Comparing Lindsell Train and Fundsmith

aroominyork

I’d like to start thread comparing Lindsell Train and Fundsmith, especially looking at how they might perform in a bear market.

I see the similarities and differences as quite clear. They both favour established companies with low debt, high barriers to entry, and predictable and growing income streams. The differences are that LT focuses more on business to consumer (B2C) businesses and rates ‘brand’ over everything else. Fundsmith is more business to business (B2B) focused and its mantra is return on capital employed. For LT this applies to their global UK, and Japanese funds, and to Fundsmith also to Smithson, through Smithson might have more tolerance to younger businesses.

Their performances have been similar enough over recent years that I don’t think anyone would greatly regret being in one rather than the other, and if the market continues to rise I wouldn’t expect that to change significantly. But how might their differences play out in a falling market? (I find Terry Smith a little disingenuous when he says the fund is positioned for a falling market and what a nice surprise it is that it has done so well in rising markets.)

Views would be very welcome.

A_T

The similar fund Morgan Stanley Global Brands held up pretty well during the global financial crisis. I would expect FS and LTGE to be fairly resilient but if I had to choose I would give the nod to LTGE as it has more in consumer brands like Pepsico, Unilever and Heineken. FS has a big stake in Facebook which I think might suffer.

cogito

A_T wrote: »

The similar fund Morgan Stanley Global Brands held up pretty well during the global financial crisis. I would expect FS and LTGE to be fairly resilient but if I had to choose I would give the nod to LTGE as it has more in consumer brands like Pepsico, Unilever and Heineken. FS has a big stake in Facebook which I think might suffer.

I have Fundsmith, LTGE, Evenlode Global Income and SSON. Blue Whale is also an interesting proposition.

I like Smith's position on Facebook. He sees it as an advertising business with access to 2bn customers and a deep moat and I think he’s right.

jamei305

LTGE is very "bread and circuses". It's got football clubs, wrestling, computer games, motorbike racing, booze, chocolate and soft drinks. It seems very concentrated in that regard. Fundsmith has a much broader range of companies that match their criteria for different reasons.

Johnnyboy11

And why not include the UK's star fund manager in the comparison? Having been through a 5-year bear market of his own making, surely his contrarian investment strategy is well placed for the next market downturn, no?

cogito

jamei305 wrote: »

LTGE is very "bread and circuses". It's got football clubs, wrestling, computer games, motorbike racing, booze, chocolate and soft drinks. It seems very concentrated in that regard. Fundsmith has a much broader range of companies that match their criteria for different reasons.

All the more reason for having them both.

Thrugelmir

Markets fall for a reason. Companies that perform better will be those least effected by the event(s), i.e. maintain profitability.

A falling market doesn't result in all share prices being marked down equally. An index is a myriad of separate price changes. To be red across the board has to be something seismic. Some company share prices will continue to rise.

aroominyork

Thrugelmir wrote: »

Markets fall for a reason. Companies that perform better will be those least effected by the event(s), i.e. maintain profitability.

A falling market doesn't result in all share prices being marked down equally. An index is a myriad of separate price changes. To be red across the board has to be something seismic. Some company share prices will continue to rise.

OK, so say there is no seismic event but just a slowdown of global growth - some regions more than others but no regions crashing - and the markets decide it's time to head south for a while. What can be said about how B2B and B2C sectors differ in their responses and profitability?

Thrugelmir

aroominyork wrote: »

OK, so say there is no seismic event but just a slowdown of global growth - some regions more than others but no regions crashing - and the markets decide it's time to head south for a while. What can be said about how B2B and B2C sectors differ in their responses and profitability?

A business to cut cash outflow might well reduce marketing spend. Close low margin divisions.

Consumers will continue to buy staple items. Comfort, Domestos, Persil, Surf, Sure. However may spend less on eating out or upgrading their phone or taking a holiday.

Companies are constantly undergoing change. Technology being a major driver.

but just a slowdown of global growth

Markets tend to over react both up and down on noise. When investing it's important to focus on what you are actually buying, i.e. the underlying companies. P/E's can reflect an overpriced position. Buying in at inflated levels is more likely to produce a disappointing return. US\China trade relations are the clouds on the horizon. Must be having an impact. On whom, we won't know until the next few quarterly results are published.

Much depends on your investing style. Passive or active, or even a combination of the two. Also your investment time horizon.