Steve Clayton, manager of recently launched HL Select Global Growth Shares Fund (GB00BJFVF381), explains why Diageo (DGE) is among the first holdings he has introduced. The fund has 2.8 per cent of its assets in this stock.
"This company is a global leader in alcoholic beverages with a collection of iconic brands, including Johnnie Walker, Smirnoff and Guinness,” says Mr Clayton. “Its products are sold in more than 180 countries around the world.
“We like businesses that own strong brands that keep their customers coming back again and again. And Diageo falls firmly into this category – brands such as Johnnie Walker have immense aspirational appeal, not only in developed nations, but increasingly in developing regions, where demand is being supported by rising disposable incomes.
“Turning water into wine – or spirits – and charging consumers a princely sum, earns the group huge margins, and means the business throws off cash. This has enabled Diageo to raise its dividend every year since 1999, [although this is] not a reliable indicator of future income.
"Despite its many strengths, Diageo’s progress had been relatively uninspiring up until recently, partly due to economic and currency pressures, but also, we suspect, weak execution. However, recent management changes have resulted in improvements to the distribution model, more emphasis on volume growth and productivity, and increased focus on free cash flow. These changes are now bearing fruit, underpinning our confidence in the group’s ability to grow sales and profit margins, while continuing to return cash to shareholders.”
HL Select Global Growth Shares’ other UK-listed holdings include RELX (REL), which accounts for 2.8 per cent of the fund’s assets, and London Stock Exchange (LSE). It has 11 per cent of its assets in UK equities, 49 per cent in North America and 19 per cent in developed Europe ex-UK.
