Lindsell Train shareholders warned about volatility hit

Asset manager’s valuation rallies bucking stock price falls among rivals

The board of the Lindsell Train Investment Trust has warned shareholders its major stake in the eponymous fund house could suffer from volatile stock markets even though its valuation has proved resilient compared to rivals in the year to date.

Lindsell Train Limited represents 24.23% of the investment trust, which is trading at a 41% premium to net asset value, according to its half-year report to the period ended 30 September 2018.

Chairman Julian Cazalet said the board monitors quoted fund management stock prices and dividend yields as a check on the Lindsell Train Limited valuation. During the six-month reporting period, the value of the fund house rose 23.4%, while the prices of competitor companies fell, sometimes by more than quarter.

The holding was the largest positive contributor to performance during the reporting period and now represents 45% of net assets “increasing its sway over the affairs of the company,” Cazalet said.

Lindsell Train distinguishes itself

Cazalet said the disconnect represents some of the differences between Lindsell Train Limited and other asset management companies.

He said: “This reflects, among other factors, the growth in passive management at the expense of active, poor prospects for bond products in times of rising rates and pressures on fees. LTL’s funds are the antithesis of passive and have generated superior long-term returns to the Index, so they should be less affected by the trend to indexation. Also, LTL offers equity strategies only and its fees are competitive.

“Nevertheless, the poor share price performance of the quoted fund management companies is indicative of pressures on the industry, which the board constantly monitors.”

However, markets sold off almost immediately after the reporting period and he warned that, if sustained, this would have an impact on Lindsell Train Limited’s profitability and dividend with implications for the investment trust’s NAV.

“With this in mind I reiterate once again my warnings to new investors to be aware of the dangers of buying the company’s shares at an elevated premium to NAV,” he said.

Board sells Japan fund to pay performance fees

Lindsell Train Limited is set to reap £1.2m in performance fees during the current financial year, Cazalet said.

The investment trust sold shares in the Lindsell Train Japanese Equity fund to pay these reducing the allocation to 2.78% and the total Japan allocation to 10%. In March, these allocations were 3.41% and 13% respectively.

Selling investments had been required over the last two years to fund the performance fee, he said.

“This does not necessarily happen every year but as the performance fee is paid out of capital, the company’s annual revenues may be insufficient to pay its costs and to fund the company’s dividend commitment.”

Lindsell Train eyes new hires

The investment trust results also revealed Lindsell Train Limited is eyeing new hires over the winter so that by March there will be 20 staff up from the current 17 employed.

An additional graduate for the investment team will be among the new hires.

There is an important balance to achieve here, Cazalet said. “The imperative is to ensure that LTL is sufficiently resourced at all times; but there is no doubt that more staff equals more complexity, something that LTL has deliberately avoided to its benefit over the years.”

The recruitment drive is in response to rising funds under management, which went from £13.4bn to £16.1bn over the six months.

The boutique manager’s pooled funds make up 73% of assets while the Lindsell Train Global Equity LLC, designed specifically for US investors, more than doubled in size to just under $200m over the period. Cazalet described this as an encouraging sign given the fund house has for some years been looking to expand its institutional client base in the US beyond the handful of segregated mandates it already manages.

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