Monthly Briefing 31-03-03
Lindsell Train Investment Trust PLC
16 April 2003
The Lindsell Train Investment Trust PLC
As at 31st March 2003
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.
Net Asset Value GBP 90.87
Share Price GBP 95.50
Premium (Discount) 5.1%
Market Capitalisation GBP 19.1mn
Source: Bloomberg; NAV - LTL
Performance (based in GBP) Mar Feb Jan YTD Since Launch
NAV -0.6% +1.9% -3.8% -2.6% -9.1%
Share Price +0.0% +0.0% +0.5% +0.5% -4.5%
Source: Bloomberg. Based in GBP.
Top 10 Holdings % NAV Industry Breakdown % NAV
US Gov Treasury 6.25% 16.6 Bonds 37.4
Lindsell Train Japan (Dist) 13.4 Preference Shares 13.0
Lindsell Train Global Media (Dist) 11.2 Media 6.7
HBOS 6.125% Non Cum 7.6 Banks & Investment Co. 7.0
US Gov Treasury IL 3.875% 7.5 Leisure & Entertainment 7.1
21/2% Consolidated Loan Stock 7.4 Food & Beverage 18.3
Barr AG 6.5 Investment Fund 24.6
UK Treasury 2.5% 5.9 Cash & Equivalent (14.1)
Glenmorangie plc A&B 5.6 Total 100.0
HBOS 9.25% Non Cum 5.4
Geographical Breakdown % NAV Currency Exposure % NAV
Bonds 37.4 USD 54.9
UK 13.3 JPY (0.8)
US 24.1 EUR (0.2)
Preference 13.0 GBP 46.1
Shares 39.1 Total 100.0
Equities UK 30.0
US 4.2
Japan 3.1
Europe 1.8
24.6
Funds LT Japan 13.4
LT Global Media 11.2
(14.1)
Cash &
Equivalent
Total 100.0
Fund Manager's Comments
One marked feature of a year that many of us feel has already been too eventful
is the ending of the great bear market in technology shares. Perhaps this is too
dogmatic a proposition given the somewhat scanty evidence, but it is
incontrovertible that NASDAQ has ceased underperforming mainstream benchmarks,
indeed has posted a modest positive gain year to date. Moreover, several of the
surviving leaders of the Great Excess have begun to behave in a fashion
reminiscent of the last century. Internet winners Amazon, ebay and Yahoo have
risen 36.0%, 26.0% and 50.0% respectively since the start of the year. Cisco,
Intel, EMC, Oracle and, in Europe, SAP have all gained in 2003, as has the UK's
best proxy for such things, Vodafone, which is up nearly 6.0%.
We can imagine readers responding variously to these moves - most common,
perhaps, a shrug. A dead cat bounce, no more. Others might amuse themselves with
the thought that markets will do whatever it takes to confound the majority of
participants. Having spent two years extricating themselves from ill-considered
technology investments, institutions must be galled to once more find themselves
short of the stocks making the running. Could the flight into 'defensives' be an
error? We well remember how dull not only the share price performances of
consumer staples were during 1998-2000, but also how dull business performance
was too, as the lack of pricing power highlighted the lack of unit volume
growth.
Our own reaction is mixed. Partly it is one of acute interest, but interest
tinged with frustration. The interest lies in our conviction that for the
foreseeable future the most attractive investment returns will be earned on
assets that offer either an absolutely secure income yield, or access to the
cast-iron certainty of long term growth. Both have proven to be rather more rare
commodities than investors expected. For yield, we still believe that
Anglo-Saxon government bonds offer the best risk-adjusted potential return for a
Sterling investor, though we admit we don't know as much about emerging market
sovereign debt, nor junk bonds, the latter skillfully exploited by Warren
Buffett in recent months, as we might. As to growth, we can't come up with many
better candidates for multi-year profitable growth than some of the names noted
above, that have begun to exhibit both relative and absolute performance. In
particular, we are sure that software, as broadly defined, software that
enhances business efficiency, or the effectiveness of business professionals or
software that entertains, will generate the kind of unanticipated
cash-generative growth that is necessary to make serious money from stocks.
Already the 10.0% earnings growth delivered by US technology companies in the
first quarter exceeded any other sector, with the exception of energy. The
question is which software companies and how to value them.
Our frustration is founded on our failure to participate profitably in this
technology/software rally - and not through want of trying. A number of our
equity selections were made, prematurely no doubt, because we believed they
provided us with access to software-driven growth, but in franchises we hoped we
understood and at valuations that made sense to us. These selections make
somewhat sorry reading within our valuation. We own Dow Jones in part because of
its Internet properties, which we hope could become an unexpected source of
growth and we expect the Wall Street Journal to benefit from the next wave of
technology advertising and capital raising. Neither has materialized as yet and
we are left with a dull stock, paying a yield of 2.75% from a debt-free balance
sheet, waiting on a turn. Nintendo, we thought would give us exposure to a
rapidly growing industry, gaming, driven by software and exhibiting classic
Microsoft-type cash generation and returns. The irony is that this bullish
outlook for Nintendo has, in part, been undermined by Microsoft itself, as it
discounts not only its XBOX hardware, but effectively gives away valuable
software. Nintendo remains an exceptionally strong company, with a pristine
balance sheet, its hand-held monopoly and array of Disney-like character
franchises, but it seems unlikely to us that the stock price is going to
appreciate as a result of the current hardware cycle (though there are plenty of
other potential drivers for the shares). Reuters and Instinet we see as
purveyors of refined, as opposed to raw, information and smart tools to an
important global industry. Stupidly, we failed to recognize the magnitude of the
retrenchment required by this industry and, as with Nintendo, the diseconomies
of scale that arise when competitors eat into an installed base. Finally,
Wolters Kluwer we own because we believe that the transition from delivering
business information by paper to Web-based products is value creating. The
utility of the information increases for the consumer, while the cost of
distribution falls. However, Wolters has not been able to effect this
transformation without a profit hiatus, as its European clients have been slow
to adopt electronic delivery.
Our conclusions are that we do not know whether the October 2002 low on NASDAQ
is an important bottom. Our experience demonstrates that it is still unnervingly
easy to get individual technology companies wrong. However, market action in
2003 increases our confidence that the next bull market, whenever it becomes
apparent, will be led by companies generating growth and cash from technology.
This is a challenge for investors that will not go away.
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.
The Board Management Fees Registered Address
Rhoddy Swire Standard Fee: 0.65% p.a. Lindsell Train Investment
Michael Mackenzie Performance Fee: 10% of annual Trust
Donald Adamson increase in the share price, plus 77A High Street
Michael Lindsell dividend, Brentwood
above the gross annual yield of ESSEX DM14 4RR
the 21/2% Consolidated Loan Stock.
Sedol No Bloomberg
3197794 LTI LN
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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