Lindsell Train 06 November 2019
Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
To maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital.
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Lindsell Train (LTI) offers investors a highly concentrated portfolio, with just 15 holdings comprised predominantly of UK companies.
The trust has been one of the strongest performers in the investment trust universe for many years. No peers in the Global sector can compare in terms of long-term performance, as we discuss in more detail here.
The trust's outperformance does not come without a price, as the trust trades on a substantial premium of more than 40%. For more detail on the trust's discount, click here.
Fund manager Nick Train is benchmark agnostic and long-term in his approach. In other words, Nick looks for companies that will perform well regardless of their index weighting or the stage of the business cycle. Often these are high-quality, cash-generative companies with strong franchises.
Finding these companies is no mean feat, however, and when Nick finds one he intends to hold it for decades (unless the key thesis for the company changes). The company also has around a 25% stake in the management company Lindsell Train Limited (LTL), equating to almost half of the NAV of the trust. Click here for a full breakdown of the trust's portfolio.
Due to the highly concentrated approach of the manager, investors must be aware of the significant risks. In 2019 alone we have seen multiple stocks in the portfolio face 20% swings on a given day, such as Hargreaves Lansdowne in the fall-out from the collapse of Woodford Investment Management. LTI’s premium dropped from around 98% to 20% within weeks. Despite this, the trust has comfortably outperformed an ETF tracking the FTSE All Share in nine of the past ten years, more often than not by significant margins. Furthermore this outperformance has occurred through rallies and corrections, demonstrating that the winners have been more frequent and substantial than the losers. In our view, this success is not down to luck. Nick Train and his team have shown that they are able to identify high-quality companies and attractive valuations, and most importantly hold them for long enough that their true value can be demonstrated.
|Exceptional performer relative to peers and the benchmark||Substantial premium|
|A manager with a clear and disciplined approach to investing||Expensive charges|
|Strong dividend growth rate||Concentration increases significance of single stock failure as well as success|