Michael Lindsell has described his firm’s flagship global equity fund’s 2021 performance as “harrowing”, after it experienced the worst period of relative performance it has ever had.
Lindsell Train Global Equity’s 2021 return was barely positive at 0.6%, whereas the MSCI World Index delivered a 22.9% return for the year.
Yet despite missing out on the strong gains driven by big technology companies in 2021, Lindsell said he looks forward to 2022 with “optimism rather than dread”.
Performance of Lindsell Train Global Equity over 2021 versus MSCI World Index
Source: FE Analytics
“Rarely have the relative values of the companies we own looked so alluring,” he said. “Our confidence in the durability and long-term relevance of our companies remains undimmed and perhaps even enhanced as the vast majority have borne the challenges of the pandemic to consolidate and extend their market positions.”
Amidst rising pressure to invest in winning technology companies, the portfolio manager argued that the long-term winners of the pandemic will be companies that use the services and functionality that technology empowers – such as the franchises that his fund invests in.
“These not only have ongoing consumer recognition and relevance but the added advantage of that relevance having been established over decades (if not centuries) that by definition has a proven durability to survive and prosper even when change is afoot,” he said.
By way of example, the manager pointed to the fund’s biggest investments in household brands such as Nintendo, Diageo, Heineken and Unilever, which he noted have all been using the pandemic to extend their market positions.
“Nintendo by taking advantage of elevated demand in lockdowns to spread its franchise; Diageo by extending its reach with consumption at home; Heineken through the acquisition of Distell in South Africa and a majority of United Breweries in India; and Unilever by using its financial strength to extend further its footprint in Emerging Markets,” he said.
When it comes to UK equities, Nick Train – manager of the LF Lindsell Train UK Equity fund – described the past two years as “Covid-scarred”.
Although the fund outperformed in 2020 with a 2.5% loss versus a 9.8% loss from the FTSE All Share, it lagged in 2021 with a 12.7% gain versus a 18.3% gain from the FTSE All Share.
Performance of LF Lindsell Train UK Equity over 2 yrs versus FTSE All Share index
Source: FE Analytics
Train said: “This was in part because there wasn’t as much scope for a rebound from its constituents, but also because a handful of important holdings had disappointing share price performances in 2021 – for a variety of reasons.”
London Stock Exchange Group was the fund’s biggest detractor, falling over 20% in 2021.
Share price of LSEG in 2021
Source: FE Analytics
Looking ahead, the fund manager said that the backdrop for equities remains “hugely encouraging”.
He said: “I can barely remember a time in my 40-year career when there have been so many opportunities, especially in the deeply unloved UK equity market – where there are compelling growth stories on much lower valuations than global peers.”
He argued that the UK equity market can give investors exposure to global mega-trends such as the rise of digital technology at valuations that are “demonstrably lower” than global peers.
“Note, we are not saying that the whole of the UK equity market is necessarily undervalued – though it may be,” he said.
“Instead, that it is possible to invest in UK companies with credible, long-term growth opportunities and that the valuations of such companies may have been penalised in recent years by global asset allocators’ disenchantment with all sterling equity assets.”