A bruising six months has left Lindsell Train Investment Trust (LTIT) nursing an 18.3% drop in its share price and trading on a 2.1% discount.
In its latest update since co-founders Nick Train (pictured) and Michael Lindsell confirmed they would stick around for at least another seven years, the £208m trust revealed it had returned -11.7% since the start of the year.
Its benchmark, the MSCI World Index, delivered -11.3% over the six months from January to June 2022.
Investors seeking shelter from ‘concept’ companies
Train pointed to recent “notable moves in commodity prices and speculative asset prices” – namely Bitcoin.
He highlighted the 14.5% drop in the price of oil from its March high to the end of June, a 30% fall in the price of copper and Bitcoin being down 58%.
“The falls in commodity prices may be signalling that investors’ confidence in economic recovery after Covid is waning; while the collapse of Bitcoin is a painful lesson about the rise and deflation of speculative bubbles.”
Train added, as investors “seek shelter from economically vulnerable industries or from ‘concept’ companies, that may or may not ever earn a decent profit”, so-called ‘defensive’ companies, the likes of which are owned by LTIT, would be expected to do better.
“And indeed, recently our holdings in companies that offer the potential for steady and sustained business growth did better.”
He said Unilever, Heineken and Mondelez all rose in value in June, with Unilever up nearly 10% for the second quarter – although he acknowledged the presence of activist Nelson Peltz on its share register as the driving force behind the bump.
Perplexing price
The top three contributors to the trust in June were London Stock Exchange Group, Laurent-Perrier and Lindsell Train Limited.
The top detractors were PayPal, Diageo and the Lindsell Train North American Equity fund.
Train said he found the “share price weakness of Diageo, down 4% in June, to be perplexing”.
“We know that some analysts believe Diageo is expensive, because it currently commands a PE of circa 25x. We disagree. Instead, we concur with US stock market scholar Jeremy Siegel – author of the classic Stocks for the Long Run – who concludes ‘stocks with steady growth records are worth 30, 40 and more times earnings’.
“On this basis, Diageo is given away,” Train added.
The £26.5m LF Lindsell Train North American Equity fund was launched in April 2020 and is down 13.7%, year-to-date. Its benchmark, MSCI North American Index, is down 11.7% over the same period.
Since inception, however, it is up 12.8% against its benchmark’s return of 17.9%.
