Take profits on Lindsell Train IT before the premium collapses

This means that the trust's premium to NAV is now above its one-year average of 26.4 per cent and significantly higher than the 15 per cent it was at in January. Investors in the trust are bullish on the outlook for asset manager Lindsell Train because its profits and assets under management are continuing to rise.

But although the immediate prospects of Lindsell Train Investment Trust's largest holding look promising, Nick Train, founder of the asset management company and manager of the investment trust, advised investors to stop buying the trust's shares when the premium was around 10 per cent – far lower than where it is now.

Investors' reasons for hanging on to or buying shares in Lindsell Train Investment Trust include an assumption that its board has undervalued the stake in its asset manager. But the trust's chairman, Julian Cazalet, says that shareholders are mistaken if they bought shares at a premium for this reason. And he added that the board is uncertain on what the long-term prospects are for asset manager Lindsell Train, given that at present it is largely reliant on its founders Mr Train and Michael Lindsell. He says that if one or both of them leaves clients might withdraw their business.

"Difficult to assess is the continuation of Lindsell Train [asset management] after the active involvement of the founders," he said. "[We] recognise that there is a risk, albeit a low one, that the company could simply cease trading when the founders retire."

So now could be a good moment to take profits on this investment trust. Its share price has risen 30, 103 and 223 per cent over one, three and five years, far in excess of the 9, 52 and 86 per cent increases for MSCI World index over those periods. And the trust has a performance fee, which takes up its ongoing charge of 0.98 per cent to an excessive 3.68 per cent, according to Morningstar. The performance fee rewards returns above an easy-to-beat benchmark – the yield on long-dated UK government debt plus inflation – which does not reflect what the trust invests in. 

But selling Lindsell Train Investment Trust does not mean foregoing Mr Train's stock-picking skills, as he also runs Lindsell Train Global Equity Fund (IE00BJSPMJ28). This has some of the same investments as Lindsell Train Investment Trust but does not have a massive stake in its asset manager. The fund has also vastly outperformed MSCI World index and the Investment Association (IA) Global sector average over one, three and five years. And it has much lower charges – it can be bought from investment platforms for as little as 0.54 per cent.

Lindsell Train investment Trust has delivered very strong returns, ahead of those of Lindsell Train Global Equity Fund, and could continue to in the immediate future. However, the trust's returns are very reliant on the prospects of one holding – its asset manager – and should that company's fortunes or the trust's performance change, the high premium it trades on could come crashing down.  

So if you want to continue to have exposure to Nick Train's stock-picking skills without this risk and a very high charge, it could be a good moment to lock in the gains from Lindsell Train Investment Trust's strong run and switch to Lindsell Train Global Equity Fund. Sell. TL

Lindsell Train Investment Trust (LTI)

Source: Winterflood as at 18.06.18, *Morningstar as at 18.06.18, **Association of Investment Companies as at 18.06.18

Performance

Top 10 holdings as at  30.40.18 (%)

Source: Lindsell Train

Geographic breakdown as at 30.04.18 (%)

Source: Lindsell Train, *Includes unlisted investment