Writing in the trust’s unaudited results for the six months ended 31 March, Train said he continues to be aware some shareholders are concerned about a prolonged period of underperformance caused by a downturn in the share prices of consumer branded-goods in the portfolio.
Train (pictured), who counts AG Barr, Burberry, Diageo, Heineken, Mondelez, Remy and Unilever among the big brands in his portfolio, said investors fear this downturn could be caused by either overvaluation of these companies, a deterioration in their business performance, or both.
He made a similar observation writing in the trust’s February factsheet update.
Not perilously expensive
However, he said while there is evidence that some previously successful brands are struggling, notably in processed foods and household care, and that one could argue the strong performance of these stocks has left valuations looking high, they have not become “perilously expensive”.
Train said: “You could argue that this strong performance has left their valuations looking too high. I disagree. Although by that I don’t mean to suggest that they might not go through a period of dull stock market performance – as can happen to any company in any part of the market. Of course they could. But I disagree that they have become perilously expensive.”
He added: “But so far as FGIT is concerned, the signals delivered over the last six months by our consumer companies are encouraging, we think, and this has been confirmed by their share price performance.”
Over the six months to 31 March the trust delivered a net asset value per share total return of 2.9%. This compares with -1.8% for the FTSE All-Share index.
Train said four of the five top performers over the period were global brand owners: Diageo, Mondelez, Unilever and Heineken. Burberry was the only consumer share to fall.
The main detractors were Hargreaves Lansdown, Schroders and Manchester United.
To illustrate his point, Train drew attention to Diageo where Tanqueray gin grew more than 20% over the past year and Johnnie Walker’s net sales were up 6% over the same period. Heineken meanwhile grew by 7.7% last year, its best rate for a decade.
Elsewhere, Mondelez’s Oreo biscuits grew high single digits in the US, its biggest market, and mid single digits in its second biggest market, China. Mondelez-owned Cadbury grew double digits in India. Remy’s cognacs grew 15% year on year.
“I know I’m cherry-picking statistics here and that all these companies have portfolios of brands, for some of which trends may not be so encouraging,” he said. “But already here is a formidable counter-argument to the proposition that big brands are necessarily doomed in the 21st century. To the contrary, it seems to us there is a decent argument that beloved and prestigious brands are more valuable than ever before.”