Fundsmith - which one?

economic

ColdIron wrote: »

Why would they be? One has had more charges deducted from it than the other

If I offered you two classes of beer, one where I took one gulp out of your glass and another where I took two would you say that they would be identical once I was feeling a bit squiffy

yes i understand so then i should just go with the lower annual mgt charge i.e. the I version? why then even bother having both when I is superior?

coyrls

economic wrote: »

ok understood. yeh i think i prefer to invest through TD in that case.

the question is though which one should i invest in - T or I? they are both offered. one has a lower annual charge but higher price and the other is the opposite.

Of course the one with the higher charges is "cheaper" because more of the growth has been taken out in charges. As time goes on, it will become "cheaper" and "cheaper" relative to the one with lower charges, which makes it a worse investment.

Rollinghome

badger09 wrote: »

Apologies for hijacking, but IWEB apparently offer I R & T classes in both Inc & Acc versions, all in Sharedealing, ISA & SIPP accounts. No platform charge.

https://iwebfunds.webfg.com/

How does one decide which to buy?

They're all the same fund so the one with the lowest OCF, the I class at 0.96%. The T class is the one you'd buy direct from Fundsmith at 1.06%. The R class at 1.56% OCF looks like a pre-RDR left over.

At IWeb you can get the institutional I class at 0.96% plus a fiver transaction fee, no platform charge, and is the cheapest way to hold. (Unless you want a really tiny amount or £5,000,000 worth and could buy the I class direct.)

Rollinghome

ironhead wrote: »

Why buy via a platform when you can buy 'direct from the factory'.... other than if you can't meet the minimum investment requirements of either a £1000 lump sum or a £100 /month d/debit ?

Or because you use a fee based platform such as IWeb which hase no platform charge and offer the institutional I class for 0.10% less than buying the T class direct from Fundsmith.

bowlhead99

economic wrote: »

yes i understand so then i should just go with the lower annual mgt charge i.e. the I version? why then even bother having both when I is superior?

The "T" one has higher running costs because it pays a greater management fee to Mr Smith's firm so that he can afford to do the fund reporting and customer service and tax reporting to HMRC on the ISAs and generally administer the accounts of the people who have gone direct to him with relatively small amounts of money.

The "I" one is designed to be held by institutional investors with much larger amounts of money, or of individuals who invest via an intermediary platform such as TD or Halifax or whatever and have TD look after all the customer service and ISA administration etc.

So there is a valid reason for the more expensive version to exist, there just isn't a valid reason for you to buy that expensive version via your platform if offered the choice because then you would be paying explicit platform fees *and* you are giving Smith a greater management fee to let him handle the administration which the platform is actually doing for him.

economic

bowlhead99 wrote: »

The "T" one has higher running costs because it pays a greater management fee to Mr Smith's firm so that he can afford to do the fund reporting and customer service and tax reporting to HMRC on the ISAs and generally administer the accounts of the people who have gone direct to him with relatively small amounts of money.

The "I" one is designed to be held by institutional investors with much larger amounts of money, or of individuals who invest via an intermediary platform such as TD or Halifax or whatever and have TD look after all the customer service and ISA administration etc.

So there is a valid reason for the more expensive version to exist, there just isn't a valid reason for you to buy that expensive version via your platform if offered the choice because then you would be paying explicit platform fees *and* you are giving Smith a greater management fee to let him handle the administration which the platform is actually doing for him.

thanks so much. you are a star. makes me more confident now to invest in the I shares.

badger09

Rollinghome wrote: »

They're all the same fund so the one with the lowest OCF, the I class at 0.96%. The T class is the one you'd buy direct from Fundsmith at 1.06%. The R class at 1.56% OCF looks like a pre-RDR left over.

At IWeb you can get the institutional I class at 0.96% plus a fiver transaction fee, no platform charge, and is the cheapest way to hold. (Unless you want a really tiny amount or £5,000,000 worth and could buy the I class direct.)

Rollinghome wrote: »

Or because you use a fee based platform such as IWeb which hase no platform charge and offer the institutional I class for 0.10% less than buying the T class direct from Fundsmith.

bowlhead99 wrote: »

The "T" one has higher running costs because it pays a greater management fee to Mr Smith's firm so that he can afford to do the fund reporting and customer service and tax reporting to HMRC on the ISAs and generally administer the accounts of the people who have gone direct to him with relatively small amounts of money.

The "I" one is designed to be held by institutional investors with much larger amounts of money, or of individuals who invest via an intermediary platform such as TD or Halifax or whatever and have TD look after all the customer service and ISA administration etc.

So there is a valid reason for the more expensive version to exist, there just isn't a valid reason for you to buy that expensive version via your platform if offered the choice because then you would be paying explicit platform fees *and* you are giving Smith a greater management fee to let him handle the administration which the platform is actually doing for him.

Thank you both!

So, in my case, its cheaper for me to use IWEB than to go direct:cool:.

I watched the whole of the Fundsmith Equity Fund shareholders' meeting on Youtube yesterday and was impressed by Smith's responses, mainly because I understood them:o. However, as a mainly passive (mainly Vanguard) investor, the prospect of investing in only 29 companies is quite daunting.

economic

badger09 wrote: »

Thank you both!

So, in my case, its cheaper for me to use IWEB than to go direct:cool:.

I watched the whole of the Fundsmith Equity Fund shareholders' meeting on Youtube yesterday and was impressed by Smith's responses, mainly because I understood them:o. However, as a mainly passive (mainly Vanguard) investor, the prospect of investing in only 29 companies is quite daunting.

More risk more reward

badger09

economic wrote: »

More risk more reward

Not necessarily.

bowlhead99

badger09 wrote: »

economic wrote: »

More risk more reward

Not necessarily.

The misconception that some people take from that four-word phrase is that if you take more risk you get more reward, which is patently false.

What the phrase means is that if you are taking more risk you should demand more potential reward. For example holding an equity instead of a bond issued by the same company. If there is only a certain amount of cash in the company the bondholder gets paid first and the equity holder may be left with nothing. So clearly the equity holder is taking a greater risk. For that risk he demands to be given upside potential so that if there is money left over after paying the bondholder, the equity holder gets it, even if it is loads and loads more than the bondholder got.

If you are investing in only 20 shares instead of 50 shares or 500 shares you are generally taking more risk. But that only translates to greater expected reward if you believe the manager will soundly beat the index (if there is a suitable index to use as a benchmark) or the other rival managers, across a wide range of probable market conditions.

For example, take the S&P500. You could perhaps make a rival index using a 'representative sample' of 50 or 100 of the shares in suitable proportions. To invest in the 'representative 50' instead of the full 500 would be a riskier choice.

Lets say there is carnage in the markets next year and literally 50 or 100 members of the 500 go bust at random. If your portfolio was only 50 or 100 stocks, then it would be possible (however unlikely) that every single one of the stocks you held, went bust - while the 400 or 450 you did not hold, survive.

Clearly, to have chosen the small sample was higher risk because it offers the chance of total wipeout rather than just being 1/10th or 1/5th wiped out. However, there should be no expectation that the 50-company or 100-company portfolio would perform better or worse on average than the 500-company portfolio, assuming those 50 or 100 stocks were a decent representative sample of the 500.

So certainly 'no risk no reward' ' but 'more risk more reward' doesn't really follow from that if it is trying to say you that the portfolio could be expected to deliver more rewards. It just means you need it to deliver more rewards, to compensate you for the risks.

I assume economic with his job in banking is more than au fait with risk concepts but just for the many newbies who stumble across the thread.