Right now, two big-name managers bestridethe world of investment funds like twin colossi. Survey after survey, from platform after platform, names these two mens funds as the most popular in the UK. Do they merit their high-blownstatus?
The fund god
So, to our first investment hero Terry Smith, whodazzleshis rivals in the same way the original colossus Helios (theGreek titan-god of the sun) dazzledshipping entering the ancient city ofRhodes. Shine on Terry Smith. His star vehicle is Fundsmith Equity, currently the most traded fund in the UK, according to Alliance Trust, AJ Bell, Interactive Investor, Fidelity FundsNetworkand others who track thesethings. So what has he done to merit all this attention?
Helped FundSmith Equity to grow150% in the past five years, thats what. Terry Smith only established Fundsmith in 2010, and it hasgot off toa real flyer. This is a fast-growing colossus, alreadymanaging 9.2bn of investor money. Smith relies onrigorous research to produce a focused portfolio containing a small number of high quality, resilient, global growth companies that offergood value, which heintends to hold for a long time.
Stay focused
A look at the fundstop 10 holdings hardly suggests a radical choice of investments, as it includes US giantsMicrosoft, PepsiCo, PayPal, Philip Morris and Dr Pepper Snapple. All four meet hiscriteria of being high quality businesses that can sustain a high return onoperating capital, whose advantages are difficult to replicate, and that dont require significant leverage to generate returns. They must also be resilient to change, particularly technological innovation, while tradingat attractive valuations.
Fundsmith is no closet benchmark tracker, it may hold as few as 20 or 30 stocks, and this tight focus gives it greater scope for underperformance or outperformance. Smith deserves his plaudits, although you should note that this has been a boom time for US stocks, which make up almost two-thirds of his global portfolio. Low-cost tracker Vanguard S&P 500 grew140% over the same period, and it doesnt have a manager at all. Smithcould quickly be toppled if the USretrenches under Trump. Still, its no mean feat to beat the US market, and Smith has done it.
Woodfords cloudy year
Terry Smith is a fund management newcomercompared to Neil Woodford, who has been making a successof investing other peoples money for more than 25 years. His eponymous fund CF Woodford Equity Income is the top seller at Hargreaves Lansdown andThe Share Centre, and second-placed just about everywhere else.
This is the man who famously turned 10,000 into 114,000 in 20 years. But hes just suffered a disappointing 12 months, with Woodford Equity Income rising just 5.8%. Thats a fraction ofTerry Smiths 25.8%, according to figures from Trustnet.com. However, you cant judge a man of Woodfords stellar reputation on just one year, especially since he has a track record of making brave market calls that may dent performance in the short run, but invariably prove to be correct over the long term.
In both cases, past performance is no guarantee of future success, but right now, Smith and Woodfordremainthe ones to beat.