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Trust this market beater not to fidget

The Times

At first glance, Finsbury Growth & Income Trustis an odd one. It is managed by Lindsell Train, a boutique fund manager with just one other trust to its name. Figit, to its friends, is dominated by chunky stakes in large companies with more than 70 per cent of its portfolio accounted for by the top ten investments.

They are in blue-chip stocks such as Diageo, Unilever and Relx. There is very little buying and selling, on average less than 5 per cent a year is traded in or out of the portfolio, a remarkably low figure for an investment trust.

Investors are entitled to ask why they should pay a fund manager to look after such a portfolio when they could presumably create one from such obvious stocks for themselves. The answer is that Figit has persistently beaten the market, even if last year was less outstanding.

A recent note from Winterflood Securities showed that in the past five years the trust’s net asset value grew by 123 per cent, just over twice the rate of growth of the FTSE all-share index. Figit claims to put in place the investment principles that made Warren Buffett.

These are well known. First, he invests long-term. He buys companies that produce goods we will need for decades. Figit only has one technology stock in its top ten, and Sage is one of the dullest and most cash generative in the sector.

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Mr Buffett likes near monopolies in unregulated markets, which are by definition few and far between. The London Stock Exchange qualified when the fund first invested more than a decade ago, although it has since expanded into post-trade technology. Hargreaves Lansdown has a strong position in a growing market, providing share-dealing services.

Nick Train, who has run Figit since 2000, thinks stocks such as Unilever, Diageo and Heineken are under-appreciated for their longevity and ability to beat inflation.

It is no coincidence that some smaller holdings are in family-dominated companies such as AG Barr, Young & Co and Rathbone Brothers, which by their nature tend to take a view stretching over decades, unlike the average hyper-active chief executive.

Shares should generally be bought for the long-term. Figit, up 4p at 701p, is a prime example.
My advice Buy
Why The trust has a good track record and a strategy modelled on one of the most successful investors of all time, Warren Buffett

Empiric Student Property
Last year was a significant one for Empiric Student Property, and not just because the company changed its year end, falling into line, as it happens, with its bigger rival Unite Group. The shareholders voted for a revised investment policy that allows it to go out and build a more diverse range of properties for students.

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Meanwhile Empiric is moving towards a time when its dividends, the most attractive reason for holding the shares, will be covered by earnings. All this should see the net asset value moving ahead again, and with it the share price. Since its flotation in 2014, the company has funded expansion by means of frequent cash raisings, which is favourable from an investment point of view because it has meant the issue of new shares at a small discount attracting a good dividend.

It has held back the share price, though, which unchanged at 110p is not much up on the £1 flotation price. Empiric has a portfolio valued at more than £720 million; its target of 10,000 beds will be reached this year. The net asset value of 105.9p a share as at the end of December is trading a little behind that share price. Borrowings are at an acceptable 31 per cent of the portfolio value and a further cash raising does not seem imminent.

If one comes along it will look attractive again, because the shares offer a yield of 5.6 per cent. There is seemingly not a lot that can go wrong in the student accommodation market and this could be an inflexion point for the price. Buy, then.
My advice Buy
Why Yield is attractive while shares could start to climb

Tharisa
There have been precious few flotations in the mining sector over the past five years in London, even after share prices began their dramatic recovery at the start of last year. One of the exceptions is Tharisa, which floated last summer at 39p, a price governed by its existing quotation in Johannesburg. This owns one mine in South Africa producing chrome as well as platinum and allied metals. The shares have soared, up another 2p to 142½p yesterday after quarterly production figures.

That rise has not quite kept pace with the price of chrome, which was at an artificially low level when Tharisa came to London because the Chinese, who use 80 per cent of global production and are the company’s only customer, had been running down stockpiles. Chrome has soared by 375 per cent since then to $380 a tonne. The report shows production from that mine on target despite heavy rainfall in the quarter.

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The shares are by one measure cheap, on a low multiple of earnings, while the dividend is growing fast. The mine is profitable at $85 a tonne and platinum provides a useful hedge. Any fall in the price of chrome would be a worry, though.
My advice Avoid
Why Tharisa is vulnerable to any fall in the price of chrome

And finally...
As luck would have it, Unite Group, another student accommodation specialist, chose yesterday to update the market on the first quarter, neatly coinciding with Empiric Student Property. Bookings are running at a record 77 per cent for the next academic year, while the value of its two portfolios rose 0.5 per cent and 0.6 per cent, driven entirely by rental growth. Unite has been quite active, paying £227 million for assets at Aston University, Birmingham, and matching this with the disposal of non-core assets.

Follow me on Twitter for updates @MartinWaller10

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