Lindsell Train sweet on Cadbury
The manager of the Lindsell Train investment trust has expressed vindication at its holding in Cadbury after bids for the company helped the trust beat its benchmark over the market rally.
Nick Train said durable brands like Cadbury remained undervalued by investors, "who seem to regard reliability as boring" and their steady growth as "little better than a symptom of corporate complacency".
However, he noted Cadbury had outperformed the FTSE All-Share over one, three, 10 and 20 years prior to Kraft's first bid for it during the six-month period under review to the end of September.
"In other words," he said, "Cadbury stock, despite widespread apathy, had delivered to investors that most rare and valuable commodity - long-term outperformance of a ruthlessly efficient stock market - and then attracted a merger proposal that immediately put 40 per cent on its price."
The trust's position in Cadbury is one of the most notable products of Mr Train's buy-and-hold investment approach. The manager aims to buy cheap stocks, ranging from Heineken to Burberry, and hold them for extended periods.
The trust noted in its report the market had typically bought out his holdings more often than he had sold them.
"The managers have a record of successfully identifying value in important franchises in advance of other corporate buyers," it said.
However, Mr Train's philosophy also led him to hold Lloyds Banking Group and predecessor stock during the financial crisis, as he stuck to his belief in the long-term profitability of consumer banking.
Overall, the Lindsell Train investment trust has an absolute return remit. The benchmark is the average annual yield on UK 2.5 per cent consolidated loan stock, which rose 2.3 per cent for the period against 18.7 per cent for the trust.
The trust holds positions in the Lindsell Train Global Media and Japan funds, as well as individual stocks and Lindsell Train itself. Cadbury was the biggest contributor to performance, although Mr Train highlighted Diageo and Heineken as other potential merger candidates over the next few years.
The trust also has fixed income positions, including a holding in UK government bonds. Although Mr Train said he considered them a "terrible" long-term investment, he believed they could perform well on a two-year view.
