Nick Train has warned investor nerves are going to be tested in the next few months as big technology stocks have become more volatile.
In a monthly note to investors in the Lindsell Train Investment Trust in October, the fund manager said he had noted PayPal’s stocks have fallen around 33 per cent since early July, and Nintendo's stocks fell 11 per cent in October, compared with Tesla’s stock price, which has risen 44 per cent in the same month.
This, Train said, showed there was “heightened speculative volatility amongst leading technology stocks” and “nerves are going to be tested” in the coming months for those who have heavy exposure to the sector but also those "who don't have enough".
He added that, in hindsight, the trust should have owned more of big tech companies.
Train said despite this rise in value for big tech firms, a number of the bull market mega cap stocks “will never earn enough cash to justify their current values", but that "it is of crucial importance to ensure you are invested in companies that are going to hang around".
He said the only way for the trust to meet its clients’ long-term return aspirations was to “identify and hang on” to shares of firms that “remain or emerge as digital winners”.
He added he also wants to ensure the trust owns companies whose products and brands remain premium, aspirational, luxury and relevant for consumers.
“Such companies remain the focus of our research efforts and, in our opinion, already constitute a high proportion of our clients’ portfolios,” he said.
The trust has a 6.95 per cent exposure to PayPal, a 6.42 per cent investment into beverage firm Diageo, and 5.53 per cent in Nintendo. It has a market cap of £283m, and is currently trading at a 19.58 per cent premium.
Train said the dip in PayPal's shares was affected by rumours the company might bid for Pinterest, the social media site. He said that although the firm denied any interest, it "aroused concerns" that the firm might need to add ancillary services to its app in order to stay relevant.
Meanwhile, the lifting of social restrictions and chip shortage led Nintendo's shares to track lower, however Train said the trust has "default optimism" in the firm, saying as the firm's shares are low, it has increased the likelihood of a share buy-back, which could lead to a rally in shares if the firm begins to increase production to meet demand.
Train outlined earlier this month how he finds it hard not to respond “emotionally” to short-term price moves, which his UK equities fund experienced in both directions in October.
sally.hickey@ft.com
