Nick Train has reiterated his optimism for UK growth stocks, despite his fund posting a negative return in January.
In early January, Train said the opportunities for investment in the UK equity market were “hugely encouraging”, despite his UK equity fund's underperformance and the outflows seen from these assets in recent years.
The Lindsell Train UK Equity fund made a 5.9 per cent loss for the month to January 31, compared with the FTSE All Share Index’s 0.3 per cent loss.
Train, who co-manages the Lindsell Train UK Equity fund, said in a monthly report for the fund that the falls in share price seen by its holdings were a result of UK growth stocks falling in “sympathy” with the Nasdaq in January.
It almost seemed the better the trading news the companies delivered, the worse the share price hitNick TrainHowever, he said there was an important distinction to be drawn, in that UK growth stocks had not been caught up in the “speculative mania” seen in the US markets.
“We have been pointing out for months that there was a deep value gap between UK and US growth stocks,” he said, adding that this is in part explained the “lacklustre” performance of the UK stock market in previous years which has prompted asset allocators to divest from the UK.
“As a result, we hope our growth stocks will fall less, recover more quickly and go up correspondingly further, as global investors are inspired to find compelling growth stories in neglected markets,” Train said.
Falling share prices
In the January report, Train said the portfolio of the fund was more growth oriented than he thought, saying “it almost seemed the better the trading news the companies delivered, the worse the share price hit.”
The fund’s worst performers included Diageo, which suffered an 8 per cent share price fall despite net sales rising 20 per cent and earnings up 24 per cent.
Consumer credit reporting company Experian suffered a 15 per cent drop in share price despite a Q3 update showing organic revenues were up 11 per cent leading to a “modest” earnings upgrade.
Fevertree’s stock fell 21 per cent, despite a 12-month update showing group revenue growth of 23 per cent.
Growth stocks have been on a downward trajectory since the start of the year, after central banks began to raise rates in what the market is seeing as the start of consistent interest rate hikes to combat soaring inflation.
Since the start of January, the Nasdaq has fallen 12.9 per cent, the S&P 500 crashing 7.9 per cent and the Dow Jones dropping 5 per cent.
The FTSE 100, seen as more value-orientated due to its large number of financial services firms and mining companies, has gained 0.1 per cent since the start of the year.
sally.hickey@ft.com
