Finsbury Growth & Income Trust (FGT), a member of the IC Top 100 Funds, has reported a net asset value (NAV) total return increase of 21.1 per cent over its latest financial year (to the end of 30 September) driven above all by its holdings in Diageo, Unilever and Rathbone Brothers. This is well ahead of its 5.8 per cent increase in its previous financial year. This helped the NAV outpace its benchmark, the FTSE All-Share, which rose 17.3 per cent over that period.
This has also helped its share price total return do even better, with an increase of 23.6 per cent, which while great for existing investors does not help the trust's premium to NAV, currently 0.33 per cent, albeit narrower than its 12-month average of 0.7 per cent. The investment trust continues to issue shares, however, in an attempt to rein this in, and will hold a general meeting on 28 December to obtain shareholder consent to continue to so this, as it has almost issued as many as it was granted to at a shareholder meeting in May.
The trust has also declared two dividends worth 19.6p in total, an increase of 6.5 per cent on the trust's last financial year, which its board says is in line with its progressive dividend policy. However, the trust wants to further increase its dividend potential by amending its articles of association to allow it to pay dividends out of capital profit.
The trust's board believes that this change will provide greater flexibility for future dividends, although says that that this does not in any way indicate there will be a change in the trust's dividend policy. While Finsbury Growth & Income is classed as an income and growth investment trust, its yield is lower than many of its peers, currently only around 2.5 per cent - the sector average is around 4 per cent.
Investment trusts have been allowed to pay dividends out of capital since April this year, before which they could only pay them out of revenue reserves. But analysts are divided as to whether this is in shareholders' interests.
Advocates say reasons in favour of doing this include trust managers being less constrained because they will not have to rely so much on high-yielding securities to meet dividend payments, giving them a greater choice of where to invest.
But critics fear that having an income requirement could detract from total returns over the longer term, and a manager's investment style could be hindered if they have to sell stocks to realise capital gains to pay higher dividends, leading them to cut winners and run losers. They say there is also a risk that if the assets are shrunk by paying dividends the ongoing charges will rise.
But Simon Elliott, head of research for investment trusts at Winterflood, says: "The trust's chairman makes it clear in the report and accounts that (changing the articles) does not represent a change in the fund's dividend policy. The fund's dividend was covered by its revenue in its last financial year and the fund has a progressive dividend policy. I think Finsbury Growth & Income Trust is simply being prudent, in common with a number of investment trusts, in seeking powers to use only in the event of an unforeseen fall in the revenue account."
Since being run by the current manager, Nick Train, from 2000, the trust has performed very well, massively outpacing the FTSE All-Share and most of its peers in terms of total return over one, three and five years. Its dividend, meanwhile, has grown around 2.6 times over the last 10 years even without the use of capital. But Finsbury Growth & Income was hit as a result of the financial crisis when its holding in Lloyds preference shares resulted in the fund having to cut its dividend by 7 per cent in 2010. But the trust has since raised its dividend in both 2011 and 2012.
Source: Morningstar and *Finsbury Growth & Income Trust
Share price total return (%)
|1 year||3 years||5 years|
|Finsbury Growth & Income||24.28||81.94||66.24|
|FTSE All-Share TR GBP||16.7||26.82||14.71|
Source: Morningstar as at 14 December 2012
Top 10 holdings as at 30 November 2012
|Daily Mail & General Trust||4.0|
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