The collapse of Woodford Investment Management has contributed to the terrible recent share price performance of the Lindsell Train investment trust, its manager Nick Train has said, as he pledged his firm would not alter its style in response to the events of 2019.
The £214m Lindsell Train investment trust has lost 14 per cent over the past year, compared with a gain of 14 per cent for the average trust in the AIC Global sector in the same time period (to February 10).
Woodford Investment Management, run by fund manager Neil Woodford and his business partner Craig Newman, closed in October 2019 after the demise of its flagship fund, the Woodford Equity Income fund.
Similarly to Mr Train, Mr Woodford's style was to take significant stakes in a relatively small number of companies, though he also had significant exposure to small, illiquid and unquoted companies of the sort Mr Train avoids.
Mr Train said the demise of Woodford Investment Management had placed increased scrutiny on the effectiveness of active fund managers relative to passives.
It had also called into question whether investors will continue to pay attention to platform buylists, as Mr Woodford's fund, like Mr Train’s, was heavily promoted on the Hargreaves Lansdown list.
The model of fund managers owning the business, and the level of scrutiny this allows, is also under scrutiny.
In his latest letter to shareholders, which is published on the Lindsell Train website, Mr Train wrote: “There have undoubtedly been ramifications for Lindsell Train Limited from the Woodford affair. Ramifications arising from the scrutiny that we and other fund management companies have understandably been subject to since that debacle.
"The shocking sight of a run on an open-ended fund demonstrates the bad things that can happen when investment managers take excessive risk with portfolio liquidity. We must acknowledge – as we have always sought to communicate to all our investors – that there certainly is risk inherent in the concentrated nature of Lindsell Train Limited’s portfolios and to an extent, therefore, with liquidity too.
"However, to be clear, we do not invest in unquoted shares in the open-ended funds. We only invest in long established, durable and substantive companies."
Outflows have been stark from Train's open-ended funds over the past year, with investors withdrawing £374m from his UK equity fund in September, the largest in the fund’s history.
The fund ratings agency Morningstar downgraded the Lindsell Train funds in December, on the basis that they had grown too big.
But Mr Train wrote: "We will not alter our investment style or process in response to the events of 2019 or the scale of our business.
"Our willingness to run concentrated portfolios, with a very long term time horizon, has allowed and encouraged us to take truly strategic views about the companies we invest in – it is central to our ability to capture returns.
"We do not believe the size of our funds is close to compromising the potential to generate good returns into the future – although some rating agencies disagree. For as long as we believe this the open-ended funds will remain open to new investors.”