Finsbury Growth & Income: an update from Nick Train

The £1.8bn Finsbury Growth & Income Trust is a popular option amongst retail investors, with longstanding manager Nick Train being one of the best known names in the industry. Over his 23-year tenure he has generated share price returns way ahead of the benchmark, yet in each of the last three the fund has underperformed.

Train’s views are always worth reading and his latest update is no exception, as he has gone into detail about the recent poor performance and why the fund is positioned as it is. The explanation is intended to help investors to decide whether to stick with him or move their money elsewhere.

What does the trust invest in? 

Finsbury Growth & Income mainly invests in companies listed in the UK, with the aim of providing a total return in excess of that of the FTSE All-Share index. Train uses a bottom-up stock picking approach and looks for excellent businesses − with attractive and sustainable returns on equity − that appear mostly undervalued.

This strategy has resulted in a highly concentrated portfolio that at the end of December consisted of just 23 stocks. These are normally held for the long-term, hence the low turnover last year of 3.9% that helps to keep the transaction costs to a minimum.

The ten largest positions account for an incredible 84.5% of the assets. These include names such as: the London Stock Exchange; RELX, a provider of information-based analytics; Experian, which is best known for its credit rating agency; the software provider Sage; as well as the consumer staples companies Diageo and Unilever.

Finsbury Growth & Income top 10 holdings

1. RELX 
2. London Stock Exchange 
3. Diageo 
4. Unilever 
5. Sage 
6. Experian 
7. Burberry 
8. Mondelez International 
9. Schroders 
10. Heineken

Source: Fidelity International, as at 31 January 2024

What is the manager’s latest view?  

Train says that the main reason for the underperformance of the benchmark over the last three years was because of the absence of oil and mining shares from the portfolio. He also points to companies like Hargreaves Lansdown, Burberry and Diageo, where his confidence in their earnings power and undervaluation have so far been misplaced.

Despite this he still believes that the fund can deliver attractive absolute and relative returns. This is due to its highly concentrated nature and the fact that it is exposed to a handful of important investment themes that in the past have created a lot of wealth for investors.

What are the key investment themes?  

The main theme that he is looking to capitalise on is the acceleration in the rate of technological change. As more products and services go digital, the software that drives them becomes more important to their customers, with the digitalisation creating an explosion of data.

This means that companies that have the tools to aggregate the data and make sense of it have a new growth opportunity. A prime example is Artificial Intelligence (AI), which Train believes will be an important investment theme for the foreseeable future.

Another key trend that is related to this is the increase in global wealth as a result of the productivity gains brought by the technology and the wealth effect created by the companies operating in these new sectors. Consumers who have been lucky enough to benefit have tended to spend it on luxury and premium products.

Train says that contrary to common perception, the UK stock market provides a number of world class businesses that offer full participation to these themes of AI, software and luxury and premium-brand consumption. “It is around these companies that we have built your portfolio and where we have the highest hopes for future share price gains.”

How has it performed? 

Since Nick Train was appointed manager in December 2000, the trust’s cumulative share price return is 702.6%, which is well ahead of the 215.5% increase in the FTSE All-Share index. However, over the course of the last three calendar years it has lagged behind the benchmark by 23.7%.¹

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. The Finsbury Growth & Income Trust invests in a relatively small number of companies and so may carry more risk than funds that are more diversified. The shares in this investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The trust can gain additional exposure to the market known as gearing, potentially increasing volatility. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.