How To Match The Returns Of A Top UK Fund Manager

How To Match The Returns Of A Top UK Fund Manager
Jonathan Hobbs, CFA

over 1 year ago4 mins

  • The Lindsell Train Global Equity Fund has a stellar track record for picking stocks, and it’s a favorite among UK investors.

  • The fund’s strategy is simple but effective: pick the few excellent companies in the world and invest in them at fair prices. Then wait for them to do their thing.

  • Unlike most competitor funds, almost half the portfolio is in consumer staple stocks – whose products stay in demand through good times and bad.

The Lindsell Train Global Equity Fund has a stellar track record for picking stocks, and it’s a favorite among UK investors.

The fund’s strategy is simple but effective: pick the few excellent companies in the world and invest in them at fair prices. Then wait for them to do their thing.

Unlike most competitor funds, almost half the portfolio is in consumer staple stocks – whose products stay in demand through good times and bad.

Mentioned in story

The Lindsell Train Global Equity Fund’s been a big-time favorite among UK investors for the past decade – myself included. This isn’t a benchmark hugger: its fund managers embrace a simple yet effective strategy when it comes to picking stocks for the long run. So even if you don’t live in the UK like I do, you could do pretty well for yourself by copying what they do.

How has the fund performed over the years?

UK investors might know the term Open Ended Investment Company (or OEIC). These are the British version of mutual funds: investors pay money into a fund, and a professional money manager invests it for them. Like with mutual funds, investors can buy units in OEICs directly from their brokers, with each unit representing a slice of the fund’s overall investment pie. In the case of the Lindsell Train Global Equity Fund, that means investing in stocks from around the world.

The fund launched in early 2011. Since then, it’s returned 353% to investors (blue line), or 13.8% per year. That’s a big lead over the IA Global sector (green line) – a benchmark used by UK stock funds – which grew just 174% over that time. And it’s a solid achievement: most active fund managers in the UK have a hard time beating IA Global over the long run.

Lindsell Train Global Equity Fund growth vs. benchmark. Source: Morningstar.
Lindsell Train Global Equity Fund growth vs. benchmark. Source: Morningstar.

What’s the fund’s secret to success?

Lindsell Train’s fund managers have a simple philosophy when it comes to investing. They believe there are only a handful of exceptional companies in the world, and they look to buy into them at fair prices – especially when the rest of the market hasn’t yet cottoned on to their worth. After that, they pretty much do nothing, and give those companies all the time they need to deliver their true value to shareholders.

As for the fund’s strategy, the managers start by defining what those exceptional companies look like. First, they’ve got to be in pristine financial health, with enough capital and cash flow to see them through any market environment. Second, they need a strong brand that’s hard for their competition to top – household names that have been built up over many years. Third, the managers like companies with a good chunk of family ownership (preferably going back many generations), which they think leads shareholders to care more for the long-term interests of a business.

After filtering through thousands of firms, they’re left with around 170 great companies. From that, they pick out between 20 and 35 exceptional ones, which they buy and hold for the long run.

So what stocks is the fund investing in?

The end result is a group of companies that tend to be big, global, well-established, and based in developed countries. Looking at the fund’s November factsheet, it’s fairly evenly split between US (36.6%), UK (29.6%), Japanese (21.6%), and European (11.5%) stocks.

Unlike the MSCI World Index, the fund invests almost half its money in the Consumer Staples sector – companies with products that most people will keep using regardless of what the economy is doing. That includes consumer goods company Unilever (UL), beverage businesses like Heineken Holding (ONBD) and Diageo (DEO), and food, snack, and beverage company PepsiCo (PEP).

The managers aren’t too keen on high-flying tech stocks. Instead, they prefer to invest in well-run businesses that can exploit new technologies to improve what they do. For example, the London Stock Exchange Group (LSEG) – the fund’s biggest position – uses improvements in trading technology to run a sleeker and more profitable exchange. And Walt Disney (DIS) – another sizeable position – uses video streaming technology to offer Disney+.

When it comes to big franchises, the fund’s got a decent stake in World Wrestling Entertainment (WWE), which eclipses even the NFL in its fanbase and has the No. 1 sports Youtube channel with more than 90 million subscribers. The fund’s position in Intuit (INTU) is also interesting – the technology platform is used by small businesses around the world to manage their finances.

Lindsell Train Global Equity Fund holdings. Source: November fund factsheet.
Lindsell Train Global Equity Fund holdings. Source: November fund factsheet.

What’s the opportunity here?

If you like Lindsell Train’s approach and live in the UK, there’s an obvious way to play this: buy units in the fund from your UK broker. The fund’s had a lull in performance in the past few years compared to the rest of the market, as consumer staples have lagged behind other sectors. So now could be a good opportunity to buy in at a bargain.

If you’re outside the UK, there’s a bit more work to do: you could pick out the fund’s top ten stocks (image above) and create your own DIY version by buying those stocks individually. That’d get you about 60% of all the fund’s holdings.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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