Fund group holding hurts Lindsell Train trust performance

Lindsell Train investment trust’s big stake in its own fund management firm weighed on the performance of its investment trust namesake in the six-month period to 30 September 2023.

Lindsell Train (LSE:LTI) today (5 December 2023) reported a loss of 3.6% over the period, while its share price total return was down 11.3%. In contrast, the MSCI World Index returned 4.5%.

A big stake in its own fund management company, which at the end of September accounted for 38.6% of the net asset value (NAV), proved a headwind. Over the six-month period, funds under management declined from £18.6 billion to £16.4 billion. Overall, the total return of the fund firm over the period declined by 6%, with the payment of a half-year dividend softening the blow.

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Julian Cazalet, chair of Lindsell Train Investment Trust, said: “The fall in funds under management extended a trend from early 2021, partly in reaction to deteriorating relative performance from Lindsell Train’s fund range, but exacerbated by a gruelling environment for the fund management industry.

“In2022, UK investors redeemed £26 billon from retail funds making it the worst year on record for the industry and the only year that has recorded an annual outflow, according to data from the Investment Association (IA). All Lindsell Train’s strategies have underperformed over the last three years, which was as much a consequence of its consistent approach to investment as of any isolated investment misjudgements.”

A lack of exposure to big tech was also a headwind, with fund manager Nick Train not holding any of the big US names, such as Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL). That trio are part of the so-called Magnificent Seven tech stocks that have seen their share prices sizzle in 2023 in response to excitement over the potential of artificial intelligence (AI).

Lindsell Train Investment Trust invests globally and, in common with other funds and trusts managed by the fund house, is a concentrated portfolio of high-quality growth companies, which the managers believe have sustainable business models, such as through having market-leading brands. Consumer companies are particularly favoured. It is also more concentrated than other funds and trusts in the stable, with just 13 holdings.

However, the key difference compared to the other funds and investment trusts in Lindsell Train’s stable is that this trust holds a big stake in Lindsell Train Limited, its own fund firm.

Cazalet added:“Unfortunately, in the short term there can be a disconnect between what companies deliver as businesses and the return from share prices. In the last five years, the NAV per share total return has been 7.2% per annum and over three years zero, as compared with Lindell Train’s underlying businesses which have continued to earn an average return on equity of more than 20% per annum. As long as Lindsell Train’s equity selections maintain these superior returns on capital, we would expect investment returns to recover from the current depressed levels.”

• Nick Train: the UK stock market has a dividend problem
• Nick Train on succession planning and the one share he expects to hold forever 

In our recent wide-ranging interview with Train, the UK investor said there’s a tendency for some UK companies to over-prioritise dividends, and this is one reason why the performance of the UK stock market has disappointed over the past couple of years. For some holdings in his portfolios, Train has questioned senior executives on dividend policy, which has led to some firms slowing the rate of dividend growth.

In the second part of the interview, Train names a share he expects to hold forever, explains why he is confident the consumer stocks he owns will weather a potential recession in 2024, and says that while he has no plans to hang up his boots anytime soon, succession planning is in place.

Lindsell Train UK Equity, which is managed by Train, is one of ii’s Super 60 investment ideas.