Nick Train has reiterated his support for growth companies, saying they are the best place for investors’ cash, in lieu of having enough insight into the duration of the war in Ukraine and the road ahead for interest rates.
In an update to investors on August 8 for the Lindsell Train UK Equity Fund, Train said: “[I] can’t think of anything better to do than to keep your portfolio fully invested in a collection of companies that earn high and defensible returns on capital and offer participation in a secular growth opportunity.”
Growth investing styles, of which Train is a believer, have struggled in the past few months as rising interest rates and the threat of recession have hampered potential future profits for young companies.
The Nasdaq, which is heavily weighted towards tech stocks and are seen as growth, fell 33 per cent in the year to June 16, though it has gained 23 per cent since then.
The Lindsell Train UK Equity Fund has also experienced a tricky few months, underperforming the FTSE All-Share total return index by 6.8 per cent in the year-to-date to July 31.
The Lindsell Train UK Equity Fund versus the FTSE All-Share index
Source: FE Fundinfo
The fund has also lost £1.5bn in the year to July, dropping from £6.5bn to £5bn in size.
It has, however, seen a recent uptick in performance, returning 8.6 per cent in July, compared with the FTSE index's 4.4 per cent.
This is a result of large gains for some of the portfolio, including Experian rising 19 per cent, Remy Cointreau gaining 17 per cent, and Schroders rising 11 per cent.
Train said the common denominator with all of these companies is that all of them have had weak share prices in 2022, but not because business performance has been disappointing.
“I think it’s true that all of the above have delivered in-line or better than expected results in 2022,” he said.
The worst performer in the portfolio in July was Fever-Tree, whose shares dropped 12 per cent in the period.
Last month analysts downgraded shares in the drinks company after it cut its Ebitda guidance by 40 per cent due to industry headwinds.
Train said he congratulated the company’s management after the announcement and said they did the “right thing for the business” by cutting its outlook. He has increased the fund’s investment in the group.
It would be wrong for the company to protect its profit margins by cutting marketing spend, increasing prices, or limiting supply to the USA, where transportation costs are high, he explained.
“During the course of our meeting we were given some general colour about the recent success of Fever-Tree’s business in the USA.
“And we hope more specific data, released with the results, will remind investors why sticking with the shares of a company that is on track to become the global leader in an emergent brand category makes sense.”