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Investors in most popular funds branded 'naive'

Investors in most popular funds branded 'naive'

Investors in funds run by high-profile fund managers are naive about their investments, according to Gary Potter, who jointly runs a range of multi-manager funds at BMO. 

Mr Potter was referring to big name managers such as Nick Train and Terry Smith, whose funds have performed well in recent years.

Fundsmith, which is run by Mr Smith, is the largest fund in the UK market with assets of over £18bn, while the Lindsell Train UK Equity and Lindsell Train Global Equity funds have total assets of about £13bn.

All three funds have significantly outperformed their respective peer groups over the past one, three and five years but there have been signs of deteriorating performance in the recent months. All three funds deploy the growth style of investing.

Mr Potter and his team run ten multi-manager funds — funds that invest in other funds on behalf of clients — with total assets under management of about £3bn, but neither the Fundsmith or Lindsell Train funds are held in any of those mandates.

He said: “There is no doubt Mr Smith and Nick Train are very talented fund managers who have performed very well.

"But I think investors are naive to think that level of performance will continue without a break, I have been in this industry a long time and the thing I have learned is that gravity works, what goes up must come down, styles fall in and out of favour, and after a decade or so where the growth style has done well, we are now starting to see value perform better and I expect to see that continue.

"Nick Train has been very honest about it in his communication with investors, that the level of performance cannot continue."

In an update to investors in his funds, published at the end of September, Mr Train acknowledged that a shift in sentiment had occurred in the market which had damaged the short-term prospects for some of the companies in which he is invested.

He is not changing the way he invests however, as he believes his strategy will prove superior over the longer term.

The Lindsell Train Global Equity fund has underperformed relative to its peer group this year to date, returning 20 per cent, compared with a return of 21 per cent for the sector. 

The Lindsell Train UK Equity fund has lost 2 per cent over the past three months, compared with a gain of 6 per cent for the average fund in the sector. 

In a recent update to investors, Mr Train said greater levels of investor optimism about the outcome of the Brexit process had prompted them to buy more companies focused on the UK domestic economy, and fewer businesses that derive their earnings from overseas.

It is the latter companies that dominate Mr Train’s UK equity fund. 

Fundsmith meanwhile has lost 3 per cent over the past three months, compared with a gain of 0.5 per cent for the average fund in the IA Global sector in the same time period.