Lindsell Train won’t gamble on accommodative US Fed

Investment trust’s consumer brands grow ‘at an impressive clip’ despite deflation fears

Fundamental changes in emerging market consumption patterns over the long term are more significant to the Lindsell Train Investment Trust than the shorter term ebb and flow of economies, according to Michael Lindsell.

Writing in the trust’s update for March, Lindsell (pictured) said global equity markets have recently been buoyed by accommodating policy from the US Federal Reserve in reaction to the lower growth and disinflationary environment, but he is not prepared to gamble on the resulting “what ifs”.

Lindsell noted US 10-year bond yields are 2.4% lower than three-month yields while Japanese 10-year bond yields have fallen to -0.4% and German 10-year yields are also in negative territory.

Lindsell said: “We have no idea whether this recent low growth/disinflationary environment will persist and if so for how long. Indeed, it’s just as likely that these super benign monetary conditions could in time help spur growth once again. With the US and UK economies at almost full employment it’s not inconceivable that interest rates would then resume their upward trajectory.

“These ‘what ifs’ that are difficult to predict and almost impossible to answer correctly, illustrate why we put these macro considerations to the back of our mind and instead concentrate on the attributes of the companies we own.”

Lindsell said despite deflation fears, most of the consumer brands in the trust’s portfolio still seem to grow sales “at an impressive clip”.  He added what excites the team most, however, is an expansion and development of the market itself rather than growth driven by price or market share gain.

“For instance, our companies exposed to sales in emerging markets are most obviously benefitting from rapid population increases as well as an incremental advance in wealth,” he said.

Picking out names from the portfolio, Lindsell said Unilever’s management believe sales of deodorant could expand as much as 4x in Asia and he noted Heineken’s expansion into Ethiopia via its Walia brand which has taken the brand to third largest in the country by market share behind Castel and Diageo.

He also said Nintendo’s Pokemon Go and Mario Run smartphone games have been downloaded 800 million and 300 million times respectively with customers from emerging markets engaging for the first time.

Speaking earlier this month in a video on the firm’s website, the trust’s manager Nick Train hailed 7 basis points of outperformance over the FTSE All-Share benchmark in the year to date as a success in the current political and economic climate.

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