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Just The Tonic

Finsbury Growth & Income Trust (FGT) has been managed by Nick Train since January 2001. Given the economic uncertainty due to the global COVID-19 pandemic, he stresses the importance of determining which companies will survive and thrive, and which could ultimately fail. The manager also seeks to invest in firms that can take advantage of the upsurge in digital and software services, as technology is advancing at an accelerating pace. While Train rarely initiates new holdings in the fund, in recent months he has added a position in premium mixer producer FeverTree, taking advantage of a significant pullback in its share price. FGT has a very strong performance record and has outpaced the broad UK market over the last one, three, five and 10 years. Long-term NAV outperformance versus the UK.

 While there are companies in FGT’s portfolio that have cut their dividends as a result of the global healthcare pandemic, including AG Barr, Burberry, Fullers and Youngs, there have been modest dividend increases from investee firms Daily Mail & General Trust and Sage Group. Train also believes that his long-term strategy of focusing on strong companies ‘will see us through this crisis’, noting that more than a third of the portfolio is represented by companies with net cash on their balance sheets, including AG Barr, Fever-Tree, Hargreaves Lansdown, Rathbones and Schroders. The manager believes that investors tend to be too pessimistic about the outlook for stock markets, which creates attractive investment opportunities. His belief is that ‘while there is always something to worry about, over time everything will probably work out just fine’.

 Regarding FGT’s new position in Fever-Tree. Train says that it is ‘very unusual and highly praiseworthy that the company has created a new consumer category in premium mixers that positively enhance the experience of drinking premium spirits’. He comments that he ‘was very slow to recognise the company’s achievements’, but ‘better late than never’. Fever-Tree’s share price has declined considerably ,having reached a very high valuation before seeing a slowdown in sales in its core UK market, followed by coronavirus-led weakness. The manager believes that the company will be successful in its continental European and US expansion plans, given ‘its products are notably different, which is an incredibly important aspect’.

Nick’s investment approach is to build a concentrated portfolio (currently 22 companies) of quality companies that have strong brands and/or powerful market franchises with the top ten holdings making up over 80% of the portfolio. These include consumer goods brands Diageo and Unilever, media services Pearson and Sage, and financial services London Stock Exchange Group and Schroders.

FGT has produced strong  dividend growth of 9.6% per annum since Nick took over management of the portfolio in 2001. With a focus on total returns, FGT’s dividend yield of 2.0% is well below its peer group’s average of 5.1%. However, its dividend growth is well above its peer group which reflects the solid long-term underlying earnings growth from the companies within the portfolio.

 

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