Stock market

Is Finsbury Growth & Income Trust a good buy now?

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It is currently the worst performing long-term investment in my portfolio. Finsbury Growth and Income Trust (LSE: FGT).

It is probably a better value now and could provide decent returns going forward.

A concentrated portfolio

I dripped money into stocks over several months during the market’s recent bear phase. My thinking was that the investment prowess of renowned fund manager Nick Train would likely lead to long-term returns for me.

But as the market has strengthened again, the share price doesn’t seem to be getting off the ground. It keeps trying, but then backs off. What is happening?

One reason for the trust’s poor performance may be its narrow diversification. About 58% of the portfolio is invested in just five names, and the top 10 positions account for 85% of invested funds.

Such concentration is rare for funds and trusts. Most are diversified across many stocks, but a broad spread across the market often results in returns that closely match the market. If we want that, why not just invest in cheap index tracker funds?

However, of the train Positions offer at least the potential for outperformance as well as the potential for underperformance, as we are now seeing. But it is the concentrated nature of the trust that attracted me in the first place.

Buying and holding quality businesses

Train’s strategy aims to target quality businesses with strong brands and powerful market franchises. Most are UK companies and Train tries to buy stocks when they are priced below its estimate of the true value of the business. Then he holds them for the long term regardless of short term fluctuations.

If this approach rings a bell, that’s probably because it sounds exactly like the way American billionaire investor Warren Buffett tells us he invests, and it’s on purpose.

Amanat is the top holding RELXWith about 13% of invested funds. The firm provides information-based analytics and decision-making tools for professional and business users. The stock was rising until recently when the share price pulled back a bit.

London Stock Exchange Group The trust occupies the second position with around 12% capital. It’s a similar story here. The global financial markets infrastructure and data provider saw its share price perform well for the past year until the recent weakness.

3rd and 4th position experienced And Dad has also performed similarly. But has been one of the biggest critics. Diageowhich is about 10.5% of the trust’s portfolio.

The premium branded alcoholic drinks supplier is finding trading conditions challenging in the current general economic environment. The share price chart tells the story:

Short-term challenges and stock price weakness are normal occurrences during a long-term holding strategy. However, there is no guarantee that Finsbury Growth and Income Trust will perform well again in the future.

Still, on balance, I’d be inclined to dig in with more research and plan to add to my position in the stock now.


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