Lindsell Train looks to PepsiCo for added fizz

Lindsell Train looks to PepsiCo for added fizz

The Lindsell Train Global Equity fund has added its first new holding in more than three years with the purchase of drinks and snacks company PepsiCo.

As with the rest of the Lindsell Train range, managers Michael Lindsell and Nick Train’s concentrated buy-and-hold approach has meant the £931.3m fund has seen very little turnover since its launch in 2011.

But in the fund’s latest update, the managers said they bought into PepsiCo in April using cash raised from selling out of grocery conglomerate Kraft and confectionery maker Hershey.

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Mr Train said PepsiCo was “a very ‘Lindsell Train’ kind of investment”, because of its strong brands, dominant market position and high recurring revenues.

PepsiCo, which was created by the merger of Pepsi-Cola and Frito-Lay 50 years ago, has grown to become the world’s biggest snacks business and the second-biggest soft drinks business.

Mr Train cited the group’s “significant overseas exposure”, with 35 per cent of revenues coming from emerging markets, and “massive scale advantages” as key selling points.

The manager said that Lindsell Train had bought into Pepsi­Co when it was trading on a price-to-earnings ratio of 20x, which was a premium to the S&P 500 index, because he thought the price was still around “50 per cent below our estimate of its full intrinsic worth”.

The stock is the latest consumer staples company to be added to the Lindsell Train Global Equity fund, which now has 45 per cent of its assets in that sector, with a further 23.4 per cent in consumer discretionary stocks.

While the managers are just as loath to sell a stock as buy a new one, Mr Train said he had sold out of Kraft following its strong rally after investment firm 3G Capital’s merger proposal, which saw Kraft’s share price rise nearly 50 per cent in the space of a week.

Mr Train said he had also closed the fund’s position in Hershey because it had a “share price that ran away from us shortly after we first bought it and where we never established a full holding”.

The focus on multinational consumer companies has served the managers well in recent years.

Since the fund’s launch, it has made nearly double the return of the average fund in the IA Global sector, increasing investors’ money by 90.2 per cent, compared with a sector average of 45.3 per cent, according to FE Analytics.