Morningstar lowers Analyst Rating on Lindsell Train UK Equity, Finsbury Growth & Income

Jonathan Boyd
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Morningstar lowers Analyst Rating on Lindsell Train UK Equity, Finsbury Growth & Income

Morningstar has lowered its Analyst Rating of the LF Lindsell Train UK Equity fund, and the mirrored closed ended strategy Finsbury Growth & Income, over concerns about capacity management and ability to "maintain purity of process" given growth in assets.

Peter Brunt, associate director, Equity Strategies, Manager Research, at Morningstar, said of the IF Lindsell Train UK Equity fund that: "In recent years, strategy assets have grown significantly, mainly following sizeable inflows into this Oeic. Given the portfolio's highly concentrated nature, this has led to some significant ownership stakes in the companies held. While such large ownership levels do not conflict with the long-term investment approach, they could make the fund far less nimble to respond to adverse circumstances (including a significant liquidity event). The large asset base also precludes Train from building sizeable positions in opportunities further down the market-cap scale. While this has not had a large impact on performance so far, allowing assets to continue to grow will only further restrict his potential investment opportunities. In light of this, we are concerned that the group has not taken action to manage capacity."

"This fund still benefits from a highly experienced and longstanding manager and a unique, well-structured investment approach. However, the above concerns over capacity management and the strategy's ability to maintain purity of process with such a large asset base have lowered our level of conviction. The Morningstar Analyst Rating for the ‘Acc' share class is therefore lowered to Bronze from Gold. All other share classes are rated Bronze."

Of the Finsbury Growth & Income trust, he added:  "In recent years, strategy assets have grown significantly, mainly following sizable inflows into the identically managed LF Lindsell Train UK Equity Oeic. Given the portfolio's highly concentrated nature, this has led to some significant ownership stakes in the companies held. While such large ownership levels do not conflict with the long-term investment approach, they could make the strategy far less nimble to respond to adverse circumstances (including a significant liquidity event for the Oeic). Given its closed-end nature, this trust is less vulnerable than the Oeic in this respect; however, the large asset base also precludes Train from building sizable positions in opportunities further down the market-cap scale. While this has not had a large impact on performance so far, allowing assets to continue to grow will only further restrict his potential investment opportunities. In light of this, we are concerned that the group has not taken action to manage capacity."

"This trust still benefits from a highly experienced and long-standing manager and a unique, well-structured investment approach. However, the above concerns over capacity management of the identically managed LF Lindsell Train UK Equity, and accordingly this trust's ability to maintain purity of process with such a large asset base, have lowered our level of conviction. The Morningstar Analyst Rating is therefore lowered to Silver from Gold."

 

Jonathan Boyd
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Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.