When an investment trust’s share price soars more than three-fold in five years, you need to sit up and take note. I’m speaking of Lindsell Train Investment Trust (LSE: LTI), managed by the highly regarded Nick Train.
Train’s star seems to be rising just as Neil Woodford’s has so unceremoniously fallen, and the recent performances of their respective investment trusts could hardly be different.
Lindsell Train’s aim is “to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital.” So, to beat inflation for starters, and it’s been achieving way in excess of that. Although down from an even higher peak in June this year, the trust would still have turned £1,000 invested five years ago into £3,820 today.
So is it still a good investment for a similar £1,000 today? There are two reasons I say no.
Big premium
While the Woodford Patient Capital trust is on a rarely seen 50% discount to net asset value (NAV), Lindsell Train shares are priced at a premium to NAV of 28%. That’s almost as unusual, but it has been a lot higher — reaching a premium of over 90% just a few months ago. I know Nick Train is good, but is he that good?
My other reason is that I think the share price gain is deceptive. If we take a closer look at the trust’s holdings, we see sensible top-quality FTSE 100 holdings including London Stock Exchange (LSE: LSE), Diageo (LSE: DGE) and Unilever (LSE: ULVR).
But by far the biggest holding, at 51%, is in the unquoted Lindsell Train Limited itself, and that’s clearly what’s been driving the trust’s NAV and share price. Do you want to invest £1,000 in a high-flying unquoted growth company whose valuation you have no objective way of assessing for yourself? I don’t.
Track record
I’d much rather put £1,000 into a more traditional and long-established investment trust like Caledonia Investments (LSE: CLDN), and that one is high on my list for my next buy.
Caledonia’s stated target is to “consistently achieve a long-term shareholder return in excess of the FTSE All-Share Total Return, while maintaining a progressive annual dividend,” and it’s been achieving both parts of that and then some.
The trust’s progressive dividend record is one that many will envy, having shown annual growth for 52 years in a row now — it’s one of a very small handful that have raised their dividends for 50 years or more.
Yield
The yield has been modest at around the 2% mark or a little higher, and there are certainly bigger yields out there — but I rate long-term progressive rises above short-term high yields.
The share price has been keeping nicely ahead of the FTSE All-Share too, gaining 33% over the past five years while the index is up 16%, and over 10 years we’re looking at an 86% rise against the All-Share’s 58%.
And Caledonia Investments shares are trading on an attractive discount. With the latest NAV figure at 3,651p, the 3,075p share price is discounted 15.8%, and that makes Caledonia a must-buy for me. And I will.