Nick Train sees two of his funds lose their gold star status

Two of the UK fund manager’s funds have had their Morningstar status revised owing to concerns over liquidity.

Two of Nick Train’s funds have lost their Morningstar Gold status, owing to concerns over liquidity.

The £9.5 billion LF Lindsell Train UK Equity has been rated down from Gold to Bronze, while Finsbury Growth & Income (LSE:FGT), with a net asset value of £923 million, has seen its gold star status replaced with silver. 

According to a note from Peter Brunt, associate director of equity strategies for manager research at Morningstar, the chief concern over Lindsell Train UK Equity stems from the fund’s large inflows in recent years. Given the highly concentrated nature of the portfolio, this has led to significant ownership stakes in companies held.

Brunt notes:

“While such large ownership levels do not conflict with the long-term investment approach, they could make the fund far less nimble to respond to adverse circumstances (including a significant liquidity event).”

Brunt also raised concerns that its large size means that Train is unable to build sizeable positions in smaller companies. He says:

“While this has not had a large impact on performance so far, allowing assets to continue to grow will only further restrict his potential investment opportunities. In light of this, we are concerned that the group has not taken action to manage capacity.”

While noting that the fund has a highly experienced manager, Brunt said “the above concerns over capacity management and the strategy’s ability to maintain purity of process with such a large asset base have lowered our level of conviction.”

The same concerns were noted for the Finsbury Growth & Income trust, which saw its Morningstar Analyst Rating lowered from Gold to Silver, though the Brunt acknowledged that its closed-ended nature means “the trust is less vulnerable than the Oeic in this respect”.

In October, it was reported that the Lindsell Train UK Equity fund had seen withdrawals totalling £374 million in September.

While the fund has seen a dip in performance over the past three months, it has returned above 23% year to date (total return), as at 24 December 2019.

interactive investor (Money Observer’s parent company) continues to hold the fund on its Super 60 recommended fund list, pointing to its long-term approach and very low turnover rate.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.