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 2014 annual report shows the Fundsmith fund returned 23.3%, beating the global stock market's 11.5%. The manager buys high-quality companies (like Microsoft, Unilever) with strong profits and low debt, rather than predicting the economy. For everyday investors, it means holding great businesses can work, but the fund got pricier (its free cash flow yield dropped from 5.1% to 4.5%). Worth reading because it proves the strategy with real numbers and explains why they ignore macroeconomic forecasts.
In 2014, the fund T Class Acc net asset value rose 23.3%, significantly outperforming the benchmark MSCI World Index's 11.5%. The most notable portfolio actions this period were new positions in eBay (£95.9M) and Sage (£78.0M), along with new entries into the top ten holdings: Kone and Philip Morris
T Class Acc shares, net of fees, benchmark: MSCI World Index (£ net, dividends reinvested).
| Metric | Fund | Benchmark |
|---|---|---|
| 2014 (01.01-31.12) | +23.3% | +11.5% |
| Cumulative since inception (2010.11.01-2014.12.31) | +100.0% | +56.6% |
| Annualised since inception | +18.1% | +11.4% |
As of 31.12.2014, sorted descending by weight.
| Rank | Company | Weight (2014) | Weight (2013) | Change (pp) |
|---|---|---|---|---|
| 1 | Microsoft | 6.09% | 5.87% | +0.22 |
| 2 | Stryker | 5.23% | 6.04% | -0.81 |
| 3 | Dr Pepper Snapple | 5.40% | 5.65% | -0.25 |
| 4 | Becton Dickinson and Company | 5.08% | 4.95% | +0.13 |
| 5 | Imperial Tobacco | 4.81% | 4.36% | +0.45 |
| 6 | Unilever | 4.80% | 4.71% | +0.09 |
| 7 | Kone | 4.72% | — | New |
| 8 | Reckitt Benckiser | 4.42% | 5.56% | -1.14 |
| 9 | Philip Morris International | 4.34% | — | New |
| 10 | Domino’s Pizza | 4.31% | 5.69% | -1.38 |
Note: Intercontinental Hotels (4.87%) and 3M (4.43%) in the 2013 top ten fell out of the 2014 top ten.
New Positions
Liquidated/Reduced Positions
Notable Additions (largest buys list shows top five by value)
T Class Acc is representative; total fund size is the sum of all share classes.
| Item | Data |
|---|---|
| Total Fund AUM (31.12.2014) | £2,999,705,309 |
| T Class Acc OCF | 1.09% |
| T Class Acc TCI (Total Cost Including Transaction Costs) | 1.18% |
| Turnover Rate | -8.4% (negative value due to calculation method excluding subscriptions/redemptions) |
| Voluntary Transaction Costs as % of Fund | 0.005% (0.5bp) |
| 2014 Dividend (T Acc net income per share) | 2.0495p |
1. Short-term performance is meaningless, but 2014 showed strong outperformance: T Class Acc NAV rose 23.3%, outperforming the MSCI World index by 11.8 percentage points; since inception it has doubled investor capital.
2. Global economic growth is fragile and reliant on stimulus: Growth in core eurozone countries, Japan, and emerging markets is weak; US and UK growth depends on low interest rates and deficit spending; quantitative easing inflating asset prices is not a sign of prosperity.
3. Stock selection criteria take precedence over macro forecasts: The fund’s strategy is to buy good companies, not to predict the economy; the manager is not skilled at macro forecasting and does not rely on it for decisions.
4. Portfolio quality is significantly better than the market: Simulating the portfolio as a single company, it has a ROCE of 29% (market 18%), gross margin of 60% (market 40%), cash conversion rate of 102% (market 79%), and leverage of 28% (market 40%).
5. Valuation remains acceptable but has risen: The weighted average free cash flow yield fell from 5.1% at the start of the year to 4.5% at year-end, still above comparable bond yields; portfolio companies’ FCF per share grew 7.0%, capital expenditure grew 7.8%.