Terry Smith's Fundsmith Equity Fund and Nick Train's WS Lindsell Train UK Equity Fund experienced monthly redemptions throughout 2023, resulting in annual net outflows of £1.4 billion and £800 million, respectively, as indicated by data from Fundsmith and Morningstar.
These redemptions are indicative of a challenging environment for active fund managers, who levy fees for stock portfolio selection. The performance of both funds has been affected by volatile markets, while investors have been drawn to low-cost trackers and cash products offering the highest rates in a decade. UK investors withdrew £12 billion in 2022 and £11.9 billion in the first ten months of October 2023, according to the Investment Association.
Factors such as cost of living pressures, higher mortgage rates, and the underperformance of UK equity markets compared to US equity and global fixed-income markets have been cited by brokers and analysts as contributors to the trend.
Terry Smith, Fundsmith's founder and CEO, acknowledged the challenges, stating, "The entire equity fund management sector saw large outflows in 2023, and it is impossible for us to avoid that trend." The Fundsmith fund has not outperformed the MSCI World index since 2020, registering a 12.4 per cent return last year compared to the index's 16.8 per cent. Despite this, the Fundsmith fund has outperformed the MSCI World index on an annualised basis since its inception in 2010, returning 15.3 per cent compared to the index's 11.5 per cent.
Nick Train's £3.9 billion WS Lindsell Train UK Equity fund primarily invests in UK equities, which have faced challenges in recent years. Outflows and investment losses led to a £1.8 billion decline in the fund's assets under management between January 2022 and November of the same year.