Monthly Update January 2004
Lindsell Train Investment Trust PLC
12 February 2004
The Lindsell Train Investment Trust PLC
As at 31st January 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 83.50
Net Asset Value GBP 96.59
Premium (Discount) (13.6%)
Market Capitalisation GBP 16.7mn
Source: Bloomberg; NAV - LTL
Performance (based in GBP) Dec YTD Since Launch
NAV +1.9% +1.9% -3.%
Share Price -2.3 % -2.3% -16.5%
Monthly Benchmark (21/2% Con Ann +0.4%
Avg Yield +5.0%)
Source: Bloomberg. Based in GBP.
Industry Breakdown
% NAV
Bonds 32.8
Preference Shares 14.3
Equity - Media 11.0
Equity - Banks & Investment Co. 4.8
Equity - Leisure & Entertainment 10.1
Equity - Food & Beverage 25.4
Investment Fund 20.4
Cash & Equivalent (18.8)
Total 100.0
Top 10 Holdings
% NAV
US Gov Treasury 6.25% 17.4
Lindsell Train Global Media (Dist) 10.8
Lindsell Train Japan (Dist) 9.6
HBOS 9.25% Non Cum 9.1
21/2% Consolidated Loan Stock 8.8
Barr AG 8.5
Glenmorangie plc A&B 7.6
UK Treasury 2.5% 6.7
Cadbury Schweppes 6.1
HBOS 6.125% Non Cum 5.2
Geographical Breakdown
% NAV
Bonds 32.8
UK 15.4
US 17.4
Preference 14.3
Shares 51.4
Equities UK 41.4
US 5.1
Japan 4.9
Europe 0.0
20.3
Funds LT Japan 9.6
LT Global Media 10.8
Cash & Equivalent (18.8)
Total 100.0
Currency Exposure
% NAV
USD 44.8
JPY 1.4
EUR 0.2
GBP 53.6
Total 100.0
Fund Manager's Comments
The NAV rose by 2% this month, or by nearly 3% if the NAVs of the two Lindsell Train ('LT') funds are
included at their unofficial month-end values. Both funds had a strong January, according to our
calculations, the Japan Fund up over 5% and Media up over 3% in Dollar terms. These higher fund prices will
be reflected in the Trust's official NAV in mid February, once the fund administrators have confirmed them.
Meanwhile, we take the liberty of assuming the higher fund prices in this month's note, because end January
2004 represented the third anniversary of the launch of the LT Investment Trust and we think it appropriate
to bring investors in the Trust right up to date with the performance of all LT products over the three year
period, or since appointment. As ever, this is not an academic exercise. The performance of all LT mandates
should be of keen importance for shareholders of the Trust, partly because the Trust invests itself in the
two funds, but also because good investment performance benefits Lindsell Train Limited, the management
company, in which the Trust holds a 25% stake.
First, some brief comments about the other investments within the Trust and its short-term NAV performance.
January's gain, of 2% (or 3%), was welcome, after a frustrating period for us. The MSCI World index, in
Sterling and the FT All-Share both fell marginally over the month, so the Trust confirmed its history of
performing differently from the main equity indices. What happened through January was a combination of nice
moves in individual equity holdings and positive returns from most of our fixed interest assets, capital and
income. Amongst the stocks the big winner was Reuters, which rose 36.0% in January and has gained 50%
year-to-date as this note is written. Reuters' associated company, Instinet, in which the Trust also has a
holding put on 20% in January too. We believe that Reuters could trade on 2.0x EV/Revenues at some point
further through the investment banking cycle and still not be regarded as aggressively valued. Many
comparable businesses, particularly in the US, command higher values than this already. Even this preliminary
target for the shares' valuation, though, suggests more upside for Reuters, to over £5.00 per share. Another
noteworthy gain came in the Glenmorangie position, where the 'A' shares rose over 3% and the 'B's over 20%.
Glenmorangie reportedly traded well in business terms over the Christmas period, but we gather what drove the
shares higher was investment demand from new institutions, alert to the undoubted strategic undervaluation of
this company. Put at its simplest, with the distribution muscle of Bacardi and Brown Forman behind it, the
Glenmorangie brand has a chance of becoming the world's biggest single malt whisky, not an idle claim given
its near 40.0% volume gains in the US and Asia over the last reporting period. Brown Forman, of course, owns
25% of Glenmorangie's 'A' shares, so has every incentive to help the business grow. The current market
capitalisation of the company, at £160.0m, could be very materially too low if the brand fulfils its
potential.
With our gilt holdings up 1-2% in 2004, compared to a decline in the FT All-Share and the US Treasury we own
up more than the Dow Jones, we feel comfortable with our allegiance to this asset class. We still expect the
returns from bonds to prove surprisingly competitive. In support of this proposition, consider the recent
dividend records of the UK's leading commodity/resource companies, BP, Shell and RTZ, valued in combination
at over 10.0% of the London market. All have enjoyed buoyant market conditions and 'high' commodity prices
over the last 12 months. Yet, BP's dividend has actually declined this year, in Sterling terms, Shell's has
risen by only 3% and RTZ's dividend too has fallen in Sterling terms. Clearly the decline in the Dollar has
crimped distributable earnings for these companies, but we suspect this will be the case for many others too.
Dividend growth for the UK stock market as a whole was in the order of 3% in 2003 and we see little reason
why that should accelerate in 2004. Without a marked acceleration in dividend growth and a historic yield of
3%, the UK equity market is not obviously attractive compared to higher yielding fixed interest assets, in
our opinion.
Reverting to the three-year history of the LT Investment Trust and the associated mandates, we have a general
proposition to make. If we can deliver good returns for our investors in 2004 and can win some new business,
then the four-year history of the Trust and the management company could appear very satisfactory. This is
because our four mandates have not done badly and in some cases have done positively well over the last three
years, keeping us, as the expression goes, very much in the game.
Reviewing the business in turn, the largest product is our long only UK equity fund, comprising two clients
and current invested assets of £135m. The Finsbury Growth Trust has had a strong 12 months, gaining 37.5%
with net dividends reinvested to end January, compared to a comparable return from the its FT-All Share
benchmark of 31.6%. In addition, the Trust increased its dividends by over 30.0%. Finsbury Growth's three
year record is competitive too, outperforming the FT All-Share by a cumulative 7.5%, after costs, over the 37
months of our responsibility, including outperformance over each discrete calendar year. This developing
track record, which we hope will continue for many years, has enabled us to attract other monies to LT,
notably the segregated mandate run in line with FGT, which commenced in April 2003 and has since outperformed
the market by a comparable amount. We are hopeful of raising new assets.
The two hedge funds have had their moments over their respective 32 and 25 month histories. Each has
experienced periods of loss of value. However, at end January 2004 the unofficial the Japan Fund NAV stood at
$101.21 and Media at $108.58. The Japan Fund has rallied 8.0% in short order, while Media has put on 25.0%
from its lows. Meanwhile, the market and industry in which these two funds invest are both showing losses
since the products were launched. With £15.0m of assets here, we do not underestimate the scale of the
challenge to grow this part of our business. However, we know that having made money for our investors over
this galvanic period, albeit modestly, is better than losing it and this gives us every incentive to improve
returns and earn performance fees from here. In their separate ways the Japan and Media funds still represent
and allow participation in, the best investment ideas we have at LT. For as long as this is the case then the
Investment Trust is well served by its holdings here, we believe.
The LT Investment Trust itself stands at an unofficial NAV of £97.43 and last year paid a dividend of £1.30.
Its total return, then, from its starting NAV of just less than £99.0 is basically zero. Meanwhile, as a for
instance, the FT All-Share still stands 20.0% below its end January 2001 level on a total return basis. As
with the two Funds, we hope that if we can make NAV progress for the Trust from here our longer-term track
record will appear increasingly competitive. Certainly, we believe that the Trust comprises a set of
distinctive and undervalued assets and we know that the Trust's dividend will grow ahead of the FT All-Share,
at least for this year.
We remarked that what the Trust and the business needs is good performance in 2004 and new clients. So far
this year, performance has been strong across all our accounts. In addition, the management company has won a
new mandate. This is the contract to act as adviser to the Close Japan Fund, a long only vehicle. Here we
have been asked to replicate the strategy of the long side of the LT Japan Fund, which has generated positive
returns over the life of that fund. The Close Japan Fund is not enormous today, but it makes a valuable
marginal contribution to LT's business and offers significant option value, against the chance of the Fund
growing. Our belief is that the long bear market in Japan is reaching its crisis and that the justification
for investing 'long' in Japan is strengthening. This makes the award of this mandate particularly timely and
a real business opportunity for LT and Close.
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.
Sedol No Bloomberg
3197794 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 and approved by Lindsell Train Limited
Authorised and regulated by the Financial Services Authority
12 Feb 2004 LTL 000-015-1
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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