Nick Train: the best is still to come for these five shares

The star fund manager highlights a handful of shares he is bullish on for the years to come. 

Performance at the funds and investment trust managed by Nick Train has come off the boil over the past year or so, due to his investment style being out of favour. 

Train invests in well-established growth companies that are dominant players in their respective industry or sector. Such companies typically have big brands, intellectual property, and captive customers due to providing essential products or services. Such companies are high-quality growth stocks, and typically have high price tags in terms of their valuations. 

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Over the past 12 to 18 months, the valuations of high-quality growth stocks have been downgraded by the market, due to high levels of inflation and interest rate rises, which devalue the future earnings expectations of such companies. Instead, investors have been moving to ‘value shares’, those that have cheaper valuations relative to their earnings. 

Given this backdrop, in the recently published half-year results, to end of September, of Lindsell Train Investment Trust (LSE:LTI), it was not a surprise to see a share price total return loss of 6.5%. However, it was slightly ahead of the MSCI World Index, which in sterling terms was down 7.3%. 

Julian Cazalet, chair of Lindsell Train Investment Trust, acknowledged that the lower valuation of asset management business Lindsell Train Limited has had the most bearing on performance. 

Lindsell Train Investment Trust owns 24.2% of Lindsell Train Limited, which accounts for 42.7% of its net asset value (NAV). 

Cazalet noted: “Funds under management fell from £20.5 billion to £18.6 billion over the six months, £1.5 billon due to net redemptions and £0.4 billion due to falling market prices. 

“Lindsell Train Limited has suffered from more than two years of disappointing relative performance across all its four equity strategies which, together with widespread outflows from equity funds generally, underlies this loss of funds under management. 

“The experience of recent years illustrates the investment risk inherent in a fund management business that has a singular approach to investing.” 

Train, as his investors would expect him to, is sticking to his knitting. His approach of investing in a small number of high-quality growth companies, with minimal trading, has served long-term investors well. 

With the other investment trust he manages – Finsbury Growth & Income (LSE:FGT) – Train has been upping his personal stake, a move that will arguably give shareholders comfort that he is also taking the rough with the smooth.

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In the half-year report for Lindsell Train Investment Trust, Train said the prospects for the companies he owns “appear brighter and brighter”, despite “today’s macro-economic and geopolitical thickets”. He picked out five shares, all key portfolio holdings, in which he argues “the best is still to come”.

Train highlighted Nintendo, which he described as “the creator of some of the most sought-after entertainment content on the planet”. On the continued investment case for Nintendo, he pointed out that “gaming is an immature industry; Nintendo’s content is beloved; new sales records for its games and devices are likely to be set for years to come”. 

He also picked out RELX (LSE:REL), the information, exhibitions and analytics business. Train noted that the data handled by RELX’s legal and business information subsidiary, LexisNexis, is doubling every year. He said: “It’s hard to conclude anything but that RELX’s customers are going to need even more of its data and analytics services in years to come, as business and academic professionals are required to make sense of exponentially growing scads of data.” 

Another data service provider that Train is bullish on is the London Stock Exchange Group (LSE:LSEG). He explained: “We were encouraged by the chutzpah demonstrated by CEO David Schwimmer in July, when he remarked that in his previous role at Goldman Sachs he had advised on hundreds of transactions, but he genuinely couldn’t think of a single one ‘as transformational and value-creating as this one’ (the LSE’s 2021 acquisition of Refinitiv). It has to be said that with each passing update from the company, Schwimmer’s assertion looks better and better based.” 

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The other shares highlighted by Train are consumer goods giants Diageo (LSE:DGE) and Heineken NV (EURONEXT:HEIA).

Train commented: “Ivan Menezes, CEO of Diageo, was rightly proud to note that in 2022 one in every 10 pints served in a London pub or bar was a pint of Guinness. That’s a new record and another milestone for this extraordinary global brand. Guinness is Diageo’s second-biggest brand by sales value and grew at 32% last year and not all of that is just a rebound from Covid-19. 

“And, sticking to beer, what to make of the fact that Heineken 0% has become the world’s number one non-alcoholic beer brand, 2.5 billion pints sold last year, growing at 30%? That’s 6% of Heineken’s total business and it appears it does not cannibalise the rest of group sales. In other words, this is a new and dynamically growing brand for Heineken. 

“Heineken shares traded at circa €6 in 1992 and are close to €90 today. No one will complain if the stock gives another 15-fold increase over the next three decades – and looking at its brands and market opportunities – why shouldn’t it?”