Lindsell Train trust premium rises to 43%

Train Nick Lindsell Train 2014The Lindsell Train Investment Trust’s premium has soared to 42.7 per cent, following its inclusion into the FTSE AllShare and small cap indices.

The trust has seen its premium soar in recent months, rising from a 28 per cent premium at the start of April this year to 42.7 per cent today, according to FE.

At the start of the month the trust was included in the FTSE AllShare and Small Cap indices, following the quarterly reshuffle of the indicies, which led to an increase in buyers from ETF and trackers.

In its annual report to end of March, which was just released, the trust saw a share price rise of 35.6 per cent, compared to a total return per share of 11.9 per cent.

Trust chairman Julian Cazalet says the investment trust’s holding in Lindsell Train Limited, the fund management company run by founders Michael Lindsell and Nick Train, rose from 0.3 per cent of net asset value to 32.5 per cent. Its dividends also accounted for 68 per cent of the company’s revenues.

Cazalet raised concerns about the prominence of the holding.

“We are aware that LTL’s high premium may, in part, be attributable to what some investors perceive as the overly conservative valuation the directors determine for the LTL shareholding. The directors, on the other hand, judge the valuation to be realistic, cautioning that higher estimates of value may fail to adequately allow for the risk that the business is unable to endure beyond the tenure of the two founders,” he says.

He adds that Train and Lindsell have been urged to think abut succession planning.

Looking to the detractors on the fund, just Nintendo and Pearson saw negative returns in the year. Nintendo dropped by 9 per cent, while Pearson fell by 40 per cent.

“The reason, in both cases, was that other investors fear that changes in technology will undermine their longstanding business models sufficiently to damage future returns,” says Cazalet. However, he says the investment managers believe the companies can bounce back.

The investment trust saw a 25 per cent rise in revenues in the year, leading to a 29 per cent rise in the trust’s dividends, to £8.90 per share.

The trust managers have also reduced their charges, due to the rise in the premium.

“The board and the investment manager felt uncomfortable about charging fees on such a high premium and accordingly from 1st April 2016 the management fee has been levied instead on the lower of the company’s NAV or market capitalisation,” says Cazalet.