The Fundsmith Equity and Lindsell Train Global Equity funds need no introduction in investment circles
These portfolios have topped the bestsellers list of a number of investment platforms for several years, having tempted investors with their stellar returns
Fundsmith has returned a whopping 303 per cent in a little over eight years since it was launched (to 11 February 2019), turning a £1,000 investment into £4,030
Lindsell Train Global Equity, which launched four months later in April 2011, is up 266 per cent, turning £1,000 to £3,660 since inception
Should you invest in either Fundsmith Equity, managed by Terry Smith (left), or Lindsell Tain Global Equity, which Nick Train (right) co-manages? Or both?Few would contest that both are among the best funds that scour global stock markets for the best growth opportunities in market
But some prominent experts have argued you should invest in only one of the two, not both
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MINOR INVESTOR: The list of the 14 best income UK funds that. Share this article Share HOW THIS IS MONEY CAN HELP How to choose the best (and cheapest) DIY investing Isa - and our pick of the platforms Lindsell Train Global Equity was inaugurated into Hargreaves Lansdown's recently relaunched favourite fund list, called Select 50, but Fundsmith doesn't make the cut
At the relaunch event, Mark Dampier, the platform's head of investment research, said that the two funds are so similar in style that there isn't a need for both on the list
Fundsmith misses out due to similar performance but higher fees than Lindsell Train Global Equity
The former has an ongoing charge of 0.96 per cent, while the latter levies 0.74 per cent
Dampier told This is Money: 'Surely the point of putting a portfolio together is to have different funds with different styles
In order to achieve a less correlated approach it makes sense to invest in just one of these funds and choose another fund that adopts a more value style
'But not everyone agrees. Rival DIY investment platform Bestinvest includes both funds in its equivalent favourite funds list
Jason Hollands of financial planners Tilney, which runs Bestinvest, said: 'While there are certainly some similarities in approach, there are also differences, so holding both does not result in duplication
Indeed, I personally am invested in both funds.'So should you only invest in one of these funds or are there enough nuances between the two to justify investing in both? We take a look
Similar investment philosophyTerry Smith, who manages Fundsmith Equity, shares a similar investment philosophy to Michael Lindsell, Nick Train and James Bullock, who co-manage the Lindsell Train Global Equity portfolio
They both adopt the Warren Buffett-esque investment approach of buying and holding a small number of quality companies that can withstand the test of time
One of the key things that Smith uses to evaluate such companies is a measure called return on capital employed, or ROCE, which looks at a company's profitability compared to how much capital is invested in the business
Pictured: Warren Buffett. Smith and the three fund managers of the Lindsell Train Global Equity portfolio adopt the Buffett-esque investment approach of buying and holding a small number of quality companies that can withstand the test of timeThis is measured by profits divided by a company's net assets
A high double-digit figure usually signals that a company has a competitive advantage over its rivals, as it can make more money from putting the same amount of capital to work
For those who want to understand more, Fundsmith takes the unusual approach of publishing an Owner's Manual
Its website lists its criteria for companies as:high quality businesses that can sustain a high return on operating capital employedbusinesses whose advantages are difficult to replicatebusinesses which do not require significant leverage to generate returnsbusinesses with a high degree of certainty of growth from reinvestment of their cash flows at high rates of returnbusinesses that are resilient to change, particularly technological innovationbusinesses whose valuation is considered by the Company to be attractiveThe crux of the Lindsell Train Global Equity managers' philosophy is the belief that a concentrated portfolio of high quality companies with sustainable business models, strong market position and established brands is a winning formula
They believe that durable, cash generative franchises are rare and undervalued by most investors most of the time
While there are certainly some similarities in approach, there are also differences, so holding both does not result in duplication
Jason Hollands of Tilney The managers find the bulk of their candidate investments predominately in the consumer branded goods, internet/media/software, pharmaceuticals and financials sectors
To keep costs low. Smith and the Lindsell Train Global Equity managers refrain from trading unless it's absolutely necessary
This is highlighted by the very small gap between the ongoing charges and actual cost of ownership, including transaction costs, of both funds
The gap amounts to 0.05 per cent and 0.07 per cent for Fundsmith Equity and Lindsell Train Global Equity, bringing the cost of ownership to 1
01 per cent and 0.81 per cent respectively.Fund overlap and sector weightingsIt is not uncommon for funds with similar investment philosophies to invest in the same stocks - funds in the Investment Association's UK equity income sector often do
While small amounts of overlap are to be expected, large amounts can amp up investment risk which could have a significant impact on a portfolio if the price of the overlapping shares experiences a sharp dip
Going global reduces the chance of overlap, in theory, because fund managers have a much bigger pool in which to fish for opportunities
According to investment research tool Morningstar Direct, Fundsmith Equity and Lindsell Train Global Equity have five stocks in common: PayPal, Unilever, Diageo, Intuit and PepsiCo
Both funds hold a concentrated portfolio of 28 and 29 holdings respectively. Breakdown of holdings (bold signifies overlap) Fundsmith Eqity Lindsell Train Global Equity Amadeus IT Group SA A Unilever PLC Microsoft Corp Diageo PLC PayPal Holdings Inc Heineken Holding NV IDEXX Laboratories Inc PayPal Holdings Inc Reckitt Benckiser Group PLC World Wrestling Entertainment Inc Class A Facebook Inc A Kao Corp Philip Morris International Inc RELX PLC Waters Corp Shiseido Co Ltd Becton, Dickinson and Co London Stock Exchange Group PLC Stryker Corp Intuit Inc Novo Nordisk A/S B Walt Disney Co PepsiCo Inc Pearson PLC Intuit Inc Nintendo Co Ltd Automatic Data Processing Inc PepsiCo Inc The Estee Lauder Companies Inc Class A Mondelez International Inc Class A Visa Inc Class A eBay Inc InterContinental Hotels Group PLC Hargreaves Lansdown PLC 3M Co Cash Unilever PLC Japan Exchange Group Inc Intertek Group PLC Astellas Pharma Inc Johnson & Johnson Juventus Football Club SpA L'Oreal SA ITO EN Ltd Preferred Shs Class 1 KONE Oyj B Brown-Forman Corp Class A Sage Group (The) PLC International Speedway Corp Class A Diageo PLC Canon Inc Cash Celtic PLC Colgate-Palmolive Co Brown-Forman Corp Class B Coloplast A/S B Meiko Network Japan Co Ltd International Speedway Corp Class B Source: Morningstar DirectWhen it comes to sector weightings, technology is the biggest within Fundsmith Equity, currently at 35
10 per cent, followed by consumer products at 29.40 per cent and health care at 26 per cent
Consumer products is the major theme in the Lindsell Train Global Equity portfolio with 48
70 per cent of the fund invested in the sector, ahead of technology at 32.40 per cent and financials at 9
70 per cent.The latter fund also has a stake in Japanese shares which reflects Lindsell's background and knowledge of shares in the east Asian country
Fundsmith avoids Japan but has a strong bias to US stocks - which account for two-thirds of the portfolio
Exposure to the UK is greater in the Lindsell Train Global Equity fund and both funds have a similar weighting in European stocks
PerformanceDespite having only five shares in common, the funds have generated similar returns to investors
Fundsmith Equity wins the performance race by a nose over a five-year time horizon to 11 February 2019, having returned 153 per cent, turning a £1,000 investment into £2,520, versus the 148 per cent return achieved by Lindsell Train Global Equity
But the latter has edged it over a three and one-year time horizon, returning 94 per cent and 20 per cent versus Fundsmith's return of 79 per cent and 17 per cent
The performance of both funds over the past five years outstrips that of the MSCI World index Expert verdict Jason Hollands of of financial planners Tilney - BOTH The similarities between the two are that both pursue an unconstrained approach to investing globally across developed stock markets - ie
they do not restrict their exposure to geographies or sectors based on the benchmark indices
Both funds focus on high quality companies that are able to generate a high return on capital and assess them on their intrinsic value, rather than their current price/earnings trading multiples
Both funds take a very long-term, buy-and-hold approach which results in very low portfolio turnover
The portfolios of the two funds however are quite different with the Lindsell Train Global Equity fund having a more geographically diversified portfolio
In particular, Fundsmith Equity has much greater exposure to US listed companies, which currently represent two-thirds of the portfolio
This is very much an outcome of the stocks Terry Smith has chosen rather than a 'macroeconomic' or asset allocation view
Over at Lindsell Train, the fund includes Japanese companies. This reflects co-manager Michael Train's background in managing Japanese equities and so this knowledge and expertise is to be found in the Lindsell Train Global Equity fund
I believe both funds work well together and investors with starting out with a blank sheet of paper might also tack on a global emerging markets fund, to provide some exposure to the developing world, such as Fidelity Emerging Markets which is managed by Nick Price
Ben Yearsley of Shore Financial planning - Lindsell Train Global Equity I wouldn't invest in both
Yes they might have different holdings, but style wise you aren't really getting much diversification
I would much rather choose one and then pair it with another global fund doing something different, such as Schroder Global Recovery or First State Global Listed Infrastructure or even a health or tech fund
By doing this you are exposing your portfolio to different investment styles.Adrian Lowcock of fund broker Willis Owen - depends on the size of your portfolioWhilst these two funds cover the same sector of global equities, they also have very similar investment philosophies and approaches in that they look for great companies which they believe can grind out decent compound growth over years
As such, holding both could mean that you aren't as well diversified because the styles are similar
If you are just starting out or have a small portfolio you'd only really need one of these funds, but for larger portfolios there is a good argument for holding both – effectively splitting the allocation between the two funds
They are different enough that as long-term growth strategies they complement each other
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