Instant diversification

One holding I continue to accumulate within my Stocks and Shares ISA is the Vanguard Life Strategy 80% Equity Fund. Offered by the US passive investing giant, this fund might be considered a one-stop-shop for anyone who has very little interest in stock markets beyond increasing their wealth. Alternatively, I think it can be a great way of counterbalancing riskier investments.

This Ronseal-like ‘does-what-it-says-on-the-tin’ fund invests 80% of the money I put to work across thousands of companies around the world. The remaining 20% is shoved into fixed-income assets, which tend to be less volatile than stocks. This strategy won’t stop the fund from dipping in value during a market crash, of course. However, it should help mitigate the (temporary) pain.  

Of course, there will come a time in life when people want to reduce their exposure to stocks. Recognising this, Vanguard also offers 20%, 40% and 60% versions of the LifeStrategy fund. A 100% Equity fund is also available.

Quality pick

My love of Vanguard’s cheap, passive range doesn’t mean I’ve no time for funds managed by proven professional investors. After all, the former will only give me the market return. To beat the market, I’ll need to use the latter (or pick stocks myself).

One active fund I’ve been buying quite a lot of recently is Lindsell Train Global Equity. This highly-concentrated, low-turnover fund has climbed a little over 350% in value since 2011.  Investors wouldn’t have got that sort of return by simply holding a FTSE 100 index tracker!

Despite its stellar track record over the years, owning Global Equity isn’t without risk.  Some of its biggest holdings — FTSE 100 firms Diageo and Unilever — have been hit to some extent by the pandemic. The fact that this fund doesn’t buy value stocks could also hamper returns for a while.

Nevertheless, I’m a firm believer that quality always wins out over the long term. 

Go small

As a long-term investor with many years left in the market, I think having some exposure to the smaller businesses in my Stocks and Shares ISA is really important. Market minnows have the ability to grow far quicker than larger listed firms, which should ultimately lead to larger share price gains. This is why my final pick is Premier Miton UK Smaller Companies. 

Since launching in 2012, the AIM-focused Premier Miton fund has achieved an annual return of 18.5%. That compares very favourably to the 12.7% return of the IA UK Smaller Companies sector. No wonder it’s the most researched fund of its kind, according to Trustnet.  

Of course, there are a few things to remember. Past performance is no guarantee of future returns. Moreover, these returns could vary wildly from year to year due to the volatility of small-cap stocks. Also, investors must be comfortable paying the relatively high management fees compared to, say, the LifeStrategy 80% fund.  

The Premier Miton fund won’t suit all investors, but I’d be happy to buy it today.

The post 3 UK funds to buy for a Stocks and Shares ISA appeared first on The Motley Fool UK.

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Paul Summers owns shares in Vanguard LifeStrategy 80% Equity Fund and Lindsell Train Global Equity. The Motley Fool UK has no position in any of the shares mentioned. 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.

Recently however, the fund – which I hold in my investment portfolio – has underperformed. Last year, it only returned 11.7% when its benchmark – the MSCI World Index – returned 12.3% and rival Fundsmith returned 18.3%. Meanwhile, in 2019, the fund returned 19.4% while the index rose 22.7% and Fundsmith returned 25.6%.

Of course, these numbers are still good. A two-year return of 33% is very healthy. However, they’re below the benchmark and below other funds such as Fundsmith.

This begs the question. Should I hold on to Lindsell Train Global Equity or switch to another fund?

Why has Lindsell Train Global Equity underperformed?

To answer that question, let’s look at why the fund has underperformed. I can see three key reasons. 

Firstly, portfolio manager Nick Train has a very specific investment style. He only invests in what he considers to be ‘very high-quality’ businesses. Quite often, these are companies with powerful brands and a consumer focus.

This ‘quality’ approach to investing has worked very well, in general, for much of the last decade. However, like any style, it’s not going to work all the time. For example, recently we have seen a rotation into beaten-up value stocks. Train doesn’t hold these kinds of stocks, and this has contributed to the fund’s underperformance.

Secondly, Lindsell Train Global Equity is underweight in the tech sector compared to its benchmark. Train’s top holdings at 28 February were London Stock Exchange, Diageo, Nintendo, and Heineken. The top four holdings in the MSCI World, however, were Apple, Microsoft, Amazon, and Facebook. Over the last few years, Big Tech stocks have done very well. So, this has also contributed to the underperformance.

Finally, Train runs a concentrated portfolio – a risk I’ve warned about before. The fund holds less than 30 stocks. This approach can deliver great results when your stocks are outperforming. However, it can also backfire if your stocks are underperforming. That’s because stock-specific risk is higher.

Take London Stock Exchange for example – the top holding in the fund at the end of February. This stock recently fell from around £95 to £76. That 20% fall is going to impact Lindsell Train Global Equity significantly because the stock was about 7.6% of the fund at 28 February.

Lindsell Train Global Equity: my move now

While Lindsell Train Global Equity’s performance has been a bit disappointing lately, I am going to stick with this fund. Ultimately, I like Train’s investment approach and I like the holdings in the fund.

I also think it’s a great ‘sleep-well-at-night’ fund. While it may never deliver monster Scottish Mortgage-like returns, it’s also unlikely to crash 30%+ in the space of a month.

Having said that, the recent underperformance is a good reminder of the importance of diversification. When investing in funds, it’s sensible to spread money over different funds with different managers and styles.

So, while I’m going to hold on to Lindsell Train Global Equity, I am going to ensure I also hold plenty of other funds and stocks as well, to lower my overall portfolio risk.

The post Lindsell Train Global Equity is underperforming. Should I sell the fund? appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Apple, Amazon, Microsoft, Scottish Mortgage Investment Trust, and Diageo and has positions in Fundsmith and Lindsell Train Global Equity. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Amazon, Apple, Facebook, and Microsoft. The Motley Fool UK has recommended Diageo and recommends the following options: short March 2023 $130 calls on Apple, long January 2022 $1920 calls on Amazon, long March 2023 $120 calls on Apple, and short January 2022 $1940 calls on Amazon. 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.

What’s interesting about these two fund managers is that they’ve been able to generate these extraordinary returns with very straightforward approaches to investing. Both keep things very simple. They don’t do anything that you and I can’t do. With that in mind, here’s a look at five things we can all learn from Nick Train and Terry Smith.

Follow Warren Buffett

The first thing that stands out to me about these two portfolio managers is that both focus on businesses that are very profitable.

Fundsmith’s holdings, for example, had an average return on capital employed (ROCE) – a key measure of profitability – of 29% in 2019. By comparison, the average FTSE 100 company had a ROCE of 17%. So, Smith invests in companies that are far more profitable than the average company. It’s a similar story for Train.

It appears that they’ve followed Warren Buffett here. In his 1979 letter to investors, Buffett wrote: “The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed and not the achievement of consistent gains in earnings per share.”

Valuation is not the ultimate focus

The next thing to note is that neither go for really cheap ‘value’ stocks. Look at the holdings in Fundsmith and LT Global Equity and you’ll find many stocks that are relatively expensive. Unilever, for example, which can be found in both funds, currently trades on a forward-looking P/E ratio of about 21. PayPal, which is also in both, is on a P/E of about 50. Both fund managers are willing to overlook a higher valuation if the company has high-quality attributes.

“Concerns that any company’s shares are too expensive have not been particularly helpful over the last few years and into 2020. Instead, apparently ‘expensive’ companies with a strategic growth opportunity have often carried on doing well in share price terms,” Train commented in July.

Brands are powerful

Like Buffett, both also like companies that own powerful brands. A dominant brand can be a competitive advantage. I mentioned above that both fund managers hold Unilever. Its brands include Dove, Radox and PG tips. Both also hold Diageo. Its brands include Johnnie Walker, Tanqueray and Smirnoff. These are all dominant brands that generate consistent sales.

Consumer staples are reliable

This brings me to my next point – both fund managers like the consumer staples sector. At the end of August, Fundsmith had 29% of the fund allocated to this sector. At the end of July, LT Global Equity had 44% in this sector.

The reason they like this sector is that it contains reliable companies. Many sell products that we buy repeatedly, regardless of economic conditions, meaning they’re not as cyclical as other companies. This helps portfolio performance during downturns.

Best ideas focus

Finally, it’s worth noting that both run relatively concentrated portfolios. Both tend to hold less than 30 stocks. So, they diversify, but they don’t over-diversify. Instead of buying loads of stocks, they focus heavily on their best ideas.

The post 5 things UK investors can learn from Terry Smith and Nick Train appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Unilever, Diageo and PayPal and has holdings in Fundsmith Equity and Lindsell Train Global Equity. The Motley Fool UK owns shares of and has recommended PayPal Holdings. The Motley Fool UK has recommended Diageo and Unilever and recommends the following options: long January 2022 $75 calls on PayPal Holdings. 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.

This year, Train has been buying a number of stocks for his portfolios amid the coronavirus-related market volatility. If you’ve some money to invest right now, I think it could be worth looking at what the portfolio manager has been buying.

Train loves this Warren Buffett-type stock

One of the first stocks Train bought when stocks began to wobble earlier in the year was alcoholic beverages champion Diageo (LSE: DGE). This is a FTSE 100 firm Train is a big fan of. Today, it’s the second-largest holding in his Global Equity fund, and the fifth-largest holding in his UK Equity fund, according to data from Hargreaves Lansdown.

It’s not hard to see why Train likes Diageo (and why Warren Buffett himself might like it if he bought UK stocks). Put simply, it’s a classic Buffett-type stock. Not only does it have a strong competitive advantage due to the power of its brands (Johnnie Walker, Smirnoff, Tanqueray, etc) but it’s also highly profitable. In addition, it’s a reliable dividend payer with a superb long-term track record of generating shareholder wealth.

Diageo shares have actually continued to fall since Train was buying earlier in the year. This means you can pick the shares up at a lower price than he paid. 

Personally, at the current valuation (trailing P/E ratio of 21), I think Diageo shares look attractive right now. Covid-19 is certainly going to set the company back in the short term, however, the long-term growth story associated with emerging markets growth remains intact.

FTSE 100 profits powerhouse

More recently, Train has been buying shares in financial services company Hargreaves Lansdown (LSE: HL). Late last month, Lindsell Train Limited increased its ownership of the FTSE 100 stock from 12% to 13%. That means ‘Britain’s Warren Buffett’ spent somewhere around £70m on Hargreaves Lansdown shares. Clearly, he’s confident in the outlook.

I can see why Train likes Hargreaves Lansdown. Like Diageo, it’s very much a Buffett-type stock. For a start, the company is one of the most profitable in the entire FTSE 100 index. Last year, return on capital employed (ROCE) – a key measure of profitability – came in at 69%. By contrast, the five largest non-bank companies in the FTSE 100, AstraZeneca, Unilever, Shell, GlaxoSmithKline, and British American Tobacco, averaged a ROCE of 11%.

Secondly, it’s the leader in the investment management platform industry with a market share of around 40%. This provides a competitive advantage.

Third, the long-term growth story here looks attractive. We all need to save and invest more for retirement and Hargreaves should benefit from this. On top of this, rising stock markets should boost assets under administration in the long run.

Hargreaves Lansdown shares are currently down about 25% this year. At today’s prices, the trailing P/E ratio is about 28. At that valuation, I see the stock as a ‘buy’.

The post ‘Britain’s Warren Buffett’ has bought these FTSE 100 stocks that I’d buy too appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Diageo, Hargreaves Lansdown, Unilever, GlaxoSmithKline and Royal Dutch Shell, and has positions in the Lindsell Train Global Equity and Lindsell Train UK Equity funds. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Diageo and Hargreaves Lansdown. 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.

The Lindsell Train Global Equity Fund (one of several managed by Train) returned 272% from launch in 2011 to 31 March this year. Smith’s Fundsmith Equity fund returned 328% between November 2010 and the end of last month. Remember — these gains take into account last month’s dramatic market crash.

Many Foolish investors will prefer to pick their own stocks. Nevertheless, I think learning from both money managers could increase your chances of obtaining great wealth.

Buy class to retire richer

Although they’ve no affiliation, Train and Smith have very similar investment strategies. Just like Warren Buffett, both look for high-quality companies. These tend to generate big returns on capital employed. In other words, they make great money on the money they invest in themselves. 

Train and Smith also look for businesses with compelling brands. Naturally, they don’t hold exactly the same companies in their portfolios, but many come from the same defensive sectors, namely consumer goods, software, and healthcare.

In addition, these managers embody the idea that knowing everything about a small bunch of great stocks is far better than knowing little about a lot. Their portfolios contain 20-30 companies. I believe private investors should only invest in their best ideas too if they want to outperform benchmarks like the FTSE 100 and potentially retire early.

Avoid the rubbish

It’s a testament to Train’s and Smith’s stock-picking abilities that their funds have done relatively well during the pandemic. The former’s fund declined just 3.3% in March, while the latter’s fell 3.7%. Their benchmark dropped 10.6%. 

I think this can be attributed not only to their love for great companies but also their aversion to simply buying what’s cheap. As Smith remarked in his recent letter to shareholders: “Shares in companies that are lowly rated are so mostly for good reasons.”

This observation is so important to grasp right now. With many stocks (good and bad) still reeling from the crash, it’s vital to get under the bonnet of each potential investment and check its fundamentals. Companies usually stay ‘cheap’ if they’ve too much debt, can’t grow, or struggle to make a profit.

And it goes without saying that ‘quality investing’ is far less risky than buying a basket of penny shares.

Don’t meddle

When Train and Smith buy, they do so with the intention of holding for the very long term, unless something changes in the underlying business. A market crash doesn’t faze them. As a result, both funds have exceptionally low turnover rates relative to other funds.

Such inactivity might be too much for private investors managing their own money for retirement. But it’s worth remembering that frequent buying and selling only guarantees higher costs, nothing more. 

Retire rich

Of course, you could just invest with Smith, Train, or both, and be done with it. Those that dislike management fees, however, might simply want to apply the principles these professional money managers abide by instead.

The next few months could see a resumption of volatility in markets. Buy and hold great stocks at reasonable prices and the dream of a golden retirement could become a reality. 

The post Why I think following Nick Train and Terry Smith could help you retire rich appeared first on The Motley Fool UK.

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Paul Summers owns shares in Fundsmith Equity Fund. The Motley Fool UK has no position in any of the shares mentioned. 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.

However, my view is that a mix of top actively-managed funds and high-quality stocks could potentially deliver higher returns than a FTSE 100 tracker in the long run. Here’s a look at three top global equity funds that have outperformed the FTSE 100 by a wide margin recently.

Outperforming a FTSE 100 tracker

One fund that I view as a good investment is Fundsmith Equity. This is a large global equity fund that is managed by portfolio manager Terry Smith.

Since its launch in late 2010, Fundsmith has delivered outstanding returns for investors. For example, for the five-year period ending 31 December 2019, Fundsmith delivered a return of around 132% versus 41% for the FTSE 100. More recently, the fund has held up very well in the stock market crash, returning -8% in the first quarter of 2020, versus -24% for the FTSE 100.

One reason this fund has delivered such great returns for investors is that Smith has very strict investment criteria when it comes to picking stocks. Instead of investing in a wide range of companies, he only invests in a handful of high-quality, resilient businesses that have advantages that are difficult to replicate.

Fundsmith is significantly more expensive than your average FTSE 100 tracker. Fees through Hargreaves Lansdown are 0.95% per year plus platform fees. But I believe this is well worth it, given the fund’s track record.

A focus on ‘exceptional’ companies 

Another actively-managed fund I hold in high regard is Lindsell Train Global Equity.

Like Fundsmith, Lindsell Train Global Equity has delivered stunning returns for investors in recent years. For the five-year period to the end of 2019, the fund returned a very impressive 147%. And for the first quarter of 2020, it returned -11%, outperforming FTSE 100 tracker funds by a long way.

This is another fund that focuses on high-quality businesses. Specifically, portfolio managers Nick Train and Michael Lindsell look for ‘exceptional’ companies that demonstrate long-term durability in cash and profit generation. Looking at the fund’s long-term performance track record, this approach seems to deliver.

This fund is available on the Hargreaves Lansdown platform with a low fee of 0.5% plus platform fees. At that price, I believe it’s a great core investment.

Superb performance 

Finally, a third fund I’d buy over a FTSE 100 tracker is Blue Whale Growth.

This is a relatively new global equity fund that was only launched in September 2017. I wouldn’t let the lack of a long-term track record put you off though. Since its inception, its performance has been fantastic. Last year, Blue Whale Growth returned 28%, and the year before it returned 9%. By contrast, the FTSE 100 returned 17% and -9%.

Like the two funds above, Blue Whale is a concentrated fund that focuses on high-quality companies. Specifically, portfolio manager Stephen Yiu looks for companies that have the ability to grow over the long term, and that are attractively valued. Judging by the performance of the fund, Yiu is a good stock picker.

Overall, there’s a lot I like about this under-the-radar global equity fund. Fees are 0.89% per year plus platform fees through Hargreaves Lansdown.

The post FTSE 100 trackers have advantages. But I’d rather invest in these top global equity funds appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Hargreaves Lansdownm Unilever, Diageo and Sage and has positions in Fundsmith Equity, Lindsell Train Global Equity, and Blue Whale Growth. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, 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.

Today, I’ll be analysing the performance of these two funds over the first quarter of 2020. Let’s take a look at how they performed in the recent stock market crash.

Fundsmith and Lindsell Train outperformed 

According to their most recent factsheets, Fundsmith delivered a return of -7.9% for the first three months of 2020, while Lindsell Train Global Equity delivered a return of -11%.

Are these good returns given the market conditions? You bet they are.

In comparison, the MSCI World index that many global equity funds are benchmarked against returned -15.7%. Meanwhile, the FTSE 100 index, to which many UK investors pay close attention, returned -23.8%. The S&P 500 index returned -19.6% (in USD terms). So, both funds outperformed significantly over the quarter.

Looking at performance in March, when volatility reached the highest level since the Global Financial Crisis in 2008, Fundsmith returned -3.7% for the month. Meanwhile Lindsell Train Global Equity returned -3.3%. By contrast, the MSCI World index returned -10.6%. And the FTSE 100 and the S&P 500 returned -13.4%, and -12.4% respectively. So again, the two funds outperformed by a wide margin.

Overall, both of these funds held up very well in the stock market crash, protecting investors from big losses.

What drove this outperformance?

Why did these funds outperform the wider market? I put it down to the fact that they both focus on high-quality businesses.

You see, their portfolio managers, Terry Smith (Fundsmith) and Nick Train (Lindsell Train Global Equity), have very strict criteria when it comes to picking stocks.

Instead of owning hundreds of stocks like some money managers do, these portfolio managers only invest in a small number of truly exceptional companies. Specifically, they tend to invest in companies that have robust competitive advantages, strong balance sheets, dependable earnings, and the potential for long-term growth.

Some examples of the kinds of stocks they own include:

• Unilever, whose everyday goods are still being used by millions of people globally during the coronavirus shutdown.

• Diageo, whose vodka, gin and whisky is still being consumed during the shutdown.

• Sage, the cloud-based accounting solutions specialist that is benefitting as businesses increasingly become more digital.

• Microsoft, whose leading software products are still being used by millions of workers remotely.

• PayPal, which is benefiting from an increase in online shopping.

Ultimately, this high-quality approach to investing appears to generate great returns when stock markets are rising, as well as protection when markets are falling.

I think that’s something to keep in mind if you’re putting together your own portfolio of stocks and funds in the current environment.

The post Here’s how Fundsmith and Lindsell Train Global Equity performed in the recent stock market crash appeared first on The Motley Fool UK.

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• How I plan to lock in sustainable growth on the FTSE 100 in the coming years

Edward Sheldon owns shares in Unilever, Diageo, Sage, Microsoft, and PayPal and 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 Microsoft, PayPal Holdings, and Unilever. The Motley Fool UK has recommended Diageo and Sage Group and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. 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.

That said, investing in a bear market has its challenges. Risk management is absolutely crucial. With that in mind, here’s a look at how I’d invest £10k in the stock market today.

How I’d invest £10k

As always, the first thing I’d do is think about structuring my investments tax-efficiently. It goes without saying that the less profit you pay in taxes, and the more you keep for yourself, the better.

One of the easiest ways to invest tax-efficiently in the UK is through a Stocks and Shares ISA. With this account – which has an annual allowance of £20k – all capital gains and income are completely tax-free. So, I’d open a Stocks and Shares ISA with a reputable online broker such as Hargreaves Lansdown or AJ Bell to invest my £10k.

My £10k investment strategy

Now, £10k is not really enough to build a diversified portfolio of individual stocks. To be properly diversified, you need to own at least 20 stocks (preferably more). That’s a lot of money (£200+) spent on trading commissions and stamp duty.

For a £10k investment, I’d invest in a selection of funds instead. With funds, your money is pooled together with the money of other investors and spread out over many different companies, reducing your stock-specific risk. For smaller amounts of money, it’s generally more cost-effective than buying individual shares.

As for which funds I’d invest in, I’d pick a number of global equity funds that invest in companies listed all around the world. I’d also go for funds that have a focus on high-quality companies that should be resilient in the event of a prolonged economic downturn.

One fund that has this kind of focus is Fundsmith Equity. It focuses on robust companies that are financially sound and have attractive long-term growth prospects. Another fund with a focus on quality is the Lindsell Train Global Equity fund. Both of these funds have outstanding long-term performance track records.

In the exchange-traded fund (ETF) space, one fund I’d consider is the iShares Edge MSCI World Quality Factor UCITS ETF. This is a low-cost tracker fund that focuses on companies that demonstrate strong and stable earnings and have low debt – a solid strategy in these uncertain times.

Risk management

Finally, I wouldn’t invest the £10k all at once. Given the enormous amount of uncertainty the world is facing right now, there’s a chance that stocks could fall further in the near term.

What I would do is drip-feed £2.5k into my portfolio of funds every month for the next four months. That way, if stocks were to fall another 20% to 30% in the months ahead, I’d be able to capitalise.

So, that’s how I would personally invest £10k in this market. If you’re looking for more bear market investment ideas, you’ll find plenty right here at The Motley Fool.

The post How I’d invest £10k in this bear market appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Franklin UK Rising Dividends

In order to take advantage of recent FTSE 100 weakness, I’ve added to my position in the Franklin UK Rising Dividends fund. This is an under-the-radar fund that has a focus on high-quality UK dividend payers. It aims to provide both capital growth and a rising level of income over time. It has a solid performance track record with a five-year return of about 27% versus around 14% for a FTSE 100 index tracker. And it is available on the Hargreaves Lansdown platform with a very reasonable annual fee of just 0.55%.

Top holdings in this fund currently include Unilever, Royal Dutch Shell, Diageo, Relx and GlaxoSmithKline. All of them have fallen in the recent stock market decline. So, by putting money into this fund now, I’m effectively increasing my exposure to these FTSE 100 names at lower prices.

Fundsmith Equity

I’ve also been adding to my favourite investment fund Fundsmith in recent weeks. This is a concentrated global equity fund that focuses on high-quality, resilient companies. It’s managed by portfolio manager Terry Smith. He has a phenomenal long-term performance track record (Fundsmith has returned approximately 113% over the last five years). Top holdings include Microsoft, Philip Morris, PayPal, Novo Nordisk and Facebook.

Interestingly, Terry Smith recently said he is “pretty relaxed” about the impact of the coronavirus on his portfolio. He modelled the performance of the portfolio during the Global Financial Crisis. And he believes that Fundsmith should fall less than the broader market then rebound more quickly in the event of a market crash. This leads me to believe that boosting my exposure here is a sensible move.

Lindsell Train Global Equity

Finally, I’ve also put some money into another favourite of mine, Lindsell Train Global Equity. This is run by portfolio manager Nick Train. Like Fundsmith, it is a global equity fund that has a focus on high-quality, robust companies. And it has an excellent long-term performance track record (five-year return of approximately 107%). Top holdings currently include the likes of Unilever, Heineken, Diageo, London Stock Exchange and Nintendo. Given its the track record, I believe investing a little more money into it now, while stocks are down, is a sound long-term move.

Of course, global stock markets could continue to fall further in the coming days and weeks. No one knows how long this volatility will last. For this reason, I’m drip-feeding money into my funds, bit-by-bit, in order to average out my entry points.

The post 3 funds I’ve bought as the stock market has crashed appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Hargreaves Lansdown, Unilever, Diageo, GlaxoSmithKline, Microsoft and Royal Dutch Shell, and has positions in Franklin UK Rising Dividends fund, Fundsmith Equity, and Lindsell Train Global Equity. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Facebook, GlaxoSmithKline, Microsoft, PayPal Holdings, and Unilever. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, and RELX and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. 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.

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.

The post Lindsell Train Global Equity underperformed in 2019. Should you be concerned? appeared first on The Motley Fool UK.

More reading

• How to invest £125 a month in UK shares to target a £39,039 annual passive income
• These white-hot FTSE 250 growth shares are on sale today!
• How much do you need an ISA for a £31,352 second income?
• With the Aston Martin share price in pennies, is it in bargain territory?
• How I plan to lock in sustainable growth on the FTSE 100 in the coming years

Edward Sheldon owns shares in Unilever, Diageo, Hargreaves Lansdown and has a position in the Lindsell Train Global Equity fund. The Motley Fool UK owns shares of and has recommended PayPal Holdings, Unilever, and Walt Disney. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, and Pearson and recommends the following options: long January 2021 $60 calls on Walt Disney and short April 2020 $135 calls on Walt Disney. 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.