Time to take profits as Train warns investors not to buy his trust?

Nick Train has told investors to be wary of buying into his top-performing Lindsell Train Investment Trust because of its double-digit premium.

Although the closed-end absolute return sector trades at an average premium of 1.9%, Train's £50 million vehicle carries a far higher 19.9% premium, close to three times its historic average and some 17% above its nearest rival, Ruffer Investment Company.

Although Train's fund has seen its premium narrow from around 21% on Friday, the shrewd AAA-rated investor has told shareholders to be on their guard.

'The trust traded at a premium of this magnitude in the past, at the end of 2001.  Two years later the share price was at a 15% discount,' Train (pictured) said.

This means investors who bought into the trust in December 2001 will have suffered a 28% quotational loss of value even though the trust's net asset value (NAV) had dropped by a far lesser 10%.  It took until June 2005 - three and a half years - for the investment to show a notional profit again.

'As a result we advise investors to think carefully before buying shares at such a steep premium to NAV,' Train added.

But it is with good reason that shares in Train's popular investment trust change hands at an amount in excess of its par value.  While Numis Securities considers the trust an absolute return vehicle, Morningstar includes it in the global growth category, a sector Lindsell Train Investment Trust has topped over three years and ranks second behind Ruffer over five years.

This year alone Lindsell Train has seen its share price grow 33.6%, versus an 11.9% rise in the FTSE World Index.

Roughly 60% of the fund is invested in equities, many of which are strong consumer brands such as AG Barr, which has recently been linked to a merger with industry rival Britvic.

Although the vehicle's performance to a degree merits its premium, analysts at Numis said its current premium is also a reflection of Lindsell Train's poor trading liquidity, given its market capitalisation of £60 million.

'We agree with the managers that the current premium is excessive.  We believe investors should consider taking advantage of the strong trading price by taking some profits,' the brokerage said.