The board of Lindsell Train Investment Trust has warned it could feel further knock-on effects from Hargreaves Lansdown’s decision to boot two funds from Nick Train’s investment house from its Wealth 50 list.
Chairman Julian Cazalet identified the pulled endorsement from the D2C giant, which previously included Lindsell Train UK Equity and Lindsell Train Global Equity among its line-up of favourite funds, as the reason for the £277m trust’s decline in share price in its interim report published on Monday.
On a share price basis Lindsell Train Investment Trust saw returns sink 4.7% over the period.
Shares in the trust were trading at a peak price of £2,000 a share, a 100% premium to its then NAV. But by the end of September shares had sagged to £1,375 each which Cazalet noted was “still a significant 28% premium to NAV”.
Loss of Hargreaves endorsement could impact flows
Though Cazalet reiterated Hargreaves’ removal of the pair of Lindsell Train strategies was not an investment-based decision, he cautioned it could curb flows from Hargreaves customers into the funds which would in turn impact the wider investment business.
The trust currently owns a 24% stake in Lindsell Train Limited, the fund house co-founded by Train (pictured) and Michael Lindsell.
“With HL’s endorsement now removed it is possible that the support for the two LTL funds by HL’s customers will lessen in the future, tempering fund inflows from that source,” Cazalet said in a statement accompanying the interim results.
“If nothing else it was a ready reminder of the danger of buying shares in the company at an elevated premium to NAV, something that I continue to advise against with the premium around 35%.”
Lindsell Train valuation revealed
Over the period the trust delivered returns of 23.4% against the 2% delivered by its controversial benchmark which uses the annual average running yield on the longest-dated UK government fixed rate bond plus a premium of 0.5%.
It delivered over double the returns of the MSCI World Index, which rose 10.6% in the six months.
The rising valuation of Train’s fund house was the primary driver of the trust’s net asset value gains over the period, Cazalet said.
LTL was revealed to be valued at £450m by the trust in its interim report, putting the trust’s stake in the business at £109m, up from £82m at March.
“We suspect that the main reason for the elevated premium is the belief on the part of some shareholders that the board’s valuation of LTL is too conservative,” he said. “The board has considered the valuation methodology of LTL and believes it to be appropriate and fair.”
