Lindsell Train IT - What am I missing ?

[onslow]

Morning - looking to increase my holdings in some ITs and noticed the discount on LTI is now around 22%

30% of its NAV is its holding in Lindsell Train Limited (the fund manager itself) and the rest blue chip listed equities, which I quite like. The portfolio is similar to FGT just without the fund manager holding.

Given the 22% discount, it would appear buyers of this IT are picking up holdings in the fund manager very cheapy. For many years this IT had a large premium!

Am I missing something here? The listed equities are all solid, the managers have been buying themselves (including earlier this week) unless the fund manager holding is near worthless why isnt this a good buy?

thank you!

O

[Arborbridge]

Morning - looking to increase my holdings in some ITs and noticed the discount on LTI is now around 22%

30% of its NAV is its holding in Lindsell Train Limited (the fund manager itself) and the rest blue chip listed equities, which I quite like. The portfolio is similar to FGT just without the fund manager holding.

Given the 22% discount, it would appear buyers of this IT are picking up holdings in the fund manager very cheapy. For many years this IT had a large premium!

Am I missing something here? The listed equities are all solid, the managers have been buying themselves (including earlier this week) unless the fund manager holding is near worthless why isnt this a good buy?

thank you!

O

Famous though it is, I've always shrunk from LTI due to the large LT holding. Would I put 30% of my capital into one company? No, so logically, this doesn't appeal to me. OK, the discount is mow tempting, but Ithink I will stick with FGT, unless someone has a better argument.

Arb.

[mc2fool]

Morning - looking to increase my holdings in some ITs and noticed the discount on LTI is now around 22%

30% of its NAV is its holding in Lindsell Train Limited (the fund manager itself) and the rest blue chip listed equities, which I quite like. The portfolio is similar to FGT just without the fund manager holding.

Given the 22% discount, it would appear buyers of this IT are picking up holdings in the fund manager very cheapy. For many years this IT had a large premium!

Am I missing something here? The listed equities are all solid, the managers have been buying themselves (including earlier this week) unless the fund manager holding is near worthless why isnt this a good buy?

thank you!

O

Famous though it is, I've always shrunk from LTI due to the large LT holding. Would I put 30% of my capital into one company? No, so logically, this doesn't appeal to me. OK, the discount is mow tempting, but Ithink I will stick with FGT, unless someone has a better argument.

Yes, I've always been put off by the large incestuous holding. I see they also now have 9.5% in WS Lindsell Train North American Equity Acc.

However, FGT isn't the right LTI-less-LT comparator as FGT is UK only whereas LTI is global. For global-without-LT the one to look at is the Lindsell Train Global Equity Fund (an OEIC).

[Lootman]

I've always been put off by the large incestuous holding.

It is not for everyone certainly but it can be attractive. Back when LTI was (briefly) at £20 a share, and at a big premium, a lot of folks here loved it. But now it is £8 per share and at a big discount, does it make sense to hate it?

There are not too many opportunities to buy into a successful privately-held fund manager, and this is one. And if you believe in their management team, and many do, then would you not also expect the parent company to do well? I might like to buy shares in Vanguard or Fidelity but I cannot,

Also, and not that I am particularly bothered about dividends but i know that some here are, LTI has been on a surprisingly high yield in recent years. It appears this is a byproduct of the principals of the firm choosing to pay themselves dividends out of the profits of the parent company, and we all benefit from that, although it will depress the NAV.

So I am happy with my holding. Although since my cost basis is only about £1.50 I can afford to be sanguine about its share price wobbles. I may top up in the new tax year.

[mc2fool]

I've always been put off by the large incestuous holding.

It is not for everyone certainly but it can be attractive. Back when LTI was (briefly) at £20 a share, and at a big premium, a lot of folks here loved it. But now it is £8 per share and at a big discount, does it make sense to hate it?

Nobody said anything about hating it, but the swing you refer to is all sentiment. The NAV when it was at £20 was £10.42 and now it is £10.23, so the share price change is pretty much entirely down to going from a 92% premium to a 21% discount.

In recent years it's not been so much investing into a successful privately-held fund manager but speculating on the (very) wild mood swings of Mr Market!

To be fair, I do seem to remember that Nick Train was telling the world at the £20 time that the premium was silly and they shouldn't buy.....

[Arborbridge]

In recent years it's not been so much investing into a successful privately-held fund manager but speculating on the (very) wild mood swings of Mr Market!

To be fair, I do seem to remember that Nick Train was telling the world at the £20 time that the premium was silly and they shouldn't buy.....

Yes, that is true.

[Lootman]

In recent years it's not been so much investing into a successful privately-held fund manager but speculating on the (very) wild mood swings of Mr Market!

To be fair, I do seem to remember that Nick Train was telling the world at the £20 time that the premium was silly and they shouldn't buy.....

Yes, that is true.

Ah but is the reason for the change from a premium approaching 100% to a discount of about 20% really just the result of general market sentiment? Because market sentiment is very good right now and yet LTI is down in the doldrums (in relative terms anyway).

Might it not instead be a decline in the perception of LT management and its revenue prospects? Could it be that a future sale of the business is now seen as less likely? Or is it perhaps just a matter of how the LT stake is valued, in the same way that NAV figures for ITs investing in private equity are notoriously fickle?

The so-called "incestuous" holding in the parent company may deter some. But it also adds an extra later of appeal for those who believe in the story. And if you do not believe the story then you might choose to avoid all funds from LT anyway, no?

As I suggested earlier, investors were right to be critical of LTI when its valuation lofted to the giddy level of £20 and a huge premium. But surely that argument no longer applies?

[SebsCat]

Ah but is the reason for the change from a premium approaching 100% to a discount of about 20% really just the result of general market sentiment? Because market sentiment is very good right now and yet LTI is down in the doldrums (in relative terms anyway).

Could part of it be down to the present general dislike of private equity? Right now for instance, ICGT is on a discount of 37% despite its long term track record of decent performance. CLDN is also on a 37% discount which is probably comparable with LTI's with its similar quoted / unquoted ratio once you allow for CLDN's Cayzer family holdings.

My expectation is that PE will come back into favour if interest rates fall and leveraged buyouts become more common. Not that I expect any of them to trade at a premium! I've never looked at LTI in any detail but it does look bizarre that it could ever have traded at more than a nominal premium...

[Lootman]

Ah but is the reason for the change from a premium approaching 100% to a discount of about 20% really just the result of general market sentiment? Because market sentiment is very good right now and yet LTI is down in the doldrums (in relative terms anyway).

Could part of it be down to the present general dislike of private equity? Right now for instance, ICGT is on a discount of 37% despite its long term track record of decent performance. CLDN is also on a 37% discount which is probably comparable with LTI's with its similar quoted / unquoted ratio once you allow for CLDN's Cayzer family holdings.

My expectation is that PE will come back into favour if interest rates fall and leveraged buyouts become more common. Not that I expect any of them to trade at a premium! I've never looked at LTI in any detail but it does look bizarre that it could ever have traded at more than a nominal premium...

Yeah, big discounts have been a feature of private equity ITs for a while now. That is a big part of why I prefer to invest in private equity via Blackstone and KKR.

But LTI is a bit different in that it invests in only one private company - its parent.

So there is still the question of how you value that asset. But to me it is more a matter of leverage. If the LT family of funds do well then the parent fund management company will grow assets and AUM fees, and become worth more. You will double dip. And same on the way down as well.

Makes it fun and unique to own

[scrumpyjack]

So there is still the question of how you value that asset. But to me it is more a matter of leverage. If the LT family of funds do well then the parent fund management company will grow assets and AUM fees, and become worth more. You will double dip. And same on the way down as well.

Makes it fun and unique to own

It's on the way down at present. They lost 27% of funds under management in the last two years.
https://www.theaic.co.uk/aic/news/indus ... ft-pay-cap

Obviously that cuts the value of the management company. Abrnd is a salutary warning of what can happen to the value of an investment management company if they don't perform well and so lose custom. I suspect LT has rather more competent managers, bit still!

[Arborbridge]

The so-called "incestuous" holding in the parent company may deter some. But it also adds an extra later of appeal for those who believe in the story. And if you do not believe the story then you might choose to avoid all funds from LT anyway, no?

Avoid all funds because you don't believe the LT story? No - I'm interested in the companies they choose to invest in, because I believe in their ability. That doesn't mean I want to invest 30% of my allocation to just one company. Over on the HYP board, as you know, posters are very critical when HYP1 has just such a large allocation to one company.

Anyhow, it does put me off, so for a "global" I've gone with others. Without the large LT holding, I might have invested.

BTW, I also have the same problem with one of my oldest holdings, Law Debenture - but every time I think about it, I am reassured by the history. I must have held it continuously since around 198x

Arb.

[Lootman]

So there is still the question of how you value that asset. But to me it is more a matter of leverage. If the LT family of funds do well then the parent fund management company will grow assets and AUM fees, and become worth more. You will double dip. And same on the way down as well.

Makes it fun and unique to own

It's on the way down at present. They lost 27% of funds under management in the last two years.
https://www.theaic.co.uk/aic/news/indus ... ft-pay-cap

Obviously that cuts the value of the management company. Abrnd is a salutary warning of what can happen to 1the value of an investment management company if they don't perform well and so lose custom. I suspect LT has rather more competent managers, bit still!

Good reference. Train loves consumer staples shares. Great place to be during the dot.com and mortgage crises. Not so much when things are all about AI and diet drugs.

Checking I see that I have 25 LTI shares at a cost basis of £171 each. I am up five-fold in about 15 years so not complaining, especially since it has yielded 5% or 6% recently in cash dividends. But sure, if I had bought between £1,000 and £2,000 a share then I would be feeling pretty sick right now.

Buy it when people hate it and not when they love it.

The so-called "incestuous" holding in the parent company may deter some. But it also adds an extra later of appeal for those who believe in the story. And if you do not believe the story then you might choose to avoid all funds from LT anyway, no?

Avoid all funds because you don't believe the LT story?

No, I meant that if you do not like the LT funds then you would probably not invest in the LT parent, and vice versa.

[BullDog]

Never been a fan of LT. Finally made my mind up while listening to a podcast by LT sometime ago. They explained that they didn't understand technology businesses so they wouldn't ever invest in one. Seemed to me a very odd thing to say in the 21st century world.

[SalvorHardin]

Never been a fan of LT. Finally made my mind up while listening to a podcast by LT sometime ago. They explained that they didn't understand technology businesses so they wouldn't ever invest in one. Seemed to me a very odd thing to say in the 21st century world.

That isn't the case nowadays. In the latest video on Finsbury Growth and Income's website (13th Feb 2024) Nick Train and Madeline Wright go into some depth about four of their holdings: London Stock Exchange, Relx, Experian and Sage. They view these as "big data" companies.

There's quite a bit about Lindsell Train's view that the Internet and artificial intelligence is an integral part of the business of every company in which they own shares. Whilst they aren't investing in semiconductor companies, there is a lot of "tech" in these four holdings. Link below:

https://www.finsburygt.com/

[BullDog]

Never been a fan of LT. Finally made my mind up while listening to a podcast by LT sometime ago. They explained that they didn't understand technology businesses so they wouldn't ever invest in one. Seemed to me a very odd thing to say in the 21st century world.

That isn't the case nowadays. In the latest video on Finsbury Growth and Income's website (13th Feb 2024) Nick Train and Madeline Wright go into some depth about four of their holdings: London Stock Exchange, Relx, Experian and Sage. They view these as "big data" companies.

There's quite a bit about Lindsell Train's view that the Internet and artificial intelligence is an integral part of the business of every company in which they own shares. Whilst they aren't investing in semiconductor companies, there is a lot of "tech" in these four holdings. Link below:

https://www.finsburygt.com/

Thanks for that.

Though I'm sympathetic to the view that emerging technologies like AI for example are likely to be rapidly commoditised by business such that nobody will have a competitive edge solely due to adoption. A bit like the progression to fax machines, email, internet, ecommerce, cloud. Every business deploys the technology. Nobody has an edge due to the technology.

[onslow]

Some great replies in this thread - thanks!

I note that the directors, particularly Michael Lindsell, continue buying on market - often with five figure purchases once or twice per week.

[simoan]

That isn't the case nowadays. In the latest video on Finsbury Growth and Income's website (13th Feb 2024) Nick Train and Madeline Wright go into some depth about four of their holdings: London Stock Exchange, Relx, Experian and Sage. They view these as "big data" companies.

There's quite a bit about Lindsell Train's view that the Internet and artificial intelligence is an integral part of the business of every company in which they Iown shares. Whilst they aren't investing in semiconductor companies, there is a lot of "tech" in these four holdings. Link below:

https://www.finsburygt.com/

Thanks for that.

Though I'm sympathetic to the view that emerging technologies like AI for example are likely to be rapidly commoditised by business such that nobody will have a competitive edge solely due to adoption. A bit like the progression to fax machines, email, internet, ecommerce, cloud. Every business deploys the technology. Nobody has an edge due to the technology.

This is not the point that FGT are making. On its own, AI is useless because all AI implementations need data for training, so the companies with large proprietary datasets will be the ones that will differentiate themselves and be able to develop products customers cannot do without. Certainly LSEG and RELX are very good examples of this, and as we know, LSEG already has a tie up with Microsoft.

All the best, Si

[flyer61]

Data is hugely important to businesses these days, think easyJet, Hargreaves Lansdown etc.

With LTI it is interesting that the LT stake is now less than 35% of the NAV. It wasn't long ago that this was over 40%.

Want to see the board start talking about the discount and how they propose to narrow it. And not by remodelling the LT stakes value I might add!

[Lootman]

Data is hugely important to businesses these days, think easyJet, Hargreaves Lansdown etc.

With LTI it is interesting that the LT stake is now less than 35% of the NAV. It wasn't long ago that this was over 40%.

Want to see the board start talking about the discount and how they propose to narrow it. And not by remodelling the LT stakes value I might add!

The obvious remedy of the manager buying back shares of LTI may not work when the fund holds such a large share in that manager.

I cannot quite get my head around that without it hurting.

[flyer61]

My head hurts too!

This is the key to it all for me...

With revenues sliding amid ‘a gruelling environment for the fund management industry’, the chair warned that if LTL’s funds under management continued to fall it may be necessary to raise the firm’s long-standing salary and bonus cap, which limits pay to 26% of annual turnover.

He said this might be necessary to fund the new profit share scheme introduced earlier this year for the next generation of fund managers, such as James Bullock and Madeline Wright, who are positioned to succeed the founders when they retire.

The pay cap, along with an 80% dividend payout ratio, was designed to protect LTI shareholders since its launch in 2000. Raising it would require the support of 90% of LTL shareholders, which include chairman Train (below left), chief executive Lindsell (below right), the LTI trust and other directors and employees.


We are likely to get stiffed to ensure they keep their multi million pound packages....