Finsbury Growth & Income Trust (FGT) announced its annual results for the year ended 30 September 2024. The company delivered a NAV total return of 8.2% compared with a benchmark total return of 13.4%. The share price return over the same period was 3.4%, reflecting a widening of the discount to NAV which was 8.5% at the time of publishing. The company declared two interim dividends for the year totalling 19.6p per share (2023: 19.0p), an increase of 3.2%. In the face of this ongoing period of challenging performance the board has announced a continuation vote after the current financial year ends in September 2025 (expected to be held at the company’s AGM in January 2026).
During the financial year the company bought back a total of 36,801,766 shares (18.0% of the shares in issue) at a cost of over £310m (2023: £97.7 million) and at an average discount of 7.4%. This resulted in the NAV per share being 14p higher than it would otherwise have been.
Discussing the performance and the outlook for the trust, manager Nick Train noted:
“Periods of lacklustre performance are inevitable for all investors. When you are in the midst of such a period, as we are, it is important to keep your nerve and stick to your investment principles. However, it is also important to consider, and answer honestly, searching questions about the underperformance. Our clients excel at asking searching questions, and three in particular have been put to us that I propose to address in this report.
- Do we understand why we have underperformed and have we taken measures to mitigate the risk of future underperformance?
- Has the period of underperformance created a buying opportunity?
- Finally, is our continuing company research generating attractive new investment ideas?
“The first question: what has been our problem? Candidly, the portfolio has been a victim of its previous success. The peak of our relative performance was in 2020. What drove the strong performance for much of the preceding decade were the strong returns from our investments in consumer-branded goods owners, such as Burberry, Diageo, and Unilever, amongst others. As a result of that success, the combined weight of the holdings in consumer brands was 50% of the whole portfolio as at year-end September 2020. In hindsight, this was too high. Covid-19 and its inflationary aftermath have been unhelpful for many consumer companies, and their share prices have fallen or stagnated, hurting our overall investment performance. Between year-end September 2020 and 2024, for instance, Burberry’s share price has fallen 55%, Diageo is down 2%, and Unilever up only 1%. How have we responded?
“Well, the headline is that exposure to consumer brands is now approximately 32% of the portfolio, a marked reduction. We still like the consumer brand companies we retain exposure to, but there are other investment themes available in the UK stock market that we believe offer even better prospects, and since 2020 we have tilted the portfolio in their direction.
“Moving on to the second question – is this a buying opportunity for your portfolio? I would say, unequivocally, yes. And I have put my money where my mouth is by buying more shares.
“There are two aspects to my optimism. First, I want to reiterate the attraction of investing in owners of world-class consumer brands, particularly when you can access their shares at low prices, as is arguably the case today. Diageo and Unilever are examples of such world-class businesses, we believe, and we have maintained and even increased exposure to both during their recent share price weakness. To understand the nature of the opportunity, I’d ask shareholders to consider the accompanying graph on page 11 of the annual report, which shows the share price total returns of Diageo and Unilever since the start of the century, compared with the returns on various stock market indices, all in sterling. You may be surprised to see that not only have Diageo and Unilever handsomely outperformed the UK stock market over the last nearly quarter of a century, they have also outperformed the S&P 500 and even the Nasdaq Composite. This is the case even after Diageo and Unilever’s disappointing performance of the last four years. Now, of course, you can prove almost anything by cherry-picking a favourable start date, and no doubt the Nasdaq Composite was at a temporary peak at the start of 2000, while Diageo and Unilever were out of favour (interestingly, you could argue that both those conditions pertain today). Nonetheless, it is impressive, I contend, that both should have performed so competitively since 2000, and their performance is consistent with the proposition that global brands as resonant and still relevant as Guinness and Johnnie Walker or Dove and Hellmann’s can help you get rich, albeit slowly.
“The 23% total return from Unilever shares over the last 12 months is a welcome reminder that well-run (or in Unilever’s case, better-run) consumer companies can still reward investors.
“The second reason for my optimism: I mentioned above that we have tilted the portfolio toward investment ideas that we expect offer even better prospects than those of consumer brand-owners. Today, by far the biggest thematic exposure, 60% of the portfolio at the year-end, is to London-listed data, software, and technology platform companies. We own six businesses – Experian, Hargreaves Lansdown, London Stock Exchange Group (LSEG), RELX, Rightmove, and Sage – and I have three observations to make about the sextet.
“First, even though several of them have been strong performers over the last couple of years, particularly RELX and Sage, it is not difficult to demonstrate the valuations they are accorded are lower than is the case for comparable companies listed on other markets. That presents an opportunity, we believe.
“Next, that apparent undervaluation of the group has been confirmed by the fact that two of them have received takeover bids during 2024, namely Hargreaves Lansdown and Rightmove. It looks as though the offer for the former will succeed, at a price 43% above where the shares traded at the end of September 2023. Meanwhile, Rightmove has successfully rebuffed a bid that was also approximately 43% above its share price of a year ago.
“I have no doubt that the increase to our digital winners has improved the quality of the portfolio. At 30 September 2024 and based on figures from Bloomberg, we calculate an average return on equity (ROE) of 30% for the portfolio, the highest level it has been for a number of years, and notably higher than for the average of the UK stock market, of 9%. In the long run, ROE is a good measure of the quality of a company, the higher the better. Over time we must believe the superior business returns earned by our portfolio companies will lead to superior share price returns too. The question then is whether we are overpaying for such quality. We don’t think so. The portfolio’s 12-month forward price-to-earnings (P/E) ratio of 22x is higher than the index at 12x, though by a lesser degree than the ROE. And whilst the ROE of the portfolio has increased, the P/E premium compared to the market has fallen more recently. This is of course no guarantee of future performance, but it does give us confidence that we own high-quality companies at what to us appear to be reasonable valuations.
“Finally, the third question: are we unearthing new investment ideas? The answer is “yes,” even if it is relatively rare for us to initiate new holdings. I have always worked on the Warren Buffett principle that often the best thing to do with investible funds is to buy more of what you already own (assuming what you own is of high quality). Nonetheless, when we do have compelling new ideas, we back them with conviction. There have been three initiations since 2020 – Experian, Fever-Tree, and, more recently, Rightmove. We are currently having to be patient with Fever-Tree, as investors wait to see whether the brand can replicate its domestic success internationally (we believe it can). Meanwhile, Experian has become one of the top-three holdings in the portfolio and is, we believe, a relatively rare thing – a world-class data business listed on the London stock market. The accompanying chart within the annual report shows the long-term investment success of Experian since it listed in 2006; but note the sideways period for its shares between 2021 and 2024, a period that allowed us to accumulate the holding. Subsequently, Experian’s share price has hit new highs and we are hoping for much more.
“So far as Rightmove is concerned, we believe the company was right to resist being taken over. Certainly, we did not buy it in the expectation of a quick bounce, but rather hope to benefit from years of profitable growth as the company innovates new services for home buyers and agents.”
FGT : Challenges continue for Finsbury Growth & Income Trust leading to continuation vote in 2026