Monthly Briefing 31-01-02
Lindsell Train Investment Trust PLC
13 February 2002
The Lindsell Train Investment Trust PLC
As at 31st January 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 117.50
Net Asset Value GBP 104.74
Discount (Premium) (12.1%)
Market Capitalisation GBP 23.5mn
Source: Bloomberg
Performance
(based in GBP) Jan Dec Nov 1 Year Since Launch
NAV +1.5 -1.0 +3.2 +5.5 +4.7
Share Price -0.8 +2.6 +6.5 -1.3 +17.5
2.5% Consol Loan Stock
Annual Average Yield +5.0
Source: Bloomberg.
Based in GBP.
Top 10 Holdings
% NAV
Lindsell Train Japan (Dist) 12.9
US Gov Treasury 6.25% 12.7
Lindsell Train Global Media (Dist) 12.2
US Gov Treasury IL 3.875% 7.4
Halifax Group plc Pref 7.0
21/2% Consolidated Loan Stock 5.6
Dow Jones & Co 5.0
Cadbury Schweppes 4.9
UK Treasury 2.5% 4.9
Barr (AG) 4.5
Industry Breakdown
% NAV
Bonds 30.6
Preference Shares 11.1
Media 11.6
Banks & Investment Co. 6.7
Leisure & Tourism 7.5
Food & Beverage 13.5
Investment Fund 25.1
Cash or Equivalent (6.0)
Total 100.0
Geographical Breakdown
% NAV
Bonds 30.6
UK 10.4
US 20.2
Preference Shares 11.1
Equities 39.3
UK 27.6
US 5.4
Japan 3.8
Europe 2.6
Funds 25.1
LT Japan 12.9
LT Global Media 12.2
Cash (6.1)
Total 100.0
Currency Exposure
% NAV
USD 50.6
JPY 0.5
EUR 2.6
GBP 46.3
Total 100.0
Fund Manager's Comments
We took the Trust geared during January, to the tune of 7.0% and intend to
borrow perhaps another 3.0%, taking the leverage to 10% of net assets. There
are two reasons for this increased commitment to capital markets, but it is
important to note that neither is resurgent optimism for global equities. We
have definitely not leveraged because we expect a rally in stocks. Rather and
central to the decision, we found assets which we believe could generate
annualised returns in excess of our hurdle and borrowing costs, but were
unwilling to sell existing positions against them. Second, a lesser but not
trivial consideration, some degree of borrowing improves the tax efficiency of
the Trust. The borrowing costs reduce the unfranked income generated by the
current portfolio, which is taxed at a higher rate than franked income. Of
course, such tax-inspired measures only create value for shareholders if the
assets borrowed against generate a risk-adjusted return in excess of the net
cost of the loan. We believe they will.
New or increased investment was made in six securities. Positions were
established in the HBOS 9.25% irredeemable preference shares and in the two
share classes, 'A' and 'B', of Glenmorangie PLC. Meanwhile, we added to
holdings of AG Barr, Nintendo and Reuters.
The HBOS instrument has similar attractions to our existing holding in the
Halifax 6.125% pref, not least the comfort of an AA-rated balance sheet
supporting the dividend payments. In addition, though, the new security is
irredeemable, while the other has a call provision, exercisable in 2024. The
irredeemability of the pref increases its price leverage to declining long-term
interest rates, which we expect. Further, the 9.25% stock was purchased under
£1.44, meaning we locked into a net running yield of 6.4%, higher than that
available on the earlier investment. We would consider switching more of our
exposure into the irredeemable instrument if favourable terms present. The
combined investment in HBOS stocks, including the 3.0% of assets held in the
ordinary shares of the company, amounts to 14% of total, close to the maximum
permitted by Investment Trust regulations. It goes without saying that we are
confident in the financial stability of HBOS, but the scale of our exposure
makes us most circumspect and sensitive to any deterioration in outlook.
Glenmorangie is a wonderful store of value. The company owns the eponymous
single malt whisky, which we believe is still only very early into the
exploitation of its potential as a global brand, as well as other valuable
properties, Glen Moray, Ardbeg and Martin's Deluxe. The share register is
dominated by two holders - a family trust and Brown Forman Inc, the distiller of
Jack Daniels. BF accumulated a 25% position in Glenmorangie's 'A' shares, which
have reduced voting rights, 18 months ago. Other shareholders, such as us,
must, therefore, share similar ambitions and time horizons as these two
strategic investors. We do, believing, in particular, that Glenmorangie is an
exquisite product, with significant potential both in the UK and for export.
Nonetheless, the success of this investment will be measured over years, not
quarters and the shares are illiquid and susceptible to being ignored by
investors for long periods. Indeed, we were able to take advantage of the
illiquidity of the stock to acquire our stake. Glenmorangie's shares have
recently been ejected from the FT Small Companies Index, because of low trading
volumes. Some investors who take indices literally have been forced to sell
their shares, driving the price of the 'A' shares down from £8.0 to £5.85, where
we purchased our interest.
Elsewhere, both Nintendo and Reuters have suffered weak stock prices, both
implicated in deteriorating equity markets. Nintendo is caught up in the
impending crisis that seems to be overwhelming all Yen assets, while Reuters'
business is unquestionably sensitive to inclement capital markets. We believe
that both companies have the balance sheets and cash flows to see out current
challenges and that each of their return characteristics and growth
opportunities are essentially intact. Therefore we added to the holdings.
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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