The Lindsell Train share price is down, and Neil Woodford is not to blame

The Lindsell Train Investment Trust (LTI) share price has slumped since last summer. Here’s why I still wouldn’t buy it.

| 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.

Neil Woodford’s downfall has left a gap that’s quickly been filled by Nick Train. He manages the successful Lindsell Train Investment Trust (LSE: LTI), which has a history of impressive growth.

The trust reached a peak of £2,040 per share back in June 2019. But since then the shares have fallen back to £1,247. That’s a drop of 39% in only seven months.

And over the whole of 2019, despite the trust delivering a 32% net-asset-value return, the share price gained only 2%. Those who switched guru last summer as Woodford’s woes compounded have not done so well. But what went wrong?

Woodford?

Train has put some of the blame on the Woodford fiasco itself. In his latest monthly update, he said “there have undoubtedly been ramifications for Lindsell Train Limited from the Woodford affair.” Lindsell Train Limited (LTL) manages the investment trust (LTI) plus some open-ended funds. And the trust in turn is 50% invested in LTL.

Sounds like a curious arrangement? It means investors can put their money in LTL without LTL being itself listed on the stock market. But I do think it has helped fire up what I see as last year’s serious overvaluation of Lindsell Train Investment Trust (LTI) shares.

Train pointed out that his own funds do not carry the same illiquidity risks of Woodford’s. In particular, he stressed that “we do not invest in unquoted shares in the open-ended funds.” And in that, he does seem to be a more prudent investor than Woodford.

Justified

But I still think the LTI share price fall was justified, even in the absence of liquidity risk.

The Woodford failure did trigger a chain of events that led to a re-evaluation of the Lindsell Train Investment Trust. But what did it trigger, precisely? I reckon it meant a return to rationality, and it’s that renewed rationality that has pared back LTI’s share price.

In my view, the underlying cause of the LTI price fall since July is simply that the shares were seriously overvalued.

Investment trust shares typically sell at a discount to the value of their underlying assets. In rare cases, such as to gain exposure to the works of a high-flying investor, you might see a premium. That is, the shares might sell for more than their asset value.

In the Lindsell Train case, the premium reached 90%. That means investors, who were not able to buy shares in Lindsell Train Limited directly, were effectively paying the firm almost double the price to hold its own shares for them. I can’t see any way that could ever make sense.

DIY

But now that LTI shares have fallen, are they good value?

The latest net asset valuation comes in at £1,076 per share, and the shares closed Tuesday at £1,247. That’s a premium of 16%. And while that’s way more attractive than around 90%, do you really need to pay it?

You could just put half your money into LTL’s open-ended funds, and half into LTI’s other biggest holdings after LTL itself. You’d end up with essentially the same assets, but without paying a premium for them.

I doubt many people will do that and I suspect the LTI premium is close to bottoming out. But I still wouldn’t pay it.

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 »