Lindsell Train Global Equity: August 2021 Update

• Michael Lindsell and Nick Train are seasoned investors with an established investment process
• No new investments have been made over the past year, in-keeping with their 'buy and hold' approach
• Recent performance has been subdued but the managers' long-term record is exceptional
• The fund does not currently feature on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Lindsell Train Global Equity fund aims to grow your investment over the long term by investing in a small number of companies from around the world. Developed markets, including the UK and US, are the primary focus and the managers' emphasis on Japan offers investors something a little different to other global funds. Their established process focuses on 'quality growth' which could work well alongside other investments focused on unloved companies with the potential to recover.

Manager

The fund was set up in 2011 by Michael Lindsell and Nick Train, who both have more than three decades of investment experience. Lindsell spent much of his earlier career in the Japan sector and worked in Tokyo and Hong Kong. He became responsible for all global funds at GT Management, and when GT was bought by Invesco in 1998, became head of the combined global product team. Train was previously head of Global Equities at M&G Investment Management, where he'd worked since 1998. Before that he spent 17 years at GT Management in various senior roles including investment director and chief investment officer for Pan-Europe.

James Bullock joined them as co-manager in 2015, having previously worked with Lindsell and Train as an analyst for several years. The bulk of the team's experience comes from Lindsell and Train, so our conviction lies with them, although Bullock is building a strong track record of his own too.

The managers are also responsible for several regional funds and trusts, with a focus on areas such as the UK and Japan.

Although we rate the managers highly, the fund isn't currently on the Wealth Shortlist. It was previously on the Wealth 50, a predecessor of the Wealth Shortlist, but we made the decision to remove it as the Lindsell Train business owns a significant number of shares in Hargreaves Lansdown plc. This was done to avoid any potential conflict of interest.

Process

Lindsell and Train's philosophy stems from their belief that there are only a handful of great companies in the world. These are the ones they want to invest in, particularly when their true value is not realised by other investors. They have established a repeatable investment process to hunt down these exceptional companies, and it's used across all the funds they manage.

The managers invest in financially robust companies with characteristics that are hard to copy, such as strong brands, heritage or sports franchises. Whilst not a requirement, many of their investments have high levels of founder family ownership, which can help align the interests of all investors.

These strict criteria reduce their investable universe to around 170 companies, compared to over 1500 for the benchmark. This is whittled down to a final portfolio of 20 to 35 stocks. This means each investment can have a significant impact on performance, both positively and negatively, which can increase risk.

Most of these 'exceptional' companies tend to be larger and are based in developed markets. While the fund currently invests more in the UK and Japan, and less in the US, than the global benchmark, that's a result of where the managers are finding the best opportunities, not a call on the prospects for those regions. The managers also have the flexibility to invest in higher-risk smaller companies.

They find the most opportunities within consumer-focused businesses, which currently account for around half of the fund. The managers don't invest much in pure technology companies, preferring to invest in heritage companies that can exploit technology to improve their service, such as publishing company Pearson and entertainment company Walt Disney. They don't invest in industries that require large amounts of capital, such as energy, commodities and mining.

The managers invest for the long term, which means they rarely buy and sell shares in companies. This helps keep costs down and enables the profits from their companies to compound over time. There haven't been any new companies added to the fund over the past year. Luxury brand Prada was the most recent addition to the portfolio in May 2019.

Earlier this year the managers took advantage of share price weakness to top up existing investments in the consumer franchises section of the fund, such as confectionery goods company Mondelez and PepsiCo, owner of brands like Pepsi, Tropico and Doritos.

Culture

Between them, Lindsell and Train own the majority of Lindsell Train Limited, the company that runs all Lindsell Train funds. We view this positively as ownership of the business ties the managers' long-term incentives to the interests of investors. Our due diligence recently highlighted some areas for improvement in the firm's corporate governance processes, which have already improved following our engagement.

The duo and their team spend all their time reading, learning and compiling information on companies they own shares in and those on their watch list. They've created a truly unique environment for staff, which includes a library within the office. They tend not to recruit experienced people, preferring to train and develop graduates who can be moulded into the Lindsell Train way of thinking.

The managers look for companies with the potential to thrive for decades, or even centuries, so it's important they have high governance standards, and manage their environmental and social impacts well. Analysis of environmental, social and governance (ESG) factors is therefore a natural part of their investment process. For example, they will avoid industries they think are detrimental to society and, as a result, potentially exposed to regulation or litigation, including tobacco, gambling and arms manufacturers.

Cost

The fund is available to HL clients for an ongoing annual charge of 0.50%, which is 0.15% lower than the standard ongoing charge of 0.65%. We think this is a good price to access the managers' best global ideas. The HL platform charge of up to 0.45% per year also applies.

Performance

The managers have delivered impressive returns since the fund's launch in March 2011. Over this period the fund returned 359.0%* vs 195.0% for the IA Global sector average, although that's not a guide to future returns. Our analysis suggests this is down to the managers' ability to select great companies, especially within the consumer discretionary and financials sectors. This has been achieved despite the fund having less invested in the US, which has been one of the best performing markets over the past decade.

The managers' focus on high quality companies means the fund has tended to provide some shelter from the worst stock market conditions. It's also kept marginally ahead when markets have risen.

The fund's performance has been weaker over the past year though, returning 13.7% vs 27.1% for the sector. This is down to a combination of the managers' investment style going out of favour and weaker stock selection. Their investments in consumer staples caused the biggest drag on performance. This includes chemicals and cosmetics firm Kao Corporation and consumer goods company Unilever.

An investment in Juventus, the Italian football club, also dragged on returns. Following their involvement in the breakaway European Super League, the managers have engaged with the board to express their disappointment and continue to monitor the situation and its potential impact on their investment.

Lindsell, Train and Bullock are patient, long-term investors. They're not too concerned about short-term wobbles and will continue investing as they always have. We expect good long-term performance from the fund, although there are no guarantees.

**Lindsell Train Global Equity A Share Class used to show performance figures since the fund's launch.

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2021.

Find out more about Lindsell Train Global Equity Fund including charges

View Lindsell Train Global Equity Key Investor Information

Please note the fund currently holds shares in Hargreaves Lansdown PLC.

As this is an offshore fund you're not normally entitled to compensation through the UK Financial Services Compensation Scheme.