Nick Train blames Woodford for flat Lindsell Train trust shares

Despite a big net-asset-value total return in 2019, the investment trust’s share price barely budged. Tom Bailey reports on comments from Nick Train himself.

Part of the reason for Lindsell Train investment trust's (LSE:LTI) poor performance in recent months was the fallout of the Woodford debacle, manager Nick Train has argued.

Despite seeing a net-asset-value total return of over 32% in 2019, the investment trust saw a share price return of just 2% for the year.

This was partially the result of a change in perception about the valuation and prospects of Lindsell Train Limited, the fund management company in charge of Lindsell Train investment trust, as well as several other funds that Train manages, including LF Lindsell Train UK Equity and Lindsell Train Global Equity. 

The fund management company, which is unlisted, accounts for just under half of the investment trust portfolio’s net asset value. Previously, when investor faith in the fund management company was running high, investors piled into the trust. This gave the trust’s share price a boost, leading it to trade on huge premium, sitting above 80% at one point. The trust’s 12-month average premium now sits at 47.9%. 

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Due to its large holding in the Lindsell Train fund management company, the share price of the trust reflects investor confidence in Train’s other funds and his investment management style.

Now, Train notes, there has now been a “changed perception” among many investors about the prospects of his funds and by extension Lindsell Train limited. As a result, the share price of Lindsell Train investment trust took a knock.

Part of this change in perception, says Train, was the blow up of Neil Woodford’ investment management company. Train notes: “There have undoubtedly been ramifications for Lindsell Train Limited from the Woodford affair. Ramifications arising from the scrutiny that we and other fund management companies have understandably been subject to since that debacle.”

Woodford’s fund was closed following an inability to meet investor redemptions. Following this, there has been renewed concern about the liquidity risk of open-ended investment funds.

For instance, Train’s open-ended Lindsell Train UK Equity has been flagged up as having a potential liquidity risk. Due to both the size of the fund and the highly concentrated nature of its portfolio, the fund now has significant ownership stakes in the companies it backs. Should a large number of investors in one of the funds ask for their money back, Train may be forced to sell at a significant discount.

On the back of these concerns, Lindsell Train UK Equity and Finsbury Growth & Income (LSE:FGT) both recently lost their gold star status at Morningstar.

As a result, investors are less positive about the prospects of the fund management company itself, which is now reflected in the trust’s share price.

Train, however, rejects the idea that his funds suffer from significant liquidity risk. He says: “To be clear, we do not invest in unquoted shares in the open-ended funds. We only invest in long established, durable and substantive companies. The global and UK funds are at least 98% invested in companies with market capitalisations of over £1 billion.”

Train remains confident in his approach to investing, noting: “We will not alter our investment style or process in response to the events of 2019 or the scale of our business.

“Our willingness to run concentrated portfolios, with a very long term time horizon, has allowed and encouraged us to take truly strategic views about the companies we invest in – it is central to our ability to capture returns.”

At the same time, despite the recent knock in perception, there still appears to be plenty of confidence in this style among investors, with the trust still commanding a premium of around 19%.

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