Lindsell Train was appointed as investment manager of the fund by Close Investments in January 2004 and took over the fund structure in November 2009, when it was renamed the Lindsell Train Japanese Equity fund. It was originally launched by Close in October 1998.
The £36.4m fund is managed by Michael Lindsell and has a stated aim to increase the value of shareholders’ capital over the longer term from a “focused portfolio of equities” quoted on Japanese stockmarkets.
Mr Lindsell adds: “Lindsell Train’s primary aim for all portfolios is to generate absolute real returns over the long term and in so doing we expect to outperform market benchmarks.”
The manager goes on to explain: “We look to achieve this aim by managing a concentrated portfolio of durable business franchises whose businesses we expect to endure and to generate growing real returns for investors over the long term - at least 20 years hence.
“We believe that only a small number of companies are able to fulfil these criteria with any certainty and that the valuations of such companies generally fail to properly account for these inimitable characteristics.”
Mr Lindsell says: “In order to capture the compounded cashflows inherent from such companies we need to have time and patience and, accordingly, hold onto our positions for long periods of time.”
On whether the process takes into account the macro environment, he insists that it has always been the manager’s policy to remain “indifferent” to macroeconomic factors on the basis that “their effect is notoriously difficult to predict”.
“Instead we concentrate on investing in durable franchises that have the ability to capture growth when it materialises, retain pricing power when competition is intense and to be able to survive and enhance their market position when times are tough,” he states.
The fund is considered higher risk as it is ranked at a level six on a risk reward profile, according to its key investor information document. Potential investors may want to note that ongoing charges are 1.73 per cent.
The manager points out that the portfolio has a very low turnover, of approximately 10 per cent per year.
Mr Lindsell explains: “Once we have committed to a company we are extremely reluctant to sell it, except on a significant breach of our valuation target and when there are sufficient undervalued and exceptional businesses to which we are comfortable allocating the capital instead.”
In 2014, the manager sold out of its position in Mabuchi Motor which he says had tripled in value since 2009 and was up roughly 50 per cent during the year, as auto sales recovered and the yen weakened.
Data from FE Analytics is only available for the past three years to December 4, with the fund returning 92.88 per cent, against a return from the Topix index of 32.60 per cent in the same period. Over the last 12 months, the fund has delivered a respectable 15.36 per cent to investors, beating its benchmark which generated 4.91 per cent.
According to Mr Lindsell, since Lindsell Train took over management of the portfolio in 2004 it has achieved a total yen return of 76.7 per cent against the market return of 49.5 per cent over the same period.
He observes: “We believe this long-term outperformance has been achieved through our differentiated investment approach – investing in a small number of ‘exceptional’ companies and holding on to them for the very long term.
“Because of our unconstrained approach, we may perform very differently from the market index over certain periods of time.”
He identifies two holdings that have done particularly well for the portfolio in the year to date, one of which is Kao, which sells household products and is up 34 per cent on the back of expanding sales in Asia.
“Astellas, a pharmaceutical company, is up 38 per cent, reflecting its growing urology franchise and the prospects for its prostate cancer drug Xtandi that have turned out much better than expected, with further applications possible to treat breast cancer,” he explains.
The manager remains confident that the sales and profits of the companies in his portfolio will not be affected by the Bank of Japan’s stimulus measures.
EXPERT VIEW
Ben Willis, investment manager and head of research, Whitechurch Securities
VERDICT
Michael Lindsell has over a decade’s worth of experience in investing in Japanese equities, which has been put to good use with this fund. You get the option to make a call on ‘Abenomics’ as there is a hedged share class available, which has understandably delivered exceptional returns. However, to assess this fund properly purists will have to look at the unhedged version, which has still managed to beat index and sector.
