Nick Train has been adding to his stake in tonic maker Fever-Tree (FEVR) during a torrid month for consumer stocks, which were pummelled by a Chinese clampdown on ‘conspicuous consumption’ and rising costs from supply chain disruption.
The £6.5bn Lindsell Train UK Equity fund manager’s long-term holdings in fashion house Burberry (BBRY) and drinks manufacturer Remy were both down around 10% in August, with Heineken falling 5% and Unilever 2%.
Fever-Tree, one of Train’s most recent investments, which he first bought last February for the fund and his Finsbury Growth & Income Trust (FGT ), slumped 7.5% last month. It shares are now down 12% since the turn of the year, which he said was a buying opportunity.
Train argues premium and luxury goods stocks remain good proxies for global growth and also offer inflation protection as their brands have pricing power. He believes the latter will be particularly important as inflation continues to rise, driven in part by a jump in logistics and commodity costs.
‘All our consumer stocks fell in August, most of them highlighting increased costs. This spike could be the result of temporary Covid disruption or perhaps the monetary experiment of the last decade is at last feeding through into inflation. We don’t know,’ Train said.
‘Longer-term, whatever the outcome on inflation, we are sure it is critical for our investments in companies that produce “real stuff”, as opposed to digital services, to be producing products customers actually aspire to consume or really can’t do without. We want more luxury, more premium and more pricing power in the portfolio.’
He said this is his rationale for continuing to build the fund’s holding in Fever-Tree as part of his long-term bet on the drinks sector, adding it is also why Diageo (DGE) is ‘so important for the fund’. The drinks giant owns Johnnie Walker, Tanqueray and Guinness among its portfolio, with Train saying its higher-end brands are accounting for a growing proportion of the company’s growth.
Train (pictured above) noted that although Unilever (ULVR) shares fell during August, its listed Indian subsidiary, Hindustan Unilever, which it owns 62% of, was up 17%. That stake is now worth £40bn, a large slice of Unilever’s £100bn market capitalisation.
Although the fund’s consumer holdings took its toll on performance in August, the portfolio ended the month flat, lagging the FTSE Allshare’s 2.7% gain. The fund is now up 14.5% over one year, well behind the index’s 26.9% rise, although it well ahead over all longer timeframes. Since launch in 2006, it has returned 410.5% versus 136.3%.
The fund’s giant financial services holdings were a mixed bag in what was a volatile month for equities punctuated by big winners and losers.
London Stock Exchange (LSEG), the third biggest position in the portfolio at 9.1%, continued its recovery, rallying 6.5% after its interim results were well received. But the index and data company remains 11.8% down in 2021 after warning on the costs of integrating its Refinitiv acquisition in March.
‘Reading and listening to LSE’s senior management discussing the quality and growth potential of the combined data assets is inspiring. We continue to hope LSE and [the fund’s holdings in] Relx (REL) and Experian (EXPN) will grow as businesses and their shares attain US-type valuations. There is plenty of upside in that case,’ he said.
Train added that he was ‘certainly impressed’ by Hargreaves Lansdown’s results, even if the market took fright at a slowdown in trading volumes. The shares fell 10% on the day, although these losses were pared over the month.
‘Hargreaves Lansdown (HL) fell in 7.5% in August despite reporting final results that certainly impressed us. The dividend increased 8% (after stripping out last year’s one-off special) and HL’s surplus capital is up to £190m, from £140m last year – a big cushion,’ he said.
‘In the same sector, there were good gains from the two other wealth managers in the portfolio. Rathbones (RAT) and Schroders (SDR) are at highs for the year, with Schroders recently hitting an all-time high.’
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