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Here’s how ‘Britain’s Warren Buffett’ is handling global uncertainty

The tragic effects of the coronavirus have rattled financial markets at times over the last month or so. Described as a ‘grey swan’ by analysts at Fidelity, apart from the dreadful human cost, the virus is seen as a threat that could have a significant impact on companies’ growth prospects this year and potentially even derail global economic growth if it continues to spread.

However, while many investors have panicked as a result of the uncertainty associated with the terrible virus, some of the world’s top portfolio managers have been going against the herd and taking advantage of share price weakness to add to portfolio holdings.

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This is a reaction such portfolio managers often have in the face of the regular uncertainty that the world faces for one reason or another.

With that in mind, here’s a look at how UK portfolio manager Nick Train – who is often referred to as ‘Britain’s Warren Buffett’ given his superb long-term performance track record – has been handling coronavirus-related uncertainty.

Buying opportunities

According to the most recent factsheet for the Lindsell Train UK Equity fund, Train added to a number of companies exposed to Asia in January, including alcoholic beverages champion Diageo (down 6% in January) and luxury fashion brand Burberry (down 11% in January). Both were sold off by investors as a result of uncertainty related to the coronavirus. “We took advantage of the panic to add to each,” he said.

His rationale for buying? “We did so not because we have any insight into the severity and duration of the epidemic. Instead, because we have been rewarded more often than not during previous unsettling episodes by treating them as buying opportunities. We hope we are right again on this occasion and that the distress and suffering the virus has already caused will soon dissipate,” he wrote to investors in his funds.

Clearly, Train believes the recent share price weakness has provided attractive entry points for long-term investmors. And to borrow a line from Buffett, he’s being “greedy while others are fearful.”

Short-term challenges

It’s important to realise that while companies with exposure to Asia, such as Diageo and Burberry, may have attractive long-term growth stories, it may not be plain sailing in the short term due to the effects of the virus. 

In Diageo’s case, it’s worth noting that rival Pernod Ricard – the world’s second-largest spirits group behind Diageo – recently cut its full-year profit growth outlook for 2019-2020 stating that the coronavirus epidemic is likely to have a “severe impact” on its third-quarter performance.

Meanwhile, fellow rival Remy Cointreau recently said: “The potential impact of the coronavirus, if any, will be significant for our business because we are exposed to China. We do not have a quantified scenario but clearly we are concerned as China is a major growth engine.”

And in a recent research report on the effects of the virus in China, analysts at Moody’s wrote: “Because of travel restrictions and quarantine measures to contain the infection, we expect alcohol consumption to slump and this will hit quarterly earnings.”

I’m bullish on the long-term investment case for Diageo due to its exposure to emerging markets and I see the current valuation as attractive. However, given the uncertainty associated with the coronavirus, we can’t rule out further share price volatility in the near term. 

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Edward Sheldon owns shares in Diageo and has a position in the Lindsell Train UK Equity fund. The Motley Fool UK has recommended Burberry and Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.