|FGT v FTSE All Share - 1 year|
At around 2.1%, its yield is one of the lowest in the sector but its aim is capital and income, with a total return in excess of the FTSE All-Share. However, the trust's portfolio is constructed without reference to a stock market index.
Long standing manager Nick Train’s approach is based on that of Warren Buffett’s and involves building a concentrated portfolio of “quality” companies that have strong brands and/or powerful market franchises.
The characteristics that define a quality company for Train are:
- durability – companies that can prosper through business cycles for many years to come;
- high return on equity – companies with the ability to grow earnings year-in, year-out are favoured over those with rapid short term growth, but uncertain long term prospects; and
- low capital intensity/high free cash flow generation – companies that do not have to make heavy balance sheet investment to generate earnings growth.
He holds shares for the long term regardless of short-term volatility, aiming for them to double or more in value over time. This results in extremely low portfolio turnover, which saves on transaction costs - sale costs over the past 6 months was precisely £nil.
Top five portfolio holdings are: Unilever 8.8%, Diageo 7.7%, Pearson 7.2%, Reed Elsevier 7.7% and Heineken 6.6%.
The trust has today announced results for the half year to end March 2015 (link via Investegate). Share price total return is 17.4% compared to 5.3% return for the FTSE All Share.
Commenting on the results, manager Nick Train is ‘exceptionally bullish’ and said :
"The price of energy has recently declined almost 60%, with the decline driven
by a major, beneficial supply shock - US horizontal fracking…What this means for the rest of us is that, all around the world corporations can look forward to even lower energy costs and consumers to having higher disposable income in their pockets".
"It is hard to conceive of companies more advantaged by this energy price drop than the major global consumer branded goods owners. Their costs are declining, while their billions of customers are feeling better off…
Falling inflation - one result of plummeting energy costs - and straitened government balance sheets mean one thing - a continuation of extraordinarily lax monetary policies worldwide. Fiat money will find its way quickly into financial assets, particularly those that offer any certainty of real, inflation-protected returns over time. Blue chip equities are an obvious beneficiary".
I have been leaning more towards passive index funds in recent months, however Nick Train is possibly one of a handful of managers worth paying the extra to look after a portion of your investments! I am obviously very happy to continue holding for the long term.