The Lindsell Train Japanese Equity fund has been forced to sell more than a fifth of its Nintendo stock as the popularity of smartphone game Pokemon Go meant the holding could become more than 10 per cent of the net asset value.
Fund manager Michael Lindsell confirmed the fund had shed 22 per cent of their holding at an average price up 94 per cent from the end of June closing price.
“We have been committed owners of Nintendo since we assumed responsibility for the fund’s management in 2004. Simply put, we think that Nintendo owns some of the most valuable intellectual property around,” Lindsell says.
Nintendo is now the fund’s second largest holding, accounting for 9.4 per cent of the portfolio, behind cosmetics brand Kao, which accounts for 9.5 per cent of the portfolio.
Ucits rules mean individual holdings in a fund must be under 10 per cent on its net asset value.
Lindsell reckons Nintendo’s other franchises such as Mario, Zelda and Donkey Kong have greater heritage than Pokemon, demonstrating the “scale of the market opportunity” if it lures more gamers to engage with their intellectual property.
The company should be able to generate 20 per cent operating margins without accounting for any incremental success in monetising its intellectual property, Lindsell says in his monthly update.
Lindsell points out that Pokemon Go is free to play and is only monetisable from in-app add-ons and from its ability to draw gamers as footfall to specific locations.
Lindsell said the advent of smartphones provided both challenges and opportunities for Nintendo, both diminishing the use of gaming consoles, but also widening the audience of casual gamers, which is its core audience.
Potential customers have now gone from around 100m to 200m with gaming consoles to 2bn smartphone users worldwide.
Nintendo only has a 32 per cent direct ownership in Pokemon Go with the franchise licensed to Google affiliate Ninantic. It will launch its first two 100 per cent owned smartphone games in Autumn – Animal Crossing and Fire Emblem – in a joint venture with Dena.