Lindsell Train challenges company over shareholder gifts

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Lindsell Train has pressed one of the holdings in its Japanese Equity fund over gifts to shareholders arguing the scheme discriminates against those with larger holdings.

Japan Exchange Group, which accounts for 4.9 per cent of the fund, distributed 52,000 gift cards to its shareholders in its last fiscal year.

For the smallest shareholders the gift certificate results in a 63 per cent increase in dividend yield from 2.4 per cent to 3.9 per cent.

Shareholders must hold at least 100 shares for over a year to be eligible for the scheme.

“It is concerning that shareholders are being treated differently, especially by the company that is responsible for policing Japan’s recent shareholder governance initiatives,” says fund manager Michael Lindsell.

“We have raised our concerns with the management.”

Over 1,300 Japanese companies offer gift programmes to shareholders in an attempt to maintain at least 2,000 shareholders, which is a requirement for companies quoted on the Tokyo Stock Exchange first section.

Companies with large institutional or family ownership can find it difficult to meet this requirement.

Lindsell says the scheme, paid for by all shareholders, raises concerns that not all shareholders are being treated equally with the smallest shareholders receiving proportionally greater benefits than larger shareholders.

“As a policy to bolster the number of shareholders it has been wonderfully effective but it has also arguably distorted the ownership of the company quite significantly.”

One company, Meiko Network, delivered 47,000 Quo cards to shareholders accounting for 4 per cent of normalised net income.

Lindsell says: “For the JPX the influence on the share register and the cost of the scheme is de minimis compared to Meiko Network but the principle that the company responsible for holding up the highest standards of corporate governance should be treating shareholders differently looks plain wrong.”

The £151.3m Lindsell Train Japanese Equity fund has returned 11.3 per cent in the last six months in GBP compared to 2.3 per cent in the IA Japan sector and 1.7 per cent in the Topix index, according to FE data.

Over three years it has returned 91.7 per cent compared to 58.5 per cent in the sector and 62.4 per cent in the index.