The value of Nick Train and Michael Lindsell’s fund management business has fallen 8.4%, knocking the £195m Lindsell Train (LTI ) investment trust that owns nearly a quarter of its unlisted shares. 

Continued investor withdrawals in response to the underperformance of the managers’ funds saw assets under management (AUM) at Lindsell Train Limited (LTL) fall from £15.2bn to £13.4bn in the six months to 30 September.

That’s a far cry from its June 2021 peak of £24.6bn when lead portfolio manager Train’s quality growth style had reigned supreme for much of the previous two decades.

Fees from investment management dropped 19% to £36.4m in the boutique’s half year to 31 July, with the valuation sliding £63.3m to £247.1m in the 12 months to September and accounting for 31% of the trust’s net assets, down from 34% in March. 

The decline in LTL’s value more than offset gains in its investment portfolio, reducing net asset value (NAV) by 1.9% against a 2.8% rise in the MSCI World index.

Roger Lambert, who succeeded Julian Cazalet as chair this year, said that while the decline in its biggest holding was ‘disappointing’, the board took comfort from LTL’s financial strength with £105m of cash to support the business and dividend.

However, he added that should LTL’s AUM fall below £11bn, either from outflows or declining asset prices, the business’ salary and bonus cap, which restricts salary and bonus payments to its employees to 26% of revenues, could be compromised.

Lambert highlighted the 24% and 9% leaps in Unilever (ULVR) and London Stock Exchange Group (LSEG) over the period, but said these were negated by Guinness giant Diageo (DGE) and Nintendo both falling 9%.

‘Pregnant with opportunity’

Train, who famously adopts a buy-and-hold strategy on his funds, including the £1.5bn Finsbury Growth & Income (FGT ) trust and £2.8bn Lindsell Train UK Equity fund, said that even he felt impatient about the disappointing returns from several long-term holdings that have left LTI on a 1.2% underlying loss in NAV over three years.

The shares have done far worse, slumping 34% in contrast to the MSCI World’s 36% increase, although over 10 years shareholders have received a 159% total return.

‘Nonetheless, as I will demonstrate, there are many long-term winners in your portfolio that help vindicate our approach,’ Train said. ‘I also hope to demonstrate that most of our holdings are currently pregnant with opportunity and we have high hopes for meaningful capital gains across the whole portfolio in years to come.’

Highlighting the trust’s strong long-term performance, with NAV currently up nearly 296% over a decade, the fund manager noted that the portfolio’s value was four times what he and Lindsell had paid, with analytics company Relx (REL) one of the top performers and a major part of the trust’s digitalisation theme. Other top performers in recent years include PayPal, LSEG, and soft-drinks business AG Barr (BAG).

‘We highlight the 28% of the portfolio invested in three exceptional data/technology companies – LSEG, Nintendo and Relx – as likely drivers of future NAV,’ Train said. ‘Today, we believe your portfolio offers an attractive mix of steady, predictable growth companies and look forward to it trebling again over time.’

Shares in the 7.1%-yielder returned 2.7% over the half-year period as their discount, or gap, to NAV narrowed slightly from 22% to 19.3%.

The chair said that the discount, which has widened to 26% since the period end, remained a ‘source of concern’. It not only reflected the decline in LTL but also the succession risk at the business as founders Train and Lindsell approach retirement age, and also the general level of discounts across the investment company sector.

However, the board believes share buybacks would be ineffective in tackling the discount and cash would be better spent investing in an opportunity when one materialises.