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

Aminatidi

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

I guess never say never but my view would be a straight "no".

I have around 10% in LTGE and I take the time to (try to) understand the holdings by looking at the annual reports etc.

I've heard of just about every single company in the portfolio and it just isn't a Woodford type scenario.

Woodford was not just liquidity you have to look at why it was liquidity which was a fund manager going off his mandate and putting money into fusion start ups and small bio companies rather than proven global brands.

If you're that concerned take the money and put it into something you're more comfortable with but of all the reasons to sell LTGE I don't think "doing a Woodford" is a good one.

Chippy99

Thanks to all of you for your very helpful replies.

I have to confess I was having a bit of a brainfart and was thinking the LTGE fund had been downgraded not the UK fund (despite me writing to the contrary!)

Also, I understand the sorts of companies LTGE is invested in are typically much less risky and more liquid than those Woodford had his fingers in. And we haven't seen redemptions on the scale of Woodford either. The opposite in fact.

I think I was just being overly nervous after the bad experience with LF Woodford!

So I will sit tight... and just hope the pound doesn't go on a multi-year rally ;-)

Thanks again!

pip895

Chippy99 wrote: »

Thanks to all of you for your very helpful replies.
So I will sit tight... and just hope the pound doesn't go on a multi-year rally ;-)

It often struck me as strange how relaxed everyone was about the pound dropping - even if you have chosen to put your pension into global equities - your home, savings & salary are all priced in pounds. I for one will be happy to see the pound recover - despite having a fair bit in LT Global

Audaxer

Interesting thread. I don't hold LT Global Equity, but if I did I would also have been worried by the recent fall over the last couple of months. Bowlhead's post is very good in explaining the reasons why - I suspect most people would not have done that level of research. What I'm not sure about is whether it is still considered a good fund to hold, and whether during the last month would have been good time to invest in the fund?

bowlhead99

pip895 wrote: »

It often struck me as strange how relaxed everyone was about the pound dropping - even if you have chosen to put your pension into global equities - your home, savings & salary are all priced in pounds. I for one will be happy to see the pound recover - despite having a fair bit in LT Global

Looking at the LT Global fund chart starting five years ago, in the first 18 months to the third week of June 2016 they were up, +24%. Then all of a sudden a month later, post-referendum, that had changed to +48%.

The same people who you mention being oblivious to the fact that they were now generally poorer on a world scale, would probably pat themselves on the back that they had picked a fund that was up almost 50% in 18 months, oblivious to the fact that half of it was from pounds becoming relatively worthless. Some people really don't understand this stuff. And if they do look 'under the bonnet' to see what LT Global holds on some pretty pie chart, they will see it is 30% invested in UK-listed companies, and maybe not note that over half of that is just Diageo and Unilever who have 75-80% of their revenue coming from outside Europe, and an even more substantial fraction coming from outside the UK.

I can imagine we will get some more '[fund name]:what the hell is going on here?' threads if /when sterling stages a recovery/ appreciation against other global currencies. Say sterling rallies 25% against the dollar over the next year or two:

People will say I can see the S&P500 index is up 5%, why is my US tracker fund down 16%? The answer is simply currency rates.

Or more negatively, people will say I can see the US index is flat, why is my global equity fund down 45%? The answer is that your global fund was highly concentrated and took most of its US exposure via Disney and Paypal, which fell over 30% to go back to their April 2018 levels, so with the currency effect you are out serious money on those holdings; and the various other countries in which your fund is invested may have done much worse than the US on average, so don't use the S&P as a benchmark for global markets.

LT have a good track record but would not have projected their global fund to be up over 300% in a decade or 150% in five years. If your £10000 has become £25000 in that five-year timeframe, well done. If markets turn and global stocks lose 40% of value in their own currencies while sterling appreciates 25%, your £25000 goes back to being worth £12000. It is still a profit of course, if you got in early enough but I'm sure Chippy99 would regret not having cashed in some of his chips, as he is only 75% up at the moment and would end up below the level where he came in.

Some would say that LT invests in resilient global brands, not dotcoms, banks and energy, so is not the sort of fund that would see its holdings fall 40% in a global crash. But the response to that is the same as it is to the followers of Fundsmith: If your highly concentrated fund is the sort of portfolio that can go up 140-150% in three years, don't pretend it couldn't lose 50%+ in a similar timescale with a change of sentiment and/or luck.

When you trust your fortunes to a conviction-driven fund manager, it can seem logical to let them manage a reasonable chunk of your holdings - otherwise why pay fees for active management only to dilute that performance with a bunch of other managers pulling your portfolio in other directions. But if you're in Chippy99's position and sitting on decent gains and wondering whether to cash some of them in... well, people don't get poor by taking profits. People get poor by being over-exposed to strategies that go through bad times. So, don't be over-exposed to one way of doing things.

kinger101

Audaxer wrote: »

I don't hold LT Global Equity, but if I did I would also have been worried by the recent fall over the last couple of months.

But nobody should be looking at performance over a couple of months. Most people have probably held it for years or have been investing monthly via an ISA or pension scheme.

Athough the fund does hold a lot of the capital of some companies, they're mostly blue-chip. Not the low-liquidity biotech stocks Woodford started picking.

Aminatidi

bowlhead99 wrote: »

Looking at the LT Global fund chart starting five years ago, in the first 18 months to the third week of June 2016 they were up, +24%. Then all of a sudden a month later, post-referendum, that had changed to +48%.

The same people who you mention being oblivious to the fact that they were now generally poorer on a world scale, would probably pat themselves on the back that they had picked a fund that was up almost 50% in 18 months, oblivious to the fact that half of it was from pounds becoming relatively worthless. Some people really don't understand this stuff. And if they do look 'under the bonnet' to see what LT Global holds on some pretty pie chart, they will see it is 30% invested in UK-listed companies, and maybe not note that over half of that is just Diageo and Unilever who have 75-80% of their revenue coming from outside Europe, and an even more substantial fraction coming from outside the UK.

I can imagine we will get some more '[fund name]:what the hell is going on here?' threads if /when sterling stages a recovery/ appreciation against other global currencies. Say sterling rallies 25% against the dollar over the next year or two:

People will say I can see the S&P500 index is up 5%, why is my US tracker fund down 16%? The answer is simply currency rates.

Or more negatively, people will say I can see the US index is flat, why is my global equity fund down 45%? The answer is that your global fund was highly concentrated and took most of its US exposure via Disney and Paypal, which fell over 30% to go back to their April 2018 levels, so with the currency effect you are out serious money on those holdings; and the various other countries in which your fund is invested may have done much worse than the US on average, so don't use the S&P as a benchmark for global markets.

LT have a good track record but would not have projected their global fund to be up over 300% in a decade or 150% in five years. If your £10000 has become £25000 in that five-year timeframe, well done. If markets turn and global stocks lose 40% of value in their own currencies while sterling appreciates 25%, your £25000 goes back to being worth £12000. It is still a profit of course, if you got in early enough but I'm sure Chippy99 would regret not having cashed in some of his chips, as he is only 75% up at the moment and would end up below the level where he came in.

Some would say that LT invests in resilient global brands, not dotcoms, banks and energy, so is not the sort of fund that would see its holdings fall 40% in a global crash. But the response to that is the same as it is to the followers of Fundsmith: If your highly concentrated fund is the sort of portfolio that can go up 140-150% in three years, don't pretend it couldn't lose 50%+ in a similar timescale with a change of sentiment and/or luck.

When you trust your fortunes to a conviction-driven fund manager, it can seem logical to let them manage a reasonable chunk of your holdings - otherwise why pay fees for active management only to dilute that performance with a bunch of other managers pulling your portfolio in other directions. But if you're in Chippy99's position and sitting on decent gains and wondering whether to cash some of them in... well, people don't get poor by taking profits. People get poor by being over-exposed to strategies that go through bad times. So, don't be over-exposed to one way of doing things.

Excellent post.

I have around 9% each in LTGE and Fundsmith and in the time I've held them they've performed well.

I was aware of currency exposure but it still isn't nice when you're seeing world markets doing well but your funds are losing money because of currency and there's nothing you can do about it.

It's made me think a lot more about diversity and currency exposure.

bowlhead99

Audaxer wrote: »

Interesting thread. Bowlhead's post is very good in explaining the reasons why - I suspect most people would not have done that level of research.

If you're going to buy investment funds to grow your money, you have two basic choices - pay a professional to guide you, or do it yourself (and the former option is inefficient at small investment values). If you do it yourself, you should know what you are getting into.

For some people making a choice of what funds to hold, it's enough for them to see that the fund is in the upper part of a league table, or is mentioned/ promoted as a suggested fund on their investment platform, or was in some news article which said it had a lot of net new inflows in recent years. They can see it's both popular and successful. So they buy it, and get a warm feeling of comfort in following along the herd.

Unfortunately if they ask the herd *why* it had a good year or a bad year, the herd can't tell them, or gives vague answers, just parroting back stuff they heard second-hand about sentiment swings in growth vs value investing, or saying it's within the range of expectations and is fine.

Really if you are going to DIY properly and get a handle on what you are holding, it is good to do your own research into the manager's preferences, habits and style, understand what he has held over time and what commentary he has given on the whys and wherefores, and take a look at what he holds and how it could develop, beyond the top-10 holdings shown on a factsheet. What are some of the risks facing the major holdings, and how does the mix of industries and geographies fit with your wider portfolio.

You then have the age old question of how much such industry and geography 'fit' really matters, because if you are going to pay active managers to pick the best geographies, industries and companies, it doesn't really make sense to just pad out your portfolio with a bit of everything. But you should be aware of gaps and what each fund in your portfolio brings to the table and how they may be correlated or uncorrelated with each other.

Disney has a good launch of its streaming service and goes up close to 20% in a couple of months, and was 5% of the portfolio, great, we got a whole percent of portfolio growth just from that one event on that one company. But just because the portfolio went up 1%, it doesn't mean the portfolio companies all went up 1% ; it means one holding went up 20% and US media/entertainment is now a bigger 'feature' of the portfolio. Let's hope the US doesn't have a recession causing people to cut back on the number of movie streaming services they buy and reduce the number of trips to Disneyland, and that dollars don't become worth fewer pounds.

I'm not suggesting people should somehow be able to research funds well enough to know what the results will be. Even professionals - and the fund managers themselves - can't do that. But if you are going to 'DIY' your investment choices, you should at least have an appreciation of the range of outcomes you might get, so that you don't have unwelcome surprises.

Taking an educated guess at the range of outcomes you could get from a fund and your broader portfolio is really important. Otherwise you will be one of those people saying "well there hadn't been a 25% drop in the 5-year or 10-year chart, so how was I supposed to know it could lose 50%!!". And some smartass will be there saying, "well why did you think it couldn't?? It's a fund that invests 100% of its money in a highly concentrated set of international equities whose companies sit in particular positions in particular industries, and even a broad index like FTSE All-World lost over 50% in the last financial crisis. You were stupid to not consider what happens to equity prices during equity crashes". It won't be much comfort to hear those words later rather than sooner.

Granted, a lot of people don't have the time or energy or experience to do a deep-dive into the holdings and strategy of a fund or its manager, when they are comparing it against ten or twenty other things they could buy. But if you don't, it's just a leap of faith based on a league table or chart. Those are the sort of decisions that come back to haunt you when - to put it politely - 'markets are less buoyant' or as others would say, 'the SHTF'.

What I'm not sure about is whether it is still considered a good fund to hold, and whether during the last month would have been good time to invest in the fund?

It hasn't suddenly become a bad fund to hold. Its portfolio is pretty much what it was earlier this year. A year ago, some people would say it's been on a good run and you should beware of the 'luck running out'. They are probably still saying that. One might imagine that if the portfolio components have gone up in value over 100% in recent years, they have 'further to fall' in a downturn, and less capacity for future growth because companies such as the ones held by LTGE don't grow in value rapidly forever. But they can still grow over time.

Whether 'during the last month would have been a good time to invest in the fund?' is true, is only something you can determine with five years of hindsight. You might later find that there was a much better opportunity to buy it, or that with hindsight you should not have bought it at all, favouring something else. And if you didn't invest in the last month, you can't go back and do it now anyway.

I don't have it in my portfolio. My Mum has it in her ISA and I haven't told her to sell it. It's less than 4% in that portfolio, so less than 2% of hers and Dad's combined; nothing to worry about. If my Mum had put another £1000 into it over the last month, I might have said well done for waiting to buy it then instead of over the summer, but it would only be by accident as she does not time her purchases - or indeed make any new investments really, other than as part of a rebalance every 6-18 months.

aroominyork

Aminatidi wrote: »

I was aware of currency exposure but it still isn't nice when you're seeing world markets doing well but your funds are losing money because of currency and there's nothing you can do about it.

It's made me think a lot more about diversity and currency exposure.

One consideration is whether to hedge some of your foreign currency exposure. The consensus on this forum seems to be against hedging because i) you pay higher fees for the privilege, and ii) exchange rate revert to the mean, so what you gain or lose in the short term will reverse as time goes on. Many people see hedging your funds as gambling – the contrary view is that if you want your investments to reflect market movements, unhedged funds add a gamble by playing the currency markets.

Many pension funds hedge part of their equity exposures and I think there’s a good case for that, whether or not you have short-term concerns about the unpredictability that Brexit is causing for Sterling. You can hunt out investments that don’t add to the cost, eg while IGWD hedged global index is expensive at 0.55% OCF, XDPG hedged S&P500 is only 0.09% OCF.

[Deleted User]

bowlhead99 wrote: »

Really if you are going to DIY properly and get a handle on what you are holding, it is good to do your own research into the manager's preferences,

How can investing in a fund be termed ""DIY" ?
It may give the investor the illusion that he is "doing it himself" but in reality he has placed the decision-making into the hands of someone else.