Finsbury Growth and Income Trust returns lagged in the first quarter of the year as investors started to look away from “steady plodders” such as Unilever and chase recovery stories on the back of positive vaccine announcements.
Writing in the trust’s latest factsheet, dated 31 March, portfolio manager Nick Train (pictured) said the strategy began to underperform in Q4 last year as breakthroughs on Covid vaccines were being made and this continued into 2021.
“Simply stated – having held up during the worst of 2020, our returns have lagged as economic and investor confidence recovered,” he wrote in the update.
In March, the trust’s net asset value (NAV) was up 1.1% and the share price was up 2.6%, on a total return basis, while the index, FTSE All Share (net dividends reinvested), was up 4%.
But over the longer term the trust has returned 17.5%, 26.6% and 63.6% on a share price total return basis over one, three and five years, respectively, according to FE Fundinfo data. This compares with the FTSE All Share’s 25.6%, 9.9% and 35.9% over the same periods.
Unilever’s defensive qualities lose their shine
Pointing to “important holding” Unilever, Train said the stock had delivered a modest capital gain during 2020, but the share price fell 7% in Q1 while UK stock market gained over 5%.
“Suddenly its ‘defensive’ qualities seem unattractive, when there are ‘recovery’ stories to chase, such as banks and oil,” he wrote.
Similarly, Heineken, Mondelez and Fever-Tree all fell in the first quarter, Train added.
“These just do not seem exciting investment propositions – at least for now. Of course, a look at the longer-term share price performance of these companies is a useful reminder that the sort of steady, predictable growth they offer is very valuable for investors.”
Portfolio is not just made up of ‘steady plodders’
But Train also flagged holdings in the portfolio that fared well during Q1 this year.
“I must be careful, too, not to give the impression that the whole portfolio is made up of what some might uncharitably dismiss as ‘steady plodders’, such as Unilever,” he wrote.
“During Q1 we saw encouraging share price gains from long-term holdings – Burberry, Daily Mail, Diageo, Rathbones, Sage, Schroders and Youngs.
“All these with the potential to deliver exciting business growth, we hope, as economies and stock markets, particularly the UK, do better.”
Investment managers explain sharp drop in LSE share price
The latest factsheet also includes a note written by the investment team explaining the “toxic set of circumstances” for London Stock Exchange (LSE) shares in the short term.
LSE was Finsbury Growth & Income’s biggest position at the start of 2021, having risen over 16% in 2020. But since its peak share price on 16 February 2021 of more than £99, it has fallen nearly 30%, wiping about 2% off the portfolio’s return over the quarter.
LSE is now the portfolio’s fourth largest holding at 8.6%.
Train said the initial share price fall was prompted by investor disappointment over the unexpectedly high costs of integration of its acquisition of Refinitiv – and then exacerbated by the euphoria earlier in February as the Refinitiv deal was sealed.
The note said: “We expect the combined group to occupy a vital role in the global financial sector and with its collection of unique data and market positions hope it can command a stock market rating and share price equal to or higher than that from which it has just recently fallen.
“No investment is risk-free and there certainly are risks to the LSE making a success of this merger. On the other hand, the rewards are apparent too. As is the rarity of such a globally significant data business in the context of the UK stock market. It remains a core holding in your portfolio.”
