The manager of the Lindsell Train trust has warned investors who think the trust’s shares are undervalued.
In a monthly update to shareholders, Michael Lindsell noted the trust’s share price premium to net asset value rose from around 15 per cent last month to more than 30 per cent in July.
“Some investors believe the value of the premium is attributable to the undervaluation of Lindsell Train Limited,” he said.
“We caution this opinion and think the trust’s board of directors do a good job at valuing the shares given the information at their disposal and their deep knowledge of the company as a longstanding significant minority investor.”
He warned that buying shares in the trust at a premium could lead to a significant loss if stock markets fall, or the trust’s funds under management decline.
Underperformance
The trust underperformed its benchmark in July, losing 1.2 per cent, compared with a 1.1 per cent return from the MSCI World Index.
Lindsell said this was down to the weakness in the share prices of three of the trust’s four big quoted holdings when set against the continued upward trend in markets.
The three stocks were Paypal, which lost 5 per cent in the month, Nintendo, which lost 13 per cent, and the London Stock Exchange which lost 6 per cent.
The fourth holding, Diageo, was up 3 per cent, buoyed by the increase in at-home drinking. Lindsell said the loosening of restrictions should lead to higher margins on the trade side of the business.
Lindsell said he continues to have faith in these stocks. On Nintendo, he said: “Although we understand why Nintendo’s share price is currently weak, we do think the shares look particularly good value if investors can extend their time horizons beyond the short term.
“Looking beyond the imminent dip in sales and profits, we think the company has sufficient initiatives to drive growth further over the long term.”
He outlined how although Paypal was suffering due to Ebay switching to in-house payment systems, the group’s total payment volumes were seeing “exceptional growth”.
He said this was “all very encouraging” but any minor disappointment “understandably clips share price performance” if Paypal’s earnings growth rate fails to match expectations.
Finally, Lindsell said the London Stock Exchange’s half year results, released this morning, shows “satisfactory performance” of revenue growth, synergies, cost control and profitability.
The Lindsell Train trust has outperformed its sector, the AIC Global, over the past year.
It returned 26.3 per cent compared to the 54.7 per cent returned by the sector.
Last month, the fund's other manager Nick Train warned investors were growing cautious about the return to normal and were moving back to growth stocks.
In an update to investors on July 26 he said that since suffering from a bout of profit-taking in February and March this year, the trust’s performance had improved.
"This can be ascribed to investors’ growing caution about the world getting back to 'normal' anytime soon, if ever, and a corresponding shift of investor preference back to secular growth companies," he said.
"This has been accompanied by a rally in government bond prices, as fears about imminent, runaway inflation recede. Both these circumstances have helped our portfolios."
sally.hickey@ft.com
