Briefing May 2002-Replacement
Lindsell Train Investment Trust PLC
17 June 2002
The issuer advises that the following amendment has been made to the 'Monthly
Briefing May 2002' announcement released on 13 June 2002 at 14:30 under RNS
Number 2111x.
The Net Asset Value should read 103.03 and not 103.89 as previously shown. All
other details remain unchanged.
The full corrected version is shown below.
The Lindsell Train Investment Trust PLC
As at 31st May 2002
Fund Objective
To maximise long-term total returns subject to the avoidance of loss of absolute
value and with a minimum objective to maintain the real purchasing power of
Sterling capital, as measured by the annual average yield on the 2.5%
Consolidated Loan Stock.
Share Price GBP 112.50
Net Asset Value GBP 103.03
Discount (Premium) (8.3%)
Market Capitalisation GBP 22.5mn
Source: Bloomberg
NAV - LT & Bloomberg
Performance
(based in GBP) May Apr Mar 1 Year Since Launch
NAV +0.5 -0.8 -0.3 +0.7 +3.9
Share Price -2.6 -4.9 +1.7 -5.5 +12.5
2.5% Consol Loan Stock +5.1
Annual Average Yield
Source: Bloomberg.
Based in GBP.
Top 10 Holdings
% NAV
US Gov Treasury 6.25% 13.1
Lindsell Train Japan (Dist) 12.6
Lindsell Train Global Media (Dist) 12.1
US Gov Treasury IL 3.875% 7.6
HBOS 6.125% Non Cum 6.5
Cadbury Schweppes 5.8
Barr (AG) 5.3
Dow Jones & Co 5.2
21/2% Consolidated Loan Stock 5.1
UK Treasury 2.5% 4.5
Industry Breakdown
% NAV
Bonds 33.2
Preference Shares 10.5
Media 11.2
Banks & Investment Co. 7.3
Leisure & Tourism 8.2
Food & Beverage 16.2
Investment Fund 24.7
Cash & Equivalent (11.2)
Total 100.0
Geographical Breakdown
% NAV
Bonds 33.2
UK 12.5
US 20.7
Preference Shares 10.5
Equities 42.8
UK 30.4
US 5.9
Japan 4.0
Europe 2.6
Funds 24.7
LT Japan 12.6
LT Global Media 12.1
Cash & Equivalent (11.2)
Total 100.0
Currency Exposure
% NAV
USD 51.4
JPY (0.3)
EUR 2.6
GBP 46.3
Total 100.0
Fund Manager's Comments
We altered the portfolio very little during May, maintaining the broadly
defensive disposition of assets. There was one transaction though,
insignificant when considered alone, that illustrates our current attitude to
capital markets. One of the Trust's HBOS preference shares, currently offering
a net dividend yield of 6.5%, went ex-dividend at the start of the month. Not
surprisingly the price of the stock fell by the amount of the dividend, or
3.25%. We immediately bought additional shares in the same issue to the exact
monetary value of the dividend we will receive. In this way, when the stock
goes ex its next dividend, in six months, we will earn an annualised return of
6.5% on a position 3.25% bigger than last time, a payment that, in turn, we
intend to reinvest in the same way, unless a better idea presents. Effectively,
we are compounding the return for this portion of the portfolio at 6.5%. From
shareholders' perspective we believe this is attractive. HBOS is a sound issuer
and the return is way in excess of inflation, our benchmark and the cost of
borrowing. This last measure is especially relevant, because the 10.5% we hold
in HBOS preference shares matches, give or take, the Trust's gearing. We hope
to benefit from the positive cost of carry on the stocks and at some stage to
enjoy a capital gain, if other investors come to appreciate these assets, which
would generate an even more satisfactory annualised total return. On the other
hand, 6.5% is far from a double-digit reward and it might be argued that we have
allocated too much capital to an intrinsically low returning asset.
We acknowledge the point, or more particularly, recognise a risk that we will
fail to build our exposure to riskier assets, namely stocks, in a timely
fashion. As this note is written most world equity markets, with the exception
of Japan, have fallen year-to-date, several by ten per cent or more, including
the S&P 500 and the Bloomberg European 500. It is likely that the Trusts' NAV
will be little changed over the same period, although it will be down. To this
extent, then, we believe the portfolio structure has proven appropriate to
immediate circumstances, if not ideal. Our challenge will be to withdraw from
the security of our fixed interest assets, probably at a time when to do so will
seem the height of imprudence. This is a nettle already grasped, because we
have been prepared to add to existing equity positions into recent weakness,
including more Reuters and Nintendo, although this has not changed the shape of
the whole. Moreover, we have a list of 7 companies in which we would like to
build positions, commencing at prices not so far from those prevailing.
In the interim, though, we are unwilling to quit our bonds. We still expect
investors to pay higher prices for the certainty of real return offered by
government bonds. This conviction is reinforced by the satisfactory performance
of the inflation-linked US government bonds in the Trust. The Dollar capital
value of the Trust's TIP, 7.5% of gross assets, has risen 4.7% this year to a
new high for the stock, excepting a brief spike last September. This has
brought the yield to maturity down to 3.2% per annum real, from over 4.3% in the
first quarter of 2000. This fall in the required real yield, reflects, in our
view, increasing concerns about the security of long-term returns from competing
assets, most notably stocks, with NASDAQ falling by 70% over the same period.
We believe real yields on the TIP can fall further, promising further gains in
value, with the 1.5% registered on the longest UK index-linked gilt a distant
objective. Meantime, we expect investors to wake eventually to the reality of
non-existent pricing power for US corporations and to bid up the price of
conventional bonds. John Lonski, the chief economist at Moody's Investor
Service noted recently 'We're seeing pricing pressures of a severity that we
have never seen before.' Certainly, the prices of total finished goods in the
US have fallen by 2.0% over the past 12 months, while prices for core consumer
goods have dropped 1.0%. These are the sharpest declines since the 1960s, at a
time when the economy is supposed to be emerging from recession and when at a
comparable stage of recovery, in 1991, consumer prices were rising at 3.9%
annualised. We still expect to be offered the opportunity to reduce our US bond
holdings at yields of 4%.
We had encouraging meetings with the managements of a number of our holdings
last month. The stewards of Glenmorangie (5.2% of Trust assets) and A G Barr
(5.3%) confirmed the growth opportunities for their brands. The Finance
Director of the former noted that he had endorsed a capital expenditure of
£500,000, which paltry sum nonetheless increases his capacity to distil
Glenmorangie, a product with an IRR of nearly 30%, by a quarter. Robin Barr
outlined his strategy to lift Barr's share of the English non-cola carbonated
drinks market from its current 3.0% to 10.0%, a process which we believe will
create substantive value for the company's owners. Trading is predictably tough
for Reuters (3.4%) and in hindsight we committed too early to this investment.
However, we were impressed that the order book at Reuters' software consultancy
unit is at an all-time high, as its customers seek ways to streamline their
businesses. We believe Reuters is best understood not as an information
provider, now a commodity service, but as a provider of business solutions to
the investment banking community and thus competing with systems designers, such
as Oracle and IBM. This is little comfort in the present industry climate, but
suggests that the valuation to be placed on Reuters' eventually recovering
earnings can remain high. Finally, we were gratified to read the following
extract from a piece of research by Morgan Stanley, reporting on the recent E3
Game Show in Los Angeles, the world's largest. 'Huge crowds flocked to catch a
glimpse of the updated versions of classic Nintendo franchises...for the
GameCube; these four titles without exaggeration stole the show at the Expo.'
We share the judgement of Nintendo's management (4.0%) that the so-called
console war will be won by the system that provides the most sought-after games.
Gamers want to play Nintendo titles and they will not find them anywhere else
but on the GameCube.
Fund Manager Launch Date Denominated Currency
Nick Train 22 January 2001 GBP
Year End Dividend Benchmark
31st March Ex-date: June The annual average yield on
Payment: August the 21/2% Consolidated Loan
Stock.
Sedol No Bloomberg
3001710 LTI LN
The Board Management Fees Registered Address
Rhoddy Swire Standard Fee: 0.65% p.a. Lindsell Train Investment Trust
Michael Mackenzie Performance Fee: 77A High Street
Donald Adamson 10% of annual increase in Brentwood
Michael Lindsell the share price, plus ESSEX DM14 4RR
dividend, above the gross
annual yield of the 21/2%
Consolidated Loan Stock.
Disclaimer
The contents in this document is solely for information purposes only. The
information contained herein does not constitute an offer or invitation to buy
or subscribe any securities or funds in any jurisdiction in which such
distribution is not authorised. Nothing in this document constitutes investment,
legal, tax or other advice and cannot be relied upon in making any investment
decision. Applications to invest in some of the funds must only be made on the
basis of offer documents which may only be available for private circulation.
The information contained in this document is published in good faith and
neither Lindsell Train Limited nor any other person so connected assumes any
responsibility for the accuracy or completeness of such information as provided.
No representation is made or assurance given that any statements made, views,
projections or forecasts are correct or that objectives will be achieved.
Lindsell Train and/or persons connected with it may have an interest in the
Fund. The value of investments and the income from them may go down as well as
up and are not guaranteed. Past performance is no guarantee of future
performance. You may not get back the amount you invested. Foreign exchange
rates may cause the value of investments to go up or down. Investments may be
subject to higher volatility in certain funds and the investment value may fall
suddenly and substantially.
Lindsell Train Limited
35 Thurloe Street, London SW7 2LQ
Tel. +44 20 7225 6400 Fax. +44 20 7225 6499
info@lindselltrain.com www.lindselltrain.com
Lindsell Train Limited is regulated by the FSA.
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