The performance of the trust, which includes dividends, beat its benchmark (the annual average yield on the UK 2.5% Consolidated Loan Stock), which rose 2% and the performance of the MSCI World index over the period (up 2.6%). Lindsell Train Ltd, the asset management company owned by the trust, was the largest single contributor to performance, rising 37% over the period as funds under management at the group grew to £2.9bn.
Trust chairman Donald Adamson said that the company remained an important source of potential further value creation for shareholders, but was now 21% of NAV and its dividends make up almost half of the company's revenues. As such, he cautioned, "any reversal in LTL's fortunes represents the biggest risk for the company now."
The other holdings in the Company fared less well in aggregate, especially the core consumer stocks. Manager Nick Train has been a long standing supporter of 'global brands', such as those owned by Unilever, Heineken, Diageo and AG Barr. These four stocks collectively make up a third of the NAV, and fell back 12%, 6%, 5% and 4% respectively over the period, hit by weaker emerging markets.
The investment in the Lindsell Train Global Equity fund underperformed its index by 2.6% and the Lindsell Train Japanese Equity fund also underperformed over the period, also as a result of the weakness of these consumer franchises.
Train sold out of his position in pub group Marston's over the period on valuation grounds. He said: " At the current price the enterprise value of the company – its equity plus debt – was in the order of £2bn and in the vicinity of what we analyse to be fair. We still like the business of community pubs, particularly those that brew and retail their own cask ales – so it is conceivable we will return to Marstons' shares if another valuation opportunity presents." The proceeds were used to add to positions in Pearson and Unilever.
The premium on the trust remains significant, at 15.1%. Adamson said: "The Directors repeat their caution to potential new investors from buying shares at such an elevated premium. A general fall in markets could impact the value of our quoted equities and, perhaps more significantly, the value of the 21% we have invested in LTL. Together these could quickly eliminate the premium, and potentially translate into material capital losses for such investors in the short term."
