Lindsell Train 22 March 2021
Disclosure – Independent Investment Research
This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.
Lindsell Train Investment Trust (LON:LTI) is run by Nick Train, co-founder of the eminent UK asset manager Lindsell Train Limited, and the trust invests in global equities. Like many of Lindsell Train Limited’s strategies, LTI is characterised by its heavily concentrated portfolio of quality growth equities, with a mere 15 holdings currently. The majority of LTI’s portfolio can be split into two categories: technology and consumer franchises (with a smaller allocation to financials). However, the defining characteristic of LTI is its c. 48% exposure to the equity of its management company, offering public investors the only way to access the equity of the asset manager.
LTI has been able to generate a strong track record of outperformance, as we discuss in the Performance section. However, LTI has begun to lag behind its peers over the last 12 months, as high-growth stocks and low-quality cyclicals have outperformed, biases which are not present in LTI’s portfolio. There is a remarkable difference in the return profile of LTI’s NAV and share price, however, a result of the at times eyewatering premium LTI has traded on (see the Discount section). Although LTI currently trades on an 14.1% premium, it had previously traded above a 100% premium in 2019 as a result of the market’s demand for its holding of Lindsell Train Limited.
LTI also has a strong history of dividend growth, following a policy of paying out most of its underlying dividend as income. LTI grew its dividend 49% over the last financial year, with a five-year growth rate of 494%. LTI currently has a historical dividend yield of 3.2%.
We believe LTI offers investors a unique portfolio within the global equity space: a combination of high-conviction equity investing and the unlisted equity holding. This can bring with it diversification benefits, given the low overlap in holdings LTI will have to broader global equities, but it can also bring with it enhanced risks. There is a substantial amount of single-stock risk given LTI’s concentration, as well as a much higher degree of manager risk than a traditional listed equity portfolio would have.
LTI’s long-term return profile has been attractive, with the trust able to outperform both peers and global equities consistently until 2020. Unfortunately this trend of outperformance has begun to revert, as since the start of the pandemic LTI has been disadvantaged by the trend towards high-growth equities and low-quality recovery stocks which have driven markets.
Ultimately we believe LTI would work well in tandem with a core equity portfolio, offering both diversification and potentially enhanced returns, though we remind investors of the substantial idiosyncratic risks LTI carries. For ethically minded investors, we highlight that LTI will not invest in what are perceived to be unethical investments, e.g. tobacco, gambling and arms manufacturers.
|The only way to invest in the equity of the asset manager Lindsell Train Limited
|Has begun to underperform global equities thanks to value-led recovery
|Nearly fivefold increase in dividends over the past five years
|Enhanced manager and single-stock risks due to large holding in Lindsell Train Limited
|Strong track record of long-term outperformance against peers and global equities
|Highly volatile premium, due to the presence of its unlisted equity investment