Finsbury Growth & Income: Why ‘biggest is not necessarily best’

Rathbone Brothers and Reed Elsevier helped the Finsbury Growth & Income investment trust post a share price total return of 8.6 per cent in the year to 30 September.

Schroders, which fell 4.2 per cent in the year to 30 September to £21.46 was a poor performer for the fund, as was Diageo. However, Schroders has since rebounded 28 per cent from that low to £27.42.

The fund had net assets of £494.9m at 30 September, up from £395.8m a year earlier. It issued £72.5m of new shares during the year. It made a NAV total return of 8.9 per cent in the year to 30 September.

Finsbury chairman Anthony Towsend says it “was always going to be difficult” to match last year’s 31.6 per cent gain, but was pleased the trust outperformed its peers and the benchmark.The FTSE All Share returned 6.1 per cent in the year to 30 September. 

Lindsell Train director Nick Train says the fund could underperform in an environment where the “big boys” race ahead.

The fund has no exposure to the mainstay large cap companies in the oil, mining, banks, telcos, utilities and pharmaceuticals.

“By corollary it must be true that given [the] portfolio is so underweighted to mega-caps, we must also be overweight in mid and small-caps, even though we do not think about portfolio construction in this way,” he explains.

“UK market followers know that mid and small were at the vanguard of the rally of the last couple of years and it could be that, willy-nilly, we have been beneficiaries of this investor preference and could be vulnerable to any change in preference.”

However, that is mitigated by the quality of the companies held by the trust and the fact that the portfolio is not moved between market cap bands to capture cyclical shifts, he says.

“Biggest is not necessarily best, if it’s investment returns you’re after,” he adds.

“We believe what really matters is the calibre and unique nature of the companies you’re invested in. This is what makes money over time.”

The fund slightly increased its borrowing during the year to £23.1m from £20.2m.

However, as a ratio of assets the amount of borrowing has dropped to 4.6 per cent.

The fund has returned 238.8 per cent over the past decade with a 6 per cent portfolio turnover compared with the FTSE All Share’s 120.2 per cent.

During the year, Frostrow Capital was appointed as an alternative investment fund manager while Lindsell Train remains portfolio manager.

The company’s AGM will be held at Barber-Surgeons’ Hall, London, at noon on 3 February.