As billions flow out of Britain’s top funds – is now the time to take profits?

Billions of pounds has been pulled from funds run by celebrated investors Nick Train and Terry Smith as the duo have dropped to the bottom of recent performance charts. With investors concerned the pair’s style of investing is falling out of favour, is now the time to take profits?

Since its peak in September, Lindsell Train Global Equity, run by Mr Train, has shrunk from managing £9.2bn of investors’ cash to £8.5bn. Fundsmith Equity, managed by Mr Smith, peaked in June at £19.7bn, and is now £18.7bn. Much of their success has been driven by an extraordinary period of monetary intervention in the wake of the financial crisis.

Record low interest rates have pushed cautious income investors into the type of lower-risk stocks owned by both managers, raising prices.

Gary Potter of investment firm BMO, said: “This has created a wonderful environment for certain types of stock, notably high-quality, dependable companies. In many cases, the valuation of such stocks has generally become quite expensive relative to the wider market and their own history.”

But more recently, investors have become less tolerant of high valuations and begun switching to cheaper, so-called “value” stocks.

Should this trend continue in 2020, both the Fundsmith Equity and the Lindsell Train Global Equity could underperform the market. Investors should recycle some of the gains they have enjoyed over the past decade into other funds, according to Mr Potter.

“History is littered with examples of success being followed by periods of disappointment,” he said.

Despite the outflows, fund analyst Morningstar downgraded the Lindsell Train UK Equity fund this week, as it feared it had grown too large.

This month, Mr Train admitted that his fund may well be in for a period of poor performance. While he remained confident in his strategy over the long run, he said any investors who could not stomach the fund struggling for a period “should sell”. However, he warned that trying to time when to buy back in was “fraught” with risk.

Ben Conway of Hawksmoor Fund Managers said he sold Fundsmith “an embarrassingly long time ago” but he would “sympathise with an inclination to take profits” for those who may need the money in the future.

Anna Haugaard of Brewin Dolphin, a wealth manager, argued that investors should see the sell-off as a buying opportunity.

“Both Fundsmith and Lindsell Train appear to have simply fallen out of favour,” she said.

“But I wouldn’t sell the funds and it could even be a good time to buy.” Jonathan Jones