How to pick funds, Diageo & hotel stocks: Companies and Markets Show

The episode opens with context around the Strait of Hormuz closure and its potential impact on travel demand, particularly jet fuel concerns affecting airlines and holiday bookings. Mark Robinson analyzes IHG's Q1 results, which showed a 4.4% increase in revenue per room, improved occupancy rates, and pipeline growth exceeding 7,000 hotels. IHG's capital-light model and lower exposure to long-haul travel provide some insulation from geopolitical disruption. Greater China, previously a weak spot, showed improvement. The US, comprising over half of IHG's revenue, remains strong, consistent with the 'never bet against the US consumer' adage. The Middle East showed some recovery through May and June but remains highly uncertain. IHG maintained full-year guidance, though questions were raised about whether its ongoing share buyback program at elevated valuations is wise, with the argument made that buying back fewer shares at higher prices reduces return on invested capital.

The discussion then shifts to Whitbread, owner of Premier Inn. Germany, intended as a medium-term growth engine, has underperformed expectations, prompting a strategic review. Whitbread plans a sale-and-leaseback of freehold properties to fund roughly £1 billion in site development over five years. Restaurant brands Beefeater and Brewers Fayre are being wound down, resulting in 3,000–4,000 job cuts, though management notes high staff turnover means many may be reabsorbed. UK trading momentum remains positive, with potential staycation demand offering some support. Both IHG and Whitbread are described as fairly valued, with much already priced into their share prices.

The Diageo segment examines its third-quarter results, which showed 2.3% organic revenue growth, beating subdued expectations. Strong UK and Ireland performance, particularly Guinness, and a restocking trend in Latin America after prior inventory issues were highlights. However, structural headwinds remain significant: Gen Z and millennials are drinking less, and when they do drink, they tend to avoid the heavy spirits that form a core part of Diageo's portfolio. North America, accounting for nearly 40% of net sales, continues to struggle with falling revenues. The show notes that Diageo was once considered a 'set and forget' compounder but has suffered from what may be managerial complacency. Attention now turns to incoming CEO Dave Lewis's strategy announcement on August 6th, with analysts expecting a refocus on mainstream brands, lower-alcohol and ready-mixed drinks, and cost savings including logistics efficiencies. Despite the challenges, the heavily discounted share price is attracting some fund managers who see long-term recovery value in Diageo's brand portfolio.

The final segment features Val Cipriani discussing how to pick investment funds. The most common mistake cited by experts is chasing recent short-term performance, which often results in a portfolio lacking style diversification. Investors may end up with funds that appear geographically diversified but all share the same investment style, making them vulnerable when market cycles turn. Recommendations include reading fund fact sheets carefully for strategy clues, using tools like the Morningstar style box, and looking for benchmark comparisons within fact sheets to understand where a manager is taking active bets. The active share metric (ideally above 80% for genuinely active funds) is flagged as a useful but not always available figure. The discussion also covers accumulation vs. income share classes, noting tax complications in general investment accounts with accumulation classes. For investment trusts, the discount/premium dynamic is explored, with the caution that a discount is not a guaranteed opportunity and could widen further. The segment closes with a warning about becoming too emotionally attached to fund managers based on polished media appearances, which can make it harder to sell underperforming funds.