Growing interest from US investors in Nick Train and Michael Lindsell’s eponymous boutique has been highlighted as one of a few bright spots during an otherwise “disappointing” year for Lindsell Train Investment Trust which lagged world markets for the first time in years.
Founded by Train and Lindsell in 2000, Lindsell Train Limited (LTL) remains the trust’s single largest holding at 48.2% of its net asset value, meaning its fortunes have a huge bearing on the investment company.
LTL was responsible for the lion’s share of LTIT’s 29% boost to NAV in the year to 31 March 2020, offsetting the otherwise “disappointing performance” from its quoted portfolio.
Train and Lindsell’s eponymous boutique contributed a total return performance of 40.8% over the year versus the rest of the portfolio’s 18.6% gains. This was driven by a 26% increase in the firm’s funds under management (FUM) which climbed from £18.2bn to £22.9bn.
Its controversial gilts benchmark, which was ditched after the reporting period, returned 4%.
By contrast, the MSCI World Index total return in sterling was up 38.4%, meaning for the first time in a number of years the trust’s NAV total return lagged world markets.
US investors pour £940m into US-version of Lindsell Train Global Equity
Chairman Julian Cazalet said “particularly pleasing” was the growing enthusiasm from US-based investors for LTL’s US-domiciled Lindsell Train Global Equity LLC.
Investors poured £940m into the Delaware-based fund over the period. Assets in the fund have grown substantially on a year ago when the fund had £309m in assets.
Cazalet said the spike in demand reflected the work LTL has put in with North American institutional investors and their consultants over several years.
“Its patient approach is paying off and we see this diversification in its client base as an encouraging development,” Cazalet said.
North American sourced FUM now makes up 11% of LTL’s total compared to 6.5% a year ago.
Last year LTL launched a North American equities fund to tap into growing investor demand.
See also: North America helps Lindsell Train Limited bounce back from Covid lows
Flows into Lindsell Train funds shrinking
Broadening its investor base to the US has become crucial for Train and Lindsell’s boutique, and by extension LTIT, as demand for its UK-based strategies shows signs of dropping off.
Though LTL was by far and away the biggest contributor to LTIT’s performance, most of the £4.7bn boost to FUM came from positive market movements.
Net inflows for the year only amounted to £1.1bn. Though this was higher than 2020 when it took onboard just £759m as its strategies leaked cash during the Covid crisis, it is around half of the £2.3bn brought in during 2019.
Train’s £6.7bn UK Equity fund has seen the biggest shift in sentiment with net redemptions doubling from £192m in 2020 to £286m in 2021.
But enthusiasm has also wavered for LTL’s £9bn Global Equity fund, managed by Lindsell, Train and James Bullock, which saw inflows shrivel from £2.4bn to £234m year-on-year.
Lindsell Train fund inflows
| 2021 | 2020 | 2019 | |
| LT Global Equity | £234m | £2.4bn | £1.1bn |
| LT Japanese Equity | £185m | £241m | £189m |
| LT North America | £20m | n/a | n/a |
| LT UK Equity | (£286m) | (£192m) | £963m |
Source: Lindsell Train
Muted sentiment comes after a difficult year for LTL’s strategies which have seen performance slump particularly in the last half of the year as the Covid vaccine rollout sparked a value rotation.
As at 31 May 2021 both the Global Equity and Japanese Equity funds are lagging their respective benchmarks on a relative basis over one and three years.
“There is no knowing how long this period of underperformance will last,” Cazalet said.
“Bouts of relative underperformance are bound to occur, especially for a strategy and approach to investment that is so concentrated and committed to its constituent companies.”
‘What will we change? Not much’
In his investment manager’s report for the year Train admitted he and co-founder Lindsell were equally disappointed by the slump in performance in LTL’s funds.
Sticking to three strategies of buying companies that use technology to entertain and inform their customers, own beloved, durable brands and wealth managers, has worked well from the inception of LTL in 2000 all the way through to June 2020, Train said.
But over the last nine months LTL’s global portfolios have suffered from not being exposed to the tech bull market or the cyclical recovery.
“What will we do in response? The answer is not much – although we are always working to increase the value in our portfolios, by adding to existing holdings when depressed or, occasionally, initiating new ones,” Train said.
“That is because we remain optimistic about the thematic ideas and companies we are invested in and think their recent underperformance is indeed an opportunity to add, not a reason to sell.
“Submitting client portfolios to surgery incurs transaction costs which need to be justified; and certainly, reinvesting in the areas of global stock markets that are currently booming would not only be costly but could also expose our clients to the risk of joining a party late.”
LTIT is currently trading at a 13.8% premium, according to data from the Association of Investment Companies.
