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Since the outbreak of the coronavirus pandemic in March 2020, the Lindsell Train Global Equity fund has returned 32.56% compared to the sector average of 55.53%.
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Despite poor performance in recent years, the Lindsell Train Global Equity has returned growth of 377.45% since its launch in March 2011, which is more than 2X greater than the 179.85% sector average for the same period.
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The Lindsell Train UK Equity fund launched on 3rd June 2006 and in the 17 years since it has returned growth of 429.41% compared to the sector average of 135.64%.
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In the 23 years since its inception, the Lindsell Train Investment Trust has returned cumulative growth of 1,168.29%.
Over recent years Lindsell Train funds have been among the most popular choices for investors, who, attracted by their high growth strategy, invested over £12.5 billion in their global equity and UK equity funds. But over the past 3 years the performance of their funds has been well below the sector average with concerns among some investors that their funds are on the decline. This mixture of poor performance and investor outflows has seen £2.6 billion wiped off the value of these 2 funds alone.
But Lindsell Train purports to be long term investors so should investors look beyond the recent cycle of poor performance and trust in the managers long term strategy?
In this report we analyse each of the 4 Lindsell Train funds over the past 1, 3 & 5 years comparing their performance to that of their competitors and identify how each of their funds have struggled for competitive performance since the outbreak of the coronavirus pandemic. To provide a long term assessment, we will also chart the performance of each fund since their inception and compare this to the sector average.
About Lindsell Train
Lindsell Train is named after its two founders and primary investment managers, Nick Train and Michael Lindsell. The duo have a very long term buy and hold approach, following in the footsteps of Warren Buffett, who famously said his favourite period for holding a stock was forever. Lindsell Train is known for encouraging analysts to do antiquated things like “reading books” and “thinking”, rather than simply mashing numbers through a spreadsheet. They even have a library in their office to facilitate such curiously old-fashioned methods. This approach, combined with a steadfast focus on businesses with wide economic moats, has driven exceptional returns for investors and boosted their standing within the investment community. But since 2020, their funds have experienced their first cycle of sharp declines and underperformance which has shaken investor confidence. It has been a very challenging period for Lindsell Train, but will their long term strategy help them regain their competitive ranking?
Lindsell Train Fund Performance Summary
Our summary analysis shows that in 1, 3 & 5 year period up to 1st June 2023, all 4 Lindsell Train funds ranked in the bottom half of their sector for performance in at least 1 of the 3 periods analysed, with the Japanese fund consistently ranking among the bottom of the sector over all 3 periods. However, despite a difficult 3 year period their Global Equity and UK Equity funds have delivered some of the strongest returns in their sector this past year.
Lindsell Train Global Equity Fund
The Lindsell Train Global Equity fund is their flagship fund and currently responsible for managing £5.4 billion. Since the fund's launch in March 2011 up to 1st June 2023, it has returned growth of 377.45%, which is more than 2X greater than the 179.85% sector average for the same period.
However, since the outbreak of the coronavirus pandemic in March 2020 investment markets have been plagued by high volatility from numerous global economic and political challenges. Among the fund managers to be impacted most was Lindsell Train, with each of their funds underperforming compared to the sector average for the period.
The chart above shows the performance of the Lindsell Train Global Equity fund in the period between 18th March 2020 and 1st June 2023. The analysis shows a wide gap in performance with the Lindsell Train Global Equity fund returning growth of 32.56% compared to the sector average returns of 55.53%.
This period of poor performance spooked investors prompting a large portion of their clients to withdraw their money from the fund. In March 2020, the Lindsell Train Global Equity fund was valued at £6.6 billion, £1.1 billion more than its value today.
In the 2nd half of 2022 market volatility began to ease and since then fund performance has been more relative to fund quality than market conditions. This has suited the Lindsell Train Global Equity fund and over the past year the fund has returned growth of 12.31% compared to the sector average of 5.91%. This highlights the importance of enduring negative performance periods when the fund has a proven history of long term outperformance.
Lindsell Train UK Equity Fund
The Lindsell Train Equity Fund, focuses on a concentrated portfolio primarily comprising high-quality UK companies. These holdings typically consist of well-established, dominant businesses within their respective industries, benefiting from factors like robust brands, economies of scale, or barriers to entry. With 20-35 stocks in the portfolio, the top ten holdings alone account for approximately 70% of the fund.
The fund currently manages £4.4 billion of client money, which is down from £5.9 billion it held just before the outbreak of the pandemic. Despite this, the fund still remains one of the largest in the sector.
The fund launched on 3rd June 2006 and in the 17 years since it has returned growth of 429.41% compared to the sector average of 135.64%. The fund has enjoyed long term strong performance comparative to its sector peers but similar to Lindsell Trains other range of funds it has a negative performance record since March 2020.
In the period between 18th March 2020 and 1st June 2023, this fund returned growth of 43.69%, which falls short of the 58.53% sector average. However, similar to the Global Equity fund, the past year has seen the fund become much more competitive with 1 year returns of 13.28% ranking 1st out of 884 funds in the IA UK All Companies Sector.
Lindsell Train Japanese Equity Fund
The objective of the fund is to increase capital value over the longer term by holding shares in companies that are primarily quoted on stock markets in Japan. Gaming company Nintendo and chemical and cosmetics company Kao make up the two largest holdings in the Lindsell Train Japanese Equity fund, and they have been big drivers in this fund’s long term growth.
The Lindsell Train Japanese Equity fund is their most experienced fund having launched in 1998. The fund currently manages £200 million of client assets, down from £360 million in March 2020. Our analysis of this fund identified it to be an underperformer in the highly volatile Japan Equity sector consistently over the past 5 years. However, as identified in the table above, it has managed to deliver more than 2X the sector average in performance since its launch in 1998. The fund had consistently outperformed the sector average right up until June 2020 at which point its performance decline has been significant.
Between 18th June 2020 and 1st June 2023 the fund returned negative growth of -22.71%, which was worse than all other funds in the Japan sector and will certainly be of concern to investors in the fund.
Lindsell Train Investment Trust
The Lindsell Train investment trust launched in January 2001 and for almost 2 decades it had enjoyed superior returns to most of its competitors within the IT Global sector.
As identified in the chart above, the Lindsell Train Investment Trust returned huge cumulative growth of 1,168.29% since its inception. In contrast, the sector averaged 356.54% for the same period.
However, similar to their range of funds, the trust has suffered since the onset of the pandemic with the past 3 years representing one of the worst periods in the history of the fund. Between 1st June 2020 and 1st June 2023, the fund has returned negative -6.59% compared to 10% for the sector average.
Lindsell Train Investment Process
Lindsell Train runs very highly concentrated funds, typically only holding 25 to 30 stocks, which is similar to their close competitor Fundsmith. This helps amplify outperformance when things are going well, but it can work in the opposite direction during unsettled periods.
They have a very particular investment philosophy which focuses on companies with robust brands, balance sheets and earnings streams, and this style can be expected to move out of step with the wider market, sometimes for better, sometimes for worse.
Their investment process does not rely on market benchmarks to construct portfolios. Consequently, their portfolios exhibit notable differences from the market index.
Lindsell Train funds focus on identifying companies that possess specific characteristics, including a rich heritage, predictable earnings (attributable to pricing power or intellectual property), low capital intensity, and consistently high returns on capital. These criteria lead them to primarily consider investments in broad industry categories such as Consumer Branded Goods, Internet/Media/Software, Financials, and Pharmaceuticals.
When evaluating potential investments, Lindsell Train employs multiple approaches, with discounted cash flow calculation being of utmost importance. Investments that appear undervalued based on their analysis are selected for inclusion in the portfolio of each fund.
Once the fund commits to a company, they display great reluctance to sell unless the stock price significantly exceeds their estimation of the company's intrinsic value, indicating a deviation from the original investment premise. This approach stems from their belief in the long-term viability of the companies they invest in.
Patience is a vital aspect of their investment approach. It necessitates unwavering conviction in their investment thesis and the ability to ignore market noise, remaining focused on a company's competitive advantages instead of succumbing to the temptation of frequent trading. Since the launch of their funds each has outperformed the sector average which for many negates their recent poor run and validates their belief in Lindsell Trains long term strategy.
Lindsell Train Are Long Term Not Short Term Investors
Lindsell Train’s confidence in the durability and long-term relevance of the companies they hold enforces their belief that their funds and strategies will again yield comparatively strong returns and that the challenges from the pandemic will dissipate and positive sentiment will return.
Indeed, history has shown that over time Lindsell Train funds have always fared well but the difficulties of the past several months have hurt them and their investors. But going forward, it is reasonable to assume their funds will realign and recover ground but as they retain their strategy of having limited holdings the term ‘never hold all your eggs in one basket’ may be more relevant than ever.
