Since the start of September both emerging and developed market indices have sold off, particularly in the UK and Europe where the FTSE All Share and the MSCI Europe ex UK are both down around 10 per cent. The MSCI World has fallen 6.94 per cent.
Performance of indices since 4 Sep 2014
Source: FE Analytics
Concern has abounded about slowing global growth and high valuations after several years of rapidly rising markets.
Investors are also worried about heightened tension in the Middle East, the spread of Ebola in West Africa and the spectre of a gas shortage over the winter months stemming from the Ukraine/Russia standoff.While markets took a breather and recovered some of their losses at the end of last week, investors and fund managers are questioning if the sell-off is a temporary wobble and hence a good buying opportunity or the start of a wider period of weakness.
Train, who manages the £1bn CF Lindsell Train UK Equity fund and the £500m Finsbury Growth & Income investment trust, says despite the recent stumbles there are plenty of reasons to expect markets to pick up.
“The month is living up to its traditional billing as being a tough one for equity markets. This is disagreeable but absolutely no reason to lose the faith. Such setbacks are part and parcel of the experience of investing in equities and far and away the most likely outcome is that markets will settle down and will resume their upward path,” he said.
Train says there are several reasons to be optimistic about equities that many investors are ignoring.
He says despite the recent falls companies and the wider economy still look to be in decent shape and there is no wholesale spectre of firms cutting dividends.
“Amidst all the wailing and gnashing of teeth in media and the newspapers it is so important to remember that many, many UK companies – perhaps even most UK companies – continue to make steady business progress in the very valuable form of rising dividends.”
He adds that recent failed merger and acquisitions activity suggests large defensive companies are retaining their market share due to brand dominance and pricing power.
“Last month saw the bid approach from SABMiller for Heineken with the latter’s share price up 9 per cent as a result.”
“However, there was no chance the Heineken family were going to sell to SAB Miller and we are not expecting it to change hands soon but nonetheless it was a significant event in our opinion for two reasons.”
“As you can imagine it has been beneficial for Heineken’s share price, which is up 9 per cent, but what is even more significant is that it highlights how rare global consumer brands are. The fact is that there are probably only three global beer brands on this planet – Budweiser, Guinness and Heineken.”
Train has stuffed his funds with global consumer brands such as Heineken, Guinness and Johnnie Walker, through Diageo, and Cadburys via Mondelez and says there are some of the most valued assets of multinational mega caps.
“It is a big comfort to us during tough markets that the portfolio has such wide representation in these sorts of global stocks,” Train said.
He also says there are plenty of reasons to suggest that price and energy deflation will soon be a boon to consumer spending, boosting markets and company profits around the world.
“We all know that stock markets go up in the long term and that means it is so important when bad news is prevailing to be looking for the silver lining. If you’re not looking for the silver lining you are going to miss out when markets rally. Leave the worrying to the worry warts.”
He says, for example, the recent performance of Tesco, swamped in investor concern over its overstatement of profits as well as erosion of its market share by the discounters, suggests there is price deflation for shoppers.
While this bodes ill for supermarkets it suggests the medium-term outlook for consumer expenditure in the UK has improved.
He also says the fall in the oil price, down 23 per cent over the last four months and an often stated worry for global growth, actually suggests a multibillion dollar ‘dividend’ to energy users across the world, both consumers and businesses.
The manager predicts economists will soon be revising models of consumer demand and corporate profitability as upward a result of a material fall in energy prices.
“You have to hang onto that silver lining and keep buying the dips,” he added.
Train is one of the most successful managers of the past decade with both his fund and trust vastly outperforming the average fund in their respective sectors as well as the FTSE All Share.
Since he launched the CF Lindsell Train UK Equity fund in 2006 it has returned 132.87 per cent, the seventh best in the IMA UK All Companies sector over this period.
By comparison, the average fund in the sector as returned 45.53 per cent while the FTSE All Share has returned 47.98 per cent.
Performance of fund, sector and index since July 2006
Source: FE Analytics
His trust has returned 223.78 per cent over 10 years, the best return in the IT UK Equity Income sector over this period and more than twice the gain of the index, while sector average returned 114.04 per cent.
Performance of fund, sector and index in 2014
Source: FE Analytics
