The UK has a disappointing shortage of truly global consumer brands, says Nick Train, manager of the Gold-rated star Finsbury Growth and Income trust (FGT). He points to Burberry (BRBY) as one of the few examples of a big British brand which is truly global.
In this year's annual InterBrand survey of the world’s biggest brands, just five UK names make the list, opines Train. These are HSBC, Shell, Land Rover, Unilever and Burberry.
"Something's wrong" with that low number, he argues, noting that many key brands such as Rowntree and Cadbury have already been sold off "too cheaply" to foreign owners. "We haven't understood the value of these brands," he says.
Fashion brand Burberry, number 96 on the 2019 InterBrand list, is the sixth largest holding in the Finsbury trust and is also owned by his 5-star rated Lindsell Train Investment Trust (LTI). "Burberry is a rare and very valuable asset," he says, and is exposed to spending patterns in Asia, which will "continue to be the most dynamic region in the world".
Train is a big fan of fashion brands in general - this year Lindsell Train Global Equity bought into Italian fashion brand Prada, which scrapes in at number 100 on the Interbrand list.
He has also lauded the takeover of US listed Tiffany (TIF) by France's LVMH – he describes LVMH chief executive and chairman Berrnard Arnault, whose net worth is higher than Warren Buffett at $100 billion, as one of the world’s greatest business leaders and investors.
Train believes Arnault has been very canny at dipping into the fashion market at key moments. "Every so often, on those rare opportunities when it's been possible to acquire one of those vanishly rare luxury brands, he's snapped them up. There are lessons to be learned from where he apprehends value," Train says.
Burberry has risen 50% since the Finsbury trust bought the stock - a way behind other holdings in the portfolio such as AG Barr and Fullers, which have risen by seven times- Train notoriously searches for so-called "100 baggers", which will return £100 for ever pound invested.
The manager is a long-term buy and hold investor, and has stuck by Burberry even through boughts of volatility, most notably after chief creative officer Christopher Bailey was promoted to chief executive (and then stepped down). But the company has benefited from overseas tourists taking advantage of the weak pound in recent years, even despite significant challenges from the Chinese government's crackdown on luxury gift-giving, a slowdown in Chinese growth as well as the US-China trade war.
Train is also exposed to the luxury sector via the one of his favourite holdings, Diageo (DGE), which own a substantial stake in champagne brand Moet Hennessy - the "MH" of LVMH. "That's an exceptionally valuable stake," Train says, especially as the consumption of champagne and cognacs rises with the growth in emerging market consumer spending.
LSE the "Jewel in the Crown"
While not a consumer brand per se, the London Stock Exchange (LSE) is another “best of British” name that has vindicated Train’s buy-and-hold investment philosophy. The LSE, which is one of the Finsbury trust's biggest holdings, listed in 2001 and its shares have since gone up 17 times. One reason for this is that LSE is a perennial bid target – “I’ve lost count of the number of times LSE has been bid for as a quoted company” says Train – and an approach by the Hong Kong Stock Exchange for £32 billion recently fell through.
Still, he sees merit in a tie-up with the Hong Kong Stock Exchange as the concept of “global liquidity pools” takes shape in the coming years. HKSE’s bid valued LSE at £83 and while shares have since fallen back below £70, Train says there is still some value for patient investors. LSE is the "jewel in the crown" for any potential buyer, Train says. “Outstanding businesses will create wealth for patient investors as long as you are prepared to hold them for long enough."
