Next month sees the tenth anniversary of Lindsell Train Global Equity, one of the UK’s most popular funds. At the time of writing, it’s up 373% since it launched which represents an annualised return of 17%.
I’ve been invested in this fund since April 2016, so roughly half the time it’s been available.
However, it marginally underperformed world markets in both 2019 and 2020 and that’s led many people to ask whether it’s best days are behind it.
The Lindsell Train stable
Lindsell Train Limited was formed in 2000 and it manages three open-ended funds and two investment trusts:
- Lindsell Train Global Equity is its youngest but largest fund with assets of £8.1bn.
- Lindsell Train UK Equity, launched in 2006, is slightly smaller at £6.4bn.
- Finsbury Growth & Income (FGT) has been managed by Lindsell Train since 2000. It has assets of £1.9bn, up from £100m when Lindsell Train took over. This trust dates back in 1926 and was previously known as Scottish Cities.
- Lindsell Train Japanese Equity was launched in 1998 but has only been managed by Lindsell Train since 2004. It has £600m in assets.
- Lindsell Train Investment Trust (LTI) was launched with just £20m in 2001 and now has £240m in assets. Nearly half of its portfolio is a 24.2% stake in Lindsell Train Limited, the company that manages all these funds.
There’s quite a lot of overlap between these funds and trusts.
The UK fund and Finsbury Growth & Income have nearly identical portfolios.
The Global Equity fund owns a lot of the same UK companies and also has many holdings in common with both Lindsell Train Investment Trust and the Japanese Equity fund.
Lindsell Train Limited looked after a total of £22bn in assets as of September 2020 suggesting there’s around £5bn managed outside of these main retail funds.
Lindsell Train North American Equity was launched last April but this isn’t public-facing at this time. Lindsell Train Investment Trust has a £15m holding in this embryonic fund while co-founders Michael Lindsell and Nick Train have put money in as well.
The Lindsell Train playbook is pretty well known at this point:
- Its funds and trusts typically have between 15 and 25 holdings so they are highly concentrated.
- The aim is to find “durable, cash generative business franchises” and to hold them for the long term.
- The funds very rarely buy new positions or sell existing ones (more on just how rarely later).
- Certain sectors tend to be favoured, namely Consumer Branded Goods, Internet/Media/Software, Pharmaceuticals and Financials.
Nick Train has clarified the themes behind the company’s investment choices in recent interviews. In order of portfolio weighing, he splits them into:
- Digital winners – “not only obvious data analytics or technology businesses … but companies in other industries that are doing value-creating things with data or technology to deepen their relationships with their customers”
- Beloved and trusted consumer brands – such as those owned by Diageo and Unilever
- Luxury or premium brands – e.g. Burberry and Remy Cointreau
- Stock market proxies – “specifically asset management companies with growing private wealth franchises”
How Lindsell Train Global Equity has developed
Let’s take a look at how the Global Equity fund has evolved over the last decade.
|B share performance||5.3%||11.3%||30.2%||10.5%||19.5%||23.8%||26.1%||11.1%||19.4%||11.7%|
|Relative to MSCI World||6.6%||0.6%||5.9%||-1.0%||14.6%||-4.4%||14.3%||14.1%||-3.3%||-0.6%|
|Fund size (£m)||44||127||350||678||1,250||2,069||3,702||5,266||8,435||8,305|
The number of portfolio positions has remained remarkably consistent over time.
When I did a similar piece on Fundsmith Equity last year, I noted it started with 22 companies but has since grown to 30. Fundsmith is about three times the size of Lindsell Train Global Equity, though, so has needed to broaden its net a little more.
The absolute performance of Lindsell Train Global Equity has been excellent throughout. 2011 was not a full year but was still positive, and every year since has seen double-digit returns.
The relative performance against world markets has been a little inconsistent, trailing in four years out of ten. And a lot of its lead over world markets arose in just three years: 2015, 2017, and 2018.
The worst annual underperformance was 4.4%, which is impressive over a decade of returns.
And despite recent concerns that Lindsell Train is ‘under-teched’, for want of a better expression, the underperformance over the last two years combined is just 4%.
Fundsmith has been more consistent, outperforming world markets every year from 2011 to 2020 and just underperforming by 1% in the last two months of 2010, immediately after it launched.
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However, it’s worth pointing out that the Lindsell Train strategy has two decades of public numbers behind it whereas Fundsmith just has the one.
The Lindsell Train Investment Trust returned 8.9% a year in its first decade from 2001 to 2011 versus 2.2% per annum for world markets. That’s a lead of 6.7% a year. Lindsell Train Global Equity has outperformed by around 5% a year since 2011.
Lastly, Lindsell Train Global has grown in size nearly 200 times since the end of 2011 although the rate of growth has slowed and then reversed in recent years.
The reverse was partially caused by Hargreaves Lansdown removing Lindsell Train Global Equity from its infamous Wealth 50 list in July 2019 in the wake of the Woodford scandal. As Lindsell Train held a large stake in Hargreaves Lansdown there were concerns over a potential conflict of interest.
Since mid-2019, Lindsell Train Global Equity has shrunk in size by about £1bn. It’s returned about 3% over this period, so on a net basis it would seem just over £1bn has been withdrawn from the fund.
How the portfolio has changed since 2011?
The short answer to this is hardly at all.
The full portfolio for December 2020 is yet to be published so I have used June 2020 in its place.
I don’t think any companies have been bought or sold outright since then as nothing has been mentioned in its monthly factsheets.
The latest top ten positions (January 2021) are also very similar in size to those as of June 2020.
|Dr Pepper Snapple||4.5%||4.5%||4.0%||3.4%||2.6%||1.8%||1.8%||–||–||–|
|Japan Exchange (Osaka SE)||4.8%||5.9%||6.0%||3.4%||2.6%||2.3%||1.9%||2.0%||2.3%||3.1%|
|London Stock Exchange||4.9%||5.4%||5.1%||5.4%||4.9%||6.0%||5.4%||5.0%||6.6%||7.0%|
|Meiko Network Japan||2.1%||2.0%||1.0%||0.7%||0.5%||0.3%||0.2%||0.1%||0.1%||–|
|RELX (Reed Elsevier)||4.4%||4.9%||4.9%||5.0%||4.9%||5.0%||4.9%||5.0%||5.0%||4.7%|
|Total in equities||95.5%||98.0%||98.8%||97.0%||96.7%||97.8%||96.8%||97.7%||99.1%||99.1%|
The portfolio started with 24 companies back in 2011.
Two more positions were created as a result of demergers (Mondelez from Kraft and PayPal from eBay).
Four brand new positions were added over the past decade, namely Shiseido (2012), PepsiCo (2015), Hargreaves Lansdown (2017), and Prada (2019).
Six positions have been sold. One of these was Kraft, while the larger, chocolate-powered Mondelez was retained. International Speedway (NASCAR) was taken private and Dr Pepper Snapple was merged with Keurig which prompted Lindsell Train to take their leave.
Hershey, Meiko Network, and Canon were sold but the last two of these positions hadn’t been added to for years and had become tiny holdings due to the growth in the overall size of the fund.
The end result is that we have a portfolio of 24 companies again, right back where we started.
What’s more, around 85% of the current portfolio by weighting consists of companies that were held back in 2011.
Low, low turnover
It’s an astonishingly low level of portfolio turnover.
On average, each year has seen one position change with either a new position bought or an old one sold.
When you look at how the individual position sizes have changed over the years, there has been very little movement there as well.
Diageo, Heineken, and Unilever have remained among the largest positions throughout. London Stock Exchange, Nintendo and the eBay/PayPal combo have all grown in importance but were around 5% since the beginning.
A second tier of Intuit, Kao, RELX, and Disney have remained important positions over the whole decade.
However, a number of major initial positions have been allowed to dwindle somewhat, such as Astellas Pharma, Brown-Forman, Ito En, Japan Exchange, and Pearson, although they have remained part of the portfolio.
Pearson is probably the position that Lindsell Train has attracted the most grief for in recent years. That’s partly because its profile is higher being a UK-based business. It was the fund’s largest position at 8.3% as recently as 2014 after its share price rose from around £10 to nearly £15. It’s now below £8.
The four brand new positions are all pretty sizeable, with Lindsell Train taking a meaningful stake at the outset rather than building slowly over time.
The liquidity question
One issue with funds of this size is have they grown so big that it’s started to affect their investing style?
To examine this, I made a rough estimate of the ownership stake held by Lindsell Train Global Equity, based on current market cap and its position size as of June 2020.
It’s rounded to the nearest percentage point to hide the crudeness of my maths.
|London Stock Exchange||46||1%|
There are a lot of chunky companies here. Two-thirds are valued in excess of £20bn.
The vast majority of stakes held are 2% or less, so routine buying or selling should be relatively straightforward.
The main exceptions are Celtic (a sub-£100m AIM company), Juventus (£1bn), and WWE (£3bn). Collectively, these three positions only make up 5% of the portfolio so that wouldn’t seem to be a major concern.
Diageo, Unilever, RELX, London Stock Exchange, Hargreaves Lansdown, Heineken, and Mondelez are held by the UK Equity fund and Finsbury Growth & Income as well.
But even when you add these positions together, I’d say only Hargreaves Lansdown would be of concern from a liquidity point of view. Lindsell Train owns 13% of Hargreaves Lansdown across all its funds.
Back in May 2019, a short document from Michael Lindsell said that the estimated capacity for the Global Equity fund was around £15bn. That’s almost twice its current size, so there’s plenty of room on that front.
Skin in the game
The three co-managers have a decent amount invested here.
Based on 30 June 2020 holdings and current prices, Michael Lindsell has £5.5m invested, Nick Train has £0.9m, while heir apparent James Bullock has £0.25m.
For both Lindsell and Train, these stakes are small beer of course. Train has a lot more invested in Finsbury Growth & Income (£28m) and Lindsell & Train’s combined 72% stake in Lindsell Train Limited is worth some £340m.
Three directors of the Global Equity fund own a collective £0.8m as well.
Most of them have been increasing their holdings over the past few years, which is encouraging to see.
Picking the 2016 accounts at random to make a comparison, Lindsell’s holding has more than quadrupled and Bullock’s has risen even more, albeit from a much lower base. However, Nick Train has reduced his holding by a quarter.
Two of the three directors have increased their positions and the other owns the same amount.
Costs: decent but not the cheapest
Before starting this exercise, I was under the impression that Lindsell Train had been pretty good at passing on cost savings as the fund increased in size.
However, that doesn’t seem to be the case. Instead, they started fairly low and they’ve largely remained that way.
There are five units in the fund.
The management charge for the A and B £ versions was 1.15% and 0.65% respectively when they were introduced in 2011. These were reduced to 1.10% and 0.60% in July 2019.
The C $ shares and E € shares have been 0.65% since their launch in 2014 and 2017.
The D £ shares (just available through Hargreaves Lansdown as far as I know as their minimum investment is £200m) have been 0.45% since 2014.
Most of the money invested in the fund is in the B units (£3bn) and D units (£4bn) so the overall cost including admin charges has shrunk over the last decade from around 1.3% a year to 0.7%.
In other words, it’s about halfway between the cheap-looking Scottish Mortgage (0.4%) and expensive-looking Fundsmith Equity (1.0%).
Still, such is the size of this fund, Lindsell Train was able to generate nearly £45m in fees from it in 2019.
I’ve stuck with this fund throughout its recent bumpy patch. And thanks to its longer-term growth, it’s become one of my larger positions.
I like the fact Lindsell Train has stuck to their gameplan and they seem genuine in their enthusiasm for the prospects of many of their holdings.
But with the likes of Blue Whale and Baillie Gifford doing so well, we’re now seeing a lot more competition in the quality investing space that Lindsell Train and Fundsmith seem to dominate for some time.
Here’s how Lindsell Train Global and Fundsmith Equity rank over various time periods:
|Fund||1 year||3 years||5 years||10 years|
|Lindsell Train Global||172||89||49||6|
|Number of global funds||339||296||260||171|
Lindsell Train Global hasn’t quite completed a full decade yet, so I’ve put in its position based on its performance since inception.
Even after the last two years, both funds still have highly respectable long-term records. As I aim to trade as little as possible, that’s what I am most interested in.
I’m still of the view that the returns in the 2020s for these funds will struggle to match the heights of the 2010s but I’m happy to keep holding both of them.
Please note that I may own some of the investments mentioned above -- you can see my current holdings on my portfolio page.
Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!
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