Have you ever wondered what happens when a seemingly foolproof investment strategy starts to show cracks? Picture this: a renowned fund manager, celebrated for picking winning companies, suddenly faces years of underperformance. It’s a scenario that feels almost unthinkable, yet it’s exactly what’s been unfolding for one of the most prominent investment funds in recent years. The approach—buying high-quality companies and holding them for the long haul—sounds simple, but as markets shift, even the best-laid plans can falter.
The Rise and Stumble of a Fund Giant
The story begins with a fund launched in 2010, built on a promise of simplicity and excellence. Its founder, a seasoned analyst, aimed to revolutionize fund management with a clear mantra: invest in high-quality businesses, avoid overpaying, and hold steady. This approach attracted billions, with assets soaring to nearly £30 billion by 2021, outpacing global market indices. Investors were hooked, drawn by consistent returns and a philosophy that seemed to defy the volatility of the stock market.
But then, something shifted. Since 2021, the fund has faced four consecutive years of underwhelming performance, with assets shrinking to £20 billion. What went wrong? The answer lies not in a change of strategy but in the market’s evolution—and the fund’s struggle to adapt. Let’s dive into the key issues that have exposed vulnerabilities in this once-unshakable approach.
The Pitfalls of Holding Too Long
One of the core tenets of this fund’s strategy is to hold stocks indefinitely, banking on their ability to compound value over time. It’s a compelling idea: find companies with sustainable returns and let them grow. But what happens when those companies become overvalued or face unexpected challenges? This is where the strategy starts to wobble.
Take the example of a major beverage company, a long-time holding in the fund’s portfolio. In early 2022, its shares hit a peak, trading at nearly 30 times prospective earnings—a valuation far above its historical norm. Warning signs were clear: pandemic-driven sales spikes were fading, and younger consumers were drinking less. Yet, the fund held on, only selling in 2024 after a 40% price drop. In my view, this delay highlights a critical flaw: an unwillingness to act when valuations scream caution.
Overvaluation is a silent killer of returns; holding too long can turn a winner into a loser.
– Veteran portfolio manager
This isn’t an isolated case. A luxury goods conglomerate, another portfolio staple, saw its share price nearly halve since early 2023, when it traded at a lofty multiple. Similarly, a pharmaceutical giant, once a darling for its weight-loss drug innovations, lost two-thirds of its value since mid-2024 as competitors gained ground. These examples raise a tough question: is the fund’s commitment to long-term holding blinding it to market realities?
Chasing Quality at a Cost
The fund’s focus on high-quality companies—those with strong cash flows, high returns on capital, and hard-to-replicate assets—has been its calling card. But there’s a catch. As this investment style gained popularity, the valuations of these sought-after companies skyrocketed. What was once an opportunity to buy undervalued gems became a race to own stocks at increasingly steep prices.
Consider the fund’s heavy weighting in healthcare, which accounts for 27% of its portfolio. Healthcare stocks have been out of favor recently, dragging down performance. Meanwhile, sectors like banking, which the fund avoids, have thrived. Tech giants like Nvidia, dismissed by the fund for their high valuations, have also soared. It’s a stark reminder that even the best companies can underperform if their prices don’t align with reality.
- High valuations: Quality stocks now trade at premiums, reducing future returns.
- Sector bias: Overexposure to healthcare has hurt performance in a shifting market.
- Missed opportunities: Avoiding sectors like banking or high-growth tech has cost gains.
In my experience, sticking rigidly to a single investment philosophy can feel like wearing blinders. Markets evolve, and what worked a decade ago may not work today. The fund’s reluctance to adapt its sector focus or trim overvalued holdings suggests a strategy that’s perhaps too dogmatic for its own good.
The Cost of Inaction
Another issue lies in the fund’s mantra of “do nothing.” While low portfolio turnover keeps costs down, it also means missing opportunities to rebalance or capitalize on market shifts. When a stock’s price balloons beyond its fundamentals, selling—or at least trimming—can lock in gains and reduce risk. Yet, the fund’s approach often ignores these signals, leading to painful corrections.
Imagine a gardener who plants only the finest seeds but never prunes the overgrown branches. The garden might thrive for a while, but eventually, it becomes unwieldy. That’s what’s happening here. By refusing to sell overvalued stocks, the fund risks holding onto winners that turn into losers, as seen with the beverage and pharmaceutical examples.
Success in investing isn’t just about picking winners; it’s about knowing when to let them go.
– Financial strategist
This inaction also raises questions about the fund’s ability to recover. Stocks like the beverage company, now at a lower valuation, might offer a chance for a rebound. But the fund’s rigid philosophy may prevent it from doubling down on such opportunities, leaving potential gains on the table.
A Question of Fees and Oversight
Let’s talk about costs. The fund charges a 1% annual fee, which might have seemed reasonable when assets were growing and returns were stellar. But for a fund managing £20 billion, this fee now looks steep, especially given recent underperformance. Smaller funds often charge less, and investors are starting to notice.
Moreover, as an open-ended fund, it faces less scrutiny than an investment trust, which would have non-executive directors questioning strategy and holdings. This lack of oversight might allow flaws to persist unchecked. Perhaps a bit more pressure from external voices could push the fund to refine its approach.
| Fund Aspect | Strength | Challenge |
| Investment Philosophy | Focus on quality companies | Rigid adherence limits flexibility |
| Portfolio Turnover | Low costs from minimal trading | Misses opportunities to rebalance |
| Fees | Competitive in early years | 1% fee now high for fund size |
| Oversight | Streamlined decision-making | Lack of external scrutiny |
This table sums up the trade-offs. The fund’s strengths—its focus on quality and low turnover—are also its weaknesses when markets demand agility. I’ve always believed that balance is key in investing, and right now, this fund seems tilted too far toward stubbornness.
Can the Fund Bounce Back?
Despite these challenges, there’s reason to believe the fund can regain its footing. Its track record shows it can pick winners, and the current market correction might offer chances to buy back into undervalued stocks. But this requires a willingness to evolve—perhaps by loosening the “do nothing” rule or rethinking sector allocations.
Investors should also consider the broader lesson here: no strategy is infallible. Even the most disciplined approach needs periodic reassessment. For the fund, this might mean adopting a more dynamic stance, trimming winners before they peak, or exploring sectors it’s historically shunned.
- Reevaluate holdings: Sell or trim stocks when valuations exceed fundamentals.
- Diversify sectors: Explore opportunities in underrepresented areas like tech or banking.
- Lower fees: Adjust charges to reflect the fund’s size and performance.
- Increase scrutiny: Invite external perspectives to challenge the status quo.
These steps could help the fund navigate today’s complex markets. But will they be implemented? That’s the million-dollar question—or, in this case, the £20 billion one.
Lessons for Everyday Investors
What can we, as individual investors, take away from this? First, discipline is vital, but so is flexibility. Sticking to a strategy without questioning it can lead to missed opportunities or unnecessary losses. Second, valuations matter. Paying too much for a “great” company can erode returns, no matter how strong its fundamentals.
Finally, don’t be afraid to challenge your assumptions. Markets are dynamic, and what worked yesterday might not tomorrow. I’ve found that regularly reviewing my portfolio—asking why I own each stock and whether it still fits my goals—keeps me grounded. It’s a habit worth adopting.
The market rewards those who adapt, not those who stand still.
– Investment advisor
In the end, this fund’s story is a reminder that even the best strategies need tweaking. Whether it’s holding too long, ignoring market shifts, or charging high fees, the cracks in this approach offer valuable lessons for anyone looking to grow their wealth.
So, what’s next for this fund? Only time will tell if it can reclaim its former glory. For now, its struggles serve as a cautionary tale: in investing, as in life, adaptability is often the key to success. What’s your take—can a rigid strategy survive in today’s fast-moving markets?
