Lindsell Train Global: what the hell is going on here?

TBC15

This is how the madness starts.

Chippy99

Yes I can see that. I'm quite happy to hold LTGE for another 10 years plus, and I don't mind it underperforming over a period.

But I thought the same about Woodford and sold none even when alarm bells were ringing and look where that got me!

It's the idea of open-ended funds getting "wound up" which came as a bit of a shock.

BananaRepublic

iglad wrote: »

I'm a bit puzzled as what is going on at LTG as despite the S&P hitting record heights and the positive gains on the FTSE of late the LTG price seems to keep falling. It seems to do the very opposite of what one expects.

All very strange is there something I'm missing? I know it has no tech stock in it's portfolio.

Enlighten me someone.

I used to have 15% gains now it's just 2.32%

Fundsmith gains are almost double but I expect it to to do well as it's got a more US focus and also has tech stocks.

Go on enlighten me, please.

You can easily find out the stock allocations for each fund, and how they are spread over countries, sectors and markets. That should answer your question. On a more general note, it’s an active fund subject to the whims of the manager.

Thrugelmir

Chippy99 wrote: »

What do you all reckon?

8% of what size portfolio?

No harm in top slicing a holding if you've made a sizable gain in a short period of time.

Chippy99

Thrugelmir wrote: »

8% of what size portfolio?

No harm in top slicing a holding if you've made a sizable gain in a short period of time.

I'd rather not say if you don't mind. I'll just say my LTGE investment is substantial enough to make me worry about it!

bostonerimus

Why aren’t people surprised when focused funds like Lindsel Train and Fundsmith out perform the general market and only start asking questions when they are under performing?

With both funds you are getting around 30 funds chosen according to the manager’s ideas about what to buy, sell and hold; crucially they are not index trackers so you must expect downs as well as highs that don’t necessarily follow the wider market.

I worry that people pile into actively managed focused funds just because they are at the top of some league table without understanding asset allocation and risk and vitally without a plan of what to do when the funds start to under perform.

Rollinghome

Chippy99 wrote: »

I note that Morning Star have downgraded the fund due to liquidity concerns. Should I be considering reducing my holding or even cashing out altogether?

What do you all reckon?

Thanks

Morningstar have downgraded Lindsell Train UK Equity fund from gold to bronze and the IT version, Finsbury (FGT) from gold to silver. Not the global fund LT Global Equity that you refer to as far as I know.

The downgraded UK funds are up around 25% over 1yr and 84% over 5yrs (as against 22% and 44% for a FTSE all share tracker).

It's impossible to know where they will go from here. If sentiment against the world-trading quality stocks favoured by LT continues they could lose further ground against other funds but if it looked as if we might crash out of Europe without a deal in 12 months, or go into recession, then they could come back into favour.

The stocks are in no way comparable to those of tiny unlisted companies favoured by Woodford; almost the exact opposite. The problem is more that investors in the last few months have thought that riskier stocks aren't quite so risky after all and the premium for quality stocks less worth paying. That could all change again.

There's no point in paying for a managed fund if you want it to simply track the index. Your options are to buy a tracker, to diversify into a different style of managed fund for some or all of your holding, perhaps one investing in value stocks or those more exposed to the UK economy , or stay as you are. If you buy a tracker you will need to decide which UK index it tracks.

NedS

Chippy99 wrote: »

Is there much danger of LTGE "doing a Woodford"?

I've lost a shed load on the Woodford UK Equity Income Fund debacle, which whilst bloody annoying is not the end of the world since my holding is less than 1% of my broader portfolio. But LTGE represents something like 8% so is a serious chunk of cash. I absolutely would be mortified if I were to lose much of that. I'm sitting on a 75% profit at the moment.

I note that Morning Star have downgraded the fund due to liquidity concerns. Should I be considering reducing my holding or even cashing out altogether?

What do you all reckon?

Thanks

Here is what Nick Train had to say on the matter:

https://www.trustnet.com/news/7461001/nick-train-brushes-off-liquidity-concerns-after-ratings-downgrade

bowlhead99

Rollinghome wrote: »

Morningstar have downgraded Lindsell Train UK Equity fund from gold to bronze and the IT version, Finsbury (FGT) from gold to silver. Not the global fund LT Global Equity that you refer to as far as I know.

True. They haven't downgraded the Global equity fund.

They noted that the UK-focused funds, as they get bigger, will find it harder to deploy capital in opportunities that elicit better than average returns; or to efficiently exit them.
https://www.morningstar.co.uk/uk/news/198455/nick-train-downgraded-by-morningstar-analysts.aspx

The UK fund and the Finsbury trust they manage have combined AUM of £7.5bn, which is relatively large, albeit their investment universe of UK-listed equities is theoretically a couple of trillion pounds. As they have a concentrated portfolio, one could imagine them finding it *relatively* more difficult to enter and exit individual company positions at significant scale, which does not bode well for finding the next ten-bagger and reaping the rewards. All they can do is really stick to their philosophy and hope to avoid the dross, outperforming by what they avoid as much as what they are able to buy. Their size is perceived as a restriction on their flexibility.

Whereas if you look at the global fund, which is a little bigger at £8.5bn, it's playing in a pool of $50-60 trillion of global free float equity market capitalisation. A large holding like Disney has a market cap of $260bn; PayPal is half that, at 'only' $130bn. Diageo is smaller at £75bn, while Unilever, Heineken and Nintendo are relative tiddlers at £40-50bn. Still, you can get away with a £400-700m investment in a £40-100bn company, as it's only a percent or so of the total company size and you won't have an inordinate problem in shifting the stock if they want to exit, nor need to step up and make an offer for the whole share capital of the company or anything silly like that.

Chippy99 wrote: »

But LTGE represents something like 8% so is a serious chunk of cash

I absolutely would be mortified if I were to lose much of that. I'm sitting on a 75% profit at the moment.

I note that Morning Star have downgraded the fund due to liquidity concerns. Should I be considering reducing my holding or even cashing out altogether?

Some back-of-the-envelope maths:

Imagine you are sitting on a 75% profit due to LT's runaway success, and /for example/ your other holdings are only sitting on a 25-30% profit in the same timescale, it's possible that the LT Global fund may start to dominate your portfolio. Because instead of having 17 funds at 100 each in the old days (total £1700) you now have one fund at 175 and 16 funds at 125 each (total £2175).

So your LT holding is now 8% of the portfolio even though it had started off at only 1/17th of the portfolio (6%).

Is this a major problem? It does not seem so. You would like it to be only 1/17th of the portfolio, which is only £128, but it is £175 instead. So, sell £50 worth of the £175 LT holding, so you have only ~£125 in LT Global, and reinvest that spare money into the other funds. Then you are back where you started in terms of having a broad portfolio of funds, of which this fund is only about 6%.

Many people would accept a mainstream global equities fund being a lot more than 6% of their total portfolio. Still, LTGE is quite a concentrated fund and others would prefer to have a smaller allocation. But if you're the sort of person who thinks LT have a decent philosophy, I don't see why you would 'cash out altogether' simply because Morningstar said that some of LT's other fund products were not as favoured as they were a while ago.

As Thrugelmir suggested, the approach of 'top slicing' some gains and reinvesting the money across the rest of your portfolio, could serve you well.

AnotherJoe

arwain wrote: »

It certainly is, not sure about your 3/4 number though. I would imagine less than 10% of all investors actually understand what they are investing in. A lot of people just look at which fund is or has been the top of the charts for say the last year or two and put their money into that.

Indeed, just look at how Sirius Minerals has been one of the top interest / traded funds on HL for months