Is a fund manager lazy if they rarely change their portfolio?
Would you be happy if the manager of a fund in which you had a personal investment had only found three new investment ideas in the past seven years? That’s exactly the situation at Finsbury Growth & Income (FGT), one of the best known investment trusts on the market.
In such a situation, you are paying a fund manager to actively manage a portfolio and with that you’d expect them to be bursting with great ideas to make you money.
While doing little to nothing may sound lazy, some of the best investors are the ones who don’t constantly flip in and out of holdings. Investing is a long-term game and patience is very important.
The fund manager should regularly check existing holdings aren’t slipping out of line with their strategy and checking that they still deserve a place in the portfolio.
That can be equally as time consuming as finding new investment ideas, hence why their fund management fees are still justified (assuming they are working hard in the background).
HOPING TO SCORE WITH NEW HOLDING
Finsbury Growth & Income’s investment into football club Manchester United in 2017 was only its third new position in the portfolio since 2011.
‘I continue to believe the lack of change is one of the most remarkable characteristics of Finsbury Growth & Income,’ says fund manager Nick Train, appearing at the Frostrow Capital investor event on 16 May.
He recalls a comment by Jessie Livermore, one of the world’s most iconic and influential traders of all time. ‘It was never my thinking that made big money for me. It was always sitting. Got that? My sitting tight.’ This is one of Livermore’s famous quotes.
‘Sitting tight is not easy to do,’ remarks Train. ‘We’ve had to work hard to learn how to do this well.’
Lindsell Train-managed Finsbury Growth & Income has achieved 15.3% annualised total return over the past 10 years versus 6.6% from its benchmark. This superior track record is one of the reasons why we highly rate the investment trust and believe it should be a core holding for investors.
Even its bad years in the decade under analysis were still considerably better than the broader market – apart from 2008 when all fund managers can be excused for delivering a bad performance (amid the global financial crisis).
THE APPEAL OF UNILEVER
Unilever (ULVR) is a good example of stock where Train
has displayed considerable patience. It has been in Finsbury Growth & Income’s portfolio for 14 years and the fund manager says he’s never sold a single share in that period.
Interestingly, asset manager Lindsell Train has more than £1bn of clients’ money in Unilever across all of its managed funds including Finsbury Growth & Income. ‘We bought more Unilever stock in mid-May,’ says Train who calls it ‘a truly exceptional company’.
A superior dividend growth record is one of the principal reasons why the fund manager loves the stock. Unilever has increased its dividend by 8% a year for the past 55 years. ‘That dividend growth has created incredible value for shareholders. Excluding the dividend, Unilever’s share price has gone up by nearly seven-fold in the past 25 years and the FTSE All-Share hasn’t even trebled.’
Approximately 3.5% of the trust’s net asset value is accounted by its holding in technology group Fidessa (FDSA) which is in a takeover situation, so too is Dr Pepper Snapple which accounts for 2.4% of the trust’s NAV.
Assuming those takeovers complete, Train will have a large amount of cash to either add the fourth new holding since 2011 or top up existing holdings.
The investment trust has the flexibility to hold up to 20% of
its assets outside of the UK, a figure that currently stands at 16%. ‘I have a number of “what if” or “maybe” ideas,’ he says, adding that they are a mixture of UK and non UK businesses.
Train also revealed that he would like to increase Finsbury Growth & Income’s stake in Manchester United from 1.6% of NAV to 2-2.5% ‘before the stock trebles in value’.
EXPECTING BIG GAINS
The fund manager is confident that Manchester United’s share price could be three times higher in the near future. ‘Houston Rockets (basketball team) was sold last year for $2.25bn which is nine times sales. We bought into Manchester United when it was trading at three times sales.’
He says there will be ‘the mother of all battles’ between today’s global internet giants to ensure people are attracted to their devices, apps and services and not those of their rivals. He adds: ‘It will make the ITV/Sky battle in the 1990s look like a playground tiff.’
As part of that industry battle, Train believes the value of sports franchises will continue to rise as quality of content is extremely important in trying to attract and retain viewers.