In December 2010 Terry Smith declared that the traditional broking model was “broken”. His new Fundsmith Equity Fund would be unlike anything seen before – a web-only product that stripped out the trail commissions beloved of financial advisers, kept investing simple and could be sold directly to small investors. So how has this brave new fund fared since?
Pretty well. Funds under management have climbed to around £200m and Fundsmith is returning 6.4% year-on-year. By comparison, global unit trusts are down by a similar amount over the same period. How does he do it?
As The Daily Telegraph’s Ian Cowie notes, Smith sticks to well-known firms that pay dividends in all conditions. His relatively small portfolio focuses heavily on consumer staples such as shampoo, soap and cigarettes. However tough times get, he believes these items will remain in demand in the West. Meanwhile, consumers in emerging markets are only just getting started when it comes to buying big Western brands.
Smith certainly isn’t out to win City friends – he believes fund managers churn their portfolios too often and drive up costs. So he aims to trade as little as possible. That keeps Fundsmith’s total expense ratio down at 1.17% per year against more like 1.7%-2.0% for unit trusts, according to Fundweb. Plus “we do things others no longer do. We do read the annual reports, while other analysts use company presentations as the source of their data,” says Smith.
So far his approach seems to be paying off – in a global ranking of 270 funds, Fundsmith’s performance put it in third place.
Contact: 0330-123 1815.
Fundsmith Equity Fund top ten holdings
| Name of holding |
|---|
| Becton Dickinson |
| Unilever |
| Microsoft |
| InterContinental |
| Nestlé |
| Pepsico |
| Imperial Tobacco |
| Procter & Gamble |
| L’Oréal |
| 3M |