Lindsell Train investment trust (LTI) has seen its share price plunge by more than 30% over the past week.
This is a top-performing trust, run by a revered manager, which has delivered whopping annualised returns of 33.3% over the past five years. So why the plunge? Two Lindsell Train funds have been ditched from the Hargreaves Lansdown Wealth 50 list of favourite funds.
It would almost be funny if it weren’t so maddening. Have we learned nothing from the Woodford debacle of recent months? Best buy lists are not a cast iron way to make an investment decision. The dropping or non-inclusion of a fund or trust is not a sell rating. As we well know, Hargreaves doesn’t even include investment trusts on the Wealth 50 so the backlash LTI has suffered is baffling to say the least.
In this case, Hargreaves has been very explicit in saying that the funds have not been dropped because they aren’t good investments, but because there is a conflict of interest. Lindsell Train owns shares in Hargreaves Lansdown – the stock accounts for 7.5% of the Lindsell Train UK Equity portfolio, not one of the top 10 holdings admittedly but a pretty sizeable position. In total, funds run by Lindsell Train hold around 12% of Hargreaves Lansdown’s shares. As the funds’ assets continue to grow it follows that so, too, will their holdings in Hargreaves.
So, hats off to Hargreaves for this bit of transparency. The firm has (rightly) come under fire in recent weeks as questions are (rightly) asked about how it compiles its Wealth 50 list but in this case, it seems to have done the right thing. And the market, as it so often does, has punished that.
When to Hold... and When to Fold
Investing, we know, is for the long term and, inevitably, there will be ups and downs along the way. But how long do you put up with a down – when is it bad luck or a case of a manager's style being out of fashion, and when is it a big red flag telling you to sell?
It’s a common dilemma for investors, as discussed in Cherry Reynard’s article this week, and made all the more difficult by the fact that losses are so much more painful to bear than gains are a pleasure to enjoy.
Over the years, I’ve had to show patience on a number of occasions. An investment in a UK Smaller Companies trust in 2014 took 18 months to come good; a gold ETF has lost me money pretty much every day I’ve owned it; a racy tech fund took a nasty hit at the end of last year; and it depends which day of the week I check my account as to whether my investment in frontier markets looks like genius or lunacy.
But only once have I decided to cut my losses and abandon an investment while still in the red. Why? The fund manager’s style had changed, the story no longer seemed to make sense, and suddenly it looked out of place in a portfolio that, although eclectic, I endeavour to keep vaguely in balance. In short, I lost faith and I couldn’t really remember why I had invested any more. To me, that’s the time to give up. Not everyone has the same investment rules and all you can do is stick to your own.
Find an Investing Theme for You
ESG may be about focusing on making a positive impact but it can be just as controversial as any other area of investing. Infrastructure, on the surface, seems like a pretty obvious hunting ground for those interested in delivering economic, social and governance benefits through their investments.
These trusts own schools and hospitals (hard to argue they’re not doing good), operate renewable energy assets (undoubtedly good for the environment), and maintain the roads and rails that allow us to live our lives, bringing myriad economic benefits. But what about all of the cement needed to construct those buildings? The pollution generated by the cars clogging up those roads? Even the soil that is irreversibly damaged by huge solar panel farms taking over vast swathes of the countryside?
But this is why investing is interesting. Because everyone can have their own opinion and there is most likely an investment out there which will enable them to express it.
