Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

INVESTORS in Lindsell Train’s funds have been spoiled after years of outperformance. Yet, after a year in which Nick Train’s range of funds have broadly underperformed, it would seem many have had enough. The Lindsell Train Global Equity Fund, for instance, has gone from £9.1 billion in assets to £7.9bn in December.

Are investors right to call time on Lindsell Train’s flagship fund?

Underperformance can be a bitter pill to swallow, but it’s at times like these that investors should remind themselves of why they invested in the first place. If those reasons still hold, now may not be the time to jump ship.

1 - Long-term outperformance may entail short-term underperformance

Train has a clear investment philosophy. He has a very long-term 'buy and hold' approach, in the mould of Warren Buffett, who described his favourite holding period for a stock as 'forever.'

He also tends to run highly concentrated funds - the Lindsell Train Global Equity Fund currently holds just 26 stocks. While that can amplify positive performance, it also means the portfolio is less diversified and therefore any underperformance is likely to be more sharply felt.

It’s often the mark of a good manager if they can stay true to their investment process in the face of adversity. One thing you don’t want is to buy a fund thinking you’ve got one thing, only for the manager to change their investment style with your money locked in.

From the looks of things, Train doesn’t plan on changing his. In a recent note on the performance of the Lindsell Train Investment Trust, he explains that he wants to avoid 'long-term losing behaviour.' He says, 'This is why Lindsell Train has persevered fishing in the ponds that history has shown throw up long-term winners and why we have avoided chopping and changing and trading the constituents of our portfolios.'

Don’t expect Train to stop chopping and changing his portfolio now.

2 - Sector composition can cost

It’s clear to see what’s cost Train this year. Sectors which have done particularly well this year, such as energy and tech, are not ones that feature prominently in his portfolios. That means his funds have lagged comparable ones which are more exposed to these high-flying areas of the market.

Instead, Train focuses on companies with well-renowned brands and strong earnings growth. They’re reliable 'compounders'- defensive names who should stand up whatever the economic weather.

Last year, when markets were rising, investors were willing to take on added risk and turn to other areas of the market at those companies’ expense. Many have also come under pressure from producer price inflation and supply chain bottlenecks. That’s been especially true for consumer goods companies like Unilever, which have had to push those higher prices onto consumers.

Moreover, because of their ability to compound growth year on year, they’ve recently attracted bond investors who have come searching on the stock market for better yields. With interest rates now on the rise, however, these investors may be lured back to bonds.

3 - Fashion comes and goes, style lasts forever

Train’s investment style has not been in vogue this year, but that doesn’t mean it won’t return to favour in the future. Markets are cyclical, and these have been a strange couple of years indeed.

Before calling time on their investments, investors should ask themselves whether they’re willing to endure periods of underperformance in the pursuit of long-term outperformance.

Of course, it’s important they can still recognise in their holdings the merits that caused them to invest in the first place. If they can’t, maybe the investment is no longer for them.

At the same time, periods like these remind us of the value of diversifying your portfolio. Had you put all your money into Train’s funds, you’d have suffered more than those who held other, dissimilar holdings to soften the blow. Having your eggs in more than one basket is a key part of long-term investing.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity’s adviser or an authorised financial adviser of your choice.

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