Morningstar has downgraded Nick Train and Michael Lindsell’s global equity fund as it lags behind other giants in the sector, including Terry Smith’s Fundsmith Equity.
Lindsell Train Global Equity’s cheapest share class, D, has been downgraded from a silver to bronze analyst rating. This follows a similar move last year when all but the clean share classes in the fund were moved to a bronze rating.
Morningstar analysts noted Train and Lindsell’s “unwavering adherence” to their buy-and-hold approach and conviction that owning a highly concentrated portfolio of “high quality, cash-generative, strong and easily understood business franchises” will outperform the market and reduce volatility over the long term “has resulted in considerable long-term success” for the duo.
Since the fund was launched in 2011, it has generated gains of 379.2% for investors, according to FE Fundinfo, over two times higher than the average fund in the IA Global sector, which has returned 186.4%.
Morningstar associated director of equity fund strategies Samuel Meakin said while analysts’ conviction in the fundamental strengths of the fund, including its team and process, remain unchanged from last year, “the shifting dynamics of the alpha potential in the peer group meant that even with a lower fee, D also came in at bronze this time round”.
Terry Smith shows up Nick Train despite higher OCF
Lindsell Train Global Equity has returned 13.3% over the past 12 months, around half the returns generated by the IA Global sector average (26.8%).
This puts it well behind gold rated rivals in Morningstar’s Global Large-Cap Growth Equity sector, including Terry Smith’s £27bn Fundsmith Equity fund and Stewart Investors Worldwide Leaders Sustainability fund.
Smith’s global equity giant beat Train’s fund, returning 26.2% over the last year, despite charging investors considerably higher fees. Fundsmith Equity’s ongoing charges figure ranges from 0.96% for the I income and accumulation share classes and 1.56% for the R income and accumulation classes, according to its latest factsheet. Lindsell Train Global Equity has an OCF of 0.50% for its cheapest D share class, while investors in the pricier A distribution share class pay 1.15%.
Stewart Investors Worldwide Leaders Sustainability fund and the T Rowe Price Global Equity Growth Sicav, also gold-rated by Morningstar analysts, have risen 20.7% and 29.8% in the last year respectively.
Lindsell Train Global Equity was also trounced by silver-rated Baillie Gifford Global Alpha Growth, which returned 26.5% over the same timeframe, and Artemis Global Select, also silver-rated, which was up 22.6%.
Lindsell Train Global Equity managers more ‘optimistic’ about Q2 performance
Train has been upfront about disappointing performance across his strategies, particularly during the first quarter of 2021 where his quality growth bias meant his funds missing out on the cyclical-led rally coming out of the Covid crisis.
Of Lindsell Train Global Equity’s major holdings, London Stock Exchange fell 23% during Q1, after revealing its integration of Refinitiv would be more expensive than anticipated. Many of the fund’s consumer names also stumbled, with Brown Forman falling 13%, Heineken 1%, Kao 8%, PepsiCo 4%, and Unilever 7%.
But in the fund’s June factsheet co-manager James Bullock said the second quarter “has been a more optimistic one” with many of the biggest losers in the previous quarter reversing their losses. However, due to the Q1 slump, he said the fund was still lagging the MSCI World Index by 6.5% at the halfway mark.
“Serious concern arises if we see evidence that our collected companies have lost their competitiveness (and long-term ability to earn above average rates of return), for it’s this that truly defines intrinsic value. As far as we can tell, this hasn’t happened,” said Bullock.
“So, whilst the relative drop in performance is both unwelcome and unhelpful, we remain firm holders of all our companies.”
At the start of 2020, Morningstar downgraded the Lindsell Train UK Equity fund from gold to bronze and the Finsbury Growth & Income Trust from gold to silver due to concerns over capacity management at the boutique asset manager.
See also: Capacity concerns prompt £9bn downgrade of Lindsell Train funds
