One sector has wrong-footed this star fund manager, in contrast others have flourished during the pandemic.
The fund manager said it was an “unpleasant” surprise that none of the beverage companies in Lindsell Train Investment Trust (LSE:LTI) had been able to grow or protect short-term value.
He wrote in the trust's half-year results, published today: “In previous recessions or financial shocks drinks companies have earned a reputation for being “defensive” and I had incorrectly expected the same this time round.
“Of course, what I missed was the malign impact of an enforced channel shift in booze, or a shift in where it is actually purchased or consumed. Beer is predominantly consumed in pubs and clubs and their shuttering has hurt Heineken and Diageo’s Guinness.”
The biggest faller in the portfolio in the six months to 30 September was champagne house Laurent-Perrier (EURONEXT:LPE), which declined 5%. Heineken dropped 4% and there were also falls for Irn-Bru maker AG Barr (LSE:BAG), coursework supplier Pearson (LSE:PSON) and analytics and exhibitions firm RELX (LSE:REL).
These declines were more than offset by investments in PayPal (NASDAQ:PYPL), which more than doubled in value, as well as by double-digit gains for Finsbury Growth & Income (LSE:FGT), London Stock Exchange (LSE:LSE), Mondelez (NASDAQ:MDLZ), Nintendo and Unilever (LSE:ULVR).
Diageo was up, but only by 2.5% as the boost from Americans experimenting with at-home cocktail mixing was offset by the hit to big sellers such as Johnnie Walker.
Across the period, the trust's net asset value total return of 21% came in slightly behind the MSCI World Index at 23.6% in sterling terms. The share price rose by 13% to 1,155p at the end of September, a further contraction on the “heady” premium seen in the middle of last year although it has since rallied back to 1,325p.
Train added today: “A common denominator in our share price fallers is their reliance on face-to-face human sociability. Its absence or at least marked reduction has hurt them all.
“Will business people return to Relx's exhibitions to cement deals? Will rugby crowds ever return to Lansdowne Road – with all the implications that has for sales of Guinness? I want to answer – yes.”
Despite his optimism that tourism, live sport, festivals, and pubs will come roaring back, Train admits it remains unclear about when this might be.
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In contrast to the beverages sector, the company's investments in PayPal and Nintendo flourished thanks to the pandemic accelerating trends in their businesses. It also came as no surprise to Train that the chocolates and biscuits of Mondelez and the cleaning and hygiene products of Unilever allowed both companies to show progress in 2020.
Unilever's e-commerce sales were up 76% in the most recent quarter and now represent 10% of the group total, which Train said demonstrates that a channel shift is not necessarily damaging to the owners of trusted or beloved brands.
He added: “Without any doubt Cadbury, Oreos, Dove, Domestos and Knorr have shown their continuing relevance through this extraordinary year.”
About 47.3% of the trust's net asset value is in the Lindsell Train fund, where the valuation rose by 24.5% from a low point at the end of March.
Train said the challenge for equity investors through the remainder of 2020 and beyond would be getting the exposure right on the bull market stocks of the pandemic. About two-thirds of the trust is in companies that either are already, or have the potential to become, digital winners. The rest is in the owners of “beloved and trusted” consumer brands.
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