Star Fund Managers–An Investing Style That’s Out of Fashion
•January 31, 2026
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Why It Matters
The struggle of these star managers illustrates how legacy value‑focused strategies can falter in a new macro environment, prompting investors to reassess style risk and manager adaptability.
Key Takeaways
- •Smith blames market, Train admits responsibility for poor returns
- •Consumer‑staple focus underperforms amid inflation, higher rates
- •Both pivot toward tech, data, and healthcare sectors
- •Market regime shifts demand adaptable investment styles
- •Investor expectations must align with managers’ strategic changes
Pulse Analysis
The recent performance dip of Terry Smith and Nick Train highlights a broader narrative in UK fund management. Once hailed for their steadfast focus on high‑quality, consumer‑staple companies, both managers now confront a market where ultra‑low rates have inflated valuations and post‑pandemic inflation has eroded earnings growth. Their underperformance is not merely a personal failing; it reflects a structural shift away from the defensive, brand‑centric models that dominated the 2010s. Investors and analysts are watching closely as these star fund managers, long symbols of active superiority over passive strategies, navigate a landscape that rewards agility over static conviction.
In response, Smith and Train are re‑engineering their portfolios. Smith has accelerated moves into technology and healthcare, sectors he believes can deliver growth despite macro uncertainty. Train, meanwhile, is tilting toward data‑intensive and digital businesses, betting on the continued expansion of AI and software services. These adjustments mirror a wider industry trend where traditional value‑oriented funds are embracing higher‑growth, innovation‑driven assets to offset the waning appeal of consumer staples. The shift also underscores the importance of sector diversification when interest rates rise and inflation pressures reshape consumer spending patterns.
For investors, the lesson is clear: fund performance is increasingly regime‑dependent. Managers who can anticipate or swiftly react to macro‑economic pivots—whether through tech exposure, healthcare resilience, or data‑centric bets—are better positioned to protect capital and generate returns. As AI, digital transformation, and healthcare policy evolve, the ability to balance risk with emerging opportunities will define the next generation of star fund managers. Aligning expectations with a manager’s strategic flexibility is now a critical component of portfolio construction, especially in an era where market dynamics can change rapidly.
Star fund managers–an investing style that’s out of fashion
Two of Britain’s most acclaimed star fund managers – Terry Smith and Nick Train – are both struggling with a multi‑year spell of disappointing returns. Yet they are reacting in very different ways. Smith seems inclined to blame passive investing, company management, the state of the economy, analysts, the state of the market in general and practically everybody else, as seen in his latest letter. Conversely, Train has castigated himself and apologised at length for letting investors down, as anybody who attended the Finsbury Growth and Income (LSE: FGT) meeting this month will know.
The truth surely lies between the extremes. Train has made mistakes in stock selection, but so has Smith (as we all do). At the same time, both have a particular style and are biased towards a type of company that is out of favour in today’s markets. Almost all managers will do better in certain market regimes than others. Recognising that is crucial to deciding where to invest and what expectations are reasonable.
Both star fund managers have had to change their approach to investing
Both Smith and Train have focused – in slightly different ways – on what they see as quality companies: businesses that can grow earnings steadily, earn strong returns on capital and compound over time. They were heavily invested in areas such as consumer staples and placed considerable value on dominant brands. These kinds of companies did very well for much of the 2010s, but many have struggled this decade – not just in relative terms (understandable in a tech bull market) but in absolute terms as well.
There is a range of reasons for this. The era of ultra‑low interest rates made the steady and rising income from these kinds of stocks very attractive, which pushed up valuations too high by the end of the decade. The post‑pandemic inflation spike and cost‑of‑living pressures have hurt their ability to keep growing earnings either by selling more or by raising prices.
Emerging‑market growth – a key part of the bull case for many – has been patchier than expected. More recently, GLP‑1 weight‑loss drugs may be starting to weigh on demand not just for food but other products such as alcohol (it remains unclear how significant this is).
As these issues have become more obvious, both managers have adjusted their approach. Train is tilting towards data and digital businesses. Smith has shifted more into tech – moving in and out of some stocks with uncharacteristic speed – and has increased his exposure to healthcare. The thesis behind all these sectors is clear.
At the same time, we should note market conditions may not be as helpful to large incumbents as they were in the 2010s. There is far more uncertainty. Will data and software businesses capitalise on AI or be undermined by it? Will healthcare costs and margins come under attack in a much more populist political environment? We just can’t know at this point, and Smith is right to say that investors should be ever more alert for strategic missteps.
This article was first published in MoneyWeek's magazine.
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