Lindsell Train investor Nick Train has revealed that all of the stocks across his portfolios must fit into one of four themes.
The four themes are: “Luxury and premium products; beloved, mass-market consumer brands; data and software companies and providers of wealth management services in the UK.”
His view is that companies corresponding to these trends are likely to be able to grow structurally over the long-term, even if shorter term factors negatively impact returns.
On his fondness for luxury goods companies he said: “Undeniably there is a cyclical aspect to the purchasing of luxury goods, driven by consumer confidence and, on occasion, geopolitics. However, there is no doubt also a secular trend for consumers around the world to spend more time buying and enjoying luxury, premium and heritage-rich products.”
One of his holdings in this area is Burberry. He said the share price of this company recently hit an all time high.
Of the consumer goods theme, he said that when there is a lot of excitement around emerging technology, investors often disregard the merits of more prosaic consumer goods companies which generate high and reliable sales every year.
One of the holdings he has which corresponds to this theme is confectionary business Mondalez, the shares of which recently hit an all time high, as did those of Burberry and of Relx, which is a company he cited in relation to data and software.
Of the wealth management theme, Train has historically taken the view that because equities go up over the long term, and because wealth managers charge Ad Valorem fees, they can grow with markets.
He is a shareholder in Rathbones, the FTSE 250 wealth manager which recently announced a merger with Investec.
Train is positive about this merger, saying that it will create a “formidable entity”.
He acknowledged that having many portfolio investments which have recently hit all time high share prices might be viewed as a signal to sell but said: “Our reaction is exactly the opposite. We want to run our winners for as long as we can, taking advantage of their exceptional business qualities. If anything, we will look to add to Burberry, Mondelez and Relx – certainly on any weakness.”
Confectionary and luxury goods are also appealing themes for Richard Bullas, co-head of UK small and mid cap equities at Martin Currie, who said the UK confectionery market continued to grow every year, and was also a fan of the investment case for Burberry.
Bullas added: “ Burberry is one of the few independent luxury brands with scale and heritage left in the industry as consolidation by large European fashion houses continues – a long growth runway lies ahead - with an ambition to increase online revenue as well as increasing the mix of much higher margin categories such as leather goods.
"Although the Burberry brand remains enviable, the business is exposed to consumer cyclicality. However, we believe that the reopening of China will continue to generate tailwinds with some 40 per cent of revenue generated from Chinese consumers, and that growing employment in high-wage sectors will be supportive of the shares.”
