Extracting growth from large-cap companies can be a task akin to refloating the Ever Given. The maturity and heft of these businesses means that moving earnings forward can be slow and arduous.
In the wake of the vaccine success, amid hopes for a return to normality and a rebound in economic fortunes the perceived potential on offer from smaller companies gained a greater edge. The MSCI UK Small Cap Index has rocketed by 107 per cent since last March’s trough, making the 27 per cent return delivered by the index provider’s UK large-cap equivalent look paltry.
For Finsbury Growth & Income Trust, which invests in big-name global brands with market valuations running into the tens of billions of pounds, the result was an underperformance of its benchmark FTSE All-Share Index. Over the six months to the end of March, the investment trust delivered a share price total return of only 3.7 per cent, alongside a meagre 2.2 per cent net asset value total return. Both were left in the shadow of a benchmark that generated 18.5 per cent during the same period.
Hardly ideal, but recent weakness could be an opportunity rather than a deterrent for investors, particularly if they take a glance at its longer-term track record. The trust, managed by Nick Train, has generated a return that has beaten its benchmark on ten, five and two-year measures. The shares, which over their history typically have traded at a premium to the trust’s NAV, are priced at a 4 per cent discount to NAV. Finsbury is one of the most widely held investment trusts among retail investors for a reason.
Train, one of Britain’s best-known fund managers, takes big positions in long-established companies with solid brands. The trust’s top three holdings are Diageo, Relx and London Stock Exchange Group. Not that backing big names always means safety, as the latter’s share price plummet in March attests. Other names such as Unilever fit the bill more. The consumer goods group has increased its dividend for 11 consecutive years and the share price has chugged higher over decades.
Finsbury doesn’t switch stocks regularly — “We’re famous for never doing anything,” Train says — but although the low level of stock turnover might beg the question where the active management comes in, the trust is no index-tracker, being concentrated in the consumer staple, consumer discretionary and financial services sectors and without outsized exposure to energy, mining or banks that are some of the largest constituents of the FTSE All Share.
In 2020, two new holdings were added: Fever-Tree, the premium tonic manufacturer, and Experian, the credit check specialist that Train describes as one of Britain’s “rare globally strong data analysis” companies. That is part of a strategy to invest along three broad themes of digital products and services, luxury and premium consumer brands and trusted wealth management services.
There’s a compound benefit from investing in slow and steady UK heavyweights: those who invested in the Finsbury trust ten years ago would have made a total return of 230 per cent, against the 91 per cent generated by the FTSE All-Share. Its share price total return has been almost double that of its peers in the Association of Investment Companies UK equity income category.
The dividend won’t blow you away, totalling 16.6p a share last year. An interim payment of 8p made in May suggests that this year’s total payment won’t be drastically higher, which at the present share price would equate to a potential dividend yield of about 2 per cent. But Finsbury’s strength is its knack for delivering durable capital growth.
ADVICE Buy
WHY Defensive positioning should continue to deliver steady returns over the longer term
Aberdeen Standard European Logistics Reit
The enthusiasm for warehouse assets was getting keener long before the pandemic, which forced more shoppers online. However, with rising competition for logistics property forcing institutions to pay more for acquisitions, so, too, are retail investors being asked to stump up more to gain exposure to the burgeoning sector via publicly listed landlords.
For investors wary of the fanaticism surrounding sector leaders such as LondonMetric and Segro, which have been priced by the market as though they can do no wrong, their eyes naturally might wander to a player with a net asset value that has not raced so far ahead.
The Aberdeen Standard European Logistics real estate investment trust might fall into that camp, but its shares are hardly in bargain territory at a 15 per cent premium to net asset value at the end of March.
The trust acquires and lets “big-box” warehouses and “last-mile” delivery assets in continental Europe, with the Netherlands, France and Germany accounting for just over 80 per cent of the portfolio by value.
The issuing of more shares to fund further purchases, which would dilute existing shareholders, could be one drawback. It raised equity this way three times in the year to June. But solid asset value growth indicates management is at least adept at putting capital to good work.
The idea is that with the shift towards ecommerce lagging behind Britain and with the market for logistics assets less mature, there is more potential to crank up returns.
Investors are being asked to pay for reliable income. The trust equalled, or in some cases beat, the steely rent collection performance of its sector peers, reporting a rate of 97 per cent for the March quarter and for all last year. That translated into four equal quarterly dividends totalling 5.64 cents a share last year. A first-quarter payment of 1.41 cents suggests a similar annual payment for 2021, which, at the present share price, would equate to a potential dividend yield of 4.1 per cent.
A beefy payout to investors, plus a boost to the value of the assets and rents, meant the trust boosted net asset value by 20 per cent in sterling terms. Performance worth paying for.
ADVICE Buy
WHY Rising asset values plus a generous dividend justify the shares’ premium
