The worst-performing long-term investment in my portfolio right now is Finsbury Growth and Income Trust (LSE: FGT).
Perhaps it’s better value now and can deliver decent returns going forward.
A concentrated portfolio
I drip-fed money into the stock over several months during the market’s recent bear-phase. My thinking was that well-known fund manager Nick Train’s investment prowess would likely deliver a satisfactory long-term return for me.
But since the market’s firmed up again, the share price can’t seem to get off the ground. It keeps trying, but then drops back. What’s going on?
One reason for the trust’s underperformance might be its narrow diversification. Around 58% of the portfolio is invested in just five names, and the top 10 positions account for 85% of the invested funds.
Concentration like that’s rare for funds and trusts. Most diversify across many stocks, but spreading widely across the market often leads to returns that are just like the market. If we want that, why not just invest in cheaper index tracker funds?
However, Train’s positions at least offer the potential for outperformance, as well as the potential for underperformance, as we are seeing now. But it’s the concentrated nature of the trust that attracted me in the first place.
Buying and holding quality businesses
Train’s strategy aims to target quality businesses with strong brands and powerful market franchises. Most are UK companies and Train tries to buy stocks when they’re priced below his estimate of the true worth of the business. Then he holds them for the long term, regardless of short-term volatility.
If that approach rings a bell, it’s probably because it sounds just like the way US billionaire investor Warren Buffett tells us he invests, and that’s deliberate.
The top holding in the trust is RELX, with almost 13% of invested funds. The firm provides information-based analytics and decision tools for professional and business customers. The stock had been rising until just recently when the share price slipped back a bit.
London Stock Exchange Group occupies the second slot with around 12% of the trust’s invested capital. It’s a similar story here. The global financial markets infrastructure and data provider saw its share price performing well for the past year until weakness very recently.
The third and fourth positions of Experian and Sage have also performed similarly. But one of the biggest detractors has been Diageo, which accounts for about 10.5% of the trust’s portfolio.
The premium branded alcoholic drinks supplier has been finding trading conditions tough in the current general economic environment. The share price chart tells the story:
Short-term challenges and stock-price weaknesses are normal events during a long-term holding strategy. However, there are no guarantees Finsbury Growth and Income Trust will perform well again in the future.
Nevertheless, on balance, I’d be inclined to dig in with further research and aim to add to my position in the stock now.
