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 Equity Fund’s first half of 2014. The fund returned 4.1%, beating the market’s 2.9%. The manager made only one trade: sold Swedish Match (worried about e-cigarettes) and bought eBay (makes money from transaction fees). They stress that total costs – the 1.09% annual fee plus trading costs – eat into returns. Also, one holding (Intercontinental Hotels) got a takeover offer, boosting performance. For ordinary investors, it’s a lesson in sticking with good companies, trading infrequently, and watching costs.
In the first half of 2014, the fund returned +4.1%, outperforming the MSCI World Index's +2.9%. During this period, the fund initiated a new position in eBay (whose revenue is primarily from transaction fees) and closed out Swedish Match (as e-cigarettes changed its outlook). The portfolio turnover
| Metric | Fund (T Class Acc) | Benchmark (MSCI World Index) | UK Bonds | Cash |
|---|---|---|---|---|
| Since Inception (01.11.2010 – 30.06.2014) Cumulative Return | +68.8% | +44.5% | +15.0% | +2.6% |
| Since Inception Annualised Return | +15.4% | +10.6% | +3.9% | +0.7% |
| H1 2014 Return | +4.1% | +2.9% | +2.7% | +0.3% |
The report does not directly disclose a full list of the top ten holdings. The manager's commentary mentions the top five contributors and detractors as follows:
| Category | Company | Contribution to Portfolio Return in Period |
|---|---|---|
| Top Contributor | Dr Pepper Snapple | +1.00% |
| Top Contributor | Intercontinental Hotels | +0.87% |
| Top Contributor | Imperial Tobacco | +0.76% |
| Top Contributor | Microsoft | +0.69% |
| Top Contributor | Stryker | +0.60% |
| Top Detractor | Kone | -0.29% |
| Top Detractor | Choice Hotels | -0.24% |
| Top Detractor | Visa | -0.23% |
| Top Detractor | Procter & Gamble | -0.20% |
| Top Detractor | Automatic Data Processing | -0.19% |
| Transaction Type | Company | Cost/Proceeds (£) |
|---|---|---|
| New Position | eBay | 35,795,359 |
| Fully Sold | Swedish Match | 58,682,454 |
| Share Class | OCF (Ongoing Charges Figure) | Fund Size (AUM) | Turnover | Dividend |
|---|---|---|---|---|
| T Class Acc | 1.09% | £559,379,199 | Not disclosed | Not disclosed |
| I Class Acc | 0.99% | £463,293,813 | Not disclosed | Not disclosed |
| Whole Fund | - | Total size not disclosed in report | Portfolio turnover mentioned as -4.7% | Net income per share shown in report price record table |
1. Fund Continues to Outperform the Market: The fund returned +4.1% in H1 2014, outperforming the MSCI World Index's +2.9%. The manager believes that despite the portfolio's defensive tilt (low cyclicality), the fully invested strategy (no market timing) and holding high-quality companies were the drivers.
2. Minimal Portfolio Changes: During the period, only Swedish Match was sold (due to e-cigarettes potentially altering its smoke-free product outlook) and a new position in eBay was opened (the majority of its revenue comes from transaction fees). This resulted in a negative portfolio turnover rate (-4.7%).
3. Emphasis on Total Cost Concept: The OCF is 1.09% (including a 1% management fee). Including transaction costs, the total cost (TCI) rises to 1.18%. The manager notes that investors should focus on total costs to maximise returns.
4. Additional Benefits from Holding High-Quality Companies: The portfolio benefited from companies attracting takeover bids, such as Intercontinental Hotels Group, which received a takeover approach during the period and contributed 0.87% to returns.