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 2013 results and moves. Manager Terry Smith sticks to buying solid companies (like Microsoft and Domino's Pizza) that earn good profits for years, and he trades very rarely—turnover was negative. He sold some stocks like McDonald's because they started relying on discounts. For regular investors, the lesson is to focus on quality and costs, not short-term noise. Since its launch, the fund earned 16.5% per year, beating the global stock index.
In 2013, the fund returned 25.3%, outperforming the benchmark MSCI World Index's 24.3%. This period saw the liquidation of McDonald's (due to weak sales relying on low-price promotions) and a new position in medical device company C.R. Bard. Manager Terry Smith reiterated the low-turnover strategy,
The report discloses the performance of the T Class Acc shares (net of fees, UK midday pricing) against the MSCI World Index (£ net total return, US close pricing):
| Item | 2013 | Cumulative Since Inception (01.11.2010 – 31.12.2013) | Annualised |
|---|---|---|---|
| Fundsmith Equity Fund (T Class Acc) | +25.3% | +62.2% | +16.5% |
| MSCI World Index (£ net) | +24.3% | +40.5% | +11.3% |
As of 31 December 2013, ranked by market value weight, compared with 2012:
| Rank | Company | 2013 Weight | 2012 Weight | Change |
|---|---|---|---|---|
| 1 | Stryker | 6.04% | 5.28% | +0.76% |
| 2 | Microsoft | 5.87% | 4.79% | +1.08% |
| 3 | Domino's Pizza | 5.69% | 5.18% | +0.51% |
| 4 | Dr Pepper Snapple | 5.65% | 5.60% | +0.05% |
| 5 | Reckitt Benckiser | 5.56% | 5.60% | -0.04% |
| 6 | Becton Dickinson and Company | 4.95% | 4.82% | +0.13% |
| 7 | Intercontinental Hotels | 4.87% | 4.84% | +0.03% |
| 8 | Unilever | 4.71% | 4.57% | +0.14% |
| 9 | 3M | 4.43% | — | New entrant |
| 10 | Imperial Tobacco | 4.36% | 5.24% | -0.88% |
(Note: Automatic Data Processing (4.91%, ranked 2nd in 2012) and Imperial Tobacco (5.24%, ranked 3rd in 2012) fell out of the top ten in 2013; 3M entered.)
New Positions:
Liquidations (full positions sold):
Largest Buys (by cost): Swedish Match £42.7M, Dr Pepper Snapple £37.8M, Philip Morris International £37.0M, Nestlé £36.7M, Imperial Tobacco £36.5M.
Largest Sells (by proceeds): Waters £48.4M, McDonald's £26.9M, Sigma Aldrich £25.6M, Serco £15.0M, Schindler £13.6M.
| Item | Value |
|---|---|
| Fund total net assets (all share classes) | Approx. £1,578M (calculated: T Class £552M + R Class £144M + I Class £883M) |
| T Class Acc OCF (Ongoing Charges Figure) | 1.11% |
| R Class Acc OCF | 1.61% |
| I Class Acc OCF | 1.01% |
| T Class Total Cost of Investment (TCI, including transaction costs) | 1.2% |
| Portfolio Turnover (reporting period) | -17.6% (negative due to methodology excluding cash flows; voluntary transaction costs only 0.025% of fund assets) |
| Weighted Average Dividend Yield (historical) | 2.3% |
| Weighted Expected Dividend Yield (forward) | 2.5% |
Fund manager Terry Smith made the following core points in his commentary:
1. Short-term performance warning: The fund outperformed the market by 1% in 2013, but the manager emphasised that short-term measurement is meaningless and long-term compounding is key.
2. Low turnover strategy and costs: The fund’s turnover is extremely low (-17.6%), with voluntary transaction costs at just 0.025% of fund assets; the manager strongly advocates that “total cost” (TCI 1.2%) reflects the true cost better than OCF and calls for full industry-wide disclosure.
3. Sell rationale: Each of the five liquidated stocks was explained — McDonald's trapped in low-price competition, Schindler overvalued, Serco exposed to government contract risk, Sigma-Aldrich's risky acquisition, Waters dependent on emerging market capital expenditure cycles and non-dividend-paying.
4. Valuation snapshot: The portfolio’s weighted average free cash flow yield fell from 5.7% to 5.1%, still above expected bond yields; the portfolio PE is 20.6x (S&P 500 at 17.4x), but historical data shows high-quality companies (e.g., Coca-Cola, Colgate) can sustain higher valuations and outperform over the long term.
5. Views on interest rates and macro: The manager acknowledged that the portfolio’s valuation rise partly reflects quantitative easing, but emphasised that the strategy will not change based on macro forecasts, always investing in high-ROCE (34% vs. market ~19%), high cash conversion (90-100%) quality companies.