Why I think Lindsell Train might finally have shaken off the ‘Woodford curse’

Neil Woodford’s well-documented problems have hit both of these investment trusts. Here’s why I’m thinking of buying them.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in the Lindsell Train Investment Trust (LSE: LTI) have lost almost half their value since last summer. Some put that down to the demise of Neil Woodford’s Woodford Equity Income fund, which collapsed under a liquidity crisis.

Faith in gurus was, perhaps, fatally damaged. And it was the turn of Nick Train, manager of the Lindsell Train trust, next.

Although there surely was a Woodford effect, there was clearly more to it than that. I’d argued for some time that Lindsell Train shares were seriously overvalued. At one stage we were looking at a premium of 90% over net asset value (NAV), and I saw nothing to justify that.

But the shares picked up nearly 10% in morning trading Tuesday, so is the Woodford effect finally history?

NAV update

The spike comes a day after the trust released its February update, though I saw noting exciting in it. The firm reported a premium of 13% at 31 January, a little up on a 12% premium a month previously. And at £1,072.57, NAV was a few pounds down.

The share price has now dropped to £1,078, so we’re looking at no premium at all really. Does that make the Lindsell Train Investment Trust a buy? I think it does, but I’d sell if the premium climbed too high again.

The thing is, I see the trust as relatively easy to replicate. Its biggest holding by far, representing 49%, is in Lindsell Train Limited, which manages the trust, plus a handful of funds. And most of the rest is in quoted stocks. So if you hand over half of your cash for the company to manage in its funds, and spread the other half across the trust’s other holdings, you could match it for NAV without paying any premium. But I do think a modest premium is worth it for the convenience.

Woodford

What of Woodford’s legacy itself? Schroder Investment Management took over his Woodford Patient Capital investment trust, and it’s been known as Schroder UK Public Private Trust (LSE: SUPP) since 16 December.

One of the new management’s early priorities has been to unwind some of the trust’s illiquid and unquoted investments. Woodford gained his reputation managing portfolios of highly liquid stocks with plenty of flexibility. But his downfall came from abandoning that approach and greatly increasing the illiquidity risk in his investments.

Getting the trust back to its earlier strategy and liquidity is no easy task, and the share price has been suffering further. The price briefly ticked up after the transition, but it’s turned down again, and has now fallen 17% since Schroder took over.

Net Asset Value

During that time, NAV is holding up reasonably well. From 54.7p on 16 December, it’s down just a little to 52.91p, at the time of writing. That puts the shares, priced at 30.3p, on a discount to NAV of 43%. And I really don’t think the Schroder UK Public Private Trust deserves to be so lowly valued now.

I’m still seeing the Woodford curse hovering menacingly over this trust, but it won’t be there forever. And while it is, I’m seriously considering buying. Both of these investment trusts are now on my shortlist.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »