Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
Lindsell Train Investment Trust (LSE:LTI)
Why we like it: “Lindsell Train Investment Trust (LSE: LTI) owns a portfolio of resilient businesses, managed by fund managers Nick Train and Michael Lindsell. Its primary investment themes include beloved consumer brands and companies that boast a high proportion of digital revenues. Investment manager Nick Train reveres Warren Buffett, and in keeping with Buffett’s approach, many of the holdings have be held for many years, in some cases for at least 20 years.
“Train likes companies with Buffett-like qualities such as wide economic moats, high returns on equity, reliable cash flows and strong balance sheets. Train also rarely trades, evidently trying to do his level best to put into practice Buffett’s often quoted mantra: ‘Our favourite holding period is forever.’ Its largest holding is a unique asset – the fund management company of the eponymous co-founders, Lindsell Train Limited.”
Why we like it now: Unlike open ended funds, which move up and down with the value of the underlying assets, investment trusts carry additional uncertainty since they might trade at either a large premium or discount to the underlying assets. Currently, the Lindsell Train Investment Trust is trading at a 14.8% discount to its net asset value – which seems like a hefty discount to us, considering the strong fundamentals of the businesses in the portfolio and the earnings power they possess. We think owning LTI might offer investors a relatively low-risk way to take advantage of the market’s volatility by investing in a basket of quality businesses – including some technology plays and popular global brands that don’t feature in the make-up of the UK stock market – for less than they’re potentially worth. The fund manager’s style has been out of favour in recent years – its core strategies have underperformed their benchmark indices in three of the last four years – though buying at such a large discount perhaps limits the downside risk if the investment style continues to underperform.
