Image source: Getty Images
Investment funds are publicly traded public limited companies (PLCs). So in that sense, they’re just like any other stock that we can buy, like PA either AstraZeneca.
But unlike companies that own businesses outright, mutual funds make their living by buying shares in other companies or owning other financial assets. And I think they’re a decent way to achieve diversification in a portfolio.
Risks and positive potential
The mutual funds I like the most tend to focus on publicly traded stocks. Therefore, they can be a great way to capture some of the gains (or losses) of a particular investment strategy. And that’s because they’re run by an investment manager and his team.
But buying shares in a mutual fund means that we effectively outsource the responsibility of executing the strategy. And things sometimes go wrong. Or perhaps one trust simply underperforms other funds executing a similar strategy by a smaller but persistent margin.
Therefore, mutual funds carry risk as well as potential. But I do have a few of them in my portfolio along with my own stock picks. And one that I am optimistic about is Finsbury Growth and Income Trust (LSE: FGT). I have held it for some time. But the question for me now is, should I increase my investment?
The trust’s portfolio manager is Nick Train. And he manages it as a concentrated portfolio of about 30 stocks with the goal of targeting high-quality deals.
The objective is to capture multi-year returns from companies capable of capitalizing their profits over time. So look for businesses with strong brand names or powerful market franchises.
The strategy is similar to that of billionaire American investor Warren Buffett. And like Buffett, Train aims to buy stocks that are below his estimate of the company’s true value. Then you keep them for the long term, “regardless of short-term volatility“.
What’s under the hood?
We can get a clear idea of what we are getting for our money with Finsbury by looking at the top 10 holdings. Together, they represent around 83% of the money invested in the trust. They are Relax, Diageo, London Values Exchange, Unilever, Burberry, mondalez, Experian, Sage, schrodersY Remy Cointreau.
I would describe all of those companies as quality operators priced to match. In fact, FGT is not looking for cheap companies or high-value situations.
However, over the decade between 2009 and 2019, the trust’s share price increased by about 470%. And that suggests that the benefits of the strategy have paid off. However, the share price peaked at just over 950 pence in September 2019. And that’s not too far from the current price of around 858 pence. Meanwhile, the value of the trust’s book price is close to one, suggesting a price that rises with events.
And over the past year, the stock has fallen just under 2%. But I think the underlying businesses have a good chance of doing well over the next 10 years. Although, nothing is certain and could easily be wrong. Or maybe good business performance doesn’t translate into decent stock earnings.
However, I am bullish and would increase my position in FGT now if I had some extra money to invest.
