Investors have lost billions of pounds as three “superstar” Isa fund managers have struggled to live up to their stellar reputations.
Terry Smith, manager of Fundsmith Equity, Nick Train at Lindsell Train Global Equity, and Tom Slater, who manages the Scottish Mortgage Investment Trust, will all be hoping to do a lot better in 2023.
Fundsmith Equity was the UK’s biggest selling investment fund last year, making Smith the undisputed star of the asset management world.
The fund managed £28billion at it peak but has shrunk by has plunged 14.3 percent over the last year.
The fund is mostly invested in US companies, including big names Microsoft, Estee Lauder and cigarette maker Philip Morris, and European luxury goods firm Moët Hennessy Louis Vuitton (LVMH).
Smith largely shunned higher-risk US technology stocks, which have crashed this year, sparing him an even worse showing.
Darius McDermott, managing director of investment fund comparison service FundCalibre, says Smith has been swept up in the US stock market sell-off. “Many top quality businesses have underperformed this year, hitting Fundsmith Equity.”
Nick Train manages the Finsbury Growth & Income Trust, which beat the US market for 20 years but is finding the going tougher today. “I really don’t know whether we could do it again,” he admitted recently.
Train also co-manages the £6billion Lindsell Train Global Equity with Michael Lindsell, which has trailed its benchmark for the last three years.
McDermott said this is a very concentrated fund, with just 20 stocks accounting for nearly 96 percent of its total holdings.
That makes it vulnerable if just one of two companies in its portfolio underperform, and Train has little margin for error. “The fund’s biggest holding is the London Stock Exchange, which is down 16.8 percent in the last two years. That is a contributing factor to the underperformance,” McDermott said.
Scottish Mortgage is the worst performer of them all. Last year it was the biggest selling investment trust in the UK, but it has now fallen 42.1 percent in 12 months. That has reduced its value to around £11billion, down from more than £20billion at its peak.
Co-manager Slater is also head of US equities at fund manager Baillie Gifford, which runs Scottish Mortgage. It had four out of last year’s top 10 big selling investment funds, according to platform AJ Bell.
Yet many have fallen this year including Baillie Gifford American, which crashed by half.
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The fund invests heavily in US tech as does Scottish Mortgage, so Slater has presided over a double disaster in 2022.
McDermott said both of Slater’s funds target fast-growing US companies which traded at dizzyingly high valuations during last year’s boom as investors rushed to buy them. “They have since suffered a sharp reversal, taking Slater’s performance with them.”
McDermott says he continues to have faith in all three star fund managers despite this year’s troubles. “They target quality, high-growth companies and have good long-term track records. This year has been hard but we are backing them to do well in future. We wouldn’t advise investors to sell.”
Laith Khalaf, head of investment analysis at AJ Bell, said even the best managers cannot guarantee to beat the market every year. “Smith, Train and Slater all have stellar track records and we should judge them after the economic outlook improves and stock markets recover.”
Richard Hunter, head of markets at Interactive Investor, said: “Isa investors should only put money in stocks and shares for a minimum of five to 10 years, and preferably longer, to overcome short-term volatility.”