Lindsell Train questioned over £100m reserves

With about £100m sitting in liquid investments at its biggest holding, should the board of Lindsell Train Investment Trust be doing more to compensate hard-hit investors?

Managers and board members of Lindsell Train Investment Trust (LTI ) were pressed at its annual general meeting (AGM) last Thursday over the £100m of reserve funds that appear to be sitting idle at its largest holding, the trust’s own fund manager. 

According to the trust’s latest annual results, at the end of January, manager Lindsell Train Limited — which the investment trust owns nearly a quarter of — had net assets of £108m, with £103m held as cash or in short-term gilts and bonds.

Nearly £81m of that total was cash ‘at bank and in hand’, according to the fund group’s own results. 

Shareholders in LTI, which otherwise owns a global equity portfolio, have suffered significant losses over the past five years, with shareholders down 21.3%, including dividends reinvested. The shares’ derating to a sizeable 19% discount has counteracted a muted 2.7% rise in net asset value (NAV) total returns over that time, according to Deutsche Numis data. 

Manager Nick Train acknowledged the poor performance, saying the returns ‘haven’t been good enough’. 

One shareholder asked why the trust’s fund manager is sitting on such a large sum when it could, for example, be using those retained profits to increase dividend payouts. The Lindsell Train’s investment trust’s current dividend yield is 5.8%, with roughly three-quarters of that coming from dividends paid by the asset management business.  

In response, the board’s chair Roger Lambert said: ‘The cash gives us optionality. It allows us to consider seeding new strategies. We’ve already done that with our North American fund – some of the ownership of that fund, the seeding, was directly from the company itself.

‘There are other potential strategies we could pursue, and it gives us huge financial flexibility at what is quite a difficult time for the company.’

In April 2020, the investment trust helped seed the the launch of the Lindsell Train North American Equity Fund . As of the end of January this year, this investment stood at £9m. 

The LTI board also ruled out buybacks, explaining this would increase the weighting of the trust’s largest illiquid investment which ultimately ‘wouldn’t be advantageous to shareholders’.

Lindsell Train Limited, which also manages Finsbury Growth & Income (FGT ) and other open-ended funds, has run the eponymous investment trust since launch in 2001. To boost shareholder alignment it has a just under 24% ownership stake in its own fund manager. 

That accounts for around 23.5% of the investment trust’s own portfolio NAV, ahead of conventional equity holdings like London Stock Exchange Group and 11.2% in the Lindsell Train North American Equity fund, according to the latest factsheet. 

Investing in ‘fun’

Despite recent losses, Train spoke optimistically about recent strategy changes.

‘It’s not in my nature to be downcast, and it’s not constructive. Things can change quickly in markets, and they can change quickly for the better,’ he told hard-hit investors.

The manager highlighted that holdings such as Diageo, owner of Guinness, Mondelez, which holds Cadbury, and Laurent Perrier still have ‘strong growth prospects’, but said exposure to consumer brands in the portfolio has fallen to 30% from around 50% a few years ago.

The shift has increased the trust’s weighting in other ‘intellectual property owners’ including Nintendo, now the trust’s second-largest asset at 13.8%. Similar moves have been made at Finsbury Growth & Income, which Train recently told Citywire is now focused on mostly ‘digital winners’.

‘Nintendo has become the biggest holding in the portfolio, and it’s done really well recently. But it’s also done well over longer periods – we’ve owned it since 2001, 2002 in the trust,’ said Train at the AGM. 

He explained that Nintendo’s success comes from harnessing digital technology to make consoles and games ‘more fun’, which drives both the business and share price. 

To illustrate the point, he said: ‘With each successive console, Mario Kart has sold more and more copies because the power of the console has made the game more and more fun. That’s a powerful trajectory, and it’s a reason – maybe a central reason – why it’s such an important holding in the portfolio.’ 

Train also spoke positively about the trust’s latest investment, clinical research company ThermoFisher, which deputy portfolio manager Ben van Leeuwen described as ‘involved in every single step of the healthcare lifecycle’, reducing the risk that comes with betting on the performance of any single drug.

Van Leeuwen is part of ‘a new generation of investing talent’ which Train gave as another reason for his confidence in the trust’s future, ‘generating compelling new investment ideas which have already been finding their way into all of our portfolios’.