LF Lindsell Train UK Equity heads a dozen funds from the IA UK All Companies sector that have at least 50 per cent of their portfolios in their top-10 holdings, according to research by Trustnet.
Following a recent delve into the IA UK Equity Income sector which found that four funds had at least 50 per cent of their portfolio in their best ideas, Trustnet decided to see what the situation was like in the broader IA UK All Companies sector.
As the below chart shows, Trustnet found 12 funds in the IA UK All Companies sector had at least half of their portfolio invested in the top-10 holdings.
Source: Fund factsheets
Nick Train’s £6.6bn LF Lindsell Train UK Equity fund leads the way with 82.9 per cent of his portfolio held in the portfolio’s top-10 names.
The five Crown-rated fund only invests in the companies which he believes have exceptional brands or franchises although this means there are two implications for this process, Alpha Manager Train noted recently.
“First, in practice, we have found that the best brands or franchises we can find… tend to be offered by companies with global earnings and this has resulted in a bias away from the UK domestic economy in terms of the underlying exposures of the fund,” he explained.
“Next, that geographic bias and our preference for very specific types of company definitely mean that our investment performance, in both absolute and relative terms, can suffer when what we own is out of favour.”
Analysts at FE Invest said Train’s approach to investment and his belief that there are few companies matching his criteria has resulted in a highly concentrated portfolio.
“Given the fund’s large size and concentration, liquidity is not abundant and could prove problematic if redeeming a large investment,” they said. “This is something that Train has always been open about, but investors must be aware of this and be prepared to invest for the long-term.”
The largest holding in LF Lindsell Train UK Equity, representing 10 per cent of the portfolio, is science publisher RELX. Other top holdings include London Stock Exchange (9.9 per cent), consumer discretionary giant Unilever (9.5 per cent) and alcoholic drinks maker Diageo (9.5 per cent).
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over the past three years, the fund has made a total return of 48.26 per cent compared with a gain of 24.54 per cent for the FTSE All Share benchmark and a 22.89 per cent return for the peer group.
Next on our list are two funds from GVQ Investment Management - GVQ UK Focus and GVQ Opportunities - each with 62.9 per cent of their portfolios invested in their top-10 holdings.
Overseen by Alpha Manager and GVQ chief executive Jamie Seaton and deputy manager Oliver Bazin.
Both the £123.9m GVQ Opportunities and £200.7m GVQ UK Focus invest in a concentrated portfolio of listed UK companies identified as undervalued using private equity valuation techniques.
Performance of funds over 3yrs
Source: FE Analytics
Over the past three years, GVQ UK Focus – which is slightly more concentrated than its sister strategy – has made a 17.23 per cent total return, while the GVQ Opportunities fund is up by 16.52 per cent.
Also on our list is the £4.5m VT Cape Wrath Focus fund, overseen by Adam Rackley, which has 59.6 per cent invested in its top-10 holdings.
Rackley follows a value strategy that looks for companies in which investors have over-reacted to events and the valuations no longer reflect company fundamentals, noting that the best opportunities are often found following a period of disappointment. It typically invests in a portfolio of 10-20 holdings.
The fund’s largest holdings include outsourcing services provider Capita, oil exploration companies EnQuest and Premier oil, and gambling software company Playtech.
VT Cape Wrath Focus has made a total return of 12.42 per cent over the past three years, with the value style remaining out of favour, while its MSCI UK IMI benchmark is up by 23.75 per cent.
Another fund with a large portion of the portfolio held in its top-10 names is the HC Charteris Premium Income fund.
The £6.3m equity income strategy, which resides in the IA UK All Cap sector, is managed by Colin Robertson, Ian Williams and Nick Taylor and has 58.10 per cent of the portfolio held in the top-10 names.
The blue-chip focused strategy uses stock selection and covered call option to help it deliver a 4-6 per cent dividend yield. Top names in the HC Charteris Premium Income fund are dominated by miners including Antofagasta (8.52 per cent), Rio Tinto (8 per cent) Polymetal (7.18 per cent) and BHP Group (6.86 per cent). It has made a total return of 5.5 per cent over three years.
Two funds managed by Alpha Manager Mark Martin of Liontrust Asset Management also have more than 50 per cent of the portfolio held in their top holdings.
The Liontrust UK Opportunities and Liontrust UK Mid Cap (formerly Neptune UK Opportunities and Neptune UK Mid Cap) have 55.74 per cent and 53.97 per cent held in their top-10 stocks respectively.
Liontrust UK Opportunities is an £11.8m fund targeting long-term growth (over a period of at least five years) investing in a concentrated portfolio of 20-40 companies. Companies in the portfolio may offer growth opportunities, attractive valuations or representing special situations. Top holdings include aerospace company Chemring Group (8.91 per cent) and sausage-skin maker Devro (8.86 per cent).
The £141.3m Liontrust UK Mid Cap fund follows a similar strategy but, as the name suggests, invests in the mid-cap part of the market. Nevertheless, Devro is also a top holding in this fund (9.25 per cent) as is specialist products manufacturer Morgan Advanced Materials, which also features in the sister fund’s top-10 holdings.
Performance of funds over 3yrs
Source: FE Analytics
Over three years, Liontrust UK Opportunities has made a total return of 9.87 per cent, while Liontrust UK Mid Cap is up 1.08 per cent.