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Why Nick Train is the UK’s answer to Warren Buffett

Important - The value of investments can fall as well as rise, so you could get back less than you invest, especially over the short term. The information shown is not personal advice, if you are unsure of the suitability of an investment for your circumstances please contact us for personal advice. Once held in a SIPP money is not usually accessible until age 55 (rising to 57 in 2028).


Kate Marshall

Investment Analyst

A world-class investment approach

"Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with managers of the highest integrity and ability. Then you own those shares forever"

Warren Buffett

The beauty of Warren Buffett’s investment mantra lies in its simplicity.

The idea is to invest in superb companies which are not fully understood by other investors, and can therefore be purchased at an attractive share price. Over time these world-class businesses adapt to change and stave off competition, and offer potential to create long-term value for shareholders.

In reality, few investors successfully adhere to Warren Buffett’s words of wisdom. Holding on to a company’s shares forever is not as easy as it sounds. Even the strongest companies encounter short-term setbacks. Investors often give up at exactly the wrong time and struggle to maintain focus on the longer-term prospects.

Leave it to the experts

Fund manager Nick Train is a master in this field and has stuck rigidly to the same philosophy throughout his investment career, which spans more than three decades. His long-held belief is that investors get overexcited by shorter-term performance and too easily ignore companies with sustainable long-term returns.

The manager therefore seeks great companies that he believes can endure for decades, if not centuries, supported by steadily rising earnings and dividends. He simply invests in companies with strong brands and unique market positions, and holds them for the long term. This approach might sound unexciting, but in a world of uncertainty the unglamorous can provide great opportunity.

It also means his portfolio turnover (a measure of how frequently shares are bought and sold) is very low. We view this positively, partly as it reduces the impact on transaction costs, but in this case it proves patience really is a virtue – those investing with Nick Train over the long-term have reaped the rewards. Past performance is not a guide to the future.

While there are thousands of companies across the globe, Nick Train considers few to be truly exceptional.

His high-conviction approach results in a concentrated portfolio of only his best ideas – the Lindsell Train Global Equity Fund has just 27 holdings and the CF Lindsell Train UK Equity Fund has just 25. This is an approach we favour, as it means each holding can make a meaningful difference to the returns investors receive. However, it also increases the impact of a poorly performing investment, so the approach is also higher risk.

How has Nick Train’s investment approach fared?

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Where does Nick Train find great companies?

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Kate Marshall

Investment Analyst

Where does Nick Train find great companies?

Watch: Nick Train reveals the rationale behind his only share purchase of the past two years

Consumer goods

Nick Train favours companies with exceptional brands. Unilever is a fine example. Every day 160 million Unilever products are sold across 170 countries, and 2 billion people use one of its products, which include PG Tips, Dove and Persil. The durability of the business means it has paid a dividend since 1937, which has increased every year since 1995.

The manager expects long-term demand for consumer brands to remain supported by a rising global population. These companies should also benefit from economic growth in emerging markets, where both populations and incomes are growing rapidly.

He does not currently invest directly in companies located in emerging markets, although many of them derive a significant portion of their earnings from these countries. Companies that operate on a global scale are also not solely reliant on the fortunes of their domestic economies and could prosper even when times get tough in one single market.

Internet, media & software

History teaches us that technology and human ingenuity are what create wealth and improve living standards. The stock market is where new ideas are tested and the successful ones are rewarded by rising share prices.

The manager aims to capitalise on the growing use of technology worldwide by investing in companies that own or create media content or software used on digital devices, such as smartphones and tablets. Publishing companies RELX and Pearson, for example, are transitioning from print to satisfy the growing appetite for online services. Interestingly the manager also favours sports franchises, which provide a platform for media content, such as Juventus Football Club and World Wrestling Entertainment.

Financials

Nick Train invests in companies he expects will benefit from rising share prices over the long term, including London Stock Exchange and Japan Exchange Group.

In his view the prospects for global stock markets are as promising as they were when the London Stock Exchange was founded 200 years ago. While there will be blips along the way, his faith in the longevity of the most successful companies means he expects global stock markets to rise over prolonged periods.

Our verdict

Nick Train is a manager with plenty of common sense. In today’s fast-moving investment world, it is refreshing to see the manager keep things simple. His primary aim is to shelter and grow investors’ capital over the long term. As a result, he and his investment team invest clients’ money as they would their own.

We feel an investment in one of Nick Train’s funds should serve investors extremely well over the long term, with some of the world’s most-respected brands in your corner creating and growing long-term shareholder value. The manager has built an outstanding long-term track record and we continue to view him as one of the most talented investors in the industry. As with all investments there will be volatility along the way.

Both the Lindsell Train Global Equity and CF Lindsell Train UK Equity funds feature on the Wealth 150+ list of our favourite funds and we have negotiated exceptionally-low ongoing fund charges for Hargreaves Lansdown clients – 0.55% p.a. for the former and 0.52% p.a. for the latter. The charge to hold funds in our Vantage accounts is a maximum of 0.45% p.a.

How has Nick Train’s investment approach fared?

The opportunity – Nick Train’s global and UK funds

See our investment ideas

Heather Ferguson

Fund Analyst

The opportunity – Nick Train’s global and UK funds

Fund investors have two choices for exposure to Nick Train’s simple yet successful investment approach.

Alongside co-manager Michael Lindsell he applies his trademark philosophy to stocks from across the globe in the Lindsell Train Global Equity Fund, while as the name suggests his CF Lindsell Train UK Equity Fund could appeal to investors seeking a fund with a predominantly UK focus.

Both have performed exceptionally well since launch, though as ever please remember past performance is not a guide to future returns.

The inevitables

HL analyst George Salmon’s verdict on three Nick Train favourites


Investment idea

Lindsell Train Global Equity Fund

Our choice for investing in the world's biggest brands

  • Managed by Nick Train and Michael Lindsell, gifted managers we have admired throughout their careers
  • A concentrated portfolio of their best ideas, focused on market-leading brands from across the globe
  • Adopts a buy and hold strategy, low portfolio turnover keeps costs down

This fund provides exposure to Nick Train and co-manager Michael Lindsell’s best ideas from across the globe.

Our analysis suggests the managers have an excellent record of picking strongly performing stocks, regardless of their location. Their high-conviction approach means the portfolio usually comprises around 30 holdings, including the ability to invest in higher risk smaller companies. This is an approach we like, as it means each company can make a real difference to the fund’s performance – though it also increases risk. They hold stocks for the long term, trading infrequently to minimise costs.

It currently has a bias to developed markets, including the UK and US. Around one third of the fund is invested in Japan, which differentiates it from many of its peers. The country is often overlooked by investors, but is home to a number of world-class companies that have boosted the fund’s performance in recent years.

The results have been outstanding. Since launch in 2011, the fund has rewarded investors with growth of 188.4%, compared with 111.9%* for the FTSE World Index. Please remember that past performance is not a guide to future returns. Like all stock market investments it will fall as well as rise in value, so you could get back less than you invest.

Please note as this is an offshore fund you are not normally entitled to compensation through the UK Financial Services Compensation Scheme.

Lindsell Train Global Equity Fund - performance since launch

Jupiter India performance chart

Past performance is not a guide to future returns

Source: *Lipper IM, to 30/06/17

Annual % growth June 12-13 June 13-14 June 14-15 June 15-16 June 16-17
Lindsell Train Global Equity 27.6 8.4 23.9 18.0 27.1
FTSE World 22.1 10.0 9.9 14.6 22.9

Fund information

Investment goal: Growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.75% p.a.
Ongoing saving from HL: 0.20% p.a.
Net ongoing charge: 0.55% p.a.
Vantage Service Charge: 0.45% p.a.

View Key Investor Information Document

View our charges

Invest in Lindsell Train Global Equity

Invest now


Investment idea

CF Lindsell Train UK Equity Fund

Our choice for investing in the UK's biggest brands

  • Managed by Nick Train, one of the finest fund managers of his generation
  • A concentrated portfolio focused on the UK market, with some overseas exposure
  • Adopts a buy and hold strategy, low portfolio turnover keeps costs down

Nick Train uses his trademark investment approach to focus on UK companies for this fund, although he has the flexibility to invest up to 20% overseas. He believes there is a collection of UK companies with wonderful brands, franchises and unique market positions, which can create significant value for shareholders over the long term.

The fund has significant exposure to consumer businesses such as Unilever, Diageo and Burberry. Conversely Nick Train rarely finds the characteristics he seeks in the oil, banking, and telecoms sectors. This sector positioning has aided returns in recent years, though over the longer term our research shows the manager has added value irrespective of which sector his stocks are in.

As with the global fund, the results have been exceptional. Since launch in 2006, the fund has delivered growth of 263.5%, compared with 97.6%* for the FTSE All Share Index. Please remember that past performance is not a guide to future returns. In common with the global fund it is a concentrated portfolio of best ideas, which is a higher risk approach. It can also invest in higher risk smaller companies should the manager see opportunity in this area of the market. The fund will fall as well as rise in value, so you could get back less than you invest.

We feel the fund offers something different from traditional UK larger company funds, given the manager’s unique investment process. We view the fund as an exceptional choice for investors seeking long-term exposure to the UK stock market.

Please note the CF Lindsell Train UK Equity Fund has a holding in Hargreaves Lansdown PLC.

CF Lindsell Train UK Equity Fund - performance since launch

CF Lindsell Train UK Equity Fund - performance since launch

Past performance is not a guide to future returns

Source: *Lipper IM, to 30/06/17

Annual % growth June 12-13 June 13-14 June 14-15 June 15-16 June 16-17
CF Lindsell Train UK Equity 32.2 15.7 14.1 6.6 21.1
FTSE All-Share 17.9 13.1 2.6 2.2 18.1

Fund information

Investment goal: Growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.72% p.a.
Ongoing saving from HL: 0.20% p.a.
Net ongoing charge: 0.52% p.a.
Vantage Service Charge: 0.45% p.a.

View Key Investor Information Document

View our charges

Invest in CF Lindsell Train UK Equity

Invest now

George Salmon

Equity Analyst

The inevitables

Since Heineken founded its brewery in 1873, the thirst for a pint is undiminished, and unlikely to change. Likewise with over a quarter of the global population using its products every day, Unilever’s position as one of the world’s foremost consumer goods companies seems unassailable.

Warren Buffett was talking about Coca Cola and Gillette when he famously labelled this type of company ‘inevitables’. They are firms almost impervious to change despite the complexities of the economy - and capable of growing their profits for years to come.

Inevitables do something today similar to ten years ago - only better. They have great brands and unparalleled distribution that help cement their strength, an economic ‘moat’ around the business that ensures durability and success.

It is not just a phenomenon confined to 'old' economy stocks either. New technology is creating new inevitables such as Paypal, the leading online payment provider.

Finding and owning inevitables is the philosophy at the heart of Nick Train and Michael Lindsell’s approach.

Keeping it simple

Sometimes, investing can appear to be a complicated business. Options, derivatives and fancy algorithms can all have their place, but these strategies can add unwanted complexity and costs to what should be a simple and transparent process.

Nick Train and his co-manager Michael Lindsell have a reassuringly straightforward strategy. They simply aim to identify outstanding businesses, and then become long-term shareholders.

The managers typically look for businesses that are ‘secular, not cyclical’. This means avoiding those susceptible to cycles of boom and bust, instead seeking to identify companies with sustainable long-term advantages, regardless of economic conditions.

Here, I take a closer look at three of the holdings in the Lindsell Train Global Equity Fund, and explore how these companies fit in to the Lindsell Train philosophy. Please note all yields quoted are variable and not a reliable indicator of future income. The value of investments can fall as well as rise, so investors could get back less than they invest.

Unilever

Unilever’s portfolio of brands includes Hellmann’s, Persil, Ben & Jerrys and Dove. A successful marketing operation means these brands have become increasingly ingrained in everyday life for consumers all over the world.

The group was recently the subject of a £115bn bid from Kraft Heinz, which was backed by Warren Buffett and private equity group 3G. Unilever managed to fend off their advances, and the bid was withdrawn. Nonetheless, Nick Train feels there are still plenty of lessons to be learned.

He recently told us that he sees Buffett’s interest in Unilever as an indication of his desire for increased exposure to emerging markets. While Kraft has a limited presence in these areas, Unilever brings in over half of its revenue from developing economies.

Unilever – returns over twenty years

Unilever shares past performance

Past performance is not a guide to future returns

Source: Lipper IM, to 30/06/17

Instability in Brazil might mean the important Latin American market is a difficult one at present, but we’re confident economic progress will prevail over time. An increasingly wealthy population should prove a long-term tailwind, although as we are currently seeing, conditions in emerging markets can be volatile.

After a recent strategy review, the group is targeting higher margins and a bigger dividend, although there is of course no guarantee that this can be delivered. At present, the prospective yield is 2.9%.

As the chart shows, over the long-term the company has delivered exceptionally attractive returns for shareholders – especially if dividends were reinvested. However, there are of course no guarantees this will continue.

View our Unilever factsheet

Heineken

Heineken

Another consumer facing company with a strong portfolio of brands is Dutch-listed Heineken. There are no prizes for guessing what the flagship name in the stable is, but the portfolio includes some other stellar names too. Sol, Moretti and Amstel are all part of the group’s €20bn+ of annual sales.

While Heineken clearly has significant clout, it isn’t the biggest fish in the pond. With 4 of the top 5 global beer brands, including Budweiser and Bud Light, the group’s Belgian rival AB Inbev can claim that mantle. However, size isn’t everything.

Heineken’s strategy focuses on establishing and maintaining a premium image for its products. Pitching its beers at the top end appeals to a more aspirational customer, and stronger pricing and an improving product mix has helped profit margins rise consistently.

February’s results saw adjusted operating margins hit 17% this year. Since 1990, Heineken has added an average of close to 0.3 percentage points to margins every year, and it’s aiming to expand these by a further 0.4 percentage points annually in the foreseeable future, although there is no guarantee this will be achieved.

The prospective yield is just 1.7% at present, but analysts expect the payout to rise steadily in the coming years.

View our Heineken Holdings factsheet

Paypal

Paypal

The third biggest holding in the Lindsell Train Global Equity Fund is another alcoholic drinks company, spirits giant Diageo. However, in the spirit of moderation, the final company I take a look at here is Paypal, which appears a bit further down the list. While the stock sits in the tech sector rather than consumer goods, it is another that fits firmly into the ‘secular, not cyclical’ category.

You may know it best as the eBay payments system, but Paypal was spun off as an independent listing in 2015. The relationship following the split is governed by incentives for eBay to push business through Paypal for the first five years, so eBay’s marketplace still accounts for around 22% of revenues.

That’s significant, but other areas of the business are growing rapidly so the importance of eBay to the group is declining. In its current incarnation, Paypal can best be thought of as a play on increasingly wealthy consumers buying more, either online or via mobiles.

Revenue is primarily earned through fees for providing transaction processing and other payment-related services. 1.7bn transactions were processed in the most recent quarter, helping the group report $3bn of revenues in the three months to 31 March 2017. However, with Visa racking up over 80bn transactions last year, this hardly represents a big slice of the pie. There should be plenty of room for further growth. At present, Paypal is focusing on growing its business, and so does not pay a dividend.

View our Paypal Holdings factsheet

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.

Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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