Fundsmith Equity - Opinions

Trinityx

I have been doing some research into funds and see what various brokers recommend. I have looked at several rating websites and something has struck me: aside from maybe The Telegraph, I haven't seen anyone recommend the Fundsmith Equity fund. The comments I have seen were usually that there are better funds.

Yet go look a the most bought funds in the last couple of months on several brokers' websites (including Hargreaves Landsdown which does not include the fund in their Wealth 150), Fundsmith is one of the most bought funds.

Fundsmith returned a total of 165% in the last 5 years. I can't really see many other funds that do that.

So what's the problem? The 0.95% fee? The fact that people think it's at its peak?

kidmugsy

Trinityx wrote: »

Fundsmith returned a total of 165% in the last 5 years. I can't really see many other funds that do that.

So what's the problem? The 0.95% fee? The fact that people think it's at its peak?

Maybe that people know that its performance over the last five years has almost no predictive power for the next five years?

Linton

Fundsmith has performed very well over the past 5 years. The problem I have with it is this.....

It is a highly undiversified fund which holds a relatively small number of cherry picked predominantly medium/large US companies operating in a small number of sectors. According to Trustnet 85% of the fund is invested in Consumer Staples, Healthcare and Technology. You therefore only hold the fund if you believe that Terry Smith skills in stock picking add something useful in the long term. If not you must see the fund as pretty risky.

The key question is - what other funds should you hold to provide a globally and industry balanced portfolio? Anything you add undoes Terry Smith's good work. You would really need to invest significantly in countries, sectors and companies that he doesnt like, which rather runs counter to the reasons you would buy Fundsmith in the first place..

So I think it depends on where you are in the spectrum ranging from a small investor playing with non life changing amounts of money to a serious investor financially dependent on the long term performance of
his/her portfolio. For the former, Fundsmith is a pretty good option for a flutter. Better than many one off purchases that new investors could make. For the latter Fundsmith may well be irrelevent as it wouldn't naturally form a significant part of the total portfolio.

cashbackproblems

Maybe as the UK equity markets are probably going to struggle the next few years

HappyHarry

Trinityx wrote: »

I have been doing some research into funds and see what various brokers recommend. I have looked at several rating websites and something has struck me: aside from maybe The Telegraph, I haven't seen anyone recommend the Fundsmith Equity fund. The comments I have seen were usually that there are better funds.

Yet go look a the most bought funds in the last couple of months on several brokers' websites (including Hargreaves Landsdown which does not include the fund in their Wealth 150), Fundsmith is one of the most bought funds.

Fundsmith returned a total of 165% in the last 5 years. I can't really see many other funds that do that.

So what's the problem? The 0.95% fee? The fact that people think it's at its peak?

It's a highly concentrated managed equity fund, which could form part of a portfolio, but is unlikely to be a good standalone fund.

Terry Smith, the fund manager, has moved to Mauritius, allegedly "to take life a bit easier".

Yes, it's performance has been very good over the past five years, but is is at the very upper end of risk levels on retail funds, and has the potential to see significant losses if things go wrong.

Many people just look at past history when purchasing funds, which might explain the large inflows over the past couple of years.

Five years ago would have been a very good time to invest in the fund, as can be seen by the returns achieved. However, what the next five years hold is unknown.

HL's Wealth 150 is really just a list of funds where HL have managed to get a discount on the fees.

BananaRepublic

kidmugsy wrote: »

Maybe that people know that its performance over the last five years has almost no predictive power for the next five years?

In my experience past performance is the best guide to future performance, albeit not cast iron, which is why we diversify.

The problem with a fund becoming popular is that it can make it harder for the manager to locate sufficient good companies to buy into since they will have far more money to spend. Certainly this fund has done well in the past.

MPN

So which Global funds would anyone suggest in preference to Fundsmith?

I myself hold Lindsell Train Global Equity and Old Mutual Global Equity. I did switch from Henderson Global Growth to Lindsell Train.

ColdIron

BananaRepublic wrote: »

The problem with a fund becoming popular is that it can make it harder for the manager to locate sufficient good companies to buy into since they will have far more money to spend

While often true I don't think this is a worry here as it's Smith's policy to only invest in 25/30 companies and I don't think any of them have a market cap of below £5BN

talexuser

Artemis Global Income? I hold it but dislike Artemis keeping to a spread after most others have gone for single pricing.

Linton

MPN wrote: »

So which Global funds would anyone suggest in preference to Fundsmith?

I myself hold Lindsell Train Global Equity and Old Mutual Global Equity. I did switch from Henderson Global Growth to Lindsell Train.

Is Fundsmith a Global Fund? It's 64% US and 19% UK. Apart from that it would appear to only invest in 5 other countries, all in western Europe.

Trinityx

Thanks all. So it sounds like Fundsmith is doing well as we are in a bullish market, but due to concentration the risks are high.

@MPN I also went for Lindsell Global Equity.

As to Wealth 150 being a list of funds they have discounts on, I would think they brokered those discounts because they thought they were good funds (and lower fees are always a bonus, no?). Or am I just being naive? Why else would they pick those funds for the discounts?