Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.

Why we like it: “Lindsell Train Investment Trust (LSE: LTI) owns a portfolio of resilient businesses, managed by fund managers Nick Train and Michael Lindsell. Its primary investment themes include beloved consumer brands and companies that boast a high proportion of digital revenues. Investment manager Nick Train reveres Warren Buffett, and in keeping with Buffett’s approach, many of the holdings have be held for many years, in some cases for at least 20 years.

“Train likes companies with Buffett-like qualities such as wide economic moats, high returns on equity, reliable cash flows and strong balance sheets. Train also rarely trades, evidently trying to do his level best to put into practice Buffett’s often quoted mantra: ‘Our favourite holding period is forever.’ Its largest holding is a unique asset – the fund management company of the eponymous co-founders, Lindsell Train Limited.”

Why we like it now: Unlike open ended funds, which move up and down with the value of the underlying assets, investment trusts carry additional uncertainty since they might trade at either a large premium or discount to the underlying assets. Currently, the Lindsell Train Investment Trust is trading at a 14.8% discount to its net asset value – which seems like a hefty discount to us, considering the strong fundamentals of the businesses in the portfolio and the earnings power they possess. We think owning LTI might offer investors a relatively low-risk way to take advantage of the market’s volatility by investing in a basket of quality businesses – including some technology plays and popular global brands that don’t feature in the make-up of the UK stock market – for less than they’re potentially worth. The fund manager’s style has been out of favour in recent years – its core strategies have underperformed their benchmark indices in three of the last four years – though buying at such a large discount perhaps limits the downside risk if the investment style continues to underperform.

The post Just released: our 3 top small-cap stocks to consider buying in March [PREMIUM PICKS] appeared first on The Motley Fool UK.

The answer depends on what the investment trust is.

Today, one trust declared a final dividend of £51.50 per share. That dividend alone would be enough for me to buy a dozen shares in City of London Investment Trust, or 56 shares in the European Assets Trust.

So is this something I ought to add to my portfolio?

Big money

The stock in question is the Lindsell Train Investment Trust (LSE: LTI). Its share price is close to £1,000.

So, despite the huge dividend per share, the yield is a more down-to-earth 5.1%. I certainly regard that as decent, but it is not exceptional. Indeed, City of London yields 5% at the moment, while European Assets Trust offers around 8%.

Having a four-figure share price does not necessarily mean that the investment trust is a better or worse choice for my portfolio than the alternatives. That depends on what I pay relative to the future value on offer.

It does have a practical effect though — I would need at least £1,000 even to buy a single share in Lindsell Train Investment Trust.

Long-term performance

Currently, the investment trust trades at a discount to its net asset value.

But as some of its investments are in unlisted companies, valuations can be difficult for a small private investor like me to assess. Indeed, its exposure to unlisted equities is one of the risks that puts me off buying Lindsell Train Investment Trust for my portfolio.

Its long-term performance has also not been impressive. The big dividend sounds attractive. But over five years, the share price has lost 1.5%. That is not a large loss. But it is still a loss when, as a long-term investor, what I am chasing are capital gains.

Having touched £2,000 back in 2019, the current share price around half of that is fairly close to its 52-week low.

Could that offer me a bargain?

My approach

The answer is that I simply cannot tell.

The investment trust owns a 24% minority stake in fund manager Lindsell Train Limited. That accounts for around 40% of the trust’s net asset value.

That valuation uses a methodology that has been amended after taking professional advice. I have no reason to question that methodology. But equally, I am not in a position to do the maths myself.

The company holds £118m in listed investments including shares like Diageo and A G Barr. It also holds £103m in an unlisted investment and funds managed by Lindsell Train Limited.

Unlisted investments can sometimes turn out to be highly lucrative. A wider pool of investors can increase the value of a company once it is listed, although that does not always happen.

But for me, a substantial part of Lindsell Train Investment Trust’s net asset value is in assets that I personally am not equipped to value (unlike, say, Diageo or AG Barr whose share prices I can access in an instant). That makes it hard for me to assess what I think the trust’s shares are worth — and whether the current price is a bargain.

So, despite the monster dividend, I will not be buying.

The post This investment trust just declared a £51.50 per share dividend! appeared first on The Motley Fool UK.

Here, I’m looking at three investment trusts I think could make great buys for investors who have a long-term horizon.

Merchants Trust

Merchants Trust (LSE: MRCH) is one of the many investment trusts targeting UK equity income. It’s on a forecast dividend yield of 5%, having lifted its annual payment every year for the past 40 years.

The trust pays its dividends quarterly. So it might be a good one for investors who are drawing down an income to contribute towards their living costs. I’m still a net buyer of shares, but it’s a factor I will consider in the future.

Can Merchants Trust keep its dividend growing for the next 40 years? It holds some top long-term cash cows, including British American Tobacco, Imperial Brands and BAE Systems. So I’m optimistic.

There is risk though. What if tobacco finally goes out of fashion in the coming years? It also holds GSK, formerly known as GlaxoSmithKline, whose dividend is only weakly covered. And GSK earnings have dipped in the past couple of years.

Lindsell Train

Lindsell Train Investment Trust (LSE: LTI) is partly managed by Nick Train, who has built a positive reputation among private investors.

The structure might seem slightly strange, in that a little over 40% of its funds are in Lindsell Train Limited. That’s the company that runs the trust, plus other investments in a number of global companies.

But it does give investors a way to own a portion of the parent company’s other investments without it having to be an investment trust itself.

A few years back, the trust’s shares soared to a premium of 90% over asset value. And investors paying nearly twice as much as the underlying assets were worth was rather bizarre at best. That bubble burst, and the shares are now on a very small discount of 0.25%.

What’s the main risk? I think it’s the unusual holding structure, which could present volatility through uncertainty.

Scottish Mortgage

I have to include Scottish Mortgage Investment Trust (LSE: SMT), which has fallen 42% over the past 12 months. The drop is down to a bear market in US technology stocks, which the trust invests in heavily.

Its top 10 investments include Moderna, Illumina, ASML, and others whose share prices have slumped. The Nasdaq itself, which is actually home to a wider rage of companies, is is down 25% in 12 months.

I think US tech stocks had been getting a bit overheated, and I welcome the correction. The danger is that the run on tech shares might not be over. If it continues, the Scottish Mortgage share price could surely fall further.

Still, the trust is trading on a 15% discount to net asset value now. So there’s a bit of a safety buffer there.

The post 3 top investment trusts to buy right now appeared first on The Motley Fool UK.

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.

The post Why I think Lindsell Train might finally have shaken off the ‘Woodford curse’ appeared first on The Motley Fool UK.

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.

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?

Woodford?

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.

Justified

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.

DIY

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.

The post The Lindsell Train share price is down, and Neil Woodford is not to blame appeared first on The Motley Fool UK.

Train seems very much in favour at the moment, with shares in Lindsell Train Investment Trust (LSE: LTI) currently commanding a premium to net asset value (NAV) of 26%. But it has been a lot higher.

Massive premium

The shares are trading at £1,350 at the time of writing, but reached as high as £2,030 in June, so you’d have lost a third of your investment in just six months had you bought some at the time. What could you have done to avoid that pain?

The obvious clue was that Lindsell Train Investment Trust shares were on a premium to NAV of more than 90% at their peak.

That’s right — people were paying almost twice as much as the value of the underlying assets. Now, NAV had climbed 28% in the previous 12 months, but paying that price just seemed horribly irrational to me and I saw it inevitably heading for a fall.

Writing a little later in July, even though the shares had fallen sharply (probably spurred by Neil Woodford’s fall from grace), I still thought the premium was unjustifiable and had the trust down as a Sell — and at the time I wouldn’t even touch Woodford Patient Capital on a discount to NAV.

Valuation

But how do we go about trying to value Lindsell Train Investment Trust shares? How many people who have bought the shares know its objective and what it actually does?

Lindsell Train Limited (LTL, the company managing the trust) describes its objective thus: “To maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital.” So, to beat inflation, then? That doesn’t sound to me like something to pay well above asset value for.

The list of asset classes pretty much covers everything, including stocks, unquoted equities, bonds and funds. That’s maybe a decent spread for safety, but I don’t see sky-high growth there.

But wait, the trust also has a policy of putting money into Lindsell Train investment fund products (up to 25% of its gross assets), and has 24% invested in LTL itself (which is an unquoted equity).

Confused yet?

In fact, LTL says it set up the investment trust to “provide investors with the opportunity to share in LTL’s potential growth“. So you buy the trust (which charges fees), so it can buy its own manager, which in turn invests in its own funds (which charge fees).

When you can buy shares in investment managers on the open market, why pay a premium for one to buy unquoted shares in itself and charge extra fees for the purpose? I see no sense in it.

Anyway, to summarise, the answer to my question is no, I have no reason to suspect Nick Train is anywhere near as reckless as Neil Woodford appears to have been. But I do expect Lindsell Train Investment Trust shares to drift back closer to NAV over the longer term.

The post Could Nick Train become the next Neil Woodford? appeared first on The Motley Fool UK.

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.

The post Got £1,000 to invest? I like this champion investment trust appeared first on The Motley Fool UK.

In reality, the shares actually tend to be priced typically at a modest discount to NAV. There’s no conclusive agreement why that is, but a lot of factors undoubtedly contribute to it.

Premium

Occasionally, an investment trust’s shares will sell at a higher price than NAV, at a premium. It often happens when a trust is newly launched amid early optimism, but there’s rarely a big premium.

But take a look at the Lindsell Train Investment Trust (LSE: LTI). In its latest update, the trust put its NAV at £1,057 per share. A quick look at the share price shows it at £1,595 as I write, and that’s a massive 51% premium to NAV.

But that’s nothing. Lindsell Train shares reached an exuberant bubble valuation of £2,030 in June, putting the premium up at 92% at its peak. Who says the market always reacts rationally to all available information, eh?

Some sense has since entered the market and the price has partially deflated. But a 51% premium still seems inexplicable to me. When you buy a share, you acquire the ownership of assets valued at £1,057. So why do people pay £1,595 for that? And why on earth were they paying £2,030 a month ago?

It’s largely down to fund manager Nick Train, who seems to have taken on the mantle of favourite UK investing guru since Neil Woodford’s recent fall from grace. He is, undoubtedly, a talented investment manager — but I’m not paying a 51% markup for him to buy assets on my behalf.

I reckon Lindsell Train shares are still on an irrational fad rating, and I wouldn’t touch them until the price comes down a lot more.

Discount

Turning to Neil Woodford, his Woodford Patient Capital Trust (LSE: WPCT) has suffered badly of late. His misfortunes stem from the suspension of his Woodford Equity Income Fund, after a run of cash withdrawals used up much of its liquidity and made it pretty much impossible to satisfy expected new demands.

Now, that fund shouldn’t really affect the Woodford Patient Capital trust directly, though it does invest in some of the same unquoted and speculative assets. The big difference is there’s no such thing as cash withdrawals from an investment trust. All people can do is buy and sell the shares, which won’t affect the underlying asset value one jot.

And sell they have been, with a resulting fall in the share price and a boom in its discount to NAV. At its latest update, the trust’s shares were on a 33% discount, which is huge. That’s a very tempting discount, and I do think the trust is oversold now.

But I won’t buy it for two reasons. One is that it invests in “jam tomorrow” assets I wouldn’t buy directly. The other is it’s geared, with debt amounting to a gearing of 17% of NAV. That gearing is being reduced, but I don’t want anyone, not even Woodford, borrowing money to invest for me.

The post Why I’d sell Lindsell Train Investment Trust and Woodford Patient Capital today appeared first on The Motley Fool UK.

Victorian values

This specialist global trust was formed in 1887 to give investors an efficient way to invest around the world, which gives you an enduring platform on which to build your retirement portfolio. It is around 35% invested in North America, 25% in the UK, 15% in Europe, 10% in Japan and 5% in the rest of Asia Pacific.

That looks a balanced spread and recent performance has been solid with a return of 55% over five years, against just 3.5% on the FTSE 100. However, this is below the average for its sector, investment trust global, which rose 72% over the same period.

The Scottish play

Scottish IT has just published its annual results to 31 October and rewarded loyal investors with the 35th consecutive year of regular dividend increases, up 6% this year to 21.2p, plus an additional special dividend of 4p. The current yield is only 2.52% but as you can see, management policy is progressive.

Over the year it delivered a 1.9% share price total return. Although it does not have an official benchmark, the international MSCI All Country World Index beat it, growing 3.4%. If that disappoints you, then consider these global trusts instead.

Scottish IT trust adopts a contrarian, high-conviction approach to global stock markets, focusing on stocks that are out of favour with mainstream investors, believing they offer the greatest potential for long-term gains. Value investors, in other words. This may explain recent relative underperformance, as growth stocks have held sway. However, the cycle may now be moving back in favour of value, and this could help you play the shift. It currently trades at a 9% discount to underlying net asset value. Here are another two more trusts worth looking at.

Ride this train

Lindsell Train Investment Trust (LSE: LTI) is in the same global IT sector and is up a thumping 270% over the past five years, helping to establish co-managers Nick Train and Michael Lindsell as two of the hottest properties in UK fund management.

They are much better known for their blockbuster unit trusts such as the £5.6bn LF Lindsell Train UK Equity Fund (up 67% over five years) and £5.6bn Lindsell Train Global Equity (up 144%), but as you can see, their investment trust has done even better.

Premium price

The trust is a relative minnow with a net asset value of just £810m and I wondered why, but then I noticed that it trades at a massive 44% premium to the underlying net asset value of its portfolio. Most trusts trade at discounts of up to 10%-15% of perfectly good funds, a handful trade at a premium, typically 2%-3%. I’ve never seen one anywhere near as big as this one.

This is a real testament to the popularity of its managers but I would avoid this trust as a result. Maybe you should check out the Lindsell Train range of open-ended unit trusts instead, where premiums and discounts are not an issue, and performance has been superb.

The post Reckon these 2 investment trusts will fund your pension? You’d better read this appeared first on The Motley Fool UK.

Multi-asset

One such fund is the Lindsell Train Investment Trust (LSE: LTI). Shares in the multi-asset investment trust have delivered a total return of 233% over the past five years, allowing it to easily surpass the performance of its benchmark MSCI World Index, which gained just 76% in sterling terms. The FTSE 100 has fared even worse, with a total return of just 40% over the same period.

This one seeks to maximise long-term total returns by investing in a diversified portfolio of financial assets, including equities, and other Lindsell Train funds. But what really sets this trust apart from others is that it also owns a significant minority stake in its investment manager, Lindsell Train Limited.

This 24% stake in the investment management company co-founded by Michael Lindsell and Nick Train accounts for 43% of the value of its portfolio. However, with such a large position in a single unquoted investment, those who invest in the trust are highly exposed to fluctuations in the valuation of that single company. And although its position in Lindsell Train Limited has no doubt played a big role in the fund’s recent outperformance, past performance may not be indicative of future returns.

One important reason to be cautious is the high premium at which its shares trade against the underlying value of its assets. Shares in the trust are among the most expensive in the investment trust market — currently trading at a 41% premium to its net asset value (NAV), which is considerably higher than its 12-month average premium of 26%.

Although this reflects strong investor sentiment towards the fund, due to faith in management’s ability to outperform the market, the risk of losing money should the trust fall out of favour is greatly amplified.

Japan smaller companies

Baillie Gifford Shin Nippon (LSE: BGS) is another fund that has massively outperformed the FTSE 100. It aims to deliver attractive long-term capital growth by investing in value stocks in Japan’s small-cap space.

Shin Nippon, which means ‘new Japan’ in Japanese, has achieved this outperformance by focusing on fast-growing Japanese companies with innovative business models and dynamic management teams. The trust has a fantastic stock picking track record, and has achieved a five-year total return on 216%.

Its job has been made easier by the fact that many smaller Japanese companies have no broker coverage at all. This limited availability of sell-side coverage provides inefficiently priced opportunities which may be uncovered by the fund’s in-house research team.

GBP/JPY

Of course, the yen’s strength against the pound (or more correctly, sterling’s weakness) has also been an important contributor to the fund’s performance — but that doesn’t explain it all. This is because the trust has also significantly exceeded the gain of its benchmark, the MSCI Japan Small Cap Index, which achieved a return of 98% in sterling terms over the same period.

Shares in the trust trade at a 6% premium to NAV, which seems reasonable, being in line with its 12-month average premium of 5%.

The post Have £1,000 to invest? These investment trusts are absolutely crushing the FTSE 100 appeared first on The Motley Fool UK.