Lindsell Train could struggle to find early backers for its US Equity fund, which is not being helmed by its eponymous founders and comes to market when its preferred ‘quality growth’ style is out of favour.
Two years after quietly launching in the middle of the coronavirus pandemic, the Lindsell Train North American Equity fund is finally available to outside investors.
Relatively little is known about the UK Oeic, managed by James Bullock, apart from the information contained in its sole factsheet for February 2022.
Since launching on 22 April 2020, the fund has attracted £26.9m in assets, including seed investment from the Lindsell Train Investment Trust and personal contributions from Train and Lindsell.
Several classic Lindsell Train names feature in the new fund, such as Pepsico, Walt Disney, Mondelez, Paypal and Brown Forman. But plenty of holdings, including its biggest positions Estee Lauder, American Express and Alphabet, are absent from existing strategies.
Consumer staples, which make up the lion’s share (43.7%) of Global Equity’s net asset value, are a smaller portion of North American Equity (27.7%), with more money weighted toward IT (19.8%) and financials (18.5%).
Lindsell Train North American Equity top 10 holdings
| Estee Lauder | 7.34% |
| American Express | 6.24% |
| Alphabet | 5.97% |
| Equifax | 5.70% |
| Nike | 5.36% |
| Intuit | 5.14% |
| Walt Disney | 4.90% |
| S&P Global | 4.65% |
| Pepsico | 4.49% |
| Oracle | 3.94% |
Source: Lindsell Train Global Equity factsheet as at 28 February 2022
See also: Lindsell Train spends £70m on sports and entertainment during lockdown
Performance off to a rocky start
Despite having a similar flavour to Lindsell Train’s hugely popular UK and global strategies, commentators believe its newest fund will struggle to raise assets.
The market for active US equity funds is crowded, with some 240 vehicles comprising the IA North American sector.
The US is also a notoriously tricky place for active managers to outperform and, on this front, North American Equity is not off to a good start.
The fund has trailed the MSCI North American index (by 7.1%) since inception, according to its factsheet, returning 17.6% against the benchmark return of 24.7%.
It has had an even rougher time recently, as Lindsell Train’s preferred ‘quality growth’ house style has come under pressure in a rising inflation and interest rate environment. Over six months, it has lost investors around 5%, while the benchmark has risen 5%.
Lindsell Train North American Equity performance
| 6m | 1y | |
| Lindsell Train North American Equity | -4.8 | 10.5 |
| MSCI North American Index | 5.1 | 19.3 |
Source: FE Fundinfo
‘Investors would prefer US managers on the ground, not working out of Victoria’
“The US fund will not be another blockbuster like the Global fund or the UK fund until it gets some good performance behind it,” says Peter Sleep, senior portfolio manager at 7IM.
Sleep thinks big professional investors prefer to park their money with specialist boutiques when they invest in the US.
“Lindsell Train has a clear style, and a big chunk of the Global fund is in the US, but I am not sure that is enough of a hook for a new fund,” he continues.
“I think investors would prefer to see portfolio managers and analysts on the ground in the US rather than working out of Victoria.”
Lindsell Train quality growth style has held up better than ‘out and out growth’
Opening a fund to the wider public, which has underperformed since launch, is an “interesting” move, says Chelsea Financial Services managing director Darius McDermott. “But it does evidence they back themselves to deliver over the long term.”
While Lindsell Train’s quality growth style has proved more challenging in the current market environment, McDermott points out it has not done as poorly as “out-and-out growth managers”.
The Baillie Gifford American fund, which has punchy holdings in Tesla, Amazon and Netflix, is down a whopping 33.5% over six months, according to FE Fundinfo, while Morgan Stanley US Advantage, another tech heavy fund, has lost 30.8%.
Next generation of Lindsell Train managers
The fact the new fund is not being run by Lindsell Train’s founders could also stymie money coming in initially, McDermott adds.
Bullock joined Lindsell Train in 2010 and co-manages the Global Equity portfolios alongside Michael Lindsell and Nick Train. Madeline Wright, who joined the boutique in 2012, is a deputy manager on the fund.
AJ Bell head of active portfolios Ryan Hughes thinks some retail investors might be put off investing without “the Nick Train or Mike Lindsell name on the door”, but adds wealth managers and other professional fund buyers will be looking beyond that at style and consistency of the team’s investment approach.
“They’re going to have to want quality growth, a concentrated portfolio and accept that approach could come in or out of favour and have some pretty challenging performance, as well as potentially some good performance,” he says.
Sleep thinks the fact North American Equity is being managed by Bullock is a “bonus”, as he has proven to be a capable portfolio manager on the Global Equity fund.
Though the fund is now bottom quartile over one and three years, it has returned 162.4% since 2015, when Bullock joined the mandate, compared with the MSCI World’s 136.8%.
Costs will need to come down to a ‘more palatable level’
Another potential deterrent to new investors is cost.
Hughes notes Lindsell Train’s UK and global funds are on the cheaper side due to economies of scale which allow most investors to pay an ongoing charges figure (OCF) of 0.65%.
While the US fund has an annual management fee of 0.60% for accumulation and income share classes, same as the UK fund, its OCF is 0.88%, “which is a bit higher than I’m sure some people would want to see,” says Hughes.
“The fund will need to grow to bring that down to a more palatable level, particularly when you could buy a smart beta ETF for around 0.20%.”
From a commercial point of view, Sleep says launching a US fund is a “logical step” for Lindsell Train, given that Bullock already covers a lot of the US with his global mandate.
“Lindsell Train’s extra cost of running a US fund is very low, so any revenue generated by the fund, post incremental audit, ACD and custody costs (which are low), goes straight to the bottom line.”
