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.