I’ve had high hopes for the FTSE 250‘s Finsbury Growth and Income Trust (LSE: FGT) for some time.
However, with the share price near 896p, it’s where it was about five years ago — how disappointing. The chart shows the stock’s been moving essentially sideways for half a decade. But better times may be coming for shareholders.
Even the trust’s well-known investment manager, Nick Train, thinks the performance has been rubbish. Train said in the recent annual report he’s been disappointed and recognises it’s been a frustrating period for shareholders.
Fantastic past performance
But under his management, the stock rose by more than 350% in the decade between 2009 and 2019. I think it can perform like that again. Meanwhile, stock market conditions today seem similar to those in 2009, just before it took off.
In 2009, the markets were licking wounds inflicted by the credit-crunch and financial crisis a couple of years earlier. One outcome of that was depressed company valuations in the UK.
Today, the markets are wounded because of the pandemic, war in Ukraine, energy price shocks and inflationary pressures. Again, the UK stock market has been depressed along with company valuations. But value looks like it’s been building up in many businesses as operational progress continues. Not exactly the same situation as in 2009, but it rhymes.
Meanwhile, Train runs the trust with a long-term perspective. The strategy is to hold the shares of quality businesses that can compound a growing stream of earnings over time.
Going forward, Train is “convinced” the best way to get the share price moving up again is by the same approach that generated good returns before. That means running a concentrated portfolio of shares backed by “exceptional” UK companies.
The trust is unusual because it’s so concentrated — the opposite to being widely diversified. But it embraces the theory that exceptional results can come from doing things different from the crowd.
There are 20 equity holdings in the portfolio. But the biggest six account for just over 73% of the invested money. So for a big fund, that’s super-concentrated.
Turnaround and growth potential
The top six holding are London Stock Exchange Group, Experian, RELX, Unilever, Diageo (LSE: DGE) and Sage. Of those, the share price of Diageo has been particularly depressed lately. But I reckon it has the potential to bounce back during 2025.
The general economic challenges of the past few years affected Diageo’s premium alcoholic drinks business. The company posted declines in normalised earnings in 2021 and for the trading year to June 2024.
I reckon that weakness in the business unsettled the market. Previously, Diageo had carried a full-looking valuation for many years. That arose because of the steady, defensive and cash-generating qualities of the enterprise.
But the market has marked down the valuation and the share price over the past three years, as the chart shows.
However, City analysts expect improving earnings ahead. So Diageo could regain its popularity among investors and prove to be a decent hold for the trust going forward.
Positive outcomes aren’t guaranteed, but I reckon Finsbury Growth and Income Trust is well worth investors’ research time and consideration now.
