After almost two decades in the investment industry, Nick Train founded in 2000 together with Michael Lindsell, his own asset management boutique, called Lindsell Train. Currently, they manage five investment vehicles for both retail and institutional investors, three of which are open-ended funds and two closed-ended (Investment Trusts). On top of that, the overperforming boutique manages some private mandates. In total, according to a SEC filing, total assets under management were US$18.8Bn (£14.2Bn). AuM in open-ended funds are £10.3Bn.
The main funds are the UK and Global ones, with more than two-thirds of total funds. If we consider the UK strategy as a whole (including the Finsbury Growth & Income Trust), the boutique is managing more than £6.7Bn only in the British market, whilst the global strategy (including Lindsell Train Investment Trust) has around £5Bn size (although a huge part is invested in the UK market).
The Japanese fund is managed by Michael Lindsell, with a CAGR of 16% in the last 5 years, whereas the UK fund is run by Nick Train (5Y CAGR 13%). The Global Fund, however, is managed by both of them together with James Bullock and has given a 17.6% annualised in the last 5 years.
In summary, AuM are really high, but the past performance of all Lindsell Train funds explains why so many investors rely on these managers to allocate their money in financial markets. No matter the strategy, every fund has outperformed its market in the last 5 years and, what is more, since launch. Such is the success of the funds that they all have the five stars given by Morningstar.
The best fund is Lindsell Train Investment Trust, with a brilliant return over the last years. However, this fund is not fully invested in the financial markets, or at least in publicly traded stocks. More than 40% of the NAV corresponds to Lindsell Train Limited, the asset management company of the fund. With this investment, the Trust holds 24.31% of the company. In 2010, with a similar stake in the management company, the weight in the portfolio was 8.38%, which is self-explanatory of the extraordinary return of the Trust.
The most interesting feature of Lindsell Train is not the past performance though. The unique investment philosophy makes out of these managers some of the most interesting ones to study and follow. The investment strategy could be summarized as non-indexed passive value investing.
- Non-indexed: the funds are concentrated in 20-35 holdings and the first investments have a significant weight. In the Global Fund, the first 10 holdings amount for 58% of the portfolio, whereas in the UK Fund the weight of the top 10 is 78% (May 2018). Concentration, as they say, can reduce risk.
- Passive: the managers follow a buy and hold strategy, up to a point that it could be considered passive investing. In fact, on the web they share the following Buffett´s quote: “Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with managers of the highest integrity and ability. Then you own those shares forever.” As an example, in the UK Fund, 7 out of the top 10 holdings were in the top 10 in May 2013. That is, after more than five years, the main part of the portfolio is unchanged. In regards with this, the managers are concerned about the fact that “transaction costs are “tax” on returns”, so they try to keep trading activity in the minimum level (turnover is, usually, less than %5 p.a.).
- Value investing: although the concept of value investing is becoming vague, Lindsell Train has a bottom-up approach in which the only thing that matters is the value of the underlying businesses. Specifically, the managers “believe that durable, cash generative franchises are rare and undervalued by most investors for most of the time.” The key driver of every investment is the franchise value, which allows us to categorise these managers as quality investors.
All these principles materialize in very unusual portfolios, with very little change in terms of companies and weightings, and high-quality business such as Unilever, Diageo or London Stock Exchange. The main industry is consumer staples (46.5% of the Global Fund), followed by I.T. (18.9%) and consumer discretionary (15.8%). Geographically, the global fund is allocated in USA (35.5%), UK (27.1%), Japan (22.2%) and Europe ex-UK (12.6%).
Definitely, Lindsell Train is a wonderful asset manager with an extraordinary team and amazing funds and. The investment philosophy, together with the past performance and the alignment of interests, make these funds an imperative for every long-term oriented portfolio, although future returns could be affected by the huge amount of assets managed.