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Fundsmith Equity – turning to tech

Jonathon Curtis | Thu 10 January 2019

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • Technology companies make up more of the fund than any other sector
  • Consumer goods companies still feature heavily in the portfolio
  • The fund has once again beaten the broader global stock market over the past year

Terry Smith is well-known for championing companies that make everyday, low-cost consumer items. Things like toothpaste, pet food and cleaning products. Since Smith launched Fundsmith Equity at the end of 2010, he’s made some big investments in these companies. And this has been very successful. Fundsmith has been one of the best performing global equity funds in recent years, although there are no guarantees this will continue.

Today the fund looks different.

When it launched, the fund had no investments in the technology sector. Now tech companies make up the fund’s three biggest investments according to Fundsmith’s latest portfolio data. These are: Paypal, an online payment company; Amadeus, an IT provider to the travel industry; and Microsoft, one of the biggest tech companies in the world.

Health care companies are also featuring more in the portfolio. They now make up three of the fund’s top 10 holdings. The most recently announced new investment, Coloplast, is also from the health care sector. Smith started purchasing its shares back in January 2018.

Most of the companies that’ve been sold in the past couple of years have been consumer goods companies. They include Smucker, a maker of spreads and peanut butter; Imperial Brands, a tobacco company; and Nestlé, the largest food company in the world. Soft drinks company Dr Pepper Snapple and medical product maker CR Bard were also removed from the fund when they were taken over by Keurig Green Mountain and BD, respectively.

Unlike most fund managers Smith rarely discusses the fund outside the Annual Shareholders’ Meeting. This is when he usually explains changes to the fund in more detail. Time will tell whether the trend towards technology and health care companies will continue, and whether this will benefit the fund in the future.

This is a concentrated fund, so each company can have a big impact on performance. That can be a good or a bad thing depending on how well the companies do, so it adds risk. Like all investments it can fall as well as rise in value so you could get back less than you invest.

How's the fund performed?

Smith’s performance since he launched Fundsmith Equity has been superb. He’s consistently done better than the benchmark. In the past 12 months the fund’s grown by 2.3%* compared with a 3.1% loss for the broader global stock market. This isn’t an indication of how the fund will perform in the future.

Fundsmith Equity Performance since launch

Past performance is not a guide to the future. *Source: Lipper IM to 31/12/2018.

Annual percentage growth
Dec 2013 -
Dec 2014
Dec 2014 -
Dec 2015
Dec 2015 -
Dec 2016
Dec 2016 -
Dec 2017
Dec 2017 -
Dec 2018
Fundsmith Equity 23.5% 15.8% 28.3% 22.1% 2.3%
FTSE World 11.3% 4.3% 29.6% 13.3% -3.1%

Past performance is not a guide to the future. Source: Lipper IM to 31/12/2019.

Why’s the fund not on the Wealth 50?

There’s no denying the fund’s performance has been excellent. Inclusion in the Wealth 50, however, is based on more than performance alone. We look at lots of other factors including the manager’s experience, how they’ve performed in a market downturn, and the fund’s charges.

Smith’s in his ninth year in fund management. That’s still shorter than many other successful managers in the global sector though. He also hasn’t been tested during a prolonged market fall or when his investment approach is out of favour. We like a track record that includes at least a full market cycle, so we can see how a fund manager reacts when the market and the fund goes through a tough patch.

In addition, the fund’s annual charge of 0.95% is higher than most other funds in the global sector. When we weigh up Smith’s experience, track record, buy and hold strategy, and the size of the fund (at £15 billion), we think it’s too expensive.

There are other global funds available, with more experienced managers, whose performance has also been excellent, and whose charges are far lower. So for now the fund isn’t part of our Wealth 50. But we’re keeping it under review and will let you know if our view changes.

Please read the Key Features/ Key Investor Information in addition to the information above.

Find out more about this fund including charges

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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