Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Which Nick Train fund should you buy?
It is not that unusual for fund managers to run more than one portfolio – and when that applies to someone with a stellar track record like Nick Train it raises the question of which fund investors should buy to gain exposure to their expertise.
Sometimes known as the king of buy-and-hold investing, Train is a near 40-year veteran of the markets. Having risen to become head of equities at M&G he departed to set up asset management firm Lindsell Train Limited (LTL) with Michael Lindsell in 2000 and his funds have been highly popular and strong performers in the intervening 19 years.
A MASSIVE PREMIUM
The sheer popularity of Train’s approach is reflected in the current 80% premium to net asset value enjoyed by the flagship investment trust he steers, Lindsell Train (LTI). This premium is also heavily influenced by the perceived undervaluation of the holding the trust has in the asset manager LTL, which accounts for 46% of the fund.
Recent commentary from Michael Lindsell (20 June) noted the premium implied a valuation of £1.1bn for LTL.
Lindsell came close to telling people not to invest in the trust: ‘We continue to caution that the shares in the trust represent a risky investment if bought at a premium, and certainly at today’s approximate 90% premium.’
CONSIDER THE ALTERNATIVE
An alternative could be to consider Finsbury Growth & Income (FGT) which trades at a much more manageable premium to NAV of 1% and offers exposure to a rough like-for-like portfolio albeit without the holding in LTL.
This similarity is despite Lindsell Train sitting in the Global sector and Finsbury Growth & Income in the UK Equity Income space.
In fact, neither stock offers a particularly generous income with Lindsell Train yielding 1.6% and Finsbury Growth & Income at 1.7%.
On a 10-year share price total return basis Lindsell Train comes out on top with a return of 1,578% against Finsbury’s 506%, according to industry body the Association of Investment Companies (AIC).
The approach involves building a concentrated portfolio of quality UK companies that have strong brands and/or powerful market franchises.
This is a consideration with all the funds managed by Train. He is a conviction manager with a highly concentrated portfolio (of around 20 companies) and his buy-and-hold credentials are well earned, famously making relatively few new investments.
The holdings are not just concentrated in terms of the number of companies but also in terms of sector with heavy exposure to consumer goods companies and, despite Lindsell Train having a global mandate, UK stocks.
FOCUS ON QUALITY
The aim is to purchase shares in high-quality businesses with strong cash generation to underpin growing dividends and with the ability to adjust and thrive in different market and economic conditions.
In terms of cost, Finsbury Growth & Income also compares well with the Lindsell Train product. AIC figures show the Finsbury trust has an ongoing charge of 0.67% with no performance fee while Lindsell Train charges 2.36% when you factor in performance fees.
There are plans to cut charges for Lindsell Train.
A third option for Train devotees is the open-ended fund LF Lindsell Train UK Equity (B18B9X7). Again, this has many of the same holdings as the other two funds.
COSTS AND CHARGES
The ongoing charge is broadly similar to Finsbury Growth & Income at 0.68% and its 10-year annualised return also looks substantially the same at 18.2%.
The structure of the fund means that, unlike with the trusts, investors do not need to consider the complication of premiums or discounts to NAV.
The premium enjoyed by Lindsell Train looks unsustainable so Finsbury Growth & Income or LF Lindsell Train UK Equity are better options if you want to invest with Nick Train. Remember, this means being comfortable with his conviction-based and patient approach to the markets.
As Michael Lindsell points out, you also need to consider the succession issue. He recently said: ‘Faced with the unlikely scenario that Nick or I will not be around for whatever reason, it’s clear that we have some way to go to engineer a smooth and seamless transfer of responsibilities.’