Nick Train has opted to hang on to the Finsbury Growth & Income trust’s holding of Burberry, despite a 70% drop in share price over the past year.
As of 31 July, the holding accounted for 3.5% of the portfolio, making it the 10th-largest in the trust. In the month of July, Burberry’s share price fell 11.7%, while the trust’s best-performing holding, Unilever, grew by 9.9%. According to the AIC, the trust trades at an 8.41% discount to its net asset value, with a share price total return of 2.6% in the past five years, against a sector average 42.1%. In July, the share price total return for the trust rose 1.1%.
While Train has maintained a position in Burberry, it has shrunk from a 5.5% position in January 2024 to 3.5% in July’s factsheet. Despite calling Burberry’s first quarter results “dire”, Train concluded: “we have invested our clients’ capital in an enduring and unique brand, that has generated attractive financial returns in the past and can do so again”. Train also voice his support for Burberry’s decision to suspend dividend payments and enact a cost savings plan.
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The manager explained this is the second time since the turn of the millennium that share price has fallen 70% or more from peak to trough. “The previous time was between late 2007 and late 2008, as investors sold out of companies they believed were vulnerable to the effects of the looming global financial crisis, particularly companies with exposure to luxury spending in the Far East,” Train said.
“We remember that 2007/8 episode well, because it was then we first invested in Burberry shares, assuming that the world was not actually coming to an end and that both Burberry’s business and sentiment toward its shares would improve as economic growth resumed. This was a good call and from its late 2008 low to the 2023 peak its shares were up 16-fold (£1.60 to £26.00).”
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As of 15 August, Burberry’s shares now sit at £6.59, which Train said leads the FGT team to wonder whether a similar opportunity for growth presents itself. Train also acknowledged missteps by the board in manoeuvring the brand.
“The company has pursued an overly ambitious strategy of brand elevation and inappropriately attempted to shift away from its traditional brand DNA towards an unsupportable “high fashion” positioning,” Train said.
“In doing so it has raised prices to levels that its customers or potential customers do not believe offer value. Nonetheless, the board and its new CEO believe Burberry’s core brand and status with global consumers is unimpaired and that with better execution its fortunes can be restored.”
In addition to Burberry, Fever-Tree and Diageo were the biggest detractors for performance, with Unilever, Schroders and Rightmove as top absolute contributors.
