Winterflood has added the Finsbury Growth & Income Trust to its recommended list touting the pricing power of its holdings as an advantage against anticipated inflationary pressures.
The recommendation, which followed a recent manager meeting, comes despite the fact the £2.1bn investment trust is experiencing its weakest calendar year returns since 2007 and is on track to underperform for only the fifth year since Nick Train became sole portfolio manager in December 2000.
To date, the net asset value of the closed-ended fund is up 8% compared to a 16% return in the FTSE All Share benchmark. In share price terms, it is up just 3% as its premium turned into a discount.
“Nick Train is having a tricky year,” said Winterflood analysts Simon Elliott and Emma Bird in their research note. They attributed his relative underperformance to the UK market’s preference for cyclical, value plays and some stock specific issues, such as the London Stock Exchange Group, which is currently the third-largest holding at 8.5%.
But the Winterflood analysts said they continued to regard Train’s investment approach highly and said the pricing power that is common among his holdings is “a massive advantage at a time of inflationary pressures”.
“Given that the fund has traded at a small premium to NAV for the vast majority of the last ten years, we see the current discount level as an attractive value opportunity,” the research note said. The investment trust currently trades at a discount of 4.97% compared to a 12-month average discount of 1.42%, according to Hargreaves Lansdown.
See also: Lindsell Train founders pocket £35m in sluggish year for fund boutique
How Finsbury Growth & Income would stand up against inflationary pressures
Although Train takes a bottom-up approach to stock picking, Winterflood highlighted his thoughts on some macro developments.
Train sees inflationary pressures and supply chain disruption as a cyclical phenomenon and a function of re-opening after Covid-19, the note said.
“He expects that supply will eventually catch-up with demand. That said, he is closely watching those portfolio companies that are most exposed to commodities, such as Unilever.”
Train stated the “substantial pricing power” of Diageo’s brands would be beneficial in the face of inflationary pressures, while his financial holdings, which include Schroders, Hargreaves Lansdown and Rathbones, would be beneficiaries of rising interest rates. He also said asset and wealth management companies he holds could see more consolidation.
Diageo is currently the largest holding at 11.5%, while Schroders represents 7.5% and Hargreaves Lansdown represents 5.8%. The top-10 stocks accounted for 80% of the 25-strong portfolio at the end of September.
See also: Lindsell Train ponies up £2m for Rathbones placing to fund Saunderson House purchase
Nick Train still committed to investment management
The Winterflood analysts concluded their note by examining key-man risk at Lindsell Train.
“After more than two decades of considerable success, we believe that Nick Train remains fully committed to investment management. While he has no plans to step back from a day-to-day role, the six-person investment team at Lindsell Train continues to expand, with a model of developing their own people rather than recruiting ‘fully-formed’ experienced investors.”
Train himself noted recent additions to the portfolio, Experian and Fevertree, were a result of input from the wider investment team. Portfolio turnover has varied between 0.7% and 6.7% and has averaged 2.2% over the last five financial years to the end of September, representing an average holding period of 45 years.
Winterflood felt Finsbury Growth & Income had also benefited from Lindsell Train’s development of its North American and Global strategies.
See also: Nick Train banks on luxury holdings benefitting from UK’s roaring 20s boom
