Lindsell Train IT board says discount a concern as performance lags

Poor performance is hurting the shares of The Lindsell Train Investment Trust (LTI), which now trade on a -26% discount to their net asset value (NAV).

The investment trust from Nick Train’s fund group is a unique proposition on the London Stock Exchange.

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It doesn’t just back a collection of Train and partner Michael Lindsell’s favourite shares, such as Nintendo, RELX, PayPal and Unilever, but also has 30.9% of its assets in their fund manager, Lindsell Train Limited, as well positions in the Lindsell Train North American Equity Fund and Finsbury Growth & Income Trust.

Lindsell Train Limited runs four open-ended funds, including Lindsell Train UK Equity and Lindsell Train Global Equity, as well as two investment trusts: Finsbury Growth & Income and The Lindsell Train Investment Trust.

When the fund group’s assets were growing and its investment funds were performing very well, shares of LTI traded on a large premium. But now that the investments are performing poorly relative to rivals and investors are pulling money from the fund group, LTI shares are on a wide discount to NAV.

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LTI’s latest results showed the NAV fell -1.9% in the six months to 30 September 2024 compared with a 2.8% gain for the MSCI World Index. The drop in NAV was caused in part by a fall in the value of Lindsell Train Limited.

According to Roger Lambert, chair of the investment trust, the decline in the NAV reflected a contraction in funds under management at the firm.

Lindsell Train Limited’s assets fell from £15.2 billion to £13.4 billion over the six months to 30 September 2024.

Lambert says that the wide discount on LTI is a “source of concern” for the board and reflects the disappointing performance of the fund group, succession risk at the firm, and general discount levels in the investment trust industry.

He adds that resorting to share repurchases to reduce the discount would prove ineffective as he believes its buyback powers are better deployed to take advantage of “a discernible opportunity to add value” for remaining shareholders should one materialise.

Moreover, Lambert notes that raising money to buy back shares would have to come from selling some public equity positions, which in turn would increase the relative value of the unlisted Lindsell Train Limited position in the portfolio.

Lambert therefore concludes that the best way to narrow the discount is to see improved performance in its listed equity book and the funds that the investment firm manages.

“The board has every confidence that this will happen and is doing everything in its power to provide the support necessary to LTL to ensure that outcome,” he said.

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Manager of the trust Nick Train is confident that performance will improve.

He says: “Our investment approach is based on capturing the benefits of such long-term holding periods. We avoid buying and selling as much as possible and instead trust that time and the long-term business success of the companies we hold will build value for shareholders. By definition, this requires patience.”

Train gives the example of the recently “painful” position in Diageo, where the shares are down 35% since their peak in 2021.

He says: “Deeply out of favour currently, we expect Diageo’s dividends to keep growing and expect the shares to perform again; likely when consumer confidence recovers and bars and clubs fill up. We also think it likely that Johnnie Walker, Guinness, Tanqueray and other Diageo brands will still be enjoyed many decades hence: investors sometimes forget how unusual and valuable such longevity is.”