Lindsell Train Global Equity is a prominent global equity mutual fund managed by Nick Train, Michael Lindsell and James Bullock. The fund managers consider risk as the possibility of losing permanent value on committed capital and believe such risk can be better reduced by portfolio concentration in companies where they have the highest conviction, rather than diversification across the broader market. The fund places a lot of value on historical blue chip companies with strong IP, brand strength and who have a competitive advantage while reviewing any structural barriers preventing their long term monetisation and ability to accelerate growth.
At the heart of their approach is a conviction that inefficiencies exist in the valuation of “exceptional” companies. Specifically, they note that durable, cash generative franchises are not only rare but also often appear to be undervalued by other investors. They look to protect and grow the real value of clients’ capital over the long term and manage client portfolios with a distinctive attitude to risk and, in line with their long-term investment horizon. This defensive approach is nicely depicted in this image below where you can see that in the years when the market has taken a downturn the fund has managed to maintain wealth (and even appreciate wealth as they did in 2018).
The fund’s tilt towards consumer staples and robust brands, which have the power to adjust their pricing, is especially pertinent given the ongoing concerns about inflation and rising living costs.This focus led to its underperformance in 2020 and 2021, especially when compared to its peers, due to its concentration on sectors like consumer staples, media (Communication Services), and financials.
Now some of you may be concerned about the funds performance in 2021, but as we just mentioned the concentrated nature of the portfolio, away from the US and tech stocks meant that they missed out in that year. Let us not forget that this is just 1 year’s performance, and whilst it is a pretty big missed opportunity, we can see that in the chart below, that Nick and the team have kept to their disciplined approach and this has ultimately led to their outperformance over the long term.
The performance chart above paints an interesting picture as we compare the cumulative returns of the fund to the MSCI World Index over the past 10 years. What is most interesting is that Nick and the team have managed to outperform the market consistently since the middle of 2014. This is partly due to its global diversification as it has limited exposure to the tech sector (12.7%) and the US (35.5%) as of August’s end, with a 30.1% exposure to the UK and 21.8% to Japan. However, the key factors to this outperformance are clear…. skilled consistency across their valuation of stocks and quality management pays off. Just a side fact, the MSCI World Index only has 3.94% invested in the UK and a whopping 69,91% in the USA… food for thought
For investors, a history of durable cash generation serves as an indicator of financial stability and the potential for sustainable dividends or capital appreciation. Companies that consistently demonstrate this trait often possess strong competitive moats, efficient operations, and adept management teams, all of which can contribute to long-term value creation for shareholders. Investing in such companies can provide a relatively safer haven in tumultuous markets, as the predictable cash flows can offer a cushion against economic downturns and deliver compounding returns over time.
So why do we advise our clients to invest in the fund?
The diversified exposure away from the US market while maintaining a focus on durable, cash generative franchises, is defensive in nature, thus the fund allows our investors to reap the benefits of preserving capital whilst still enabling them to appreciate their capital. We believe that their similar management style but differentiated holdings complement Ninety-One Global Franchise quite well, therefore creating an uncorrelation in returns which further protects a client’s assets from market downturns. The fund has a low share turnover, and strong track record with 13.4% annualised return since inception (2011). The funds defensive nature and consistent returns (even during market downturns), limit the downside risk and enable investors to build their wealth in a more stable and consistent manner.
In the words of Nick Train, “any portfolio manager who hopes to earn satisfactory returns as we move deeper into the third decade of the 21st century must find ways to offer his/her clients exposure to the secular growth and, often, exceptional profitability of companies that are winning with Technology.” If one were to take a look at the specific holdings in Lindsell Train Global Equity, it is very evident that Nick is invested for the future long term.
In conclusion, investors considering Lindsell Train Global Equity should recognize its buy-and-hold strategy and infrequent portfolio changes, offering investors a consistent and stable long term return. The fund remains a sturdy option for those seeking stability in uncertain times.
We hope you enjoyed this week’s Friday Fund Review, now let’s see Nienabers 7-1 split is another master stroke. Go Bokke!
InvestLife Advisory
