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54. Uncovering Trusts – Finsbury Growth & Income Trust (FGT): High-conviction UK investing and the case for digital winners
102 Plays5 days ago
In this episode, our director of content for investment companies, Milosz Papst, talks about Finsbury Growth & Income Trust (FGT), a UK Equity Income trust celebrating its centenary in 2026. He introduces the trust and its managers’ long-term, high-conviction approach – a concentrated portfolio of typically around 20 UK-listed holdings, managed by Nick Train and Madeline Wright at Lindsell Train. Milosz outlines the portfolio’s three broad themes: data, software and platform companies (the ‘digital winners’), premium and luxury consumer brands, and stock market proxies. He discusses the investment case behind the digital winners – eight UK-listed businesses including LSEG, Experian, RELX, Sage and Rightmove. Train believes their constantly replenishing proprietary data assets position these companies as beneficiaries, rather than casualties, of the AI revolution. Milosz also covers developments in the consumer brand holdings, including Diageo, Burberry and Unilever, and changes to the trust’s asset management exposure following the takeovers of Hargreaves Lansdown and Schroders.
Milosz then addresses FGT’s recent performance, with the trust having underperformed its UK All-Share benchmark for five consecutive calendar years, and a NAV total return of 1.2% over five years to end March 2026 versus 69.3% for the index, set against a cumulative NAV total return of 551.4% since Lindsell Train’s appointment in December 2000. He concludes by covering the board’s proactive response to underperformance, including a continuation vote at the January 2026 AGM, a management fee reduction and an active share buyback programme. Milosz also touches on the trust’s progressive dividend policy, a current discount of around 7% to NAV, and an ongoing charges ratio of 0.6%.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers around 50 investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction to Uncovering Trusts
00:00:06
Speaker
Welcome to Uncovering Trusts, the Edison Group podcast, where we explore some of the most interesting investment trusts on the market. I'm your host, Liam O'Byrne, and today I'm joined by Milos Paps, Director of Investment Company Content at Edison, to discuss our latest review note on Finsbury Growth and Income Trust, ticker FGT. Milos, thanks for joining us today.
00:00:25
Speaker
Thanks Liam, I think it's a timely trust to revisit. So for those less familiar with FGT, could you perhaps kick off the conversation today with a brief introduction to the trust?
00:00:36
Speaker
Yes,
Exploring Finsbury Growth and Income Trust
00:00:37
Speaker
absolutely. um The trust was launched in 1926 and is listed on the main market of the London Stock Exchange and is a member of the AAC UK e equity income sector.
00:00:48
Speaker
Linzel Train has managed the trust since December 2000 with ah Nick Train as portfolio manager throughout that period. and Madeleine Wright as deputy manager since 2019.
00:01:00
Speaker
ah The objective is to achieve capital and income growth and a total return above the all share index um while investing investing principally in UK listed companies.
00:01:11
Speaker
ah What distinguishes the trust is concentration and the long term investment approach. The portfolio currently has 21 holdings and the top 10 account for the majority of assets.
00:01:24
Speaker
um Now, historically, annual portfolio turnover has been around 3%, implying a holding period of more than 30 years. Although recent repositioning means that the latest reported turnover is higher at just under 10%. And that degree of concentration is pretty striking. What is the investment philosophy that sits behind that approach?
00:01:45
Speaker
Yes,
Investment Focus and Themes
00:01:46
Speaker
so train and write are looking for durable growth businesses with high quality management teams, strong brands or franchises, ah high returns on equity, um a low capital intensity and strong cash flow. They prefer companies that they believe are trading below intrinsic value and can be held for the long term. So compound compounding has time to to work. The investment trust structure is beneficial as the trust's permanent capital allows a degree of concentration that would be hard in many open-ended funds.
00:02:17
Speaker
That brings risks, but it is core to the manager's view that optimal wealth creation requires concentration. So with that philosophy in mind, and given the trust has been actively evolving its portfolio in recent years, how is it positioned today?
00:02:31
Speaker
and So the portfolio can be thought of in three broad themes. The largest is data software and platform companies, are so-called digital winners, which represent roughly 60% of the portfolio.
00:02:43
Speaker
Consumer brands with their bias towards premium and luxury are the second major area. um The third theme is stock market proxies, ah particularly asset management and wealth management companies, although that area is changing quite significantly. The key portfolio development in um recent years has been the buildup of the digital winners theme.
00:03:06
Speaker
ah These are eight UK listed companies that train regards as global or national leaders. Auto trader in automotive, Clarkson in maritime shipping, Experian in credit data, Intertech in testing and inspection,
00:03:20
Speaker
Lone Stock Exchange Group in capital markets, RELX in legal, academic, and risk analytics, RightMove in property, and SAGE in small business software.
00:03:32
Speaker
All eight are digital services businesses, and most, with Intertech the exception, have valuable proprietary data sets. That's great. I must also, given how much discussion there is at the moment about AI disrupting established data businesses, what is the investment case behind those digital winners?
Proprietary Data and AI Insights
00:03:51
Speaker
you know why Why does Train believe these companies are well-placed rather than threatened?
00:03:56
Speaker
Yes, Liam. So this the central idea is that high quality propriety data has become a critical strategic asset. Train often says that data is the new oil. um The thesis being that constantly replenishing propriety business data at scale may be especially valuable in an AI world.
00:04:15
Speaker
um This is controversial because some investors worry that large language models could disintermediate existing data pro providers. Treyne argues the opposite, that AI increases the value of the of trusted proprietary real-time data because AI tools need high-quality inputs.
00:04:33
Speaker
The figures in the last... latest fact sheets are are striking actually. um Experience data is updated around a billion times a month. Ralexis risk division handles about 450 million identity checks a day.
00:04:47
Speaker
um The Lonell Stack Exchange Group's tick history grows by around 15 million messages every second. Then Rightmove recorded 16.8 billion minutes of user engagement in 2025, generating 69 billion signals about the UK property market. there were also There are also early signs of monetization.
00:05:09
Speaker
Trane has highlighted London Stock Exchange Group's partnership with OpenAI to provide ah trusted financial data to paying customers. And in the recent Master Investor discussion, he also referred to deals with both OpenAI and Anthropic.
00:05:25
Speaker
Sage has been training in-house AI agents on its cloud-connected platform since 2020, and some clients using its monthly closed service have reported 90% reduction in month-end closing time.
00:05:39
Speaker
Well, yeah, I mean, some of those figures certainly bring the scale of these data assets to life. Now, just in terms of the actual portfolio composition, which individual names are carrying the most weight today?
Holdings and Sector Exposures
00:05:51
Speaker
At the end of March 2026, the top 10 holdings accounted for 86.1% of total investments. um Lone and Stock Exchange Group was the largest at 12.6%, followed by Unilever at 10.4%. Sage at 10.3%, Experian at 10.1%, and Rolex at 10%. The Azure was 8.7%, Shruder 7.9%, Burberry 6.1%, Rightmove 6%, and Clarkson 4%.
00:06:10
Speaker
the asio was eight point seven percent true is seven point nine percent burberry six point one percent right of six percent clarkson four percent The sector profile is distinctive too. um The portfolio has exposure to just five sectors, consumer discretionary, consumer staples, financials, industrials, and technology. So there's no exposure to energy, healthcare, utilities, basic materials, telecoms, or real estate. So the trust can look very different from the all share index. And I noticed Schroeder's in that list there. he mentions the asset management theme is changing quite significantly. Can you explain what's happening there?
00:06:48
Speaker
Yes, exactly. So this is an important change. At the start of 2025, the trust had three investments in this area, Hargreaves Lansdowne, Schroeders and Rothbonds. Hargreaves Lansdowne was taken over in 2025, as many of of you of our listeners will will know.
00:07:03
Speaker
And Schroeder has now accepted a bid from a US peer. um Train has described this as some somewhat sobering because it suggests the glory days of, you know, generalist active asset management are at least temporarily under pressure.
00:07:17
Speaker
The trust still held just under 8% in Schroeder's at the end of March. And the managers have noted that the potential positive return from holding it through to completion is attractive in stressed market conditions.
00:07:31
Speaker
ah but However, they think it is unlikely that the capital will be recycled into another London-listed asset manager. um Once the Shredder transaction completes, Radbonds is expected to be the sole remaining holding in this area. And then there are the consumer brand holdings, Diageo, Burberry, unilo Unilever and others you mentioned, which have faced their own pressures, I think it's fair to say. How are the managers thinking about those positions at the moment?
Challenges and Growth Potential
00:07:57
Speaker
Yes, the trust owns, ah as you rightly pointed out, AG Bar, Burberry, Diageo, Fevertree, and Unilever in the consumer brand's pocket.
00:08:08
Speaker
Trane has been candid that, well, holding Burberry and Diageo through share price weakness over the last two to three years has been, ah well, painful and has tested shareholders' patience. However, um he still believes Burberry and the best of Diageo's brands retain global relevance and can resume long-term growth once consumer confidence improves.
00:08:28
Speaker
Burberry is the recent example, the Metages.2. The share price had been very weak before Joshua Shulman became CEO in July 2024, but it's subsequently rallied maturely as he ah cut costs, strengthened the balance sheet and really focused on the core outerwear franchise.
00:08:46
Speaker
Train sees possible parallel with the Azure under Sir Dave Lewis, where the focus is also on um simplifying the business, reducing that and ah sharpening strategic priorities.
00:08:59
Speaker
There is also still an M&A angle, although it i would say it needs to be framed carefully. um The proposed combination of Unilever's food business with McCormick values Unilever's food assets at a maturely higher EV sales multiple than ah the company's overall rating and should leave Unilever more focused on home and personal care.
00:09:19
Speaker
In so spirits, Pernod Ricard and Brown Foreman did confirm talks over a potential business combination, but those discussions have now ended without an agreement. Even so, the fact that such a combination was explored is relevant, I think. It underlines the strategic value that industry participants still attach to premium spirits brands at a time when listed valuations have been under pressure.
00:09:43
Speaker
ah This is the read-across train would point for to for the ASIO. Fever 3 has also gained Mulsum Coors as a 10% shareholder and U.S. distribution partner, reinforcing the long-term premiumization trend in beverages.
Addressing Underperformance and Board Actions
00:09:58
Speaker
So, yeah, there's clearly a lot happening at the portfolio level. i think, though, a key topic for anyone looking at FGT right now is recent performance because it's clearly had a rather difficult period. Could you walk us through some of the numbers?
00:10:12
Speaker
Yes, yes, of course, and it's important to highlight it. The trust has underperformed the All-Share Index for five consecutive calendar years. In 2025, the benchmark returned 24%, while the trust's NAV fell 7.6%.
00:10:25
Speaker
Over the five years to the end of March 2026, the NAV total return was 1.2%, compared with the benchmark. train has described twenty twenty five as the worst year of his more than forty year career There are two broad reasons. ah The first is style. um The UK market has been led by cyclical and value stocks, while the trust has little or no exposure to these areas. The second is stock-specific. Some long-term holdings, including the Azure and Burberry, faced operational or valuation headwinds.
00:10:57
Speaker
Then in Q1, 2026, several digital winners sold off as investors worried that AI could threaten rather than enhance their business models. Right, so yeah, it's been a frustrating few years and for several reasons.
00:11:11
Speaker
I guess taking a step back then, what does FGT's long-term record look like in comparison? Well, it it is much stronger since Lenzel Train's appointment in December 2000, the trust's NAV total return to the end of March 2026 was 551.4% versus for the Index, and the share price over the same period it was
00:11:37
Speaker
um I guess it is also worth highlighting the trust downside characteristics. Our analysis of the last decade shows cumulative upside and downside capture ratios around 70%, suggesting underperformance in a rising UK market, but outperformance during periods of UK share price weakness. Hence, um the trust offers differentiated UK equity exposure rather than a benchmark substitute. Right. And given that backdrop then, and where we've looked at the short recent performance and the long-term records, I'm sure listeners may be curious to know how the board has reacted more recently. Have they taken any steps to address the period of underperformance? Yes, indeed, the board has been proactive. It introduced a continuation vote at the January 2026 AGM, and 96% of votes cast back the trusts ah continuing.
00:12:28
Speaker
um It also secured a management fee reduction of around £600,000 a year and has allocated capital to buybacks. Around 35% of the end FY23 share base was repurchased over the following two financial years, which enhanced an EB per share.
00:12:45
Speaker
the bo The board has also strengthened its digital expertise as in January, 2026, it appointed Mary Beth Christie as an independent non-executive director. um She's a former chief product officer and so chief operating officer with more than 25 years of experience in digital product technology and operations across several sectors.
00:13:05
Speaker
That appointment looks ah well aligned with the portfolio increasingly centered on data and digital businesses. ah Manager alignment is another point. Nick Train has continued buying shares in the trust and owns more than 5% of the company, ah which I think is well uncommon to see you know my fund manager appear among the largest shareholders of an investment trust.
00:13:29
Speaker
And for listeners thinking about you know the practical aspects of owning the trust, what should they know about valuation, income, fees and and gearing?
Trust's Financial Strategies and Risks
00:13:38
Speaker
Yeah, so was sure. so that the the trust is So the trust discount is is currently around 7%, which is towards the wider end of the three-year three-year range.
00:13:47
Speaker
um Prior to 2021, the shares often traded close to NAV, so there is potential for the rating to improve if relative performance recovers. The board has a policy of buying back shares, helping to limit the discount that exceeds 5% in normal market conditions. On income, the board follows a progressive dividend policy.
00:14:07
Speaker
The FY25 annual dividend was 20.2 pence per share up 3.1% year-on-year, giving a current yield of around 2.7%. This is a low yield for the AAC-UK equity income sector, reflecting the trust's capital growth bias. However, the trust has substantial reserves. At the end of FY25, combined revenue reserves and the special distributable reserve were equivalent to around 28.5 times the the last annual
00:14:38
Speaker
The ongoing charges ratio was 0.6% and well net gearing is modest as portfolio concentration already brings up a level of risk. and Before we wrap up for today, of course, no trust is without its risks.
00:14:52
Speaker
What are the main ones investors should keep in mind with FGT? So concentration, as I just mentioned, with only 21 holdings and more than 86% in the top 10, individual stock outcomes matter. Style risk is the second. um The trust is deliberately tilted towards quality growth and has no exposure to several sectors that together make up a meaningful part of the UK market. So it can underperform when value and cyclical areas lead.
00:15:21
Speaker
Then key person risk is also relevant because Nick Train has been central to the trust's long-term track record, although Madeleine Wright has been deputy manager since 2019. More specifically, although the managers have high conviction in the digital winners' thesis, the rationale is contested. um Investors have to decide whether AI increases the value of trusted propriety data sets, as Train argue argues, or creates more disintermediation risk than expected. On thes um on the consumer side, ah recovery in the ASU and Burberry depends on consumer confidence, execution and premiumization trends. Great. And just a final question to close. and
Conclusion and Investment Proposition Summary
00:16:02
Speaker
How would you summarize the investment case for FGT today? I would say that the trust offers a distinctive proposition, highly concentrated quality focused portfolio of UK listed companies managed with a very long term investment horizon by a team with a 25 year positive performance track record.
00:16:19
Speaker
For shareholders, the key question is whether they are comfortable looking through recent style driven underperformance. Thank you very much, Milos. That's it for today. a reminder, though, that we now have recorded more than 50 episodes in the Uncovering Trust series, all of which are available from your usual podcast provider.
00:16:36
Speaker
You've been listening to Uncovering Trust, a podcast by Edison Group. For more information on Finsbury Growth and Income Trust and other investment companies we cover, please visit www.edisongroup.com. Thank you.