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GVQ's Seaton throws down the gauntlet to Nick Train

GVQ's Seaton throws down the gauntlet to Nick Train

Jamie Seaton, manager of the £323.3 million GVQ UK Focus fund, has taken the unusual step of lining up his fund against Citywire AAA-rated Nick Train's £5 billion Lindsell Train UK Equity fund in his regular update to investors.

Writing in his April update to investors, Seaton said returns from his fund had been 'lumpy' since the Brexit vote, but showed the fund level-pegging with Lindsell Train UK Equity since the referendum to emphasise the strong total return over the period.

He said his fund had faced 'obvious headwinds' since the Brexit vote given the rally in commodity stocks and banks, where the fund had zero exposure.

Despite this, the fund had delivered returns roughly in line with the FTSE All-Share, 'albeit the fund's performance has been driven in a very different way, with mergers and acquisitions a strong contributor'.

Seaton's top holding is Shire (SHP), the subject of a bid from Japanese pharmaceutical giant Takeda (4502.T).

The manager said he had included the 'ever popular' Lindsell Train UK Equity fund's returns 'not for comparison, but more for further context'.

But he was drawn into a comparison with star manager Train's fund when outlining the outlook for his portfolio.

Seaton said his fund's growth profile 'continues to look solid', with historical earnings growth of 18.6% from the portfolio, long-term projected earnings growth of 9.3% and a price to prospective earnings ratio of 12.6 times.

He compared that to Nick Train's fund, 'a number of whose constituents we believe have become a very crowded trade in funds', citing consumer staples stocks like Unilever (ULVR).

He said Lindsell Train UK Equity's stock's historical earnings growth stood at 11.2%, while projected earnings growth was higher than his fund's at 12.1%, although the stocks were more expensive, at 20.9 times prospective earnings.

While that implies the market believes the future for Nick Train's stocks will be better than the past, the opposite is the case for Seaton's.

'If the market consensus growth numbers, however, prove to be overly pessimistic, there is clearly additional (and substantial) further upside,' said Seaton.

'We also believe the lower starting multiple offers relative downside protection through lesser multiple compression.'

Seaton reserved a final jab at Nick Train's focus on more expensive stocks, referring to the market cycle chart he keeps on his desk.

'Of interest to me, and more on the right hand side of the chart of the cycle than the left, these words: 'Optimistic, long duration projections. Revised models justify stretching. Unilever is a great company isn't it? It had better be.'

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