Lindsell Train UK Equity: August 2024 fund update

• Nick Train aims to invest in successful companies that have stood the test of time

• Train is a long-term investor, and makes very few changes to the fund from year to year

• Train has a strong long-term record, with the fund significantly outperforming the FTSE All Share index since launch

• This fund does not feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Lindsell Train UK Equity fund aims to deliver long-term growth by investing in a concentrated portfolio of high-quality UK companies that generate lots of cash and have stood the test of time. This gives each holding the potential to make a big difference to the fund’s performance, but it’s a higher-risk approach. The fund could be an option for the UK part of a broader global investment portfolio. A focus on large, high-quality companies means the fund could work well alongside other funds investing in unloved UK companies with recovery potential, or those focused on smaller companies.

Manager

The fund was set up in 2006 by Nick Train, who has more than three decades of investment experience. Train was previously Head of Global Equities at M&G Investment Management, and before that he spent 17 years at GT Management in various senior roles including Investment Director and Chief Investment Officer for Pan-Europe.

Alongside this fund, Train is co-manager of the Lindsell Train Global Equity fund and lead manager of two investment trusts. Given the high degree of coverage overlap between the four portfolios, and the fact they all use a similar investment process, we think this is a reasonable workload. Train also has the support of an experienced and highly regarded team, including fellow co-founder Michael Lindsell.

Train is supported in running the fund by deputy portfolio manager, Madeleine Deguchi-Wright who has been with the business since 2012.

The fund isn’t on the Wealth Shortlist. It was previously on the Wealth 50 (available prior to the Wealth Shortlist), but we made the decision to remove it as the Lindsell Train business owns (including via this fund) a significant number of shares in Hargreaves Lansdown plc. This was done to avoid any potential conflict of interest.

Process

Train invests mostly in large, longstanding businesses with characteristics that are hard to copy, such as strong brands, heritage or sports franchises. His search for high-quality businesses tends to lead him towards larger companies, although he has the freedom to invest in UK companies of any size if he spots an opportunity. This includes smaller companies, which are higher risk than their larger counterparts.

Train is a long-term investor and analyses companies with a time horizon of a decade or longer in mind. This buy and hold approach he adopts means he makes very few changes to the fund year on year.

There are some areas of the market that Train invests a significant proportion of the fund into. Financial services, beverages and personal goods companies account for 23.1%, 19.2% and 14.3% of the fund respectively. The fund’s largest holdings are data and analytics business RELX, information services company Experian and financial markets and infrastructure provider London Stock Exchange Group.

Please note, the fund has an investment in Hargreaves Lansdown plc.

Culture

Between them, Michael Lindsell and Nick 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.

The duo and their team spend lots of their time reading, learning and compiling information on companies they own shares in and those on their watchlist. They tend not to recruit experienced people, preferring to train and develop graduates who can be moulded into the Lindsell Train way of thinking.

Our due diligence on the Lindsell Train business previously highlighted some areas for improvement in the firm's corporate governance processes. We are pleased to see some progress has been made following our engagement and will continue to monitor this.

ESG Integration

All Lindsell Train funds seek to invest in exceptional companies for the long term. These companies tend to be well-managed with responsible business practices. Lindsell Train fund managers avoid capital intensive industries (such as energy, commodities and mining companies) and those judged to be sufficiently detrimental to society that they might be vulnerable to burdensome regulation or litigation (such as tobacco, gambling and arms manufacturers).

Fund managers are responsible for voting and engagement. Their long-term approach means they are generally supportive of company management teams. If the fund managers disagree with the management team’s approach, they will try to influence the company to adopt a different course of action if it’s in clients’ interests. Voting and engagement case studies are available in the firm’s annual Stewardship Report and its ESG & Engagement Report.

Cost

This fund has an ongoing annual fund charge of 0.65%, but a discount of 0.15% is available for HL investors, which reduces the charge to 0.50%. The HL account charge of up to 0.45% per year also applies, except in the HL Junior ISA, where no account charge applies. Please note that charges are taken from capital, which could boost the income, but reduces potential for capital growth.

Performance

The fund has performed very well since its launch in July 2006, delivering returns significantly greater than the FTSE All Share index. Over this period, the fund has delivered returns of 422.30%, well ahead of the FTSE All Share’s 192.50% return*. Past performance should not be viewed as a guide to future returns.

Our analysis suggests Train’s focus on high-quality companies has helped shelter investors' money to a degree when markets have fallen but we expect the fund to lag the broader market when it rises quickly.

Over the last year the fund has delivered a return of -1.48%, lagging behind the 13.54% return delivered by the FTSE All Share Index. Our analysis suggests that financial services business Hargreaves Lansdown and data and analytics company RELX were among the fund’s strongest performers. In contrast, luxury goods manufacturer Burberry Group and alcoholic drinks manufacturer Remy Cointreau were among the fund’s weaker performers.

Investment styles go in and out of favour, that’s why we suggest investors build diversified portfolios with exposure to a variety of styles, sectors, countries and asset classes.