Out-of-favour investment trust Lindsell Train (LON:LTI) has launched a tender offer for up to 20% of the company at a 5% discount to net asset value (NAV). The aim of the tender is to address a persistently wide NAV discount.
This discount reflects the weaker recent NAV performance from the global fund managed by Nick Train and Michael Lindsell.
The board believes the tender will enable the fund to continue and give the investment strategy more time to recover. The move will also allow shareholders who’ve lost patience with the strategy to exit a portion of their investment. This would likely be at a much better price than could otherwise be achieved while the trust languishes on a wide discount.
20% tender launched
While Lindsell Train Investment Trust has a strong long-term record, recent returns have been poor.
Since launch in 2001, the fund has delivered an annualised NAV total return of 10.5% versus 7.8% for the MSCI World Index. Yet over the last five years, the annualised NAV TR has been -7.1%. This deterioration in performance has contributed to the widening discount.
| AIC Global Sector | 1-yr share price total return (%) | 5-yr share price total return (%) | 10-yr share price total return (%) |
| Lindsell Train | (21.6) | -52.5 | 3.6 |
| Mid Wynd | 4.6 | 1.3 | 118.4 |
| Scottish Mortgage | 38.4 | 11.6 | 413.5 |
| Monks | 16.2 | 12.6 | 232.7 |
| Bankers | 24.4 | 43 | 182.8 |
| AVI Global | 4.1 | 45.3 | 186.3 |
| Alliance Witan | 11.5 | 48.8 | 194 |
| Brunner | 11.4 | 62.4 | 238.6 |
| F&C | 20.6 | 65.6 | 223.1 |
Source: The AIC/Morningstar
Crucially, the tender has been structured so that the remaining portfolio’s proportional exposure to Lindsell Train Limited (LTL), the trust’s investment manager, should not increase.
Putting choice into shareholders’ hands
Chair Roger Lambert insisted the board is taking ‘proactive and decisive action to put choice directly into shareholders’ hands.’
He said the tender offer provides ‘those who wish to exit with a clear, time-limited route to liquidity at a price closely linked to the trust’s underlying asset value, while enabling LTIT to continue operating and giving its strategy time to deliver.’
Striking a balance
Lambert added: ‘We believe this structure strikes the right balance between the interests of shareholders seeking an exit and those who remain confident in the long-term proposition.
‘It reflects both our conviction in the company’s future and our commitment to clear accountability to shareholders.’
We applaud the board’s decision to give long-suffering shareholders the option of realising a portion of their investment.
And as QuotedData’s Richard Williams points out, ‘the treatment of the LTL stake is also sensible, so the proportional exposure in the manager does not balloon as the rest of LTI shrinks through the tender’.
Sharesify also notes that the board, Nick Train and Michael Lindsell will not tender any of their own holdings. This is encouraging, as it demonstrates their continued confidence in the strategy and this highly-concentrated trust’s long-term prospects.
Train and Lindsell’s quality growth approach has been out-of-favour for a while. And there have been some poor performances from individual stocks. But the style will have its time in the sun again before too long.
And Lindsell Train is packed with best-in-class names with the ability to compound value over time. These range from video game consoles colossus Nintendo (TYO:7974) and the London Stock Exchange Group (LON:LSEG) to drinks giant Diageo (LON:DGE).
Other top 10 holdings include consumer goods goliath Unilever (LON:ULVR) and Thermo Fisher (NYSE:TMO), a supplier the tools and services underpinning scientific research and drug development.
Investors who still have faith in Train and Lindsell should hang onto all of their shares. But for the discount to narrow on a sustainable basis, performance will need to improve dramatically going forwards.
