The fund manager speaks out over investors’ disdain for the UK stock market.
Nick Train, the fund manager of the £6.2 billion Lindsell Train UK Equity fund, one of interactive investor’s Super 60 funds, has said global investors’ disdain for the UK stock market has reached “ridiculous” levels.
In his most recent fund commentary, Train noted that fashion brand Burberry (LSE:BRBY), a 6.7% position in his fund, has seen its shares lose more than 30% of their value this year. This is despite the fact the company is currently running a joint venture with Chinese tech giant Tencent (SEHK:700). The venture will create an innovative customer experience in its Shenzhen store, allowing shoppers to interact with digital avatars as they browse. “Burberry says that retail and luxury innovation used to happen in the West, but now the East is where experimentation is done and where youth is most responsive to new digital marketing,” said Train.
Burberry suffers from UK aversion
However, Train then compared Burberry’s share price performance to that of rival fashion brand Prada, which Lindsell Train holds in its global fund. He noted that both companies have their “strategic issues to work through to become better businesses”, but there are similarities in the investment case.
Why then, has one sold off so much more than the other? “It is hard to analyse the difference in share price performance between the two as being anything else than a punitive discount being placed by global investors on a company that is listed in London, rather than Hong Kong,” said Train. “Apparently global investors have an aversion to the UK stock market, but this is, in some cases, getting ridiculous.”
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A tale of two acquisitions
Elsewhere in the portfolio, both Diageo (LSE:DGE) and RELX (LSE:REL) recently made acquisitions. Drinks-maker Diageo bought Aviation American Gin, a US craft gin brand part-owned and endorsed by actor Ryan Reynolds. RELX acquired SciBite, a Cambridge-based private company that makes software for the pharma industry, with clients including AstraZeneca (LSE:AZN), GlaxoSmithKline (LSE:GSK) and Novartis (NYSE:NVS). While “not a transformative deal” this is still a classic one that adds to the company’s capabilities in science and pharma research. Train said he was pleased to see that companies are robust enough to be doing deals in the current environment. “It is a reassuring sign that boards aren’t just in fire-fighting mode and that balance sheets and liquidity are in good enough shape to make investments for the future,” he added.
Investors lose the plot
In his note to investors, Train also warned that market participants are “in danger of losing the plot” while working from home, trying to look through volatility and misinformation, and not being able to spend as much time reflecting calmly on investment decisions with colleagues. “I wasn’t designed to work as a sole trader,” he said.
Lindsell Train UK Equity has returned 23% over three years and 64% over five years to rank it in the top quartile of the UK All Companies sector, according to FE Analytics.
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