trust portfolio at reduced prices.
There is no discount to net asset value (NAV) and no juicy yield (just 2.2%) but long-term holders have learned to treat the shares just as Train does his holdings.
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