Lindsell Train has pocketed a £2.43 million performance fee after the investment trust reported a 45% increase in its share price, but will cut its annual charge from July.
Five star-rated investment trust Lindsell Train (LTI) is the closed-end version of the popular UK and Global unit trusts. As well as a leap in its share price in the past financial year, it saw a 23% increase in the NAV.
The trust's manager Nick Train is known for his buy and hold approach, which he hopes will lead him to so-called 100-bagger investments. He favours consumer companies and particularly drinks firms. Indeed, the trust's biggest holding (apart from the 45% stake in Lindsell Train limited), is drinks maker Diageo (DGE), which represents more than 7% of the trust’s portfolio. Other top holdings include Heineken (HEIA) and Marmite-maker Unilever (ULVR).
Morningstar analyst Peter Brunt praises Train as an “incredibly experienced manager” with a “well-structured approach”, which leads the UK open-ended fund to attain a Morningstar Analyst Rating of Gold.
“The crux of Train's investment philosophy lies in the belief that a highly concentrated portfolio of high-quality, cash-generative, strong, and easily understood business franchises will outperform the market and reduce volatility over the long term,” Brunt adds.
The trust manages more than £7 billion of assets, according to Morningstar data, and sits at an eye-watering 90% premium to its NAV. This is largely due to its stake in Lindsell Train Limited. It also invested in Silver-rated Lindsell Train Global Equity at launch four years ago to “help give it greater critical mass”.
Now the open-ended fund has established its own track record, the trust has divested its stake.
Fans of Train will be delighted by the decision to cut the trust's annual fee by five basis points to 0.6% from July. But the move comes at a time when the cult of the star manager is being called into question, after high-profile fund manager Neil Woodford was forced to suspend dealing in his flagship Woodford Equity Income fund.
For comparison, the "D" share class of the open-ended UK equity fund has an initial charge of 2% and an annual management charge of 0.51%. It doesn't charge a performance fee.
Management fees for the open-ended funds will also be cut, the company said. The Lindsell Train investment trust does, however, charge a performance fee.
The Cult of the Star Manager
Managed by Michael Lindsell, Nick Train and James Bullock, the Lindsell Train trust launched in January 2001 at a price of £10 a share. It now trades at just above £1,515 per share. The trust yields around 1% and has proposed a final dividend of £27.87 per share - a 30% increase on the previous year - and a 219% increase in the special dividend to £1.63.
Along with Neil Woodford and Terry Smith, Lindsell and Nick Train are among the highest-profile of UK retail fund managers. The open-ended Lindsell Train UK Equity fund is on Interactive Investor’s “Super 60” list and Lindsell Train UK Equity and Lindsell Train Global Equity are on Hargreaves Lansdown’s “Wealth 50” list.
Candid Finance’s Justin Modray believes the cult of the star manager will persist despite the well-publicised problems Woodford has faced. He argues that, contrary to the evidence that passive funds outperform many active vehicles when fees are taken into account, many UK investors will continue to “chase performance”.
Despite market volatility within the reporting period – especially during a dire fourth quarter for world stocks – Lindsell Train has comfortably outperformed the benchmark. It is a similar story with Scottish Mortgage Trust (SMT), which published annual results in May showing a 14.6% rise in the NAV and a 16.5% rise in the share price in the year to the end of March.
