Coronavirus ii Super 60 update: LF Lindsell Train UK Equity Fund

interactive investor's analysts bring you an urgent update on this ii Super 60 rated fund.

The coronavirus outbreak and subsequent pandemic have had a significant impact on the global economy and financial markets. Many share and fund prices have fallen sharply in a very short space of time, as has the cost of oil and other commodities. Volatility has reached levels not seen since the peak of the financial crisis in 2008, and many assets remain prone to sharp movements both up and down.

Given these unprecedented circumstances, with citizens in many of the world’s largest cities confined to their homes, we are collecting updates from managers of funds on the ii Super 60 list of high-conviction active and passive investments.

• ii Super 60 investments: Quality options for your portfolio, rigorously selected by our impartial experts
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Here is the latest from the Lindsell Train team on 1 April:

We note the relative resilience of LF Lindsell Train UK Equity's net asset value (NAV) performance through to the end of March.

I can assure you we take little pleasure from this and are in no way complacent about likely future challenges for the companies that make up your portfolio.

There will be unexpected challenges for sure. One of our stockbrokers entitled a research note I read this week – “Robust But Not Impervious”. And robust but not impervious sums up how I see your portfolio.

Lindsell Train Limited’s investment approach is based on the identification of what we believe to be excellent companies.

That approach has certainly helped our relative performance through these first weeks of the crisis. And, in truth, we are hopeful that the portfolio in aggregate really does comprise the sorts of company that will get through to the other side of all this.

We have always thought that other investors underestimate the value of “survivability” in a company. For us it is the start point in our investment process. Is this business even still going to be around in 10 years’ time?

So, it is not an accident that c28% of your portfolio by value comprises companies with net cash on their balance sheets, including all three asset management franchises – Hargreaves Lansdown (LSE:HL.), Rathbones (LSE:RAT) and Schroders (LSE:SDR). We have always been attracted to companies with conservative balance sheets and even better those with positive cash balances.

We have big holdings in companies with regular, subscription-type revenues; including the asset managers. RELX (LSE:REL), Sage (LSE:SGE) and important parts of the LSE all benefit from being able to charge their customers at regular intervals for continuing services that by and large those customers need to stay in business.

This is also true for parts of Daily Mail (LSE:DMGT) and Euromoney (LSE:ERM) – and this pair also both have net cash balance sheets. Over 45% of the portfolio is today invested in companies of this type.

Contrast such business models with those whose sales have effectively been suspended in the current crisis – like shops having to close or airlines.

Your portfolio has little exposure to companies facing disruption of this magnitude.

However, I must point to the holdings we have in two football clubs, tiny (less than 0.2%) in Celtic (LSE:CCP), but a c. 1.75% holding in Manchester United (NYSE:MANU). Of course competitions have been suspended. Who knows for how long?

We also have two holdings in those London pub companies, Fuller's (LSE:FSTA) and Young's (LSE:YNGA) – comprising together just 0.6% of the portfolio. Their pubs are empty this evening.

Then the rest of your portfolio is made up of companies that own beloved or essential consumer brands. AG Barr (LSE:BAG) (IRN-BRU), Burberry (LSE:BRBY), Diageo (LSE:DGE), Fevertree (LSE:FEVR), Heineken (EURONEXT:HEIA), Mondelez (NASDAQ:MDLZ) (Cadbury, Oreos), PZ Cussons (LSE:PZC) (Carex), Rémy Cointreau (EURONEXT:RCO) and Unilever (LSE:ULVR).

These amount to another near 48% of the portfolio. Some of these proved to have very resilient share prices in March. And this is not surprising. Pubs and bars may be shut, but as the world hunkers down to isolation beer and gin offer solace (always only in moderation).

And it is said that consumption of chocolate actually increases during economic downturns, as people turn to comfort treats. At the same time we feel it is important to maintain the size of the holdings in the luxury product companies, like Burberry or Remy Cointreau, where current sales are declining and share prices have been weak.

This is in part because we believe these companies have “survivability” – Burberry has net cash (if one excludes lease liabilities) and Remy low debt.

More important, though, we expect a burst of hedonism on the other side of the virus, as the world and especially the young celebrate deliverance. That will be some party. I look forward to downing several bottles of Louis XIII with you all. And I might even buy myself a Burberry trench.