HL vs. Terry Smith

Prism

2unlimited91 said:

Isn't the real contest: who is more blatantly over-charging? HL, with a platform fee of 0.45% on £100bn assets; or Fundsmith, with a management fee of 1% on £20bn assets?

No such thing as over charging when you get away with it.

AnotherJoe

2unlimited91 said:

Isn't the real contest: who is more blatantly over-charging? HL, with a platform fee of 0.45% on £100bn assets; or Fundsmith, with a management fee of 1% on £20bn assets?

No,  because you are comparing apples with oranges. One is fund management, one is platform.

If you wanted to compare that would be (a) Fundsmiths 1% vs HLs 1-2% on their funds (not platform), and (b) the return of Fundsmiths funds vs HL's funds net of charges.

And then, HL dont charge 0.45% across all classes. They charge differently for funds and shares. I dont pay anything near 0.45% on my HL holdings as a whole since i have few funds with them (one though, is, Fundsmith  )

2unlimited91

AnotherJoe said:

2unlimited91 said:

Isn't the real contest: who is more blatantly over-charging? HL, with a platform fee of 0.45% on £100bn assets; or Fundsmith, with a management fee of 1% on £20bn assets?

No,  because you are comparing apples with oranges. One is fund management, one is platform.

In other words: yes, you can compare them, though the comparison is complicated, because platforms and fund management are different things.

There are a few different ways you might compare.

I was thinking: HL is expensive, compared to other platforms; and Fundsmith is expensive, compared to comparable funds; but which is more expensive, HL compared to other platforms, or Fundsmith compared to comparable funds?

(In order words: is this apple bigger, as apples go, than this orange is, as oranges go? )

If you wanted to compare that would be (a) Fundsmiths 1% vs HLs 1-2% on their funds (not platform)

On those figures, you're comparing Fundsmith to HL's multi-manager funds (fund of funds, with 2 layers of management fees), which are not a similar kind of fund.

It would be fairer to compare Fundsmith to HL's "Select" funds (which are broadly similar, in that they have only 1 layer of management charges, and are concentrated portfolios of equities). On this comparison, HL is cheaper, with charges of 0.6%. (Though that's only a small part of HL's overall business.)

Malthusian

AnotherJoe said:

I suspect if you picked 50 (or is it 49 now ha ha) random funds to buy, omitting any if they were on the W̶5̶0̶, W49, the non W49 funds would do better.

There's every chance that would be true, as getting on the W50 requires some element of good past performance, and while past performance is no guide to the future (and that works both ways), what goes up must go down more often than it goes up even further.

That is a glib way of saying that outperformance may merely represent lucky picks of shares / sectors in favour, which means that future underperformance is inevitable when the bubble deflates. If you pick 50 outperforming funds it is inevitable that some of that outperformance will just be luck. A cynic would say all of it is.

I did some cig-packet calculations a while ago and worked out that if you invested your money in the least popular Investment Association sector on a year-to-year basis, you would significantly outperform following the herd and investing in the most popular sector.

However both the herd-following and contrarian strategies underperformed the FTSE World.

Prism

Malthusian said:

AnotherJoe said:

I suspect if you picked 50 (or is it 49 now ha ha) random funds to buy, omitting any if they were on the W̶5̶0̶, W49, the non W49 funds would do better.

There's every chance that would be true, as getting on the W50 requires some element of good past performance, and while past performance is no guide to the future (and that works both ways), what goes up must go down more often than it goes up even further.

That is a glib way of saying that outperformance may merely represent lucky picks of shares / sectors in favour, which means that future underperformance is inevitable when the bubble deflates. If you pick 50 outperforming funds it is inevitable that some of that outperformance will just be luck. A cynic would say all of it is.

I did some cig-packet calculations a while ago and worked out that if you invested your money in the least popular Investment Association sector on a year-to-year basis, you would significantly outperform following the herd and investing in the most popular sector.

However both the herd-following and contrarian strategies underperformed the FTSE World.

While the W50 rarely seems to get it right, its not necessarily true that growth funds that grow well have further to drop then other funds that don't. The good funds are not based on investor sentiment, which can disappear quickly, but on company fundamentals. Reversion to mean is not always true and those funds that capture good growth often don't revert that much at all. I am not convinced though that the W50 is looking for that kind of stuff. 

Mrc44

Moe_The_Bartender said:

Fundsmith hasn’t tried to get on HL's wealth list. He doesn’t give a toss about them. All he has ever done is point out HL's hypocrisy and say that he isn’t prepared to reduce his charges to get on their list.

FS is my biggest holding by far and if it costs me .95% to get the kind of returns that Smith delivers, why would I want to pay a little less for an inferior product? For years, HL had utter dogs on its list like Neptune Russia and BlackRock UK Absolute Alpha. Different products but any one investing in them needed certifying.

Moe_the_bartender taking in to account the higher fund costs would it be fair in saying that the Fundsmith fund far outperforms a multli asset fund such as Hsbc global on as much as a like for like basis as possible? 

aroominyork

2unlimited91 said:

AnotherJoe said:

2unlimited91 said:

Isn't the real contest: who is more blatantly over-charging? HL, with a platform fee of 0.45% on £100bn assets; or Fundsmith, with a management fee of 1% on £20bn assets?

No,  because you are comparing apples with oranges. One is fund management, one is platform.

In other words: yes, you can compare them, though the comparison is complicated, because platforms and fund management are different things.

Indeed it's a poor comparison, like comparing the price of a car with the rental cost of a garage to keep it in.

But I have a gripe with Terry. This week I am going to switch my Fundsmith holding into Fundsmith Sustainable Equity, largely to avoid the tobacco (Philip Morris) holding. Class I of the Sustainable fund charges 1.05% compared to 0.95% for the main fund. That is an unnecessary extra cost which the company (Fundsmith) could easily absorb. Sure they can justify it based on the extra work involved in managing a much smaller fund but I find it churlish and not great PR. If the press gave him a hard time I can easily imagine him bringing the charge down to the same level as the main fund.

AnotherJoe

aroominyork said:

2unlimited91 said:

AnotherJoe said:

2unlimited91 said:

Isn't the real contest: who is more blatantly over-charging? HL, with a platform fee of 0.45% on £100bn assets; or Fundsmith, with a management fee of 1% on £20bn assets?

No,  because you are comparing apples with oranges. One is fund management, one is platform.

In other words: yes, you can compare them, though the comparison is complicated, because platforms and fund management are different things.

Indeed it's a poor comparison, like comparing the price of a car with the rental cost of a garage to keep it in.

But I have a gripe with Terry. This week I am going to switch my Fundsmith holding into Fundsmith Sustainable Equity, largely to avoid the tobacco (Philip Morris) holding. Class I of the Sustainable fund charges 1.05% compared to 0.95% for the main fund. That is an unnecessary extra cost which the company (Fundsmith) could easily absorb. Sure they can justify it based on the extra work involved in managing a much smaller fund but I find it churlish and not great PR. If the press gave him a hard time I can easily imagine him bringing the charge down to the same level as the main fund.

I wasnt aware of the sustainable fund. I find it strange how closely the two funds have performed over the past 3 years, given their wildly different sizes,  and somewhat different constituents.

Do you think given the size of Sustainable it has more scope to grow than the main one? Making a change in the latter must involve some huge transactions and replacing any one constituent, esp in the top ten, a difficult problem ?

aroominyork

AnotherJoe said:

aroominyork said:

2unlimited91 said:

AnotherJoe said:

2unlimited91 said:

Isn't the real contest: who is more blatantly over-charging? HL, with a platform fee of 0.45% on £100bn assets; or Fundsmith, with a management fee of 1% on £20bn assets?

No,  because you are comparing apples with oranges. One is fund management, one is platform.

In other words: yes, you can compare them, though the comparison is complicated, because platforms and fund management are different things.

Indeed it's a poor comparison, like comparing the price of a car with the rental cost of a garage to keep it in.

But I have a gripe with Terry. This week I am going to switch my Fundsmith holding into Fundsmith Sustainable Equity, largely to avoid the tobacco (Philip Morris) holding. Class I of the Sustainable fund charges 1.05% compared to 0.95% for the main fund. That is an unnecessary extra cost which the company (Fundsmith) could easily absorb. Sure they can justify it based on the extra work involved in managing a much smaller fund but I find it churlish and not great PR. If the press gave him a hard time I can easily imagine him bringing the charge down to the same level as the main fund.

I wasnt aware of the sustainable fund. I find it strange how closely the two funds have performed over the past 3 years, given their wildly different sizes,  and somewhat different constituents.

Do you think given the size of Sustainable it has more scope to grow than the main one? Making a change in the latter must involve some huge transactions and replacing any one constituent, esp in the top ten, a difficult problem ?

The two funds are run to the same strategy with the green screen being the only difference. The holdings are very similar so if Fundsmith loses confidence in a company I expect it would sell it from both funds, and they have gone to lengths to say that the large caps nature of the holdings means there would be minimal liquidity problems. And finally, the Sustainable fund might once have been a home for small/mid caps but now that Smithson exists that is no longer a factor.

On performance there is nothing between them. The main fund is a fraction ahead, though if you exclude the first two days of the Sustainable fund's life (start-up dealing costs?) it shows a slight lead. 

PS   The main fund's slight underperformance compared to the Sustainable fund since 3/11/17 (two days after the latter's launch) pretty much matches Philip Morris's share price weakness. A sweet coincidence.

2unlimited91

2unlimited91 said:

It would be fairer to compare Fundsmith to HL's "Select" funds (which are broadly similar, in that they have only 1 layer of management charges, and are concentrated portfolios of equities). On this comparison, HL is cheaper, with charges of 0.6%. (Though that's only a small part of HL's overall business.)

I thought: why not compare performance, too? The one HL Select fund with a similar remit to Fundsmith Equity is the Global Growth Fund (the others being UK-only). And I was surprised to see it's beaten both Fundsmith Equity and Fundsmith Sustainable Equity! Though it has only been around for just over a year, so that definitely proves nothing. It has also been more volatile.