Lindsell Train vs. Fundsmith vs. Scottish Mortgage

aroominyork

Comparing LT Global, Fundsmith and SMT, there are of course differences in country and stock selection, but is the key difference so far as risk/return is concerned the fact that SMT is an IT and so can gear to invest beyond the fund’s invested capital?

Sally57

aroominyork wrote: »

Comparing LT Global, Fundsmith and SMT, there are of course differences in country and stock selection, but is the key difference so far as risk/return is concerned the fact that SMT is an IT and so can gear to invest beyond the fund’s invested capital?

SMT gross gearing is 109% according to the factsheet on the HL website!

aroominyork

Sally57 wrote: »

SMT gross gearing is 109% according to the factsheet on the HL website!

Yes, from memory it was higher; Morningstar shows gearing at 5%! Looking at the top ten investments they do not (from my limited knowledge) look must risker than LT/F'Smith yet SMT's FE is 152 so I am having difficulty understanding where the higher risk lies.

dividendhero

Sally57 wrote: »

SMT gross gearing is 109% according to the factsheet on the HL website!

A bit of a confusing number - it actually means it has 9% of total assets as debt.

bowlhead99

Much of Smith's holdings are consumer defensive (e.g.Philip Morris) or similar stocks -that's the sort he likes. Even the ones in other sectors share similar traits, eg Microsoft is technology but with a monopolistic position in some software sectors, solid dividend payer etc.

You might expect such stocks to weather the storms of short term market volatility quite well - despite the large gains that came from cheap credit and an ongoing search for scarce yield that pushed up his portfolio company valuations upwards, being vulnerable to a reversal of fortune. And though he has high country-of-listing concentration with 60% US and 20% UK, those countries have done ok in last few years so it has not been a lot more volatile than FTSE100 and gets the same "risk score" using FE's popular benchmark.

By contrast, SMT

- is heavily concentrated in the high tech sector in both US and China, holding some companies way more focused on growth than profits or dividends

-can use gearing, creating extra volatility compared to underlying holdings

- is an investment trust vehicle with its own market price determined minute by minute, independent from underlying assets; e.g. if the underlying investee companies go down 5% the price and market sentiment is relatively weaker than the previous month, the price of the company itself could swing from a 3% premium to NAV to a 2% discount to NAV, creating a 10% total swing for investors.

-less than 4% of the underlying companies by value are listed in UK, giving potential for high FX differences and exposure to economic factors that differ from what other large UK listed companies experience, and as a consequence SMT's movements may be further away from the FTSE100 basket of returns which set the FE risk score benchmark at 100.

All four of those factors and other not-so-obvious ones could contribute to it having a higher risk score than something like Fundsmith.

However, if you are going to use FE risk scores as part of your research you need to look into the methodology behind how they are constructed, the drawbacks /weaknesses /flaws of that type of measure and recognise the limited time period across which the data has been compiled.

aroominyork

Is this an adequate descriptor of FE? https://www.trustnet.com/learn/learnaboutinvesting/FE-Risk-Scores.html.

If I understand it right, a fund that has everything going in its favour for a relatively short period of time (18-36 months) and a smooth ride upwards, could have a low FE that masks the fact that it is actually quite a high risk proposition that caught a temporary favourable tailwind. Is that correct?

StellaN

If you hold Fundsmith & Lindsell Train Global Equity I would just keep one of these funds and add another global fund that is different to the other two such as Artemis Global Income?

aroominyork

StellaN wrote: »

I would just keep one of these funds and add another global fund that is different to the other two

Are you saying those two are growth funds and to balance with some value? I see from another thread that you hold LT and SMT, Stella. Where do you see SMT sitting on the growth/value spectrum?

Or (I really must stop editing this post) is it that LT/Fundsmith follow long term hold styles and to balance with a more active fund? Does SMT vary its holding more regularly?

StellaN

aroominyork wrote: »

Are you saying those two are growth funds and to balance with some value? I see from another thread that you hold LT and SMT, Stella. Where do you see SMT sitting on the growth/value spectrum?

Or (I really must stop editing this post) is it that LT/Fundsmith follow long term hold styles and to balance with a more active fund? Does SMT vary its holding more regularly?

I do hold SMT & LT for growth but I wouldn't hold LT & Fundsmith because they have similar long term styles and both have a small number of holdings in mainly the defensive/customer staples market. Whereas, a fund such as Artemis Global Income offers something quite different.

I'm not saying LT is any better than Fundsmith but I had to select one or the other and decided on LT but it could have easily been the other way round. SMT is yet again different to the other two because it is mainly tech orientated and very low UK..

aroominyork

StellaN wrote: »

LT & Fundsmith ... both have a small number of holdings in mainly the defensive/customer staples market.

Only to a degree, it seems to me. LT is solidly consumer/B2C focused, while Fundsmith mixes it with B2B: Stryker, Amadeus, Bard, IDEXX among its top six holdings.

Alexland

If you are going to buy these active funds (which I accept have recently performed well as you would expect given such a wide market mix) I then its probably best to place you bet on one and hope it outperforms the tracker. It baffles me how people cam collect a ratbag of active funds and when you dig into the resulting asset allocations they have just created a DIY mis balanced tracker with high fees.