The fund manager with a reputation for rarely buying or selling has added a new stock to his flagship fund.
Nick Train has added credit referencing agency Experian (LSE:EXPN) to his £6.3 billion LF Lindsell Train UK Equity fund, the third new stock he has bought in a year. The fund is one of interactive investor’s Super 60 choices.
This sudden uptick in buying activity is out of character for Train, who tends to trade infrequently, but he says reflects the opportunities now available as other investors abandon the UK market.
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“This is the third new position we’ve initiated in the last 12 months – an unusually high rate of actionable new ideas for Lindsell Train. I genuinely believe this in part reflects the long period of disappointing absolute and relative returns delivered by the UK stock market,” said Train.
“It’s simply that more opportunities are being presented to us as other investors give up on the UK. I don’t exaggerate when I say ‘give up’. Have you seen the industry data showing monthly outflows from across all UK equity funds? They are substantial and sobering.”
‘We should’ve owned it years ago’
Setting the scene for the purchase of Experian, Train said that, a year ago, a number of his clients had expressed concern that the portfolio was too heavily weighted towards growth companies, and could be vulnerable if value stocks returned to form. However, given the Covid-19 crisis, by this summer Train was “worried that, far from holding too many ‘expensive growth companies’, in fact we didn’t have enough of them”.
He outlined two types of business he wants to own in the fund: one is UK companies that are luxury, premium or aspirational brands. This includes drinks maker Fevertree Drinks (LSE:FEVR), which was another new addition to the portfolio this year, and Burberry (LSE:BRBY), in which Train has maintained a position despite recent share price weakness. The second is UK companies with “credible and globally-competitive assets in technology, data and analytics”. These include RELX (LSE:REL), the London Stock Exchange (LSE:LSE), and Experian.
“We should’ve owned it years ago,” said Train, adding that his investment team colleague Madeline Wright has long championed the investment case for Experian. She said the rationale for owning it is to get exposure to “world-class technology companies, especially those which own rich, unique and valuable data”, pointing to its rich collection of consumer credit information. Meanwhile, the risk of price competition and new entrants to the credit referencing sector is low.
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A shifting business model
Experian is shifting its business model from simply selling data to selling data along with decision tools, which boosts the usefulness of underlying data and the “stickiness” of its customer relationships, Wright explained.
“Right now, 55% of sales come from what the company calls ‘Data’, i.e. large databases of credit history from which reports are generated. But the ‘Decisioning’ segment, i.e. advanced analytics and tools sitting on top of Experian’s datasets, is now 25% of revenues and, crucially, growing faster than Data. We believe Experian’s datasets will continue to be essential products, but the shift to decision tools is what will drive substantial growth over the next decade,” she added.
LF Lindsell Train UK Equity has returned 18.8% over the last three years compared to a UK All Companies sector average of -6.8%, according to FE Analytics.
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