Lindsell Train (LTI) fund manager Nick Train has invested in US credit scorer FICO, doubling down on an artificial intelligence “winners” bet that has pushed the investment trust to its worst annual loss in 25 years.
Annual results show the now £114m investment trust saw the net asset value (NAV) of its holdings slump 21.3% in the year to 31 March. Shareholders endured a 29.2% slide as the discount – or gap – between the share price and NAV widened to 23.2% from 14.1%.
This was in stark contrast to the MSCI World index which rose 16.4% in sterling.
In addition, the company slashed its annual dividend by a third from 42p to 28p per share although this maintains the 5.1% yield at the current price.
Chair Roger Lambert pointed to three factors behind the “significant divergence” in performance between the trust and its benchmark:
- the absence of energy companies, industrials, miners and banks had hurt comparative returns as these stocks rallied despite the manager’s disliking their capital intensity and low returns on equity;
- similarly, the lack of AI hardware and semi conductor suppliers, whose shares had surged, had combined with the “indiscriminate” sell-off of the manager’s software and data companies on fears of AI disruption;
- most significantly, the 30.3% drop in the value of Lindsell Train, the fund management company run by Train and co-founder Michael Lindsell, which is the investment trust’s largest holding at 19.7% of assets. Its funds under management slid to £7bn from £11.4bn during the year.
Lambert said LTI’s board was “wholeheartedly supportive” of Train sticking to his guns and adding to key holdings he believed would be AI winners rather than losers, such as RELX and London Stock Exchange Group.
However, he and the other non-executive directors were challenging the manager at every board meeting over his investment strategy and the businesses he backed in light of shareholders’ 48% loss over five years.
Train invested 2% of the trust in FICO in the first quarter of this year after shares in the $28bn Montana-based data analytics group fell over 30% on fears of the competitive threat from rival VantageScore, a business the fund manager said had “yet to win significant market share in mortgages, auto loans or personal loans, despite being essentially free.”
At 31 March the position in FICO had risen to 2.3%, worth £2.4m, making it the ninth biggest of 16 stocks in the concentrated portfolio. Train said he may look to add to the holding.
Together with additional investment in Universal Music Group (UMG), which he added to the trust two years ago, and stakes in Train’s other trusts and funds, LTI holds 32% in the AI turnaround theme. That compares to 21% in consumer brands such as US snacks giant Mondelez, Unilever, Heineken, AG Barr, Diageo, Laurent Perrier and Nintendo of Japan, which he had reduced to lift the former basket of stocks.
Our view
James Carthew, head of investment company research at QuotedData, said: “The Lindsell Train story has become heavily dependent on the portfolio’s ability to thrive in an agentic AI world. The managers remain convinced that their stocks can use AI to their advantage and that the market will eventually come around to their way of thinking. We understand that the new US fund attracted outside money, which is encouraging. Investors should be cognisant that this is a focused bet; as the statement covers, even stocks such as UMG and Nintendo have been hit by AI. It is too early to know what the long-term impact will be on many of these businesses but what we can say is that these stocks are cheaper than they were.”
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