On 4 November, I joined an audience of investors at the always-fascinating annual update from Lindsell Train in central London. A lively introduction from Nick Train, joint founder and portfolio manager, was followed by presentations from three of the portfolio managers – James Bullock, Madeline Wright and Ben van Leeuwen.
The event was well-timed as, after several difficult years, there are finally signs that the market may be turning in favour of Lindsell Train’s way of thinking. Against a backdrop of turbulent trading and some steep falls in the technology stocks that have powered markets upwards in recent years, Finsbury Growth & Income (FGT) delivered a remarkable 12.6% NAV total return in October, against just 1.1% for its All-Share benchmark. This was the trust’s strongest month since 2009 and its best relative performance since Lindsell Train took over management in 2000.
Meanwhile, Lindsell Train Investment Trust (LTI) saw its NAV per share rise by 10.6%, although this also reflected an upward revaluation of its stake in the investment manager – also reversing a trend – and the impact of October’s tender offer.
‘A cheery consensus’
The title of James Bullock’s presentation was inspired by the Warren Buffett warning that “You pay a very high price in the stock market for a cheery consensus”. The current relevance of the quote is that while investors have been extremely enthusiastic about a relatively narrow group of market leaders, many of the high-quality businesses favoured by Lindsell Train have fallen out of favour, despite continuing to deliver at the operational level.
Between 2011 and 2025, Lindsell Train’s global equity strategy delivered annualised earnings per share growth of 9.9%, compared with 5.5% for the MSCI World Index. The portfolio was rewarded with an average price-to-earnings multiple of 23 times during those years, against 18 times for the index.
But that relationship has now reversed, with the portfolio trading on 18 times forward earnings, compared with 20 times for the index. This reflects a divergence in expected earnings growth, with the portfolio forecast to deliver growth of around 10% in 2026, broadly in line with its historical average, compared with 19.5% for the index, well above its historical rate.
However, Bullock questioned how sustainable the index’s elevated growth expectations are, particularly in the US, where high corporate profit margins and valuations create a ‘double jeopardy’ risk if both were to fall. There are already tentative signs of a shift in sentiment, given that several of Lindsell Train’s major holdings recovered strongly in October. If this gains momentum, a narrowing of the valuation gap could provide a powerful tailwind for its portfolios.
Meanwhile, many of the companies that Lindsell Train owns have been taking advantage of depressed valuations to repurchase their own shares. Bullock highlighted seven digital franchises, including RELX, LSEG and PayPal, with an average dividend yield of 1.7% and outstanding buyback programmes equivalent to 6.7% of their market capitalisation. This sits alongside consensus forecasts for annual operating profit growth averaging 9.8% over the next five years.
This ‘internal interest’ has been coupled with unprecedented external interest, with nine holdings targeted with bids across Lindsell Train portfolios in the past year. These include Schroders, which was acquired by Nuveen, Hogy Medical, which was taken private by Carlyle, and Intertek, which has agreed to a takeover by EQT.
New portfolio holdings
The hallmarks of Lindsell Train’s investment approach are high conviction and low turnover portfolios, and therefore whenever its managers talk about new purchases, investors tend to sit up straight and listen. Two recent additions to Finsbury Growth & Income’s portfolio were covered by Madeline Wright: TP ICAP and Spirax Group. Both are established businesses that have traditionally commanded strong valuations, but whose shares have fallen considerably from previous highs, providing Lindsell Train with opportunities to initiate positions at historically attractive multiples.
TP ICAP is the world’s largest over-the-counter broker, with a market share of almost 50%. It operates across the vast over-the-counter (OTC) markets, where financial instruments such as bonds, currencies and derivatives are traded directly between counterparties rather than on exchanges. Trading volumes in these markets are approximately 20 times those of global equity markets. The company’s competitive advantage comes from the depth of liquidity it offers clients – as the CEO Nicholas Breteau puts it: “the moat is the liquidity”.
Spirax, meanwhile, is an industrial engineering business whose products are deeply embedded in customers’ operations. As Wright acknowledged, this is not the sort of company usually associated with Lindsell Train – “too physical, too made of metal”as she put it. But Spirax is much more than this: its specialist equipment is critical to customers’ operations, while its engineering expertise, longstanding customer relationships and growing use of digital monitoring help differentiate it from conventional industrial manufacturers. These competitive advantages are reflected in its impressive 20% adjusted operating margin, more than double the UK industrials average.
Next, Ben van Leeuwen discussed two new additions to Lindsell Train’s global portfolios, both of which have also suffered significant share price declines from recent highs.
KKR, the global investment firm, has grown into a diversified business with $796bn of assets under management, spanning private equity, credit, infrastructure and insurance. It enjoys a stable, long-duration capital base and significant potential for further growth. Van Leeuwen countered recent concerns about the private credit market, pointing out that direct lending accounts for just 5% of KKR’s total assets under management.
SAP was perhaps the most intriguing new investment, given concerns that artificial intelligence could undermine established software businesses, which gave rise to the ‘SaaSpocalypse’ market selloff earlier this year. Van Leeuwen argued that SAP’s position is fundamentally different from that of more vulnerable software providers. Its systems are deeply embedded in customers’ operations, handling everything from financial reporting to manufacturing and supply chains, making them extraordinarily difficult to replace. Indeed, executives at several major businesses (Van Leeuwen quoted four) have likened replacing their core systems to undergoing open-heart surgery.
There is also a significant growth opportunity from customers migrating to SAP’s cloud-based systems. Some 43% of clients have yet to make the transition, which can generate two to three times as much revenue for SAP. And rather than being displaced by AI, Lindsell Train believes SAP could benefit from the technology, with AI-powered applications continuing to depend on its underlying systems and data to function.
A turning point?
I came away from the event feeling more optimistic about Lindsell Train’s prospects than I have for some time. The managers made a persuasive case that the market has become too preoccupied with a narrow group of winners, overlooking some excellent businesses that continue to grow their earnings and generate substantial cash. It also seems increasingly difficult to justify the valuation premium that the wider market commands over Lindsell Train’s portfolios.
That said, we have seen false dawns for quality investors before, and one month’s performance – however spectacular – does not necessarily signal a lasting change in market leadership. Indeed, in recent days we have seen some signs of a recovery in the ‘AI trade’. And for LTI shareholders, the difficulties have been particularly painful, illustrated by October’s tender offer for 20% of the trust’s shares attracting applications for almost a third of the company. A sustained recovery, rather than a short-lived bounce, is what investors really need.
Nevertheless, the underlying investment case for Lindsell Train looks more compelling than it has for several years. And the willingness to introduce new names such as KKR and SAP demonstrates that the managers are not simply waiting for their longstanding favourites to recover. LTI’s managers would be the first to admit that investors’ patience has been tested, but perhaps the tide really is beginning to turn.
