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Neil Woodford, Terry Smith or Nick Train: which fund manager should I back in 2019?

Neil Woodford, Terry Smith, and Nick Train are probably Britain’s most well-known portfolio managers right now. However, while all three have strong long-term performance track records, their results have been varied over the last three years.

For example, Train’s Global Equity fund has returned around 90% over the last three years while his UK Equity fund has returned 40%, which are excellent figures. At the same time, Smith’s Fundsmith Equity fund has returned around 80%, which is also an excellent performance. On the other hand, Woodford’s Equity Income fund has lost around 10% over the last three years, which is clearly not such a good result for investors. So, who is the best fund manager to back in 2019?

Investment style

To answer that question, I think it’s worth looking at the investment styles of the different managers.

Smith and Train could be classified as ‘quality’ investors. Both fund managers tend to focus on high-quality companies that generate consistent growth, reinvest their earnings at a high rate, and pay regular dividends. This is quite a good strategy, in my view. Note that Smith’s fund invests on a global basis, while Train manages both a global fund and a UK fund.

In contrast, Woodford could be classified as a ‘value’ investor. He’s also very much a ‘contrarian’ investor meaning that he tends to go for companies that are out of favour. Moreover, his approach in recent years has been to pick out under-the-radar stocks in sectors such as healthcare and technology that are not on mainstream radars. His Equity Income fund is predominantly UK-focused.

Below is a look at the top 10 holdings of the four different funds, according to data from Hargreaves Lansdown. 

Woodford Equity Income  Fundsmith Equity Lindsell Train UK Equity Lindsell Train Global Equity
Imperial Brands  PayPal  RELX  Unilever 
Barratt Developments Amadeus IT Diageo  Diageo 
Burford Capital  Microsoft Unilever  Heineken 
Provident Financial Facebook  Mondelez  Walt Disney
Theravance Biopharma Stryker Corp Hargreaves Lansdown  Mondelez 
Benevolent AI Link WEIF A IDEXX Laboratories  London Stock Exchange PayPal
NewRiver REIT Waters Corp Burberry RELX
IP Group Novo Nordisk Schroders Nintendo
Stobart Group Becton, Dickinson & Co Heineken Intuit
Autolus Therapeutics Intercontinental Hotels  Sage  Kao

My pick for 2019 

Considering the different investment styles of the three portfolio managers, if I was to choose one manager to go with next year, it would probably be Train.

I like his approach to quality investing, and I’d be happy to own either his UK fund or his global fund, given that they both contain names such as Unilever, Diageo, and Heineken.

That said, I do like Smith’s quality investing strategy as well, although some of his key holdings such as Microsoft and Facebook trade at rather high valuations, which adds a little more risk.

On the other hand, I don’t see a huge amount of appeal in Woodford’s fund right now. I do think value investing could come more into focus in 2019, as the growth trade that we’ve seen in recent years appears to have broken down. However personally, I’m not convinced that Woodford’s fund is the best way to play the value theme. It’s a little too unorthodox for my liking, given that it contains a number of non-dividend paying growth stocks.

So perhaps I’d go with Train for UK equity exposure, and Smith for global equity exposure, in order to diversify a little. As with individual stocks, it can be a sensible idea to diversify with funds, as you don’t want to be overexposed to one particular manager in case they underperform.

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Edward Sheldon owns shares in Unilever, Diageo, Imperial Brands, Hargreaves Lansdown, and Schroders, and also has positions in the Fundsmith Equity Fund and the Lindsell Train Global Equity fund. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Facebook, PayPal Holdings, and Unilever. The Motley Fool UK owns shares of Microsoft and has the following options: short January 2019 $82 calls on PayPal Holdings. The Motley Fool UK has recommended Burberry, Diageo, Hargreaves Lansdown, Imperial Brands, InterContinental Hotels Group, RELX, and Sage Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.