Monthly Briefing Dec 2002
Lindsell Train Investment Trust PLC
15 January 2003
The Lindsell Train Investment Trust PLC
As at 31st December 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.
Net Asset Value GBP 93.34
Share Price GBP 95.00
Discount (Premium) 1.8%
Market Capitalisation GBP 19.0mn
Source: Bloomberg; NAV - LTL
Performance (based in GBP) Dec Nov Oct YTD Since Launch
NAV -1.2% +0.4% -1.7% -10.9% -6.7%
Share Price +1.6% +0.5% +4.5% -19.1% -5.0%
Source: Bloomberg. Based in GBP.
Top 10 Holdings % NAV
US Gov Treasury 6.25% 15.6
Lindsell Train Japan (Dist) 12.9
Lindsell Train Global Media (Dist) 11.6
US Gov Treasury IL 3.875% 9.4
HBOS 6.125% Non Cum 7.4
21/2% Consolidated Loan Stock 7.3
UK Treasury 2.5% 5.7
Glenmorangie plc A&B 5.6
Cadbury Schweppes 5.5
HBOS 9.25% Non Cum 5.4
Industry Breakdown % NAV
Bonds 38.0
Preference Shares 12.8
Media 8.1
Banks & Investment Co. 7.0
Leisure & Entertainment 7.5
Food & Beverage 16.4
Investment Fund 24.5
Cash & Equivalent (14.3)
Total 100.0
Geographical Breakdown % NAV
Bonds 38.0
UK 13.0
US 25.0
Preference 12.8
Shares 39.0
Equities UK 28.6
US 4.8
Japan 3.4
Europe 2.2
24.5
Funds LT Japan 12.9
LT Global Media 11.6
(14.3)
Cash &
Equivalent
Total 100.0
Currency Exposure % NAV
USD 55.0
JPY (0.4)
EUR 2.2
GBP 43.2
Total 100.0
Fund Manager's Comments
The Company's Net Asset Value lost 1.2% in December bringing the total loss in
NAV for the calendar year to 9.6%. We executed no trades last month.
We have in the past described how future returns from equities are likely to be
dominated in the long term by the contribution from income (dividends) rather
than capital gain. This may seem unusual when looking back over the 1980's and
1990's when returns from capital gains made the most contribution in every year
but four in the UK and six in the US. It simply reverts to the experience of
investors in the decades before then. Jeremy Seigel's book 'Stocks for the Long
Run' catalogued the breakdown of returns from capital gains and dividends in the
US market and concluded that the latter contributed 82% to nominal returns over
the period from 1802-1992. Going back even further the value of assets was
measured by their income potential. The wealth of key characters in Jane
Austen's time was measured in terms of income but never capital. In 'Pride &
Prejudice' Mr Darcy was worth £10,000 (per annum).
In light of this assumption it is worth analyzing the income generating
potential of your Company. So far no dividends have been paid yet it has been in
existence for almost two years. The Company invests in securities that earn
dividends or interest. What has happened to it?
The Company does indeed earn prodigious amounts of income. In the period to
March 2002, annualised income was £730,000 (the Company's first financial period
was approximately 141/2 months). Annualising the first 6 months of this year to
March 2003 this figure has risen to £744,000, a rise of 2%. However the Company
incurs expenses that need to be deducted before its true income generating
potential can be properly assessed. Total annualised ongoing expenses to March
2002 were £506,000 (this included a performance fee and there were, in on top of
that, £217,000 of one-off start-up expenses) and annualizing the first 6 months
of 2003 were £416,000. These include, but are not exclusively, investment
manager's, director's, administrator's, auditor's and lawyer's fees and interest
charges. There could be a tax expense but as we explained in August's monthly we
intend to minimize the tax the Company pays. As a result the difference between
these figures is the best indicator of the income generating potential of the
Company. For March 2003, annualising the first 6 months, this should be
approximately £328,000, an earnings yield on starting capital of 1.6%.
All the Company's investments have earned income except the investments in the
two Lindsell Train Funds and Lindsell Train Limited. Lindsell Train should pay
its first dividend in 2003. However, income earned within the Lindsell Train
Funds is set off against running expenses, making it unlikely that they pay
dividends. On the other hand, the investment management fee rebate from the
Funds helps to reduce the overall expenses of the investment trust.
The Directors stated in the 2002 annual report that their policy 'is to retain
as much profit as is permissible under investment trust regulations in their
belief that this policy is likely to be most tax efficient for the majority of
investors in the Company'. In the period to March 2002, the Company's net income
was less than that allowable for retention due to the high level of costs. As a
result, the Company paid no dividend. This year, working on the basis of
revenues of £744,000, 15% or £112,000 could be retained leaving £216,000 to be
paid as a dividend, giving a dividend yield on starting capital of 1.1%. A 40%
taxpayer would be taxed an extra 38% generating a net yield for him of 0.7%.
This compares with current net yields from the 2.5% Consolidated loan stock of
2.8%. It will be important for the success of the Company for the net income to
rise in the future so that the yield on starting capital exceeds the Consol
yield, net of higher rate tax. This can obviously come about in two ways, either
through an increase in income or through a reduction in expenses. Although we
can expect no dividend growth from our 50% invested in fixed income, of the 11
equity holdings, all have increased their dividends except Reuters, which cut it
by one third last year, and Dow Jones, which has kept it unchanged. Annual
equity dividends (not including preferred stocks) are likely to be approximately
£280,000 in the year to March 2003 versus £162,000 last year, which is partly a
reflection of increased exposure to equities as well as the rise in overall
dividends. Increasing dividends in today's environment is not easy but an
attribute we value highly from our investments. Reduction in expenses is only
partly under our direct control, in that any investment success could be
rewarded with a higher share price that would trigger higher ongoing fees as
well as a possible performance fee. However, where it is under our control we
hope for reductions. For instance, we expect short term interest rates to
decline in due course and cannot foresee the repetition of some one off expenses
incurred this year and last. Our only concern is an increase in costs associated
with increased regulation of the investment trust industry, but these are, as
yet, indefinable.
All indications suggest that net income generation and dividend performance in
2003 should be better than 2002. To continue this trend we need to identify
those assets with the strongest long-term dividend growth potential. The fact
that we still own 50% in fixed interest shows how cautious we are at the moment
about assuming robust dividend growth anywhere.
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
3001710 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.
--------------------------------------------------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 10 minutes ago Antofagasta
- 20 minutes ago United Utilities Group
- 1 hour ago Morgan Sindall Group
- 3 hours ago River Global Plc
- 5 hours ago Pipehawk