Transcript
Speaker: Welcome to Uncovering Trusts, a podcast by the Edison Group, a content -led IR business integrating analyst content, digital targeting, and investor engagement. Each episode will uncover the distinct features and latest developments of a selected listed investment company. So tune in to find interesting investment ideas and to stay on top of what's happening in the investment company sector.
Speaker: I'm your host, Will Manuel, and today I'm joined by Milos Pabs, Director of Investment and Company Content at the Edison Group, who will talk about Finsbury Growth and Income Trust, whose ticker is FGT. Milos, thanks for joining us today. I will very pleased to be here for our first episode in 2025. Yeah, likewise. So, although Finsbury Growth and Income Trust is very well known, let's start with a brief introduction for those listeners that may be less familiar with the trust.
Speaker: Of course, um the trust was launched in January 1926 and is listed on the main market of the London Stock Exchange. ah Boutique investment firm Lindel Train was appointed as the trust's manager in December 2000 and since January 2001, the fund has been managed by one of its co -founders, Nick Train.
Speaker: In 2019, Madeline Wright was appointed as the Trust's deputy manager. um The managers aimed to achieve capital and income growth and a total return above that of the broad UK stock market ah from a concentrated portfolio of primarily UK equities, although up to 20 % of the fund may be invested in overseas companies that meet the manager's strict criteria. Great. So how is the Trust portfolio differentiated from those of its peers?
Speaker: yeah So interestingly, the trust portfolio only has around 20 holdings with a 15 % maximum position size, ah meaning the trust's performance can deviate meaningfully from that of the UK stock market. Trane's philosophy is that wealth creation requires a concentrated approach while diversification is necessary for wealth protection. um A minimum amount of gearing is employed as the managers are mindful of the inherent high risk from having a concentrated portfolio.
Speaker: Now, the trust is a member of the AAC UK equity income sector, which is made up of 18 funds that follow a variety of investment mandates. An analysis from Morningstar shows that the trust is the only company categorized as large -carb growth. ah The other 17 are either value or blended growth and value funds.
Speaker: Now, compared with the spheres, the truss has the lowest cyclical exposure in one of the highest defensive positions. Morningstar measures portfolios by their exposure to either cyclical, defensive, or so that is moderately cyclical sectors.
Speaker: Right, so with this concentration in mind, how are stocks selected? Train and write focus on growth businesses with high quality management teams that they believe are trading at the discount to their intrinsic value and can be held for the long term, thereby reducing the drag of transaction costs. This is reflected in the trust's very low historical portfolio turnover of around 3 % a year, ah which implies a more than 30 -year holding period. so ah For reasons of prudence, once a position reaches 10 % of the fund, it is not added to, and is actively reduced if it reaches 12 .5%.
Speaker: The managers seek companies with the following attributes, durability, team so businesses that can grow over the long -term regardless of the economic cycle, high return on equity and low capital intensity and high cash flow generation that can support sustained dividend growth. um They favor well -established firms. The average age of portfolio companies is around 250 years and around half of the trust portfolio companies have a large family ownership.
Speaker: ah Interesting, thanks. So looking at the whole portfolio, what themes are represented? yeah So the trust portfolio has exported to just ah five of the 11 broad market sectors, ah consumer staples, financials, consumer discretionary, industrious, and technology, and can be characterized under four investment themes. Firstly, data analytics and software, which which makes up around 60 % of the fund and is represented by companies such as London Stock Exchange Group and Experian.
Speaker: Secondly, but um luxury and premium consumer brands, representing around 20 % of the portfolio, including Burberry and Remy Quandro. Thirdly, mass market consumer brands, such as Unilever and Mondelez International, which make up more than 10 % of the portfolio.
Speaker: ah while the remaining small percentage that is held in UK fund management businesses, including Shirders. The top 10 holdings may make up around 19 % of the portfolio. um At the end of November, 2024, there were six holdings that were larger than 10 % of the fund, led by London Stock Exchange Group, Sage Group, and Relax.
Speaker: okay so Given the concentrated strategy, how has the trust performed? um Although the trust performance has lacked the UK market in recent years, as the environment of high inflation and interest rates ah has been detrimental to the valuation of long -duration growth assets, ah the trust has an unviable long -term record.
Speaker: The trust's NAV total return ranks second out of 18 funds in the AIC UK equity income sector over the last decade. Since Linzel Train took over management of the trust at the beginning of 2001, despite more recent performance pressures, the trust has outpaced the UK market by more than 3 percentage points a year.
Speaker: I mean, the manager's section of the trust latest annual report, which covers the 12 months to the end of September, 2024, train provided a detailed discussion about the trust performance. ah He explains that the trust peak relative performance was in 2020, led by consumer branded goods companies, including Burberry, the AGO and Unlever. By year end September, 2020, consumer stocks made up 50 % of the portfolio and in hindsight was too high given the global pandemic and higher inflation.
Speaker: um as As I previously previously discussed, these stocks now make up a smaller percentage of the fund, as the managers have identified other investment teams with higher prospects. right so um Can you now give us some information about one of the trust six holdings that form part of the largest portfolio theme, data analytics and software?
Speaker: Sure. ah Let us focus on Sage, which is the world's leading small and mid cap software platform. um Its shares performance had been lackluster in 2024 due to a lack of estimate upgrades and weakness during periods when technology stocks sold off.
Speaker: ah However, the managers follow Sage closely and were encouraged by the company's news flow over the course of the year. In November 2024, Sage's share price rose by 35%, hitting an all -time high as its annual results exceeded consensus expectations, ah leading to a high 2025 revenue growth and margin outlook.
Speaker: The company's focus on efficiency means that its headcount is now lower than let's say 2021. Sage trades on a forward P multiple of around 30 times, which well looks rich versus the broad UK market, but more appealing compared with ah growing software companies in other markets. and The theme has a selection of current and future growth initiatives, including an AI powered accounting co -pilot that should save its customers ah time and money to Right, thanks for that. Interesting. So given the very low portfolio turnover, it'd be interesting to learn more about which companies the newest additions to the fund. Yeah, there have been three new holdings announced since 2020. Experian, Fever Tree and Rightmove. Fever Tree was purchased as the managers believe that the company will be able to replicate its UK market leading position in premium mixers overseas. um Though well progress to date has been mixed,
Speaker: And next experience, which is listed in London and is the world's number one credit rating agency, ah it has grown to become one of the largest portfolio positions. ah More than 180 million individuals across the globe voluntarily provide experience with their personal financial data in return for credit scores and other services.
Speaker: This unique asset is increasingly valuable to well the but the company's banking customers. Finally, Rightmove is the most recent new holding and has rebuffed multiple takeover bids from an Australian compet competitor, REA, which is backed by Rupert Mardoch. The managers hope that Rightmove remains independent so that the trust shareholders can benefit from future growth driven by new services for home buyers and agents.
Speaker: Now the managers have also started to accumulate shares in another two new positions, ah but information will be provided in due course. These are likely to be in UK companies given the availability of attractive reasonably priced opportunities. In line with this assessment in the five years to the end of September, 2024, the trust overseas exposure has declined from around 20 % to less than 5%.
Speaker: Great, thanks for that. so ah Are there any other elements to the trust story that you'd like to cover? um The trust has a progressive dividend policy with a yield of around 2 .2%. The trust's large 1 .1 billion pound non -distributable share premium accounts received approval for conversion to a distributor reserve, which can be used to retain return cash to shareholders via dividends and share buybacks when required.
Speaker: To end with, of note, Trane has amassed around a 3 .5 % holding in the trust, which at nearly 50 million pounds is a considerable amount of skin in the game. And he regularly adds to this position.
Speaker: Right. So thank you for a very interesting rundown on this highly concentrated UK equity fund. You've been listening to Uncovering Trusts, a podcast by the Edison Group. If you want to find out more about Finsbury Growth and Investment Trust and other investment companies we cover, please visit www .edisongroup dot .com and stay tuned for a special episode next week covering the Saba Capital Campaign.
