Monthly Update November 2002
Lindsell Train Investment Trust PLC
10 December 2002
The Lindsell Train Investment Trust PLC
As at 30th November 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 93.50
Net Asset Value GBP 94.51
Discount (Premium) (1.1%)
Market Capitalisation GBP 18.7mn
Source: Bloomberg; NAV - LTL
Performance
(based in GBP) Nov Oct Sep YTD Since Launch
NAV +0.4% -1.7% -1.1% -8.4% -5.5%
Share Price +0.5% +4.5% -2.7% -21.1% -6.5%
Source: Bloomberg. Based in GBP.
Top 10 Holdings
% NAV
US Gov Treasury 6.25% 15.3
Lindsell Train Japan (Dist) 12.9
Lindsell Train Global Media (Dist) 12.1
US Gov Treasury IL 3.875% 9.2
HBOS 6.125% Non Cum 7.4
21/2% Consolidated Loan Stock 6.9
Cadbury Schweppes 5.9
UK Treasury 2.5% 5.4
Glenmorangie plc A&B 5.4
HBOS 9.25% Non Cum 5.3
Industry Breakdown
% NAV
Bonds 36.7
Preference Shares 12.7
Media 8.7
Banks & Investment Co. 7.0
Leisure & Entertainment 7.7
Food & Beverage 16.4
Investment Fund 24.9
Cash & Equivalent (14.1)
Total 100.0
Geographical Breakdown
% NAV
Bonds 36.7
UK 12.2
US 24.5
Preference 12.7
Shares 39.8
Equities UK 29.0
US 4.6
Japan 3.9
Europe 2.3
24.9
Funds LT Japan 12.9
LT Global Media 12.0
(14.1)
Cash &
Equivalent
Total 100.0
Currency Exposure
% NAV
USD 54.7
JPY 0.2
EUR 2.3
GBP 42.8
Total 100.0
Fund Manager's Comments
The balanced nature of the Company's portfolio, with its various asset and
currency exposures and mix of both 'defensive' and higher beta (higher octane)
equities worked against the progression of the NAV in November, it rose by a
modest 0.4%. Over the month our fixed interest stocks declined somewhat, our
exposure to the US Dollar benefited us somewhat, our defensive stocks tended to
underperform, or even decline in a rallying stock market, while our market
proxies, Dow Jones et al, rose satisfactorily. The net result was frustrating.
Nonetheless, there were no events in November that encourage us to alter the mix
and, in particular, we do not find our appetite for risk whetted.
The effect of the Fed's reduction in US short rates was mixed for us. October
saw the second sharpest decline in US consumer confidence on record, doubtless
informing the Fed's decision. We might have expected our US government bonds to
rally on such news, but in fact they sold off, as investors anticipate faster
economic growth, resulting from the rate cut. On the other hand, the US Dollar
recovered as the month progressed, in part because the outlook for US growth
does indeed seem superior to Europe and Japan. Specifically, though, Sterling
weakened against the Dollar, as Chancellor Brown was forced to reveal the extent
of the UK's public revenue shortfall and the ambition of his resultant funding
programme. The Pound is not yet a basket case, but if UK economic growth, which
appears largely based on aggressive public sector borrowing and the release of
equity from a spiralling real estate market, falters, then, at the very least,
we see no reason why the currency should appreciate further. Our gilts drifted
over the month, not surprising given the anticipated additional supply. However,
we think gilts will only enter a sustained bear market either if the Chancellor
pursues overtly inflationary policies, or if other asset classes self-evidently
offer compelling value. Our view is that neither Gordon Brown, nor an
independent Bank of England, with a new, hawkish governor appointed, will
countenance risks with inflation. Moreover, many UK financial institutions will
prove ready purchasers of gilts, with the outlook for stocks so cloudy.
Turning to our equities, we were disappointed by the drab performance of some of
our holdings, indeed falls. Clearly stock specific risk remains exceptionally
high in the current environment. In the UK alone corporate profits across the
whole economy have fallen for 13 consecutive quarters and one assumes that
companies are running out of rabbits to pull out of the hat. However, our poorer
performers were not the obvious economically sensitive horrors, such as Corus
and Brambles, two FTSE stocks, both of which fell 30.0% in the month, but
neither of which we own. We lost value in defensive names, like Cadbury, where
the imminence of a possible US deal has unnerved investors, or Wolverhampton &
Dudley, which has been implicated in a profit warning by its peer, JD
Wetherspoon, we think unfairly. Wolters Kluwer, the European-based professional
publisher has also delivered a flat performance, as investors decided that its
resilient business model lacks the oomph that they now seek.
On the other hand, some of the shares that have given us most grief in 2002
snapped back. Dow Jones, for instance, put on 15.0% in November as investors
digested the fact that general advertising lineage at the Wall Street Journal
rose in October, for the first time since May 2000. Instinet, whose shares we
own, but which is also an important partially-owned subsidiary of Reuters,
rallied 20.0% in the month, in part as it announced that its share of the number
of shares traded on NASDAQ's new transaction platform, SuperMontage, has been
maintained at circa 30.0%, in line with its overall share of that market. So
far, then, a major perceived threat to Instinet's liquidity pool has proven
toothless. Reuters itself has rebounded, up nearly 28.0% in November, in part
assisted by a 50.0% bounce in the shares of another of its US quoted
subsidiaries, TIBCO. Such gains are not trivial for Reuters overall, because its
holding in TIBCO, for instance, represents nearly 15.0% of group value. Finally,
Nintendo has recovered 30.0% from its lows of early November. One reason was its
announcement that it had bought back 2.5% of its equity for cancellation over
the previous four weeks. We have always thought that Nintendo is an
exceptionally rationally managed business and its success in holding off from
buying back its stock until the recent lows has done nothing but enhance our
admiration. In truth, though, we are more excited by the news that Nintendo's
new, first party game, Metroid Prime, sold 250,000 copies in the US over its
first week of release and that the handheld console, Gameboy Advance, confirmed
its monopoly position by selling a million units in ten days running up to
Thanksgiving, taking the US population alone to approaching 10 million. Nintendo
is close, we believe, to recreating the virtuous cycle, which has marked earlier
phases of its share price appreciation, when release of desirable, proprietary
software stimulates sales of Nintendo hardware, which in turn feeds demand for
more software. Nintendo's shares have risen five-fold since 1984, nearly
nine-fold to the 2000 peak, admittedly not in a straight line. We hope it can do
the same for us again over the next 16 years.
That sentiment allows us to conclude this note with a brief and heartfelt
platitude. We would love all the constituents of our portfolio to move in the
same direction all at once, so long as that is upward. However, such is the mix,
this is unlikely. Nonetheless, over the sort of horizon required to judge
whether Nintendo proved a good investment, five years or more, we expect all our
assets to appreciate, to differing degrees and at differing junctures and trust
that this will drive value for the Company.
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 the 2
Payment: August 1/2% Consolidated Loan Stock.
The Board Management Fees Registered Address
Rhoddy Swire Standard Fee: 0.65% p.a. Lindsell Train Investment Trust
Michael Mackenzie Performance Fee: 10% of annual 77A High Street
Donald Adamson increase in the share price, plus dividend, Brentwood
Michael Lindsell 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.
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