The Lindsell Train Global Equity fund – which is one of the most popular investment funds in the UK – underperformed in 2019, delivering a return of 19.4%. Of course, in the context of today’s low-interest-rate environment, where savings accounts are paying interest rates of 1% or so, 19.4% is a brilliant return. However, compared to the fund’s benchmark, the MSCI World index (developed markets), which returned 22.7% last year, it’s a slightly disappointing performance.
Should you be concerned about this underperformance? I don’t think so. Here, I’ll take a look at why the fund fell short and explain why I’d stay invested.
High conviction approach
One of the main reasons Lindsell Train failed to reach its benchmark last year is it’s a highly-concentrated fund (meaning individual holdings can have a large impact on overall returns) and a number of stocks, including some top holdings, underperformed the index.
For example, two of the fund’s top holdings, Unilever and Diageo (which at one stage accounted for nearly 20% of the overall portfolio) experienced pullbacks in the second half of the year on the back of sterling strength and emerging market growth concerns. This will have hit the fund’s performance, given their large weightings.
Other underperformers in the portfolio included Hargreaves Lansdown (it suffered from the Neil Woodford debacle), Pearson (poor results) and World Wrestling Entertainment (it rose 144% in 2018 so was probably due a pullback). When you only hold a small number of stocks, a handful of underperformers can have a significant impact on your overall performance.
Growth vs value
You could also perhaps argue that portfolio manager Nick Train’s investment style, which focuses on high-quality growth businesses, wasn’t as effective in 2019 as it has been in recent years.
I say this because the S&P 500 value index actually outperformed the S&P 500 growth index for the year, returning 31.9% to 31.1% (9.9% vs 8.3% in the final quarter). Train’s style has generally worked very well since the fund’s launch in 2011, as growth has been in vogue, but no style outperforms forever.
I’m still backing Train
While last year’s performance was a little underwhelming, there are a few reasons I’d continue to back Train. For a start, the portfolio manager has an excellent long-term track record.
Between its launch in 2011 and the end of 2019, Lindsell Train Global Equity delivered a return of 317.3% versus 170.9% for the MSCI World index. And, over five years, it’s the best performing global equity fund on the Hargreaves Lansdown platform by a healthy margin.
Secondly, I like Train’s investment style (it’s similar to that of Warren Buffett’s), and many of the fund’s holdings. When you consider the growth prospects of holdings such as PayPal, Walt Disney, and Diageo, the future looks bright.
Note that Train sees his holdings as “very long duration, steadily growing assets – the embodiment of the best that equities offer,” and says that over time “the longer-term underlying growth trends should win out.”
Finally, I’ll point out that every fund manager underperforms the market at one stage or another. A period of short-term underperformance is very normal. So, I’m not going to ditch the global equity fund after one disappointing year.
That said, as always, it’s important to be aware of the risks associated with the fund. Diversifying your money over several different funds, to lower your overall portfolio risk, is generally a good idea.
