A shift in market sentiment may be behind the decision by investors to withdraw £374m from Nick Train’s UK equity fund in September.
Outflows from the £6.9bn fund were the largest in the Lindsell Train UK Equity fund’s history, according to Morningstar.
The fund’s performance has been strong, returning 89 per cent over the past five years, compared with 40 per cent for the average fund in the IA UK All Companies sector in the same time period.
But in his most recent letter to investors in the fund, published on October 8 and covering the month of September, Mr Train acknowledged that market sentiment had shifted away from the companies that had driven the performance of the fund, warning this could negatively impact its performance in the future.
He said this was despite the fund's strategy being generally indifferent to where companies generate their sales.
Mr Train wrote: “Performance last month gives fund holders some idea of what can happen when investor preferences change and there are resulting shifts out of hitherto popular sectors toward underperforming or unloved areas.
"Broadly September in the UK stock market saw a sell-off in international 'growth' stocks – after an amazing run, lasting years in some cases - and a rally in domestic 'value' stocks.
"Actually our investment strategy does not take into account such categories as ‘growth’ or ‘value’ and we are generally indifferent to where companies generate their sales.
"We are interested only in investing in what we analyse to be companies with exceptional brands or franchises.
"We assume that if we are correct in that analysis – of the exceptional business qualities of our companies – then we can ignore the inevitable swings of investor sentiment and, in the long run, our investment performance will be satisfactory.
"It’s all very well us working with these assumptions, but our preference for very specific types of company definitely mean that our investment performance, in both absolute and relative terms, can suffer when what we own is out of favour."
He added: "To avoid any doubt – we absolutely will not change the shape of the portfolio because of the possibility of a period of underperformance. In fact we are inclined to add to some of last month’s poorer performers in the fund.”
The growth style of investing, favoured by Mr Train, has been in favour with investors for most of the decade since the financial crisis.
This is because the style of investing performs best when interest rates are low, and bond yields are low.
But as bond yields rise, more companies should be growing, making the price paid for the growth more important.
In the UK, bond yields have been low as investors have been cautious about the outlook for the economy, and so Mr Train’s UK fund has performed well.
At a global level, expectations that the US Federal Reserve would lift US interest rates caused growth stocks to sell off at the end of 2018.