Nick Train investment trust looks to address discount

Finsbury Growth & Income, the UK shares investment trust run by Nick Train, is seeking to increase its share buybacks in a bid to close its nearly -10% discount.

The trust has a policy in place to buy back shares when the discount is greater than -5%.

However, the trust has spent £175 million on share buybacks since its latest Annual General Meeting, held in late January 2024. This is around 70% of its annual allowance.

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In order to free up more capital for buybacks, the board is seeking shareholder approval at a general meeting due to be held on 23 August 2024 to renew its buyback allowance before the next AGM.

It said: “To avoid a situation arising whereby the existing authority is fully utilised prior to the company's next annual general meeting, resulting in the board being unable to implement the buy-back policy, the board believes that it is in the best interests of the company and its shareholders for the buy-back authority to be renewed prior to the next annual general meeting.”

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Despite the buybacks, the trust’s discount has not narrowed. Its 12-month average discount is -6.59%, but the shares now trade on a -9.47% discount.

Train invests in just 21 companies in this strategy. The largest position is RELX, at 13.1%, which has been a strong performer, but there are also many laggards in his top positions, including Burberry (shares have fallen 69% in five years), Unilever (down 8.5% in five years) and Schroders (down 24% in five years).

It follows a similar approach to the open-ended Lindsell Train UK Equity fund.

Train’s recent track record is underwhelming. Over the past three years, shares of Finsbury Growth & Income have dropped 1% compared with a 26% gain for the FTSE All Share. Over five years, the trust is flat compared with a 31% gain for its benchmark. Looking back 10 years, it is ahead, returning 103% compared with 78.5% for the index.  

Train has been proactive in addressing his underperformance, apologising on numerous occasions.

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But he is not deviating from his investment style. In a June update to investors, he said: “Our investment approach involves constructing concentrated portfolios built around companies where we have high conviction about the business quality.

“When we do make a mistake, or when areas of the market we are not invested in do well, the concentration of the portfolio can result in disappointing returns. However, concentration does indeed cut both ways and if we are right today about the business prospects for the majority of portfolio holdings and their undervaluation there could be material upside.”