One reason for top fund manager Nick Train’s outperformance over the years has been his insistence on running a very concentrated portfolio. At the time of writing, the LF Lindsell Train UK Equity fund has just 27 holdings. What’s more, only a small number of FTSE 100 stocks take up a large proportion of his money. Let’s take a closer look.
Luxury brand Burberry still takes up a little over 7% of Train’s fund despite having endured a pretty awful 2020. National lockdowns and travel bans forced it to temporarily close much of its store estate earlier in the year.
As infection levels rise again, trading will likely remain tough. Nevertheless, Train remains confident that quality will out. The growth of wealth in countries such as China (where premium Western brands remain coveted) shows no signs of slowing down. Moreover, Burberry has a very strong cash position which should allow it to recover strongly in time.
Like Train, I continue to think the £6bn-cap is worth snapping up on current weakness.
Approaching 10%, RELX is Train’s fourth-biggest holding. The company specialises in data analystics and also operates a leading global events business. Unsurprisingly, it’s the latter that’s causing investors concern.
As you might expect from someone who rarely sells (or buys!), Train doesn’t seem overly phased. This could be because the exhibitions business only accounts for a small proportion of RELX’s annual revenue and profits.
Shares have struggled to recover their mojo since March’s market crash. At 18 times forecast FY21 earnings, however, this could be a great time to load up on this quality FTSE 100 company.
Premium spirits giant Diageo takes up another near-10% of Train’s portfolio. The fact that he’s willing to retain such a big holding despite the ongoing threat of the coronavirus coupled with a big recession is a testament to how highly he rates the company.
We’ve seen a brief recovery in the share price recently but it would be foolhardy to suggest we’re through the worst. Expect another bout of volatility as more pubs and bars are required to close across the UK.
At least investors can enjoy the dividends in the meantime.
Another consumer goods favourite of Train’s is also one of the biggest UK-listed stocks: Unilever. In sharp contrast to companies already mentioned, the Marmite-maker’s share price has already recovered from March’s market sell-off. And then some.
Paying through the nose for any stock isn’t recommended. Then again, it’s hard to imagine this FTSE 100 giant suffering the same fate as other more discretionary stocks if the pandemic continues into 2021.
It won’t double in value soon, but Unilever remains a great defensive FTSE 100 pick, in my view.
London Stock Exchange
At 10% of his portfolio, London Stock Exchange is Train’s biggest holding. One reason for this is its superb performance over the last few years. Had one bought the stock five years ago, one would now be sitting on a gain of roughly 240%. Just owning LSE since mid-March would have grown one’s cash by almost 50%.
Shares in the £31bn-cap trade on a frothy 41 times FY20 earnings. Nevertheless, Train appears reluctant to sell. This could be because he believes there’s more volatility ahead for markets — something that should do no harm to LSE’s revenue.
LSE is due to release an update on trading over Q3 on October 23.