Why RSMR Rate this Fund

• Experienced fund managers who have worked together for a significant number of years.

• Well established investment process which has delivered top quartile returns over the longer term.

• Strong investment process with a bias for selecting companies with strong balance sheets at below fair value, resulting in consistent returns with an exceptionally low turnover.

• The fund has an excellent risk return profile.

Fund Process

The investment process for the Global Equity fund is the same as the other strategies at Lindsell Train, the focus being on exceptional companies with excellent cash generation and free cash flows, with inefficiencies in their valuation.

The majority of these companies are currently found in four broad industry categories, namely consumer branded goods, selected financials, healthcare, and media. Lindsell Train include computer software in their definition of media. The team look for stocks that have a proven track record, from a well-established business, a large and growing business franchise with high barriers to entry, strong financial characteristics (including net cash on the balance sheet), a track record of producing a high return on capital, and low capital intensity. The Lindsell Train team prefers companies where there is a large family shareholding.

The investment universe is filtered to around 160-190 names which then undergo deeper fundamental analysis that focuses on quality.  The team uses a variety of metrics, with the most important being discounted cash flow, enterprise value/sales, and a multiple comparison with similar companies with a high margin of safety factored into the valuation. Growth is conservatively estimated with the team ultimately calculating an ‘intrinsic value’ for each company.

The managers look for companies which are trading at a discount to their intrinsic value and will often make a purchase when a company is undergoing short term issues, and then has the intention of holding them in perpetuity. As a result, turnover is exceptionally low as illustrated by the 20-year average holding period (a far longer-term approach than the average manager). A small proportion of assets may be invested in deep-value investments, typically companies at big discounts to their short-term financial assets minus all liabilities.

The fund is benchmark agnostic; the manager pays no heed to the benchmark when considering weightings and as a result, the portfolio looks very different from the benchmark and category. The strict quality criteria tends to focus in a small number of areas, including consumer franchises, media/software/internet, healthcare, and long-standing domestic brands. Accordingly, the fund has sector overweight to consumer defensives, healthcare, and IT. These come at the cost of areas of the market that the quality criteria tend to prohibit.

Sectors tend to concentrate around themes, so investment in intellectual property – brands / media content will feature more heavily in all of Lindsell Train funds.  This is expressed by investing in companies that own sports rights / franchises.  The financial sector exposure is biased towards marketplaces where companies can occupy monopolistic positions.

In terms of portfolio construction, larger companies take a 3-6% position in the portfolio and small companies 1-3%, however the managers are happy to run the positions and tend not to trim very often. Michael Lindsell takes the view that trading is to the detriment of the unitholders returns and therefore buying or selling more than strictly necessary should be avoided. The concentrated approach means that the highest-conviction holdings can reach a considerable size.  The long-term horizon and effort to keep transaction costs to a minimum result in portfolio turnover that's among the lowest in the category. 

Evaluation

This is a high-conviction, unconstrained global equity fund whereby the managers are seeking to invest in quality growth companies trading below their intrinsic value. Michael Lindsell and Nick Train, the lead managers are happy to build significant weightings in a limited range of stocks and sectors and hold them for extended periods of time, often decades.

Application

Overall, the managers’ track-record, combined with the differentiated approach, makes this a worthy candidate for clients seeking active exposure to global equity markets. The fund can be used as a good core fund for the sector and has a strong risk reward profile.

Our Opinion

The fund has a strong track record of performance and is run by one of the most well-respected management teams in the business. The managers have many decades of experience of investing in global equities. The investment process is rigorous and well tested which results in a portfolio which looks significantly different to the benchmark and many of its competitors.