I don’t mind admitting that my Stocks and Shares ISA has fallen so far this year – and I’m not too hopeful about the next six months. However, investing is a long-term game, so today I’m looking for the best stock to buy to lay down the foundations for future growth.
What I’m looking for
The economic outlook seems pretty uncertain to me, so I’m keen to increase my exposure to good quality defensive businesses. My hope is that these will provide stable earnings and long-term growth, even in a recession.
Rather than focusing on a single company, I’ve been taking a look at an investment trust run by a manager who specialises in this type of business.
Finsbury Growth & Income Trust (LSE: FGT) has been run by star UK fund manager Nick Train since December 2000. Train has a well-deserved reputation for stock picking, with a focus on consumer stocks.
Finsbury Growth & Income Trust’s share price has fallen by 15% over the last year, lagging the FTSE All-Share index. But over the longer periods I’m interested in, Finsbury Growth & Income has beaten the market comfortably:
- Finsbury Growth & Income Trust 20-year gain: 510%
- FTSE All-Share index 20-year gain: 125%
Past performance is no guarantee of future returns. But I’m wondering whether this year’s dip could be a a good opportunity for me to add Finsbury Growth & Income to my portfolio.
What would I get for my cash?
Buying shares in an investment trust provides direct exposure to the trust’s investments. What kind of companies does Finsbury hold?
The trust’s mandate allows it to invest in up to 30 companies, but the top 10 holdings accounted for 83% of the trust’s value at the end of April. I don’t think I need to look much further than those to get a flavour of what to expect:
- Diageo
- RELX
- London Stock Exchange
- Mondelez International
- Unilever
- Schroders
- Burberry Group
- Sage Group
- Remy Cointreau
- Experian
In short, we’ve got some well-known consumer goods companies, with a focus on branded food and drink. Alongside this, there are some financial stocks, plus a mix of data and technology businesses.
I’d be happy to own shares in all of these companies – indeed, I already do own some of them.
Buy now at a discount?
Finsbury Growth & Income shares are currently trading at a discount of around 6% to the market value of its investments.
This discount is tempting as it would effectively allow me to buy the shares held by the trust for 6% less than their market value.
However, the discount also highlights my main worry about buying Finsbury Growth & Income today.
Top holdings such as Diageo and RELX still look quite expensive to me, with dividend yields of less than 2.5%. With interest rates rising, I’m concerned that investors might start demanding higher yields. That could mean further share price falls.
I may buy Finsbury Growth & Income Trust, but I’m not yet convinced that the shares are cheap enough to provide the returns I’m hoping for. For this reason, I’m going to stay on the side lines now, in the hope of a better buying opportunity later this year.