Lindsell Train Investment Trust

[jonesa1]

With its premium now in single figures, has LTI become an attractive proposition for anyone?

Andrew

[james51]

The AIC site states that 52% of total assets are in 'Lindsell Train Limited (unlisted)'. Presumably the market has downgraded the value it assigns to this holding. I have no idea if the market is currently correct, or there is a further downgrade to go.

[Lootman]

The AIC site states that 52% of total assets are in 'Lindsell Train Limited (unlisted)'. Presumably the market has downgraded the value it assigns to this holding. I have no idea if the market is currently correct, or there is a further downgrade to go.

That's also what's interesting about LTI of course - it represents a unique opportunity to invest in a very successful privately-held fund management company.

I invested about £4,200 in LTI a decade or so ago. At the time that bought me 25 shares at about £170 per share. That holding is now worth about £30,000 having reached as high as £50,000 last summer.

So whilst I am sick about the decline it has still been a great performer and, if I didn't sell then, I am certainly not selling now. Although part of the problem is that I hold it in a taxable account, and the CGT would hurt.

[gbjbaanb]

apparently its been downgraded (by Morningstar) because of "capacity concerns" - ie its gotten so big it pretty much owns all of the few companies it holds (I exaggerate, obviously. Same with FGT. So if any of these take a wobble, the trust would be impacted disproportionately.

Train says the capacity is £12.5bn vs the fund's current £9.5bn (whatever that means) so he thinks its not as bad as made out, but the funds are still highly concentrated.

[toofast2live]

apparently its been downgraded (by Morningstar) because of "capacity concerns" - ie its gotten so big it pretty much owns all of the few companies it holds (I exaggerate, obviously. Same with FGT. So if any of these take a wobble, the trust would be impacted disproportionately.

Train says the capacity is £12.5bn vs the fund's current £9.5bn (whatever that means) so he thinks its not as bad as made out, but the funds are still highly concentrated.

No, that can only happen with a fund (OEIC) not an IT. I think the concerns are with the Lindsell Train Global equity fund NOT Lindsell Train Investment Trust

[Dod101]

apparently its been downgraded (by Morningstar) because of "capacity concerns" - ie its gotten so big it pretty much owns all of the few companies it holds (I exaggerate, obviously. Same with FGT. So if any of these take a wobble, the trust would be impacted disproportionately.

Train says the capacity is £12.5bn vs the fund's current £9.5bn (whatever that means) so he thinks its not as bad as made out, but the funds are still highly concentrated.

No, that can only happen with a fund (OEIC) not an IT. I think the concerns are with the Lindsell Train Global equity fund NOT Lindsell Train Investment Trust

I understand the point you make and it was the LT Global Equity Fund they mentioned but they also included Finsbury Growth and Income IT as one where they had 'capacity concerns'. That is of course a closed end investment trust and it is I think of less than £2 billion assets so not that big. I did not understand their point with Finsbury because there are a number of ITs which are much bigger, but neither have I seen their view being challenged.

Dod

[monabri]

With its premium now in single figures, has LTI become an attractive proposition for anyone?
Andrew

50+% of LTI is in something which is not transparent to me as a potential investor and like all companies, can be adversely affected by one or two events (Hargreaves L, downgrade).

or,

50+% of the fund is invested in a "single company".


Then we have the individual main holdings -

London Stock Exchange Ordinary 8.08%
Diageo plc 6.35%
Nintendo Co Ltd 5.85%
Unilever plc 4.85%
PayPal Holdings Inc 4.02%
Barr (A.G.) 3.54%
RELX plc 3.24%
Heineken Holdings 3.15%
Mondelez International 3.13%

One could buy into any of these holdings individually, perhaps buying on 'favourable' days (eg Unilever results, mid December) - which is what I would prefer to do.

Then there is the actual spread of buy/sell price of c.4.6%.

So, all in all, it is not for me.

[Dod101]

The attraction of the LT IT to me would be that 50% in the privately held management company. That is surely the point in buying it. I doubt that anyone buying this IT would not have other investments as well so I do not think the 50% exposure to one company matters. What might matter and what would bother me is certainly the premium but also the other holdings because in holding Finsbury for example I already have exposure to LSE A G Barr and at least Unilever. I also have a big holding in Unilever and Diageo myself so I would be wary of that over concentration.

Dod

[mc2fool]

apparently its been downgraded (by Morningstar) because of "capacity concerns" - ie its gotten so big it pretty much owns all of the few companies it holds (I exaggerate, obviously. Same with FGT. So if any of these take a wobble, the trust would be impacted disproportionately.

Train says the capacity is £12.5bn vs the fund's current £9.5bn (whatever that means) so he thinks its not as bad as made out, but the funds are still highly concentrated.

No, that can only happen with a fund (OEIC) not an IT. I think the concerns are with the Lindsell Train Global equity fund NOT Lindsell Train Investment Trust

I understand the point you make and it was the LT Global Equity Fund they mentioned but they also included Finsbury Growth and Income IT as one where they had 'capacity concerns'. That is of course a closed end investment trust and it is I think of less than £2 billion assets so not that big. I did not understand their point with Finsbury because there are a number of ITs which are much bigger, but neither have I seen their view being challenged.

The concerns are not about the Lindsell Train Global Equity Fund but about the Lindsell Train UK Equity Fund and, by extension, the Finsbury Growth and Income IT, as it has more or less the same portfolio.

While Morningstar acknowledge the closed end nature of FGT, they reckon that as it is pretty much just a smaller clone of the UK Equity Fund their feeling that "Train's high conviction style, which has seen the manager build big stakes in a relatively small number of companies, coupled with the growing size of his funds, meant they could prove 'far less nimble'"* will apply to the future performance of both the LT UK Equity Fund and FGT.

* Citywire article: https://citywire.co.uk/funds-insider/ne ... s/a1309083
Investors Chronicle article (free registration required): https://www.investorschronicle.co.uk/fu ... -concerns/

As to how this impacts on the Lindsell Train Investment Trust (LTI), as already noted over 50% of LTI is Lindsell Train Limited, which is the management company of Lindsell Train UK Equity and FGT, so any downgrade of those that could affect LTL's profits will affect LTI.

However, if we look at the performance chart and look down at the discount (well, premium!) sub-chart we see that the collapse from totally outlandish to still pretty high (!) happened in the middle of last year, and after a bit of a recovery has since continued down. https://www.theaic.co.uk/companydata/0P ... erformance

[Dod101]

Oops! Sorry, got the wrong fund. So the issue would not appear to be so much about liquidity of the OEIC (assuming that the Lindsell Train UK Equity Fund is an OEIC) but about the concentration of investments?

After all, liquidity does not really matter for a closed ended IT like Finsbury.

I am relaxed about my holding in Finsbury but I think as I have already said, that one holding of a Nick Train managed fund is quite enough.

Dod

[mc2fool]

Oops! Sorry, got the wrong fund. So the issue would not appear to be so much about liquidity of the OEIC (assuming that the Lindsell Train UK Equity Fund is an OEIC) but about the concentration of investments?

After all, liquidity does not really matter for a closed ended IT like Finsbury.

Ah, but it does if it owns a very large chunk of a company!

It's not so much about concentration per se but about the sheer size of the investments. You and I could have a Train-like concentrated portfolio of a couple of dozen investments and if we decided to, say, dump our holding in Pearson and double up our holding in Schroders we could do so without causing much fuss.

Lindsell Train however, between the UK Equity Fund and FGT, owns 10% of Pearson, and 10% of Schroders! That, in itself, is a liquidity issue, not in the Woodford sense, but in the "far less nimble" to react to events sense, which Morningstar is concerned about possibly affecting performance.

(Hmmm...and I've recently bought FGT too ...!)

[dmukgr]

Can someone please explain the connection with FGT and Lindsell Train please as I've looked at the FGT holdings and don't see anything.

[Lootman]

The attraction of the LT IT to me would be that 50% in the privately held management company. That is surely the point in buying it. I doubt that anyone buying this IT would not have other investments as well so I do not think the 50% exposure to one company matters. What might matter and what would bother me is certainly the premium . .

Yes, for me LTI is all about the holding in the parent fund management company. That company is majority owned by the two founders. LTI owns most of the rest - about one quarter.

The hope is that at some point they sell out to a larger financial organisation. This is not uncommon for smaller fund managers that do very well. At some point they can't resist the cash. I worked for a small go-getter fund management company in the 1990s that was bought out by a German bank. The principals did very well indeed. Even my tiny share was a goodly sum.

If a large predator started sniffing around then LTI could go back to the silly valuation it had last summer. Fund managers typically sell for 2-3% of AUM and LT has 22 billion in AUM. It's like having a call option embedded with an IT.

[mc2fool]

Can someone please explain the connection with FGT and Lindsell Train please as I've looked at the FGT holdings and don't see anything.

Lindsell Train Limited is a privately held fund management company, founded and majority owned (72.6%) by Michael Lindsell and Nick Train. http://www.lindselltrain.com

The funds Lindsell Train Limited manages are:

LF Lindsell Train UK Equity Fund (an OEIC)
Lindsell Train Global Equity Fund (an OEIC)
Lindsell Train Japanese Equity Fund (an OEIC)

Finsbury Growth & Income Trust PLC (FGT)
Lindsell Train Investment Trust PLC (LTI)

LTI owns 25% of Lindsell Train Limited, which makes up approx. 50% of its portfolio.

[Dod101]

Lindsell Train however, between the UK Equity Fund and FGT, owns 10% of Pearson, and 10% of Schroders! That, in itself, is a liquidity issue, not in the Woodford sense, but in the "far less nimble" to react to events sense, which Morningstar is concerned about possibly affecting performance.

(Hmmm...and I've recently bought FGT too ...!)

I did not realise that they own that much of these two companies. I have Schroders but do not hold any Pearson. That being so, I take your point because of course if they tried off loading either one, they would cause the market to move the price down I am quite sure. That is very interesting and relevant to know. However, the Annual Report for Schroders shows Lindsell Train Ltd holding 5.01%, so if indeed they hold another 5% or so, it must be held by the funds they are managing and split into holdings of less than 3%. rather than by LIndsell Train Ltd. Have you added them all up or taken this from some report?

Dod

[mc2fool]

However, the Annual Report for Schroders shows Lindsell Train Ltd holding 5.01%, so if indeed they hold another 5% or so, it must be held by the funds they are managing and split into holdings of less than 3%. rather than by LIndsell Train Ltd. Have you added them all up or taken this from some report?

The afore-linked to CityWire article. But Lindsell Train Ltd is the management company, I wouldn't have thought it owned much of anything itself...?

"The fund group holds more than 10% of the shares of eight of the companies held across both the fund and trust.

Three of these are FTSE 100 companies: Hargreaves Lansdown (HL), Schroders (SDR) and Pearson (PSON) of which Lindsell Train owns 11%, 10% and 10% of the shares respectively. "

It goes on to list other companies LT have big stakes in.

[Dod101]

Very interesting. Pearson's Annual Report discloses 5.03% held by Lindsell Train Ltd. Maybe that is not correct but if it is the incorrect name of the shareholder it is repeated with Schroders. Anyhow, the disclosure of the Lindsell Train holding in each of Schroders and Pearson is only just over 5% in each case.

The article refers to the holdings being across the fund (presumably the LT UK Equity Fund) and the trust (presumably Finsbury G & I) so the other 5% must be held by the fund and trust directly. There is though no disclosure of this in the Accounts, although each could hold just under the 3% disclosure point. Whatever, the point is that LT one way or another has very sizeable stakes in a number of their holdings such that they might find it difficult to sell if they wanted to, without moving the market against themselves.

Dod