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.
Mr Potter said different investment styles come in and out of fashion, but he expects a sustained period of strong performance from value type funds, as higher government spending is being promised by politicians across the world, and that should lead to higher inflation, which is the economic scenario in which value investing would typically be expected to thrive.
Among the UK equity value funds Mr Potter’s funds currently own are the Man GLG UK Undervalued Assets fund, and the RWC UK Focus fund.
Ben Yearsley, director at Shore Financial Planning, said the traditional conditions for value funds to do well, including rising interest rates, were not present right now.
But he thinks investors are worried about the potential for a market downturn and as a result are not keen to own the most expensive stocks in a market, and most of those are growth shares.
He recently sold his holdings in the Lindsell Train funds as he worries the fund manager has too much of the capital invested in a relatively small number of companies.
But a chief investment officer at Columbia Threadneedle Investments warned against investing in value stocks, arguing a growth style of investment was still the best option in the current market.
Speaking at a roundtable event earlier this week (November 20), William Davies said investors needed to “be careful” and wary of the “easy conclusion” that investing in cheap value stocks was a smart move.
Mr Davies, CIO EMEA and global head of equities at the fund house, said: “We think growth will still prosper. In an environment of slow growth, with low interest rates and low bond yields growth is still the best option.”
One example of this was the growing sector of worldwide public cloud services, the revenue of which had increased from $220bn (£170bn) in 2016 to $411bn (£318bn) in 2020.
Mr Davies thought this was likely to increase given that cloud services were becoming more entrenched, which would benefit “classic growth stocks” such as Microsoft, Amazon and Alibaba.
Guy Stephens, technical investment director at DFM Rowan Dartington, agreed, adding that many of the so-called opportunities in value were priced cheaply for reasons of “structural long-term decline” rather than being overlooked in the market.
david.thorpe@ft.com & imogen.tew@ft.com
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