Warren Buffett’s ideal holding period is forever, but this is tricky to pull off successfully. Here, a selection of Super 60 fund managers name the shares they've held the longest that they still have plenty of conviction in.
No matter what the geographical focus or investment style, it seems most fund managers find themselves with a handful of stocks that keep on giving, year after year. Indeed, as a random sample of interactive investor Super 60 fund managers reveals, there’s a significant diversity of ‘old faithful’ equities to be uncovered.
Of course, there is always a discussion to be had about whether it makes more sense to run your winners or adopt a strictly disciplined approach to taking profits (as explained at the end of this feature).
But clearly these experienced managers believe certain companies have enough going for them in terms of management quality, competitive advantage, market growth and innovation to retain them, sometimes over decades.
The UK shares with long-term pedigree
The pros focused on the UK are currently in an interesting position, in that many companies have had to become leaner, fitter and more resilient in the face of Brexit, pandemic and now inflationary challenges.
For instance, government outsourcer Serco Group (LSE:SRP) has been in the portfolio of Fidelity Special Values (LSE:FSV) investment trust, on and off, for almost 10 years, according to manager Alex Wright. He likes the fact that it’s a non-cyclical, relatively defensive business with stable demand, “for which we are only paying 11x earnings”.
He explains: “Performance through the pandemic highlighted the resilience of the business model. More recently, it has been able to weather the more inflationary environment, given that it benefits from a degree of inflation protection in its contracts.”
Nick Train, manager of LF Lindsell Train UK Equity fund, is renowned for his exceptionally low-turnover approach to investment, and London Stock Exchange Group (LSE:LSEG) and Diageo (LSE:DGE) have been in the portfolio since its 2006 inception. They occupy two of the largest positions and “have been among the biggest contributors to returns over the period”, he says.
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As far as London Stock Exchange Group is concerned, Train points to the expansion in the number and use of financial instruments globally and their growing market value as “some of the clearest secular trends in the world”.
“Systemically important stock markets such as the London Stock Exchange have proven to be valuable proxies for those secular trends,” he argues. “Those proxies have made patient investors far better returns than investing in an index fund.”
Diageo’s brand strength, and its consequent ability to provide both inflation protection and steady growth, are the winning factors for both Train and City of London (LSE:CTY) manager Job Curtis.
Train highlights Diageo’s Guinness, Johnnie Walker and Tanqueray labels as “wonderful examples” of brand brilliance; “it seems quite plausible that Diageo’s inflation-adjusted earnings will be higher in 20 years’ time,” he observes.
Curtis has held the stock for 25 years. “Diageo has been a consistent dividend grower, with 4.1% compound annual dividend growth over the last five years, which is important for City of London,” he adds. “Given its leading operations in both developed and emerging markets, I believe it’s well placed to prosper going forward.”
It’s also possible to find long-established holdings among Super 60 smaller UK companies funds. Neil Hermon, who manages Henderson Smaller Companies (LSE:HSL) trust, takes a long-term approach as a matter of course. He notes: “Our best investments are those companies that operate successfully in a long-term structural growth market.”
One such is translation services business RWS Holdings (LSE:RWS), bought almost 20 years ago. Since then the share has produced total returns of over 2,000% on the back of organic expansion and acquisition, plus growth in demand driven by regulation, globalisation and complexity.
“Given the strength of RWS’s offering and customer base (it works with 88 of the top 100 global brands and 19 of the top 20 pharmaceutical companies worldwide), we expect it to continue to deliver good organic growth, supplementing that with acquisitions funded by strong cashflow,” comments Hermon.
Global shares the pros have held the longest
In the global arena, Scottish Mortgage (LSE:SMT) is another fund with a very long-term perspective. Investment specialist Stewart Heggie picks out ASML (EURONEXT:ASML), a manufacturer of the lithography equipment used to produce microchips, as a holding of 27 years’ standing.
Not only is demand for semiconductor chips growing with the rapid expansion of artificial intelligence, 5G technology and vehicle electrification, but ASML has consistently gained market share.
“It is heavily integrated into the processes, research and development plans of many of its biggest customers – Taiwan Semiconductor Manufacturing (NYSE:TSM), Intel Corp (NASDAQ:INTC) and Samsung (LSE:SMSN), to name a few,” adds Heggie.
Luxury group Kering (EURONEXT:KER), owner of brands such as Gucci, Saint Laurent and Balenciaga, has been in the Scottish Mortgage portfolio for almost 15 years. Heggie likes Kering’s creative innovation, but also the fact that it is taking the lead with a Fashion Pact striving for the elimination of single-use plastics, widespread adoption of renewable energy sources and the promotion of regenerative agriculture.
“This is a company that is forging a path in integrating sustainability into a notoriously harmful industry,” he comments.
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Since then, industry trends have worked in its favour, but it has also been very well managed. “Through a mixture of organic expansion and strategic acquisitions, supported by strong free cash flow generation and a healthy balance sheet,” the company has continued expand its product range and areas of operation, says Desson. Importantly, she adds, the company continues to innovate and “find new avenues of growth” as the world changes.
Emerging markets too have yielded longstanding success stories, as Austin Forey, manager of JPMorgan Emerging Markets (LSE:JMG) investment trust, explains. He has held Taiwan Semiconductor, the world's leading semiconductor manufacturer, since 1998 when it was at an early stage of development.
“It has been a consistent holding due to its ability to generate high levels of profit, strong cash flows and its excellent dividend policy,” Forey observes.
But as well being hugely profitable as global demand has boomed, the company has also “remained nimble to meet a growing focus on sustainability and the transition toward a low-carbon economy; for instance, it was one of the first companies in the emerging market universe to include the cost of carbon emissions in their financial analysis when building new foundries.”
Baillie Gifford Shin Nippon (LSE:BGS) takes a long view on Japanese smaller companies, and investment specialist Thomas Patchett picks out Nakanishi, first bought in 2003, as a prime example of one of the longest-standing.
The company manufactures dental equipment for a global customer base.
“Its incessant focus on incremental improvements and a strong technical reputation” gives it a significant competitive advantage over competitors in a quality- and safety-conscious market, says Patchett.
Looking ahead, demographic factors such as ageing populations, rising living standards in emerging markets and improving access to healthcare, bolstered by proximity to the Chinese market, “should allow it to continue to compound its cash flows over the long term”.
Should you run your winners or take profits?
When it comes to the question of how long to hold a stock, especially one that is enjoying rapid growth, there are basically two approaches. Fund managers may employ either.
One is to ‘run your winners’, holding on to outperforming stocks on the grounds that a company was chosen on the basis of rigorous criteria, nothing material has changed in the way it is being run, the macroeconomic climate is supportive and therefore it probably has further to go.
Nick Train, for instance, buys high-quality stocks when they’re attractively priced and then disregards short-term volatility in his holdings. He only sells them if he no longer considers them quality companies, or when their rise in value causes them to become too large a proportion of the portfolio.
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The other strategy is to set a target share price or percentage gain and pocket your profits at that point. Alex Wright at Fidelity buys recovery and ‘special situation’ stocks and sells either when that recovery is well under way and “the share price reflects future growth prospects”, or in the event that circumstances have changed and the share has become more risky.
Either way there are potential downsides. The risk of the first strategy is that the share price moves into ‘expensive’ territory and is sold off, wiping out gains. The risk of the second is that you sell too early and lose out on further meaty profits.
There is no ‘correct’ answer to the conundrum. However, it does help to look at a company and assess whether it still does what you need it to do. Is there any macroeconomic reason to be worried about its prospects? Is it becoming too popular and in danger of moving into bubble territory?
Regular rebalancing by taking some profits from the most successful holdings is one way to control the risk of holding stocks (or funds) too long.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
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