by Jennifer Hill from interactive investor, 20 March 2023:
Some fund managers stick to their knitting irrespective of the wider macroeconomic backdrop; others have more flexibility to change their strategy to respond to market conditions. But which approach is best?
Are investors better sticking with funds that adopt a long-term buy and hold strategy or does the topsy-turvy nature of markets favour those with a flexible mandate to go where the best returns can be found?
Let’s examine this by looking at the pros and cons of each approach and some of the managers who fall into each camp.
Fund managers tend to have a clearly defined investment approach that they adhere to in a variety of market conditions. Investment mandates have varying degrees of flexibility within them, however, which leads to different levels of portfolio turnover.
Having high conviction in a particular investment style can lead to low turnover. For example, Fundsmith Equity invests globally in quality growth stocks unconstrained by benchmark, geography and sector. Manager Terry Smith selects a small number of these, which he holds for the very long term.
Last year, the portfolio turnover was 7.4%, slightly higher than a usual figure of sub-5%, but with a portfolio of only 27 stocks that would equate to buying and selling only two stocks based on an average-sized position.
Other strategies that buy high-quality companies with strong brands and powerful market positions include those in the Lindsell Train stable: Lindsell Train, a global investment trust, LF Lindsell Train UK Equity fund, an open-ended fund, and Finsbury Growth & Income, a UK equity income investment trust, all run by Nick Train.
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