Monthly Update November 2003
Lindsell Train Investment Trust PLC
12 December 2003
The Lindsell Train Investment Trust PLC
As at 28th November 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.
Share Price GBP 80.50
Net Asset Value GBP 93.98
Premium (Discount) (14.3%)
Market Capitalisation GBP 16.1mn
Source: Bloomberg; NAV - LTL
Performance (based in GBP) Nov YTD Since Launch
NAV -0.7% +0.7% -6.0%
Share Price -11.0% -15.3% -19.5%
Monthly Benchmark (21/2% Con Ann +0.4%
Avg Yield +4.9%)
Source: Bloomberg. Based in GBP.
Top 10 Holdings % NAV Industry Breakdown % NAV
US Gov Treasury 6.25% 20.3 Bonds 35.5
Lindsell Train Japan (Dist) 11.3 Preference Shares 14.2
Lindsell Train Global Media (Dist) 10.3 Equity - Media 10.0
HBOS 9.25% Non Cum 9.1 Equity - Banks & Investment Co. 4.8
21/2% Consolidated Loan Stock 8.5 Equity - Leisure & Entertainment 9.8
Barr AG 8.3 Equity - Food & Beverage 23.3
Glenmorangie plc A&B 7.1 Investment Fund 21.6
UK Treasury 2.5% 6.6 Cash & Equivalent (19.2)
Cadbury Schweppes 5.8 Total 100.0
Wolverhampton & Dudley Breweries 5.1
Geographical Breakdown % NAV Currency Exposure % NAV
Bonds 35.5 USD 49.7
UK 15.2 JPY 1.0
US 20.3 EUR 0.3
Preference 14.2 GBP 49.0
Shares 47.8 Total 100.0
Equities UK 35.7
US 5.2
Japan 4.7
Europe 2.2
21.6
Funds LT Japan 10.3
LT Global Media 11.3
(19.2)
Cash &
Equivalent
Total 100.0
Fund Manager's Comments
The end of this month, November, marked the second anniversary of the launch of
the Lindsell Train Global Media Fund. We concentrate this month's note on the
outlook for this fund, for three reasons. First, the Media Fund is an important
asset within the Trust, at 11.0% of the total and one that has performed well
since the turn in world equity markets in March 2003, up 21.0% on a like-for-
like basis, in US Dollars. Next, the Fund, although small, remains very much
part of our ambitions for Lindsell Train Limited and its potential to earn
performance fees and to grow assets represents a further opportunity for the
Trust (via its holding in the management company), over and above any additional
NAV gains the Fund may register. Finally, its investment theme is one of the
most powerful and attractive we know.
The Media Fund was launched in 2001 because it represented one of the best money
making ideas we had. This remains the case. Our proposition is that the media
industry, always dynamic and profitable, is experiencing changes that
significantly increase the value of many of its constituents, but disadvantage
others. We do not believe these changes are reflected in the value of publicly
quoted media assets. Perhaps the best way to illustrate them and hence our
investment idea is to remind readers of the scale of the Harry Potter craze. It
was recently announced that J.K. Rowling has sold her 250,000,000th book
worldwide. This makes her without question the most successful author in history
and almost certainly the richest. I do not begrudge the lady a penny of her
fortune - anyone who can inspire my video-game besotted son to devour 700-page
books deserves my thanks. However, it is worth reflecting on why this
unprecedented cultural phenomenon should have been visited on the late Twentieth
and early Twenty First centuries and not earlier. The reason, if you will
forgive the pretentiousness, is that Marshall McCluhan's vision of the 'Global
Village', articulated in the 1960s, is becoming fact. Specifically, the
emergence of new media distribution technology - digital cable, satellite,
wireless and Internet - is allowing more consumers in more locations to explore
more media content and encouraging, in this and other instances, global
enthusiasms. An associated implication of these technology advances is that no
author before J.K. Rowling will ever have earned so much from selling licenses
to video-game manufacturers, a source of income not available to Charles
Dickens.
The Media Fund cannot invest directly into Harry Potter, although an investment
in his publishing house, Bloomsbury, would have been rewarding enough over the
last couple of years. However, the Fund has benefited from its holdings in
Pixar, the animation studio, whose shares have risen 97.0% in Dollars since we
completed our position. Pixar, too, is a phenomenon such as could only emerge in
the early Twenty First century. Its recent release, 'Finding Nemo', is already
the most successful animated film of all time, in terms of box office receipts,
taking $339 million in North America in 2003 alone. Meanwhile, the DVD/Video of
Nemo sold 17 million copies in its first week of US release, putting it on
certain track to exceed the top-selling home release ever, Disney's Lion King,
with 32 million life-time DVD/Video sales.
So, our proposition is that technology and globalisation mean Media properties
can be bigger and more profitable than ever before. The Fund's largest holding,
Manchester United, has doubled in 2003, because of the stake-building, of
course, but also because the company has more fans, in more places, offered more
access to the thrills of its games and gossip about its players, than any
football club in history. By extension, we note that 2003 has seen an explosion
in the issuance of international bonds - corporate bonds offered to global
investors, outside the issuer's home market. Such new bonds exceeded $1.99
trillion by end October, already surpassing the previous record of $1.78
trillion in the whole of 2001. Currently $9.0 billion of new bonds are being
issued every day, with particular activity in the Euro bloc. This '
globalisation' of the bond markets is great news for the issuing houses,
naturally. But it is also great news for the rating agencies, which must
research and pronounce upon ever greater volumes of bonds, held by an ever wider
constituency of global investors. The Fund has important investments in McGraw
Hill, the owner of the S&P rating agency and Dun & Bradstreet, both of which are
constituents of the media sector and strong absolute performers for the Fund
since launch and provide a further means to profit from the development of the
Global Village.
By contrast, the explosion of media distribution capacity creates losers in the
sector, companies where we find our short ideas. A single, recent news story
that illustrates this opportunity concerns Comcast, the biggest owner of cable
TV systems in the US. This company, it is reported, is spending $1.0 billion to
upgrade its network in the Chicago region alone, to enable it to compete more
effectively against the local Baby Bell, SBC Communications, which is marketing
a similar video/telephony/internet package. Comcast is a big company, with an
enterprise value of $94 billion, but will be fighting such battles right across
the USA, as satellite, telcos and cable vie for eyeballs and subscription
Dollars, battles that will crimp free cash flows, at best and, at worst, put
some business models into question. In the UK we are short not only the free-to-
air TV stations, after their recent merger rally, believing that the inexorable
slide in ITV's market share will continue, but also British Telecom, which has
recently decided that it must invest further in broadband capacity in the UK,
putting it into direct competition with the UK cable companies and, ultimately,
Sky. Given the erosion of its core voice business, BT has little choice but to
develop its media distribution assets, however competitive the arena. In
summary, we expect the costs of remaining in the media distribution industry to
rise and competition to control 'must-access' content to intensify, to the
benefit of the content owners.
We must acknowledge that our investment strategy, derived from this analysis,
has yet to generate strong annualised returns, which run at just under 3.0% pa,
before set-up expenses. We also did not anticipate the severity of the bear
market in the Media Sector, which saw a fall at worst of 37.0%, subsequent to
the Fund launch and is still down 12.0%. However, we take encouragement from the
rally in the Fund NAV, once more favourable conditions set in and take more
encouragement from the business performance of our key long positions. We think
it possible a new multi-year bull market for media assets commenced in March
2003 and if this is sustained we think it most likely that the Fund will perform
well. The Trust's NAV fell 0.7% during November, as modest gains in the value of
our bond holdings and a mixed return from the equity list were offset by further
weakness in the US Dollar. We will, of course, return to these broader portfolio
issues in subsequent notes. The weakness in the Dollar has depressed the equity
prices of various companies whose earnings are generated in the US or, more
generally, denominated in Dollars. We find some opportunities here that appear
exceptional value and expect the Trust portfolio to reflect these in due course.
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
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 authorised and regulated by the
Financial Services Authority.
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