Monthly Update February 2004
Lindsell Train Investment Trust PLC
11 March 2004
The Lindsell Train Investment Trust PLC
As at 27th Feb 2004
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 88.50
Net Asset Value GBP 99.76
Premium (Discount) (11.3%)
Market Capitalisation GBP 17.7mn
Source: Bloomberg; NAV - LTL
Performance (based in GBP) Jan YTD Since Launch
NAV +3.3% +5.2% -0.2%
Share Price +6.0% +3.5% -11.5%
Monthly Benchmark (21/2% Con Ann +0.4%
Avg Yield +5.0%)
Source: Bloomberg. Based in GBP. Share price quoted is closing mid price. Industry Breakdown
% NAV
Bonds 33.5
Preference Shares 13.7
Equity - Media 11.6
Equity - Banks & Investment Co. 4.8
Equity - Leisure & Entertainment 10.1
Equity - Food & Beverage 25.4
Investment Fund 20.3
Cash & Equivalent (19.4)
Total 100.0
Top 10 Holdings
% NAV
US Gov Treasury 6.25% 18.3
Lindsell Train Global Media (Dist) 10.7
Lindsell Train Japan (Dist) 9.6
HBOS 9.25% Non Cum 8.9
21/2% Consolidated Loan Stock 8.7
Barr AG 8.3
Glenmorangie plc A&B 7.5
UK Treasury 2.5% 6.5
Cadbury Schweppes 6.5
HBOS 6.125% Non Cum 5.5
Geographical Breakdown
% NAV
Bonds 33.5
UK 15.2
US 18.3
Preference 13.7
Shares 51.9
Equities UK 42.5
US 4.9
Japan 4.5
Europe 0.0
20.3
Funds LT Japan 9.6
LT Global Media 10.7
(19.4)
Cash &
Equivalent
Total 100.0
Currency Exposure
% NAV
USD 43.7
JPY 1.4
EUR 0.2
GBP 54.7
Total 100.0
Fund Manager's Comments
The net asset value advanced by 3.3% continuing the positive trend of January. Reuters rose 22%, Cadbury and
Wolverhampton & Dudley Breweries 10% and Instinet 14%. The bonds continued to add value and have well
outperformed equity indices since the beginning of the year.
At the moment we own eleven companies in varying size. Only three of them are quoted overseas the rest are
listed in the UK, except Lindsell Train Ltd. that is unlisted. Why, when we have the mandate to invest
globally do we stick to the UK? It is true that as the majority of our shareholders are UK based, it makes
sense to have a significant proportion of the assets invested in UK denominated securities. But equally we
believe that changes in exchange rates will over time be insignificant as compared to the local currency
returns we are likely to generate from our eventual fifteen stock portfolio that we are only part of the way
through building. As a result we have no obligation to be invested in the UK and should we be able to find
better businesses at better prices elsewhere we conceivable might have a minimal exposure there. That is not
the case today as we have discovered more good British quoted businesses than we are able to unearth in other
markets. Although if we drill down into where they operate we only have 3 companies whose businesses are
predominantly British: Lindsell Train, AG Barr and Wolverhampton and Dudley Breweries. The remaining British
quoted businesses all generate most of their revenues abroad and are examples of the large proportion of the
British stock market comprised of international companies. Other national stock markets have their
international champions as well, but proportionately Britain has more. Another allure of Britain is the
quality and value of its international champions. There are some better consumer franchises quoted in the US
in particular, but they trade on far lower cash flow yields than the companies we own, which makes us prefer
the British alternatives. One business, Reuters, has no quoted comparables in any other market. We invest
predominantly in UK quoted companies today because they offer us the best combination of quality and value,
but in addition they bring exposure to global themes, because the majority of them derive their income from
global markets.
Our investment in the Lindsell Train Funds gives the Trust added, indirect, exposure to international
companies. We think carefully about duplicating a position in the Funds in the Trust and monitor the look
through weightings to control risk.
In the same vein, why do we own no investments in Emerging Markets? This is particularly pertinent as
Emerging Markets as an asset class have performed especially well in 2003 and early 2004. There is no doubt
that the potential growth in demand in certain developing countries is one of the more sustainable themes in
the world today. So far as investment analysis is concerned, we regard it important to concentrate on the
potential scale of domestic demand in emerging economies as, historically, most have relied on outsourced
manufacturing and services for their main engine of growth, which in turn are dependant on demand and growth
in developed countries, so not in its purest sense a function of developing country growth. We view the
potential from India and China as the most significant, as these countries alone have the ability to build
significant domestic economies that are large enough to transform the revenues of any provider of goods or
services to them. The starting point of our approach seeks to invest in companies producing things that
developing countries need but cannot produce. This would include raw materials, sophisticated machinery,
services and capital required by the corporate sector and everyday products sold to the consumer sector.
Although, undoubtedly during times of high or excessive demand providing these goods and services to the
corporate sector can earn good and rising cash flows, it is not as good a business as providing relatively
low ticket priced branded consumer goods including drinks, confectionary, games and entertainment to
consumers. This preference is no different to those we have when investing in developed markets. In Asia
there are domestic consumer franchise businesses akin to those we own already and theoretically at least
likely to be as good if not better potential investments. On paper at least these companies appear as cash
generative as we would expect while at the same time offer better potential for growth, but all to often
minority investors are starved of those tangible rewards as dominant domestic owners ignore, or worse ride
roughshod over their ownership rights. More specifically, cash generative companies fail to distribute
excessive free cash flow as dividends, which tends to lower the return on future equity either because cash
or any reinvestment of that cash into the existing or more often new businesses yield less than current
return on equity ('ROE'). At present there seems no pressure or mechanism to change this practice, much in
the same way as it was lacking in Japan in the late 1980's with the result that ROE declined to uncompetitive
levels. Indeed, one of the reasons we have been reluctant to own more direct holdings in Japan is
attributable due to the continued poor standards of corporate governance which are in some cases no better
than those in the Emerging Markets. Still today most Japanese managements regard the interest of minority
owners as subordinate to the self-serving interests of senior management and employees. We observe this is
changing in response to persistent economic weakness and deflation, noting some recent high profile cases of
managements acting to satisfy minority shareholder demands and holding out the chance that should these
practices become more widespread ROE's could improve sustainably as a direct result from an improvement in
asset turnover (revenues/total assets) from today's exceptionally low levels. This anticipated change is
central to the balanced long/ short strategy in the Lindsell Train Japan Fund. Indeed, some part of the
prospective return from our holding in Nintendo and a greater part of the prospective return from the
Lindsell Train Japan Fund is conditional on this trend continuing.
We prefer to gain exposure to the potential for growth in developing market domestic economies through our
current portfolio of international companies. Looking at the current portfolio of 11 companies Cadbury,
Glenmorangie, Nintendo, and Diageo all sell their products to developing country consumers as does Reuters
who benefits indirectly from increased trade and money transfer. The rising tide of consumer affluence that
should accompany growth in developing economies is most likely to have a material influence on the revenues
and cash flows of these businesses as their products gain recognition with these new consumers. To add to
that we have a greater certainty that the profits so earned will be distributed and shared with all owners
providing us with a more assured way of participating in this opportunity than investing directly.
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
Payment: August on 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 CM14 4RR
the 21/2% Consolidated Loan Stock.
ISIN Bloomberg
GB0031977944 LTI LN
Disclaimer
This document is intended for use by persons who are authorised by the UK Financial Services Authority
('FSA') and those who are permitted to receive such information in the UK. The information contained in this
document does not constitute an offer or invitation to buy or sell any investments. Nothing in this document
constitutes investment, legal, tax or other advice. Lindsell Train and/or persons connected with it may have
an interest in this investment.
The value of any investment in securities or funds and the income generated from them may go down as well as
up and are not guaranteed. Past performance cannot be used as a guide or guarantee of future performance. You
may not get back the original amount you have invested. Changes in foreign exchange rates may cause the value
of your investment to go up or down. Some funds with higher gearing may be subject to higher volatility and
the investment value may change substantially. The net asset value (NAV) performance of an investment trust
is not the same as its market share price performance.
Issued by Lindsell Train Limited
Authorised and regulated by the Financial Services Authority
10 Mar 2004 LTL 000-015-9
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 authorised and regulated by the Financial Services Authority.
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