Following on from our coverage of Fundsmith Equity (B41YBW7) and the fact it has lagged its benchmark for three years running, another popular fund with retail investors, the Nick Train-run Finsbury Growth & Income (FGT), has also failed to outperform over the last three years.

As the manager says in his December factsheet: ‘This is disappointing to me and all my colleagues, because we work hard, we care and are invested in the strategy ourselves.’

In the year to 31 December, the trust generated a NAV (net asset value) return of 5.8% and a share price return of just 3.9% against a 7.9% gain for the FTSE All-Share index.

The main reason for this underperformance, as Train himself acknowledges, is not owning oil and mining shares and having too much exposure to consumer and financial stocks, which together make up nearly 80% of the portfolio.

Train also blames his individual stock selection: ‘In addition, I have invested in some companies where my confidence in their earnings power and undervaluation has been misplaced, at least to date. Amongst these, Hargreaves Lansdown (HL.) has been a big detractor from the returns, as have Burberry (BRBY) and, particularly in 2023, Diageo (DGE).’

Shares in Hargreaves Lansdown lost around 14% in 2023, while Burberry lost 30% of its value last year and has lost another 13% so far this year.

Shares in Diageo lost around 22% last year, and like Burberry are trading down again this year as evidence mounts that sales of upmarket spirits, like those of luxury goods, aren’t as immune to a downturn in consumer spending as had been argued.

To his credit, Train isn’t about to change his investment strategy just because the trust didn’t outperform and nor would we expect him to. As per the saying, when the going gets tough the tough get going.

‘I can assure investors that our approach remains unchanged and that the structure of the portfolio makes it very likely to continue to perform very differently from the benchmark. Of course, we hope for the better.’

There is one new addition to the trust, FTSE 100 housing market portal Rightmove (RMV), which enjoys ‘a formidable competitive position’ according to the manager.

Train also notes that CoStar (CSGP:NASDAQ), which is aiming to challenge Rightmove’s market dominance, trades on 67 times forward earnings against 22 times for the UK company, demonstrating how undervalued successful UK digital companies are by comparison with their US peers.

Disclaimer: The author (Ian Conway) owns shares in Fundsmith Equity.

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