At around 2.2%, its yield is one of the lowest in the sector but its aim is capital appreciation and income combined, with a total return in excess of the FTSE All-Share. However, the trust's portfolio is constructed without reference to a stock market index.
Long standing manager Nick Train’s approach is based on that of Warren Buffett’s and involves building a concentrated portfolio of “quality” companies that have strong brands and/or powerful market franchises.
The characteristics that define a quality company for Lindsell Train are:
- durability – companies that can prosper through business cycles for many years to come;
- high return on equity – companies with the ability to grow earnings year-in, year-out are favoured over those with rapid short term growth, but uncertain long term prospects; and
- low capital intensity/high free cash flow generation – companies that do not have to make heavy balance sheet investment to generate earnings growth.
He holds shares for the long term regardless of short-term volatility, aiming for them to double or more in value over time. This results in extremely low portfolio turnover, which saves on transaction costs. These costs over the past year amount to just £736,000 or just 0.11% of net assets. The trust's total expense ratio remains reasonable at around 0.8%.
The trust has today announced results for the full year to 30th Sept 2015 (link via Investegate). Share price total return is up 11.8% compared to -2.3% return for the FTSE All Share. A 14% outperformance in the current climate is quite an achievement.
Someone send for the police!! This year, the manager purchased a new holding for the portfolio - the first in the past 4 yrs! French drinks group Remy Cointreau has been added to the portfolio
Top five portfolio holdings are: Unilever 9.3%, Relx 8.8%, Diageo 8.4%, Heineken 6.5% and Hargreaves Lansdown 6.4%.
Over the past year the dividend has increased by a respectable 7.1% to 12.1p (2013 11.3p). Revenues were 13.5p (2014 12.6p) and therefore there is once again a small surplus after accounting for payments of dividends which will further bolster the dividend reserves.
|3 yr chart FGT -v- FTSE All Share Index|
(click image to enlarge)
Commenting on his portfolio, manager Nick Train said "It was drilled into me many years ago that there should never be any slack or deadwood in an “active” investment portfolio. There should be a reason for every holding and a live, current justification for the disposition of every penny of the capital entrusted to you.
Your Company has a concentrated portfolio which we believe meets that test. Every holding is a business that meets our investment criteria. This is most simply summarised as – the business owns a brand or franchise that makes it more or less unique. We want to be convinced that it would be difficult for any competitor to replicate the assets of our investee companies; ideally at all, or failing that, not to be able to replicate them for anything like their current enterprise value. In addition, none of our holdings currently trades at a price which we regard as excessive – there is more or less upside to our valuation targets".
Over the past year I have been moving some of my investment proceeds into index funds but I think most investors will acknowledge there are always going to be a handful of managers who can consistently beat the index and it seems to me Nick Train is certainly one of them. You cannot argue with the consistent returns he has provided for shareholders over many years.
Train has recently said his ambition is to make the trust into a FTSE 100 company over the next 10 years - ambitious but good to know he is likely to be in charge over the longer term.
I am very happy to continue holding and would be very pleased to see the trust quadruple from here.