Nick Train warns over risks of high stakes in his funds

‘Our highly concentrated portfolio comprises a number of big positions
that have done very well recently, and indeed over the longer term too,’ he said.

‘We love to outperform for our investors, but have to state the obvious: it would not at all be a surprise if such a highly concentrated portfolio that had performed well embarked on a period of poor performance at some point.’

In his Lindsell Train UK Equity fund, which is subject to Financial Conduct Authority rules dictating stocks should not occupy more than 10% of a portfolio, Relx (REL) has grown to a 10.1% stake. That ‘passive breach’ of the 10% rule will require Train to sell some of his shares. 

Unilever (ULVR) and Diageo (DGE), the second and third largest stakes in the fund, account for 10% of the portfolio.

In his Finsbury Growth & Income investment trust, which isn’t subject to the same 10% rule, the stakes are even larger.

Relx, Unilever and Diageo account for 10.3%, 10.2% and 10.1% of the portfolio respectively.

Writing to investors in the Lindsell Train UK Equity fund, he said that while he remained optimistic about the long-term potential of his biggest stakes, ‘it is also true that we have not been adding much to them of late’.

‘Anyway, some of these holdings we cannot add to because they are at or close to our maximum permitted position sizes of 10% (indeed, we periodically have to sell shares to bring the holdings back below that 10%).’

Citywire AAA-rated Train’s top three positions, alongside Mondelez (MDLZ.O) and London Stock Exchange (LSE), were among his top performers last month, positions that in aggregate account for 45% of the Lindsell Train UK Equity fund and 48% of Finsbury Growth & Income.

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With his portfolio commentary covering May’s market movements, Train made no mention of Hargreaves Lansdown (HRGV), the fourth largest position in the trust and the fifith in the fund.

Shares in the online stockbroker have slumped 16% in June amid the fallout from the suspension of the Woodford Equity Income fund, which it heavily promoted.

Lindsell Train UK Equity is up 57% over three years, versus a 34% rise from the FTSE All-Share. Shares in Finsbury Growth & Income are up 62% over the same period.



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