The Lindsell Train Investment Trust hit the bottom of the share price league table last month, following a string of warnings from the trust manager that the premium was too high.
The trust saw its share price plunge by 24 per cent during January, falling to £697 per share from the £923 posted at the end of December.
At the end of last year, almost 38 per cent of the trust’s net asset value was accounted for by its 24 per cent stake in unlisted fund management firm Lindsell Train Limited.
According to Quoted Data, the £163m trust reversed most of the share price gains it made in the second half of last year, which the research provider said illustrated the danger of buying a trust on a large premium.
Trust manager Nick Train has repeatedly told investors not to buy the trust after warning its premium was too excessive.
Last year, analyst at Numis Ewan Lovett-Turner also warned the trust’s premium had reached “extreme” levels, but said the words of caution from Mr Train will prove fruitless.
Despite being the worst performer in share price terms last month, the trust has picked up drastically since the start of February and closed trading at £805 per share on 15 February.
Ben Yearsley, investment director at the Wealth Club, said the fall in the trust’s share price highlights why investing in a trust on a large premium is a risky game.
“You only need sentiment to change a bit for the premium to disappear.”
According to Lindsell Train’s latest factsheet, dated 31 December, the trust was trading at a premium of more than 66 per cent.
Mr Yearsley said: “The share price has rebounded this month and still sits on a ridiculous premium in my view,” he said, adding however he would much rather buy the trust at these levels.
Lindsell Train did not respond to a request for comment.
Meanwhile, looking at the best performing trusts in share price terms, it was commodities which featured heavily on the list last month.
This was largely as result of the continued sense of optimism from investors that US president Donald Trump’s policies would help drive demand in the sector.
Many investors have been piling into ‘safe haven’ assets such as gold to try to protect against the uncertainty created by the election of the new US president.
According to figures from Quoted Data, the Geiger Counter investment trust returned nearly 47 per cent in share price terms, therefore securing first place in the price performance tables.
The trust, which is run by New City Investment Managers and invests in uranium, was bolstered by the metal’s price surge in January.
Various other resource-focused trusts feature on the top performing list, such Baker Steel Resources, EF Realisation and Golden Prospect Precious Metals.
The boost to commodity prices also helped Latin American-focused funds such as JP Morgan Brazil and BlackRock Latin American, which returned 10 per cent and 8 per cent respectively in net asset value terms during the month.
