Insider buying is the purchase of shares in a company by a director, officer, or executive within that corporation. One noticeable example of this recently involves Nick Train, portfolio manager of Finsbury Growth & Income Trust (LSE: FGT). He’s been aggressively buying this FTSE 250 stock for months now.
This obviously indicates that he’s bullish on the future of the £1.9bn trust which he’s run for over 20 years. And it signals that he believes the shares, which have flatlined over the last two years, could be undervalued.
So is this a buying opportunity for my own portfolio?
Skin in the game
Those who talk should do and only those who do should talk.
Nassim Nicholas Taleb
According to my data provider, Nick Train has bought more than £2m worth of shares in his UK equity income trust since the turn of the year.
On 4 January, the manager purchased 25,000 shares for £214,000 at 856p. This was shortly followed by a further tranche of shares that cost almost £450,000.
There have been multiple purchases since then, culminating last month with Train buying 75,000 shares at 901p. That acquisition cost £675,750 and lifted his personal holding to 2.42% of all shares.
I personally like company insiders to have ‘skin in the game’. It aligns their interests with those of ordinary shareholders, particularly when times are tough.
High-conviction portfolio
The trust invests in quality growth stocks it tends to hold for the long term. These are predominantly UK-listed shares, but the portfolio also contains a smattering of foreign-listed equities, such as Heineken and Cadbury-owner Mondelez.
In March, the top holdings were RELX, Diageo, London Stock Exchange Group, and Burberry.
The 10 biggest positions account for 83.5% of total assets. That’s a very high-conviction portfolio, which I find refreshing in an age when many other fund managers hold hundreds of stocks. But the downside is that one or two bad picks can have an outsized impact on returns, which is worth bearing in mind.
What’s more, over 65% of the portfolio is made up of consumer staple and consumer discretionary stocks.
On this point, Train has said: “We expect technology will deliver productivity gains and drive steady GDP growth everywhere and the fruits of that growth will be spent by consumers on products and services that improve their quality of life“.
While I believe that will be true long term, many such firms today are experiencing headwinds due to high inflation and weak consumer confidence. That almost certainly explains the recent underperformance of the shares, which could continue for some time.
Will I buy the shares?
Over the long term, I see most of the trust’s holdings doing very well. And that’s the problem for me personally, because I already own a few of them.
I have shares in Diageo and Experian, another stock owned by the trust. And I’ve recently put analytics specialist RELX on my buy list.
So I fear my ISA could start to become over-concentrated if I also invested in Finsbury Growth shares.
That said, I wouldn’t hesitate to buy this excellent FTSE 250 stock if I were just starting to build a portfolio. Especially as the manager is actively putting his money where his mouth is.
