Lindsell Train is on track to miss out on performance fees from its eponymous investment trust as shares underperform the gilt benchmark in the 2019 calendar year.
The latest monthly factsheet from the £241.5m investment trust reveals share price returns of 2.1% despite the net asset value rallying 32.4%. The premium on the investment trust hit 85% in May 2019 and Lindsell Train had repeatedly warned investors it felt the valuation was too high.
The share price performance is even worse from the start of the last financial year, 1 April 2019, falling 14.2% between then and today, according to FE Fundinfo.
Lindsell Train may miss out on performance fees from the investment trust, which despite being in the Investment Trust Global sector pits itself against “the annual average running yield on the longest-dated UK government fixed rate bond plus 0.5% with a minimum yield of 4%”.
The benchmark has therefore been 4% for each of the last five calendar years, including 2019. The 10% performance fee is based on the lower of NAV or share price above the benchmark return and calculated with a high watermark.
In the financial year ending March 2018, Lindsell Train therefore raked in £2.4m in performance fees, down slightly from the £2.8m it made in the previous financial year. At the time, the benchmark was questioned for being a low hurdle and an irrelevant comparison for people investing in a global equities.
Lindsell Train Investment Trust monthly updates include the MSCI World Index in performance tables but state in a footnote that it is “not the trust’s benchmark and is shown for comparative purposes only”.
Lindsell Train blames Woodford and value for share price hit
Fund manager Nick Train said “on the face of it” 2019 had been a good year for the investment trust, noting the portfolio had rallied 32.4% even if shares had moved in the opposite direction.
The dividend increased by 25%, Train noted.
He suggested the share price was reacting to the investment trust’s 24.2% holding in his unquoted fund boutique Lindsell Train Limited.
“There were two factors in the second half of 2019 that militated to reduce confidence in LTL’s future growth. First, there was a deterioration in our investment performance, with the exception of Japan,” he said, noting defensive names in the portfolio, like Unilever and Diageo, had been hit by a market rotation into value.
“Second, and of greater seriousness, there have undoubtedly been ramifications for LTL from the Woodford affair,” he added.
“To be clear, we do not invest in unquoted shares in the open-ended funds. We only invest in long established, durable and substantive companies,” he said, noting 98% of the Lindsell Train Global and UK Equity funds were invested in companies with market capitalisations of over £1bn.
Nick Train acknowledges capacity criticisms
Train acknowledged that some rating agencies had criticised the size of his funds. In 2019, Morningstar and Square Mile both downgraded their ratings for the Lindsell Train UK Equity fund.
But Train said he disagreed with this assessment and that the open-ended funds would remain open to new investors. The 2019 fee cut signified as such, he said.
“We will not alter our investment style or process in response to the events of 2019 or the scale of our business,” he said. “Our willingness to run concentrated portfolios, with a very long term time horizon, has allowed and encouraged us to take truly strategic views about the companies we invest in – it is central to our ability to capture returns.”
He added that he, along with Michael Lindsell, had both invested in all their funds in 2020.
