The Motley Fool

The Lindsell Train share price is down, and Neil Woodford is not to blame

Neil Woodford’s downfall has left a gap that’s quickly been filled by Nick Train. He manages the successful Lindsell Train Investment Trust (LSE: LTI), which has a history of impressive growth.

The trust reached a peak of £2,040 per share back in June 2019. But since then the shares have fallen back to £1,247. That’s a drop of 39% in only seven months.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

And over the whole of 2019, despite the trust delivering a 32% net-asset-value return, the share price gained only 2%. Those who switched guru last summer as Woodford’s woes compounded have not done so well. But what went wrong?


Train has put some of the blame on the Woodford fiasco itself. In his latest monthly update, he said “there have undoubtedly been ramifications for Lindsell Train Limited from the Woodford affair.” Lindsell Train Limited (LTL) manages the investment trust (LTI) plus some open-ended funds. And the trust in turn is 50% invested in LTL.

Sounds like a curious arrangement? It means investors can put their money in LTL without LTL being itself listed on the stock market. But I do think it has helped fire up what I see as last year’s serious overvaluation of Lindsell Train Investment Trust (LTI) shares.

Train pointed out that his own funds do not carry the same illiquidity risks of Woodford’s. In particular, he stressed that “we do not invest in unquoted shares in the open-ended funds.” And in that, he does seem to be a more prudent investor than Woodford.


But I still think the LTI share price fall was justified, even in the absence of liquidity risk.

The Woodford failure did trigger a chain of events that led to a re-evaluation of the Lindsell Train Investment Trust. But what did it trigger, precisely? I reckon it meant a return to rationality, and it’s that renewed rationality that has pared back LTI’s share price.

In my view, the underlying cause of the LTI price fall since July is simply that the shares were seriously overvalued.

Investment trust shares typically sell at a discount to the value of their underlying assets. In rare cases, such as to gain exposure to the works of a high-flying investor, you might see a premium. That is, the shares might sell for more than their asset value.

In the Lindsell Train case, the premium reached 90%. That means investors, who were not able to buy shares in Lindsell Train Limited directly, were effectively paying the firm almost double the price to hold its own shares for them. I can’t see any way that could ever make sense.


But now that LTI shares have fallen, are they good value?

The latest net asset valuation comes in at £1,076 per share, and the shares closed Tuesday at £1,247. That’s a premium of 16%. And while that’s way more attractive than around 90%, do you really need to pay it?

You could just put half your money into LTL’s open-ended funds, and half into LTI’s other biggest holdings after LTL itself. You’d end up with essentially the same assets, but without paying a premium for them.

I doubt many people will do that and I suspect the LTI premium is close to bottoming out. But I still wouldn’t pay it.

A top stock with enormous growth potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business.

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has been helping it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 alone it returned a whopping £151.1m to shareholders in dividends and buybacks!

And here’s the really exciting part…

We think now could be the perfect time for you to start building your own stake in this exceptional business—especially given the two potentially lucrative expansion opportunities on the horizon that our analyst has highlighted.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Stock… free of charge!

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.