Its investment portfolio can hardly be described as racy, but returns have motored along extremely well for Finsbury Growth & Income Trust and its shareholders in recent times. Shares in the vehicle, which is enduringly popular among individual investors, have risen by almost 57 per cent over the past five years and, although off highs that were reached in late 2019, they have regained much of the ground lost last year. The yield on the stock, at 1.9 per cent, is not stellar, but seems to be high enough to keep its shareholders happy.
Yet while the trust is clear about why it picks the companies it does — with its mantra of going after businesses that both survive and thrive — it is not always so obvious why the vehicle itself seems to have the same durability.
Finsbury Growth & Income Trust, set up in 1926, aims to do what it says on the tin — to generate a good capital return for investors and be a reliable payer of recurring dividends. A constituent of the FTSE 250 with a market value of just over £1.9 billion, it invests primarily in large businesses listed in London and benchmarks itself against the FTSE All-Share index.
When the trust, which is managed by Lindsell Train, buys a share, it doesn’t mess around, in many cases taking on big positions. Its largest holding is London Stock Exchange Group, which, at 11 per cent of the portfolio, is worth £212.3 million. Diageo, the drinks group, accounts for a similarly large 10 per cent, while Relx, the academic publisher, and Unilever, the consumer brands group, are not far behind.
In theory, this should be alarming. The top ten holdings account for 80 per cent of the portfolio and Finsbury Growth & Income Trust owns only 25 companies, rarely buying or selling stock. Its concentrated stakes mean that it would only take a misstep by one of its investee businesses to have a large negative knock-on effect on its performance.
So far, that hasn’t happened, though that’s not to say that life is uncomplicated for the companies it owns. To pick just two: Hargreaves Lansdown, the stockbroker and investments group, is facing increasing competition for the attention of savers from rivals such as AJ Bell; and Diageo has suffered as a result of the widespread lockdown closures of the bars and restaurants it supplies.
In response, the trust probably would say that it buys shares with a view to their long-term growth potential. While 90 per cent of the companies it owns are members of the FTSE 100, Finsbury Growth & Income Trust argues that over time they will grow to be far larger still. In its most recent factsheet, for example, it makes the point that Diageo accounts for only 4 per cent of global consumption of alcoholic drinks and therefore has plenty of additional market share to go for.
Performance has tended to validate its convictions. The trust undershot relative to the FTSE All-Share in 2015, but in each of the subsequent years it has beaten the index — comfortably. Yet there is one important point to note here and that is that the overlap between the portfolio and the FTSE All-Share is limited and so, arguably, it is of little surprise that their returns differ.
This can work against the trust, of course. Its lack of holdings in the pharmaceuticals sector, for example, has meant that it has lagged behind the rally spurred by the discovery of vaccines against coronavirus.
Still, there is much to commend the shares which, down 3p, or 0.3 per cent, at 861p, have risen by more than 9 per cent since this column recommended buying them in April. Those investors that followed the advice should hold on for further gains.
ADVICE Hold
WHY Compact, high-quality portfolio has generated good gains for shareholders and has more to give
Travis Perkins
Jasmine Whitbread will have to get straight to work at Travis Perkins when she walks through the door as its new chairwoman in a few weeks’ time. The FTSE 250 operator of builders’ merchants and DIY stores was hit hard in the early months of the pandemic and losses for the half-year to the end of June were greater than expected (even though trading bounced back swiftly over the months that followed).
The impact of the recession on the larger construction jobs to which the company supplies building materials led it to announce the closure of 165 branches, mainly in general merchanting, with the loss of 2,500 jobs, or 9 per cent of the workforce. It also was forced to suspend the demerger of its Wickes DIY outlets and the sale of its plumbing and heating division, aimed at simplifying the structure of the business. Reinitiating these processes is likely to be high on the to-do list of Ms Whitbread, 57, when she starts work in March.
Travis Perkins was founded in 1797 as the Benjamin Ingram company and, as the result of acquisitions during its history, operates numerous brands, including Toolstation, Keyline and BSS. The group is bound up in the fortunes of the housing market and the appetite of homeowners to repair, maintain and improve their properties. While last year’s DIY boom led to very strong trading at Wickes’ 235 stores and more than 480 Toolstations, Travis Perkins remains convinced that its future lies with catering to the trades rather than consumers.
A Wickes demerger should create a separate business valued at £600 million-plus, in which existing investors will be given shares. The price tag for the plumbing and heating division probably will be lower. Aside from Toolstation, Travis Perkins then effectively will be a trade-only business, that meaning it will be simpler and probably more stable.
When the column recommended buying the shares in September 2019, they stood at £13.35½. Having fallen to as low as 650p in March, they were 21p, or 1.5 per cent higher at £14.15 today. Trading for 17 times Liberum’s forecast earnings for a prospective yield of 1.9 per cent, they are worth holding on to.
My advice Hold
Why Process of simplification is progressing well
