LF Lindsell Train UK Equity

This eponymous fund from Nick Train invests in a highly concentrated portfolio of predominantly UK-based quality companies. The holdings are usually large, well-known businesses that are dominant in their industry due to factors such as strong brands, economies of scale or barriers to entry. Nick is a very patient investor: having invested in a company he will often not trade in or out of it for months or years. When he decides to invest, he also does so with conviction. The portfolio invests in just 20-35 stocks and around 70% of the fund is in its top ten holdings. Nick can invest in some overseas companies, as well as UK-based ones, and therefore the fund may look very different to its peer group.

Our opinion

Lindsell Train UK Equity is a highly concentrated fund with a disciplined process, resulting in a high-conviction portfolio which can, and has, outperformed its peers. It is an example of true active management, with a portfolio that is very different from its benchmark.

Fund manager

Before founding Lindsell Train, Nick Train was head of global equities at M&G. Prior to that he worked at GT Management (which was acquired by Invesco shortly before his departure) where he was investment director and chief investment officer for Pan-Europe. Nick has over 30 years’ experience in investment management and is the portfolio manager for UK equity portfolios at Lindsell Train and jointly manages their Global portfolios. He has run Lindsell Train UK Equity since its launch in 2006.

Nick TrainFund manager

Investment process

While Nick is the portfolio manager for this fund, all members of the six-strong investment team contribute to the research process. Over 90% of research is conducted in-house.

The team holds a formal monthly investment meeting, but ideas are also discussed on an ongoing basis. It looks to identify companies which it considers durable and cash-generative, which it believes can achieve sustainably high returns and which are undervalued by the market.

The team likes companies that use their capital to reinvest back into the business and that look to acquire complementary businesses which would allow them to maintain their high return on capital. If the opportunities don’t exist, then the capital should be returned to shareholders. The team also favours companies with low debt.

Valuation calculations are an important part of the investment evaluation process and are made on all companies in the investment universe, helping the team to identify which businesses might qualify for further research and potential inclusion in the portfolio.
Companies are invested in with the expectation of holding them for the very long term. The team calls this Responsible Investing – so it considers all factors that will impact the durability of a company, including ESG.

Good relationships and dialogue are established with the companies the team invests in and stocks are held for the long term, being sold only if the price no longer reflects what the team believes to be the company’s true value or if the reason for investing in a stock in the first place is no longer valid. Subsequently, the fund has a very low turnover and may go through a period of months where no stocks are added or sold.

ESG

ESG - Integrated  

Nick Train and his team incorporate ESG factors in normal analysis as part of their stock selection process. The Lindsell Train process is all about investing in exceptional, durable, cash generative businesses that achieve high returns on capital. Strong governance and responsible business practices are a large part of this. Companies which observe high standards in these areas reduce risk to their businesses and are likely to be more resilient and increase their chances of survivability. As part of the investment philosophy, the team does not invest in any businesses involved in the extraction of coal, oil or natural gas. It also avoids exposure to tobacco, gambling or arms manufacturing.

Risk

The portfolio is concentrated, typically holding 20-35 companies, which means that each stock will have a material impact, positive or negative, on the performance of the fund.

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