Fundsmith

talexuser

This thread seems to have put a hex on Trustnet. Fundsmith has disappeared from my portfolios in the past hour, and the company disappeared from the pick list to add a new investment in my 4 watchlists to replace the missing totals. Gremlins are lurking here :-)

CheekyMikey

I’ve been reading this thread with interest as about 10% of my pf is in Fundsmith…I’ve been thinking of reducing that by half and moving it into VG UK Equity Income as a better defensive balance for the next few years. I’ve still got exposure to a fair few Fundsmith holdings via another VG fund. I’d also like to get a bit more direct exposure to natural resources, perhaps via JPM Nat Resources, but a bit concerned it might be too late to target that sector now. Anyone got a view?

masonic

CheekyMikey said:

I’ve been reading this thread with interest as about 10% of my pf is in Fundsmith…I’ve been thinking of reducing that by half and moving it into VG UK Equity Income as a better defensive balance for the next few years. I’ve still got exposure to a fair few Fundsmith holdings via another VG fund. I’d also like to get a bit more direct exposure to natural resources, perhaps via JPM Nat Resources, but a bit concerned it might be too late to target that sector now. Anyone got a view?

Needless to say Fundsmith -> UK equity income is a profound change in regional allocation and style, reduces diversification, and puts your eggs in the region predicted to be the worst performing in the G7 next year. I'm not sure it fits your stated objective particularly well. As for JPM Natural Resources, I agree with you that that ship may have sailed. It could go on to perform well, but there are several scenarios where it could struggle, so seems a bit of a gamble to me.

talexuser

I hope not too far off topic since Train and Smith often talked about hand in hand.

Sold my entire Finsbury Growth and Income today at a slightly lower price than I bought it in 2016. Naturally I've had the dividends (invested elsewhere) and was looking for a get out since already used up all my CTG allowance this year exchanging Ireland domiciled funds for British ones to remove the hassle of excess reportable income, rebalance and reduce costs a tiny bit. I was debating whether it was worthwhile paying a few dozen pounds in CTG to dump it, but prices after the holiday settled it.

NB Fundsmith reappeared on Trustnet after a few hours absence :-)

aroominyork

talexuser said:

I hope not too far off topic since Train and Smith often talked about hand in hand.

I have long favoured Smith over Train because of the former's mix of B2B and B2C companies, while Train is focused (fixated?) on B2C and brands. That said, if Smith hits Train's kind of underperformance, I wonder if Smith fans will rue not having taken Train's run as a bleedin' obvious warning sign.

CheekyMikey

masonic said:

CheekyMikey said:

I’ve been reading this thread with interest as about 10% of my pf is in Fundsmith…I’ve been thinking of reducing that by half and moving it into VG UK Equity Income as a better defensive balance for the next few years. I’ve still got exposure to a fair few Fundsmith holdings via another VG fund. I’d also like to get a bit more direct exposure to natural resources, perhaps via JPM Nat Resources, but a bit concerned it might be too late to target that sector now. Anyone got a view?

Needless to say Fundsmith -> UK equity income is a profound change in regional allocation and style, reduces diversification, and puts your eggs in the region predicted to be the worst performing in the G7 next year. I'm not sure it fits your stated objective particularly well. As for JPM Natural Resources, I agree with you that that ship may have sailed. It could go on to perform well, but there are several scenarios where it could struggle, so seems a bit of a gamble to me.

The UK equity income is quite heavily weighted towards the big oil, banks and mining divi producers, which are more global than UK focussed..my thinking was that a 5% yield at the minimum is probably more likely than a 5% rise in Fundsmith over the next year or two, and I don’t have much in UK/FTSE so a slight regional rebalancing isn’t a bad thing. Natural resources would indeed be only a small gamble to give a boost to the pf, as that sector looks hot at the minute and hard to tell how long it will last.

masonic

CheekyMikey said:

masonic said:

CheekyMikey said:

I’ve been reading this thread with interest as about 10% of my pf is in Fundsmith…I’ve been thinking of reducing that by half and moving it into VG UK Equity Income as a better defensive balance for the next few years. I’ve still got exposure to a fair few Fundsmith holdings via another VG fund. I’d also like to get a bit more direct exposure to natural resources, perhaps via JPM Nat Resources, but a bit concerned it might be too late to target that sector now. Anyone got a view?

Needless to say Fundsmith -> UK equity income is a profound change in regional allocation and style, reduces diversification, and puts your eggs in the region predicted to be the worst performing in the G7 next year. I'm not sure it fits your stated objective particularly well. As for JPM Natural Resources, I agree with you that that ship may have sailed. It could go on to perform well, but there are several scenarios where it could struggle, so seems a bit of a gamble to me.

The UK equity income is quite heavily weighted towards the big oil, banks and mining divi producers, which are more global than UK focussed..my thinking was that a 5% yield at the minimum is probably more likely than a 5% rise in Fundsmith over the next year or two, and I don’t have much in UK/FTSE so a slight regional rebalancing isn’t a bad thing. Natural resources would indeed be only a small gamble to give a boost to the pf, as that sector looks hot at the minute and hard to tell how long it will last.

It's true that the big banks and commodity companies have a global focus, but you are buying in after prices have already risen ~20% since the start of the year. A 5% dividend is of course nice, but best to consider the potential total return when switching from one to the other. It is tempting to dump what has recently performed badly in favour of what has recently performed well, but it is a strategy that can backfire. Setting objectives based on returns over the next year or two makes it very difficult to do anything other than take a small gamble.

Thrugelmir

GazzaBloom said:

Thrugelmir said:

NoviceInvestor1 said:

Prism said:

Every fund in a portfolio should require a justification beyond 'I think it will provide higher returns'. In the case of Fundsmith, I use it as an alternative to a developed world fund like Fidelity Index World. I do this for a few reasons but mainly to avoid the riskier, more cyclical parts of the market like banks, miners, car makers and the like. The end effect of this is generally a lower volatility compared to other large cap equity funds and typically a lower drawdown when there is a crash. The last time this was tested was 2020 and it worked very well then. In general I try to reduce risk and volatility across most aspects of my portfolio, not just large cap global equities.

Fundsmith has underperformed a quality index for 3 years out of the last 4, what do you think will be the catalyst for the fund turning around and going back to generating alpha like it used to half a decade ago? 

When individual stock selection again becomes key. We've experienced an era of freely printed money lifting all boats. Finally over. A new era has begun. 

Now, in this exciting new era, if only the majority of fund managers could reliably pick winning stocks consistently over time for their funds and beat the indexes, we'll all be laughing.

Personally I wouldn't regard the era ahead as exciting. As is fraught with potential downsides. Takes two trade in a market. Someone has to a loser. You can either accept the average return whatever that might be. Or adopt a flexible investment strategy that aims to optimise returns over your personal timeframe. 

aroominyork

Thrugelmir said:

GazzaBloom said:

Thrugelmir said:

NoviceInvestor1 said:

Prism said:

Every fund in a portfolio should require a justification beyond 'I think it will provide higher returns'. In the case of Fundsmith, I use it as an alternative to a developed world fund like Fidelity Index World. I do this for a few reasons but mainly to avoid the riskier, more cyclical parts of the market like banks, miners, car makers and the like. The end effect of this is generally a lower volatility compared to other large cap equity funds and typically a lower drawdown when there is a crash. The last time this was tested was 2020 and it worked very well then. In general I try to reduce risk and volatility across most aspects of my portfolio, not just large cap global equities.

Fundsmith has underperformed a quality index for 3 years out of the last 4, what do you think will be the catalyst for the fund turning around and going back to generating alpha like it used to half a decade ago? 

When individual stock selection again becomes key. We've experienced an era of freely printed money lifting all boats. Finally over. A new era has begun. 

Now, in this exciting new era, if only the majority of fund managers could reliably pick winning stocks consistently over time for their funds and beat the indexes, we'll all be laughing.

Personally I wouldn't regard the era ahead as exciting. As is fraught with potential downsides. Takes two trade in a market. Someone has to a loser. You can either accept the average return whatever that might be. Or adopt a flexible investment strategy that aims to optimise returns over your personal timeframe. 

I do not know how seriously you mean this but it is surely not true - trading is not a zero sum game. Example: you have an investment timeframe of five years and hold a global equity tracker. I have an investment timeframe of 25 years and hold, say, Capital Gearing Trust. We each sell our holding and buy the other person's. Our trades result in us both having a more appropriate investment for our circumstances. Analogously, you are hungry and have a bottle of water. I am thirsty and have a loaf of bread. We trade, both benefiting with no loser.

tebbins

1. There is almost 0 correlation between GDP and domestic stock index performance over periods as short as a single year.
2. Regardless of (for example) the FTSE 100 's globalised presence, over the (very) long term UK GDP and stock indices have been correlated and grown at similar rates (obviously endpoint sensitive and less true over shorter periods).