Lindsell Train Global Equity – July 2020 update

Jonathon Curtis | Fri 24 July 2020

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• Michael Lindsell and Nick Train are highly experienced and successful investors
• They’ve made just one new investment during the past 12 months
• Performance has been excellent over the long-term but subdued recently
• This fund is not on our Wealth Shortlist. You can find the funds chosen by our analysts for their long-term performance potential here

How it fits in a portfolio

This is a ‘quality-growth’-style fund aimed squarely at investors looking to grow their capital over the long term. We think the fund could be a good addition to a portfolio looking to diversify into developed overseas markets, including often-overlooked Japan. It could also work well alongside funds that focus more on higher-risk emerging markets.

Managers

The fund was set up in 2011 by Michael Lindsell and Nick Train, who both have more than three decades of investment experience. Lindsell spent much of his earlier career in the Japan sector and worked in Tokyo and Hong Kong. He became responsible for all global funds at GT Management, and when GT was bought by Invesco in 1998, became head of the combined global product team. Train was previously head of Global Equities at M&G Investment Management, where he’d worked since 1998. Before that he spent 17 years at GT Management in various senior roles including investment director and chief investment officer for Pan-Europe.

James Bullock joined them as co-manager on 2015, having previously worked with Lindsell and Train as an analyst for several years. The bulk of the team’s experience comes from Lindsell and Train, so our conviction lies with them, although Bullock is building a strong track record of his own too.

Although we highly rate the managers, the fund isn’t on the Wealth Shortlist. It was previously on the Wealth 50, but we made the decision to remove it as the Lindsell Train business owns a significant amount of shares in Hargreaves Lansdown plc. This was done to avoid any potential conflict of interest.

Process

The managers invest in mostly large businesses with characteristics that are hard to copy or cannot be bought, such as strong brands, heritage or sports franchises. They invest in a small number of companies – typically between 20 to 35. This gives each holding the potential to make a big difference to the fund’s performance, but it’s a higher-risk approach than a more diversified one. A small part of the portfolio is currently invested in higher-risk smaller companies.

Nearly half the portfolio’s companies are from Western Europe (including the UK), with roughly a third from the US and around 20% from Japan. That means the managers invest a fair amount more in the UK, Europe and Japan, and significantly less in the US, than the global stock market average. They don’t currently invest in emerging market companies, instead preferring to gain exposure indirectly through developed-market companies that do lots of business in developing countries.

The managers are bona fide buy-and-hold investors, making very few changes to the portfolio. They made just a single new investment over the past 12 months – luxury fashion brand Prada, which they bought in the second half of 2019. They’d admired the company for many years and so after its shares fell a long way from their peak, they saw it as an opportunity to invest in a well-loved brand with over a century of heritage at an attractive price.

In October 2019 the managers were forced to sell (at a profit) International Speedway Corporation, owner of motorsport race tracks in the US, after it was bought by stock car race operator Nascar Holdings. At the beginning of this year they sold Japanese companies Canon and Meiko Network. The managers weren’t as confident in them as their other holdings and had been viewing them as readily-available sources of cash. By the time they were sold they made up less than 0.5% of the portfolio combined.

Culture

Both Lindsell and Train run other funds – the former manages Lindsell Train Japanese Equity and the latter heads up both Lindsell Train UK Equity and Finsbury Growth and Income Trust. We don’t think the managers are too heavily-burdened though, as all their portfolios are run along similar lines and their research from those respective portfolios feeds into the Global Equity fund.

Between them, Lindsell and Train own the majority of Lindsell Train Limited, the company that runs all the funds. Bullock also owns shares in the company. We view this positively as ownership of the business ties the managers’ long-term incentives to the interests of investors.

Although not a deliberate aim, the managers usually score well on ESG (environmental, social and governance) issues. That’s because they tend to avoid investing in oil & gas, mining, tobacco, arms and gambling, as they’re wary of potential regulation and litigation.

Cost

The managers have reduced the fund’s fee as it’s grown in size. We think that’s the right thing to do as a fund’s costs don’t tend to increase much as it becomes larger. The standard fund charge for Lindsell Train Global Equity is 0.65%, but we’ve negotiated a saving of 0.15% to give a lower 0.5% charge for HL clients. We think this is excellent value for access to experienced managers with superb track records. The HL platform fee of up to 0.45% per year also applies.

Performance

The managers have delivered terrific long-term returns. Since the fund launched in March 2011, it’s returned 321.36%*, compared with the FTSE World Index’s 157.5% gains, although that’s not a guide to future returns. This is an impressive feat given the managers only invest around half as much as the global stock market average in the US, which has been one of the strongest markets for several years. Our analysis puts the managers’ performance down to skilled stock-picking, regardless of a company’s size, sector or country.

The fund has normally kept slightly ahead of the benchmark during rising markets, but its best periods of performance have usually been when markets have fallen. That’s what’s happened recently, as the fund held up better when markets were hit by fears over the global pandemic.

Over the past 12 months though, the fund hasn’t done as well as the benchmark. Some investments in consumer companies have held back performance, as has investing less in the strong-performing technology sector than the broader global stock market.

Lindsell, Train and Bullock are patient, long-term investors. They’re not too concerned about short-term wobbles and will continue investing as they always have. We expect good long-term performance from the fund, although there are no guarantees.

Investors should note this fund’s quality-growth-style of investing has been in favour for some time, which has helped contribute to its impressive performance. Market trends don’t continue forever though, and investors should ensure they have style diversification in their portfolios, and regularly review investments to make sure they continue to meet their needs and objectives.

Lindsell Train Global Equity performance since launch

Past performance is not a guide to the future. Source: Lipper IM *to 30/6/2020

Past performance is not a guide to the future. Source: Lipper IM to 30/06/2020

Please note charges can be taken from capital which can increase the yield but reduces the potential for capital growth. This is an offshore fund so investors aren’t normally entitled to compensation through the Financial Services Compensation Scheme.

The fund currently has a holding in Hargreaves Lansdown plc.

Find out more about Lindsell Train Global Equity Fund including charges

Key Investor Information