Investors should forget the outdated notions of ‘value’ and ‘growth’ stocks and instead work out which companies will be challenged by digital disruption, says star manager Nick Train.
Citywire AA-rated Train said in an update to investors in his £5.4 billion Lindsell Train UK Equity fund that the 20th century idea of growth and value stocks was no longer appropriate in an age where ‘most companies are becoming more like internet companies’.
He said that last century these descriptions were a ‘helpful descriptor of what was going up or down’, but were less useful today.
‘In 2018, it looks as through working out which companies are advantaged and which challenged by digital disruption may deliver better returns than establishing what is currently "cheap" or "dear", or whether macro-economic trends favour "cyclical value" or "quality growth",’ said Train.
He said investors only needed to look to current market trends. While government bond yields have been rising, along with oil and commodity prices, these have not produced the rally in cyclical markets that might have been expected.
Train (pictured) pointed to the ‘growth’ market Nasdaq as the best performer in 2018 while ‘traditional "value" markets Germany and Japan are down’.
He said his fund provided further evidence of 'the irrelevance of the value/growth debate' and 'the central importance of backing successful digital strategies'.
'All of these we have seen characterised as “expensive” in recent times. But the fact is it is the success of the strategies of these companies – strategies with technology at the heart of them – that has mattered much more to stock market investors than the valuations.'
Train's worst performer since the turn of the year has been software company Sage (SGE), down 20% in 2018.
‘Again that fall has nothing to do with valuation or rising interest rates,’ said Train. ‘Instead it absolutely has to do with the challenges Sage faces in migrating its business to the cloud, in the face of new competition from exponents of the new cloud technology.’
And while Train's three biggest 'quality growth' holdings, Diageo (DGE), Unilever (ULVR), and Relx (REL), had underperformed the FTSE All-Share, Train said this lag was modest 'against the apocalyptic warnings we heard at the end of 2017 about the clear and unsustainable overvaluation of consumer staples and other steady growers'.
Lindsell Train UK Equity has returned 94.7% over five years, outstripping the 52.8% return from the index.