Fundsmith is the fund firm Terry Smith ("Britain's Warren Buffett") founded in 2010, with a discipline of radical simplicity — Buy Good Companies, Don't Overpay, Do Nothing: a concentrated book of 20-30 high-ROCE global consumer, healthcare and tech franchises with near-zero turnover. His annual shareholder letters are famous for wit and common sense; peak AUM topped £25bn.
This report covers Fundsmith's performance in the first half of 2011. The fund returned 11.9%, slightly beating the global stock market average of 10.7%. But the manager says 8 months is too short to judge the strategy. The fund holds companies like Intercontinental Hotels and Domino's Pizza. It only sold two stocks: Kimberly-Clark (a consumer goods firm) because its returns on new investments were getting worse, and Del Monte (bought out by a private equity firm). For regular investors, this shows that a good fund can outperform in the short term, but don't jump to conclusions. The manager used market dips to buy more shares, showing confidence in the companies' value. Worth a read because it demonstrates a simple 'buy good companies and hold' approach.
Fundsmith Equity Fund T Class Accumulation returned 11.9% over the period, outperforming the MSCI World benchmark (10.7%). The manager actively liquidated Kimberly-Clark (due to persistently deteriorating incremental return on capital) and used the decline to continue increasing holdings in high-qua
| Item | Return (Since Inception to 2011-06-30) |
|---|---|
| Fundsmith Equity Fund T Class Accumulation | +11.9% |
| MSCI World Index (GBP) | +10.7% |
| MSCI EAFE Index (GBP) | +8.1% |
| FTSE 100 Index (GBP) | +7.6% |
| UK Long Gilt 10yr (GBP) | +1.6% |
Cumulative returns for other share classes over the same period (since inception to 2011-06-30):
| Share Class | Cumulative Return |
|---|---|
| T Class Accumulation | 11.91% |
| T Class Income | 11.91% |
| R Class Accumulation | 11.57% |
| R Class Income | 11.58% |
| I Class Net Accumulation | 11.98% |
| I Class Net Income | 11.98% |
| Rank | Company | % of Fund |
|---|---|---|
| 1 | Intercontinental Hotels | 6.03 |
| 2 | Domino's Pizza | 5.85 |
| 3 | Dr Pepper Snapple | 5.11 |
| 4 | Imperial Tobacco | 4.86 |
| 5 | Automatic Data Processing | 4.80 |
| 6 | Schindler | 4.71 |
| 7 | Microsoft | 4.70 |
| 8 | Philip Morris International | 4.64 |
| 9 | 3M | 4.62 |
| 10 | Becton Dickinson and Company | 4.61 |
| Share Class | Total Net Assets (£) | Total Expense Ratio (TER, Annualised) |
|---|---|---|
| T Class Accumulation | 86,964,669 | 1.17% |
| T Class Income | 8,852,231 | 1.17% |
| R Class Accumulation | 5,676,219 | 1.66% |
| R Class Income | 1,910,258 | 1.66% |
| I Class Net Accumulation | 13,716,834 | 1.06% |
| I Class Net Income | 20,397,464 | 1.06% |
1. Short-term performance exceeded expectations, but insufficient to evaluate the strategy: As of 30 June 2011, the Fund's T Class Acc returned 11.9%, above the MSCI World's 10.7%, but the manager believes an 8-month period is too short to effectively judge the merits of the investment strategy.
2. Subsequent market volatility intensified and is expected to persist: Sovereign debt crises (Greece, Italy, Spain, US) led to deteriorating market sentiment, and the Fund's NAV has since fallen, but the manager stresses that the intrinsic value of portfolio companies (measured by free cash flow) has not declined.
3. Taking advantage of the downturn to add to high-quality companies: Throughout the reporting period, cash inflows were consistently invested into holdings, resulting in each unit owning more shares of high-quality companies; valuations for some target companies have fallen to attractive levels.
4. Main contributors and detractors: The top five contributors included Domino's Pizza (+£2.93 million), Dr Pepper Snapple (+£0.615 million), etc.; the largest detractors were Microsoft (-£0.323 million) and Serco (-£0.179 million), but the manager believes Microsoft is undervalued and Serco's diversified business and strong order visibility warrant no excessive concern.
5. Active sell and turnover rate explanation: The only active sell was Kimberly-Clark (due to deteriorating incremental return on capital), and the passive sell was Del Monte (acquired). The 12.9% turnover rate was above target, mainly due to a small average size, the acquisition event, and a single sale, and does not reflect an active trading strategy.