Can fund stars keep shining?
Terry Smith and Nick Train fight to stay on top
In the US, fund managers like Warren Buffett can achieve celebrity status. In the UK, only two such professionals enjoy a degree of fame: nick Train and Terry Smith. These 60-something stars may not be household names, but they hold a considerable sway over the nation’s savings. Train has charge of about £24bn worth of assets, while Smith takes care of £28bn.
Such is the extent of their empires that both managers are coming under more scrutiny. In 2022, should we stay true to Train and Smith, or take a chance on their challengers?
There will be a particular focus on nick Train. As he has admitted, his funds and trusts have in 2021 suffered the ‘worst period of relative investment performance’ in two decades, due mostly to their lack of technology stocks. Despite this, the five-year return on his Lindsell Train UK Equity is 62pc, against the sector average of 36pc.
A few investors have sold out. But a rueful Train has apologised, something of a rare event in fund management, where sorry can be the hardest word.
As for Smith, there are some concerns that his largest fund, Fundsmith Equity, has grown so huge that it may become unwieldy. The five-year return on this fund is 132pc, against the sector average of 80pc.
The conciliatory Train and the outspoken Smith differ in their demeanour, but they both employ a buy-and-hold strategy.
They both also communicate well with investors, which is not always the case in a sector where obfuscation can be the default strategy. But each man has his own preferences.
For Train, one preference is the food and drinks sector. His Lindsell Train, Finsbury Growth & Income trusts and UK Equity and Global Equity funds hold drinks giant Diageo. Its shares have risen by 38pc this year.
Unilever, best known for Marmite, has fared less well; Train describes the returns from its shares, down 9pc since January, as ‘crushingly pedestrian’, Other disappointments include London Stock Exchange and Pearson, both of which are heavy on intellectual property, and as such companies that Train and his fellow manager Michael Lindsell favour.
Lindsell Train also holds a stake of about 13pc in DMGT, publisher of the Daily Mail, and backed the deal to take the group private that was approved this week. From his Mauritius base, the irrepressible Smith has lately pronounced that ‘almost anything to do with pets is good’. As a result, Idexx, the US veterinary products firm, is a top holding in Fundsmith.
About 27pc of the portfolio is invested in technology, with stakes in Facebook group Meta, Microsoft, Paypal and also Amazon – a recent addition.
Smithson, the investment trust which concentrates on smaller companies, has prospered this year. Fundsmith has, however, lagged the MSCI World Index, due to its consumer stocks exposure.
For the time being, this has not shaken the faith of investors like me – I have money in both funds and the trust. But Ryan Hughes of AJ Bell argues that the experiences of Train and Smith in 2021 are a reminder that ‘no one manager has the magic recipe to outperform in every single year’, which is why these two should not dominate anyone’s portfolio.
Dzmitry Lipski of Interactive Investor suggests the ninety One UK Alpha as an alternative to UK Equity. Stonehenge Fleming Global Best Ideas Equity would be a substitute for Fundsmith, with Artemis SmartGARP Global Equity a useful addition. Jason Hollands of Bestinvest cites AMP Capital Global Companies, Brown Advisory Global Leaders and Guardcap Global Equity as diversification opportunities for Fundsmith investors.
The managers of these funds may be tomorrow’s stars. But so much money is staked on the skills of Train and Smith that we can only hope they exhibit true star quality in 2022 and beyond.