Citywire for Financial Professionals
Stay connected:

View the article online at

Sell Unilever as rates rise? No chance, says Train

Nick Train leaps to the defence of consumer staples stocks like Unilever, as bond market sell-off unnerves some investors.

Sell Unilever as rates rise? No chance, says Train

Star manager Nick Train has dismissed concerns about the impact of rising interest rates on consumer staples stock like Unilever (ULVR), labelled 'expensive defensives' by their critics.

In the latest factsheet for the Lindsell Train UK Equity fund, Citywire AA-rated Train, addressed investor concerns about the impact of rise in interest rates and bond yields on some of his top holdings like Unilever, Diageo (DGE), and Relx (REL).

He said investors had been asking whether now was the time to sell as the stocks, because they will be adversely affected by interest rates rising.

Train said investors were ‘conflating growth companies with bond proxies’, pointing to Unilever's compounding of its dividend by 8% a year since 1952.

‘Government bonds do not do this,’ he said. ‘Indeed very few quoted companies have been able to do it either.’

Train also addressed valuation fears, stating that just because Unilever's shares had risen it did not mean they were now expensive. He said Unilever, and the companies he holds like it, were clustered around a price-earnings ratio of about 20 times.

‘A price/earnings of 20 times is an earnings yield of 5%,’ he said. ‘I know how trite that observation reads. But an earnings yield of 5%, with the earnings highly likely to grow in real terms for the foreseeable future, is an attractive proposition for serious investors.’

Not only is the 5% yield attractive in absolute terms, Train said it remained so when compared to returns on index-linked government bonds and ‘even to the likely peak yield on conventional ones’.

‘Wake me up when Diageo trades on 45x earnings,’ he said.

The prospect of inflation isn’t worrying Train (pictured), who pointed to the ‘superior inflation-adjusted cash performance of branded goods companies’.

‘They have the pricing power,’ he said. ‘Why would you sell Unilever, or its peers, if you really believed in a prolonged period of problem inflation? Do you really want to fund a stream of rights issues from cash-strapped coal miners, engineers, insurance companies and banks? Because, in my recollection of the 1980s, that is what you will be required to do.’

Train even doubts that inflation will be a problem over the next decade and said it is possible ‘there could be years more "good" deflation to come, as technology-driven price-finding unravels the unjustified price premiums’.

The manager believes investors are focusing on the wrong questions and lamented the continued debate of ‘quality versus value’ as a ‘20th century question’.

‘The more relevant one for 2018 is: will my company be a beneficiary or victim of digital technology?,’ he said.

‘It’s the answer to that that will determine whether you preserve the real value of your savings or not. Unilever and its peers may be losing pricing power as consumer habits and preferences changes… but we’re sure it is far more relevant to worry about this issue, than whether bond yield are set to go up a bit.’

In the past month, Train has sold some of his holding in Kraft to buy more shares in Unilever

'Kraft's shares had held up better and the dividend yields on the two were just about the same,' he said. 'When we think about Unilever's growth opportunity, particularly in emerging markets, that just seems wrong.' 

4 comments so far. Why not have your say?


Feb 14, 2018 at 18:49

I hold both Diageo & Unilever as a long term Investment & have no intention of selling either at current levels.

report this

Franco p via mobile

Feb 14, 2018 at 18:58

Train is right on the money. However , how much of the current price reflects interest by Bond Tourists.... BTFD If it comes IMO

report this

William Wilkinson

Feb 15, 2018 at 12:53

If Amazon starts to make mayonnaise I might start to worry about Unilever.

report this

Stephen B.

Feb 18, 2018 at 16:11

I'm a long-term holder of Unilever and expect to stay that way - but still it's entirely possible that the market could decide to value it at 15* rather than 20* so you could easily have a 25% fall in the space of a year or two with no change in the fundamentals. As part of a diversified portfolio that doesn't worry me, but if I had everything in that kind of company it would be a significant risk.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts

In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the funds

  • LF Lindsell Train UK Equity Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the shares

  • Unilever PLC (ULVR.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Diageo PLC (DGE.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Relx PLC (REL.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • Nick Train
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us


Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add to your safe senders list so we don't get junked.


Charles Stanley drops Woodford from fund buy list

by Daniel Grote on May 22, 2018 at 10:57

Sorry, this link is not
quite ready yet