For millions of Britons, enjoying a pint in a pub garden will be one of the biggest steps on the way to the return to life as normal.
Or will it? This is at the centre of the debate over the outlook for the two giant global equity funds that are the bedrock of many portfolios – Lindsell Train Global Equity and Fundsmith.
Drinks companies such as Heineken and Diageo account for more than 20 per cent of the portfolio of the £8.2billion Lindsell Train Global Equity fund, run by Nick Train, the second most famous star manager. But critics argue that this bet on the resumption of sociability does not reflect changes in consumer preferences.
Among the health and style-conscious, a traditional beer is considered a ‘carb beverage’, not the kind of tipple with which you pose on Instagram.
As for the most famous manager – Terry Smith, boss of the £22.6billion Fundsmith fund – he continues to face dissent over his aversion to Amazon and Alphabet, the owner of Google. While Amazon may have slipped lately, its shares are still up 1,666 per cent in a decade. Smith does have a stake in Microsoft which has risen by 800 per cent.
If you are one of the hundreds of thousands of Britons whose savings have appreciated in the care of Train and Smith – over the 10 years to the end of 2020, a stake in Fundsmith increased by more than fivefold – you may be happy to forgive their missteps, seeing these funds as the best way to benefit from worldwide recovery.
You may also think that beer will be perennially popular, whatever the views of some on social media. Train (the Lindsell Train UK Equity fund has a holding in Daily Mail & General Trust) selects investments on three timeless criteria, the first of which is to hold companies that own or manufacture products that taste good.
This explains his support for Heineken and also Unilever, the maker of Marmite – a food which, as Train puts it, ‘is not something I worry about the internet destroying’. However, although Train and Smith are among this season’s most popular last-minute Isa choices, investors still making up their minds should note the challengers to these stars.
‘Train and Smith do what they set out to do beautifully,’ says Darius McDermott of Fund Calibre. But there is plenty of competition in the global equity sector.
Take, for example, Kate Fox, Michelle O’Keefe, Lee Qian and Ed Whitten at Baillie Gifford’s Positive Change.
The fund aims ‘to deliver a positive change by contributing towards a more sustainable and inclusive world’. The annual return to the end of February was 82 per cent, highlighting its appeal to a new generation of investors.
Fundsmith’s return over the same period was a more modest 17.8 per cent, while Lindsell Train Global Equity produced 11.7 per cent, as a result of the hit to Heineken and Diageo from the closure of bars and restaurants. The return on the MSCI World Index (Developed Markets) was 12.3 per cent.
Neither fund aims to replicate this index, although both favour ‘growth’ companies, where profits are expected to consistently increase, rather than the ‘value’ approach of buying cheap stocks that could bounce back.
This strategy is returning to fashion because of the belief that the vaccine roll-out will hasten a revival, producing higher inflation and interest rate rises.
The chance to earn a decent rate on cash would make buying growth stocks for their future profits a less lucrative proposition. You may not believe that inflation or interest rates are headed higher. Yet this perception is affecting growth stocks, another reason to look at the lesser-known rivals to Train and Smith.
Dzmitry Lipski, head of fund research at Interactive Investor, cites the value-oriented Artemis Smartgarp Global Equity fund as an option for the adventurous. Emerging market stocks make up 25 per cent of the portfolio.
Its manager, Peter Saacke, suspects that inflation could be returning short-term. His assessment on the issue, with quotes from Socrates, is the diametric opposite of the typical plain-speaking Smith announcement.
McDermott’s higher-risk picks include Fidelity Global Special Situations, which has recently been tilted towards value.
His more mainstream selections are T Rowe Price Global Focused Growth Equity, Rathbone Global Opportunities and Blue Whale Growth, run by Stephen Yiu, often seen as successor to Smith and Train.
The increasing competition should be the spur for both Smith and Train to strive for better, suggesting that it is worth staying faithful to these funds. This is my intention as a Fundsmith investor. I do hope my loyalty will be rewarded.
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