Nick Train fronts respected, outperforming investment management business Lindsell Train, and the company runs a range of funds. One of the guiding principles for Train and Michael Lindsell, when they set up the firm, was to take a long view on investment performance and business development.
The idea was to hold investments through thick and thin to realise the full potential over many years. And a glance at the firm’s track record reveals the strategy is working. For example, the share price of Lindsell Train Investment Trust is around 700% higher now than 10 years ago. On top of that, shareholders have received decent dividends.
I reckon quality marks the best UK shares for 2020
Train is also on record explaining he thinks investors are often too pessimistic about the stock market. Indeed, weakness like the recent crash provides Lindsell Train with opportunities to invest. Train reckons the company can buy shares in businesses that will rise when the stock market recovers. And, over time, “stock markets will do well.”
But to commit to a long holding period through all the ups and downs, I reckon we need to be sure about the quality of the underlying enterprise. And it’s clear from Lindsell Train’s website the firm puts a lot of effort into trying to identify and model quality. So I think the quality underpinning Lindsell Train’s stock picks is a compelling reason why they could be some of the best UK shares for 2020.
Some of the top holdings in Lindsell Train’s funds will be familiar to quality-seeking investors. For example, in the fast-moving consumer goods space, the portfolio includes premium alcoholic drinks supplier Diageo. The share price has risen around 140% over the past 10 years, driven by solid operational progress in the business. On top of that, shareholders have received a rising stream of dividends.
And it’s no surprise to see a holding in consumer essentials supplier Unilever. It’s arguably the king of fast-moving consumer goods on the London market. And there’s an impressive multi-year record of gains in cash flow and the shareholder dividend. The brands are strong, and operational progress has driven a 130% share price gain over the past 10 years.
Concentrated portfolios
One of the ‘secrets’ of Lindsell Train’s success is the portfolio is concentrated. Typically, the managed funds contain between 20 and 30 holdings, which is well short of the hundreds we often see in other managed funds. But I reckon that number of shares represents wide diversification for an individual investor. So you can replicate the Lindsell Train strategy.
In percentage terms, holdings in the firm’s funds are typically weighted in mid-to-high single digits. So they are large enough to make a meaningful difference to the performance of each fund. Among those big positions is business information and analytics provider Relx and investment service provider Hargreaves Lansdown. The company also owns shares in business software and solutions specialist Sage and luxury goods provider Burberry.