Finsbury Growth ‘significantly underperforms’

Finsbury Growth ‘significantly underperforms’

The Finsbury Growth and Income Trust has significantly underperformed its benchmark in the year to September, which the trust's chairman dubbed "disappointing".

The trust's total return on its share price for the year was 6.3 per cent, compared with the FTSE All-Share Index, which returned 27.9 per cent.

Over five years the picture looks rosier, with Finsbury Growth returning 47.1 per cent, compared to the benchmark's 29.8 per cent.

Chairman Simon Hayes said in the firm’s financial results, published today (December 15), that its “concentrated” approach, with 17 stocks accounting for some 98 per cent of the portfolio, meant such performance against its benchmark was “inevitable”.

Lindsell Train, which was appointed in December 2000 to manage Finsbury’s investment strategy, has also struggled with performance over the last year with founder Nick Train admitting this week it could be facing its worst period performance in 20 years.

Hayes said “despite [his firm’s] recent underperformance”, under Nick Train’s management Finsbury has performed “strongly” against its benchmark in 16 of the 20 years, and has “continued to outperform” over the last three, five and ten years.

He added: “It is disappointing to report that the company significantly underperformed its benchmark over this period [2021].

“17 stocks account for some 98 per cent of the portfolio. Inevitably, this concentrated approach results in a very different portfolio when compared with the constituents of the company’s benchmark, and demonstrates a high level of active management.

“Such an uncorrelated portfolio will inevitably perform very differently from its benchmark (positively or negatively) over different periods of time,” Hayes continued.

“We believe that over time our investment approach, selecting companies with durable business models that generate consistently higher returns, will ultimately be reflected in the share prices of the companies we own and hence in the performance of the company.

“However, there will be periods, such as now, when the market does not reward this approach.”

The total dividend declared for the year by Finsbury was 17.1p per share, an increase of 3 per cent versus last year.

Hayes went on to praise Train for the longer term returns he has achieved at Finsbury over the last 20 years, concluding: “The return over the year under review reflects relative underperformance in a period in which the market has rewarded companies with prospects for rapid recovery from the effects of the pandemic as opposed to those businesses which we own: businesses that offer consistent growth.”

Train’s worst performing investment this year was the Lindsell Train Global Equity fund, which saw an annual return of 3 per cent compared to the 24.4 per cent return of its benchmark, the MSCI World Index.

The company issued 7,240,000 new shares during the year at a premium to the net asset value. At September 30, 2021 the company’s share price stood at a 4.5 per cent discount to net asset value per share.