Fundsmith Equity Fund Annual Report 2016

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.

Terry Smith · 2010 · 英国伦敦Quality growth / Concentrated

Period Performance

Indicator	Fundsmith Equity Fund (T Class Acc)	MSCI World Index (£ net)	FTSE 100 Index (Total Return)
2016 Return	+28.2%	+28.2%	+19.2%
Cumulative Return Since Inception (Nov 1, 2010)	+196.6%	+110.6%	—
Annualized Return Since Inception	+19.3%	+12.8%	—

Top 10 Holdings

The report did not provide details of top 10 holdings; this item is omitted.

Major Buys and Sells This Period

New Positions (Top 5 Buys): JM Smucker, Estée Lauder Companies, PayPal, Amadeus IT, Waters

Closed Positions (Top 3 Sells): Procter & Gamble, eBay, Becton Dickinson

Manager's Special Mention: New positions in Estée Lauder Companies and Novo Nordisk; closed position in Procter & Gamble (January 2016).

Fees and Size

Share Class	OCF (Ongoing Charges)	Fund Size (End of Period)	Dividend Per Share	Portfolio Turnover
T Class Acc	1.06%	£1,483,593,346	2.21p	-15.6%
I Class Acc	0.96%	£4,038,574,367	2.50p	—
Total Fund Size	—	£9,063,256,890	—	—

Note: OCF is as of 2016; the turnover rate is reported as "-15.6%", referring to the net sell ratio; total size is the sum of all share classes.

Key Points from Manager's Commentary

Performance in line with benchmark: The fund returned +28.2% in 2016, matching the MSCI World Index, but outperforming the FTSE 100 Index (+19.2%) by 9 percentage points.
Portfolio quality far exceeds indices: The average ROCE of holdings is 26.7%, well above the FTSE 100's 13.5% and the S&P 500's 14.7%; average gross margin is 61.9%, and operating margin is 25.5%.
Robust free cash flow growth: Weighted average free cash flow grew over 11%, while earnings of the FTSE 100 and S&P 500 declined over the same period.
Valuation not expanded: The portfolio's free cash flow yield was 4.3% at the start of the period and 4.4% at the end, with valuation levels comparable to the S&P 500 median.
Low turnover strategy: Portfolio turnover was -15.6% (net sell), and active trading costs amounted to only 0.003% (0.3 basis points) of fund assets, emphasizing the "do nothing" principle.