Lindsell Train funds breach UCITS concentration rules - reports

Individual holdings breach limits

Lauren Mason
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Nick Train's fund has breached 10% limit on the weighting of individual holdings over the past year
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Nick Train's fund has breached 10% limit on the weighting of individual holdings over the past year

The £6.7bn Lindsell Train Global Equity and £478m Lindsell Train Japanese Equity funds breached the European UCITS rules on portfolio concentration 11 times last year, according to research from the Financial Times, with some individual holdings accounting for more than 10% of portfolios throughout 2019.

The 5/10/40 rule states holdings that have more than a 5% weighting must not collectively exceed 40% of the fund's overall assets. Individual holdings also cannot exceed a 10% allocation.

The Dublin-domiciled Lindsell Train Global Equity fund, which has been managed by Michael Lindsell since 2011 and Nick Train and James Bullock since 2015, overstepped the limits of the rule six times last year, according to the FT, with its largest holdings accounting for more than 50% of the overall portfolio in October.

The Dublin-domiciled Lindsell Train Global Equity fund, which has been managed by Michael Lindsell since 2011 and Nick Train and James Bullock since 2015, overstepped the limits of the rule six times last year."

The Lindsell Train Japanese Equity fund, which has been managed solely by Lindsell since 2004 and is also domiciled in Dublin, had a 10.1% allocation to chemicals company Kao at the end of February, while its largest holdings also breached the 40% limit.

While Nick Train's £5.4bn LF Lindsell Train UK Equity fund's eight largest holdings all exceed 5% and account for 76.5% of the overall portfolio, it is not subject to the same UCITS rules as it is domiciled in the UK.

However, it has breached 10% limit on the weighting of individual holdings over the past year. Its largest holding, Unilever, currently accounts for exactly 10% of the overall portfolio.

Jane Orr, a director at Lindsell Train, explained the concentrated nature of the portfolios was clearly articulated for investors in the funds' product literature. 

She said: "Where such breaches occur we adhere to strict protocols set by the relevant management company to bring the fund back into compliance within a clearly defined and short period of time."

Morningstar downgraded its rating in Train's LF Lindsell UK Equity fund and Finsbury Growth & Income investment trust in December following capacity concerns.

The Lindsell Train Global Equity fund has returned 35.1% over three years compared to its average peer's gain of 2.5%, according to data from FE fundinfo.

Lindsell Train Japanese Equity has outperformed its sector average by 32.5 percentage points with a three-year total return of 29.6%, while LF Lindsell Train UK has returned 9% over the time frame, compared to its average peer's loss of 18.2%.

This article was first published by Investment Week