Fundsmith Equity and Lindsell Train Global Equity have become the go-to global funds for UK investors since they both launched a decade ago, in 2010 and 2011 respectively.
Each have been immensely popular, with both accumulating a joint total of £32.5bn in assets under management (AUM).
Returns have been strong, with Fundsmith up 390.5% over the past 10 years, while Lindsell Train trailed 81 percentage points behind at 309.2%.
However, according to Darius McDermott, managing director at Chelsea Financial Services, their performance has “basically tracked each other all the way through to April 2020,” which has left some investors indecisive about which to go for.
Total return of funds over the past 10 years
Source: FE Analytics
To make things more unclear, both are run FE fundinfo Alpha Managers – Terry Smith (Fundsmith) and Nick Train (Lindsell Train) – and have very similar investment strategies, with McDermott adding: “They both like to buy quality companies that can give you compounding returns, they both have extremely long turnover periods and they don't trade much.”
“That sort of compounding growth style was very much in favour in the past decade and they have both performed very, very well.”
This was echoed by Rob Morgan, chief analyst at Charles Stanley Direct who said that their long-term approach has helped deliver strong returns.
He said that both Smith and Train are famous for buying quality companies at a good price and holding them for long periods with very little turnover.
Out of the two, Morgan said that he prefers Fundsmith because its portfolio allocations are closer to the MSCI Global index than Lindsell Train, making it easier to add to an existing portfolio.
Like many in the sector, Smith overweight the US with 74.3% of the fund invested in the region, while Train has less than of this (31.1%) allocated to the market.
It is common for global funds to have most of their asset allocation in America, but Train chose to give the most regional exposure to the UK at 35.8%.
While this has led to less volatility, Morgan said that the lack of US tech has caused Lindsell Train to lag behind Fundsmith, stating: “Both are good managers but my preference would be for Fundsmith as the more well-rounded of the two, and the greater spread of sectoral composition.”
However, McDermott said that Fundsmith’s exposure to consumer staples (30.3%), technology (27.5%) and healthcare (22.2%) means that it “is broadly only invested in three sectors whereas currently, Lindsell Train is slightly more diversified”.
Overall, McDermott concluded that because both Smith and Train’s strategies are so similar, investors are better off picking a fund that will better diversify their other holdings.
He said: “If you wanted a global fund with more UK exposure and Europe, you would go for Lindsell Train. If you wanted a fund with more US exposure you would go with Fundsmith.
“On pure performance numbers, Fundsmith has outperformed Lindsell Train over the past one, three or five years but the investment styles are very similar.”
Morgan said that Fundsmith’s benchmark-aligned stock picking makes it easier to add to an existing portfolio, but Jason Hollands, managing director at Tilney Investment Management said that many investors may already have heavy exoposure to these stocks.
While he would lean more towards Fundsmith out of the two, Hollands said that investors already invested in large global funds may be better off choosing a smaller diversifier, such as the Fiera Atlas Global Companies, GuardCap Global Equity, Loomis Sayles Global Growth Equity and TB Evenlode Global Income funds to accompany any large-cap trackers they may already own.