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 fund returned 22% in 2017, beating the 11.8% average of global stock markets. It invests only in high-quality companies with strong returns on capital (28% vs 15% market average) and low debt (37% vs 52%). It trades very rarely (turnover just 5.4%), keeping costs low. It sold two companies because their business or management was struggling. The lesson: pick great companies, hold them long-term, and keep costs down.
In 2017, the Fund's T-class share returned 22.0%, significantly outperforming the MSCI World Index (11.8%) and FTSE 100 Index (12.0%) benchmarks. The manager noted that the average ROCE of portfolio holdings was 28%, and liquidated positions in JM Smucker and Imperial Brands due to deteriorating fun
| Share Class | Reporting Period (2017) | Cumulative Since Inception (2010.11.01 to 2017.12.31) | Annualized Since Inception |
|---|---|---|---|
| T Class Acc | +22.0% | +261.7% | +19.7% |
| MSCI World Index (Benchmark) | +11.8% | +135.5% | +12.7% |
| FTSE 100 Index (Benchmark) | +12.0% | — | — |
The report did not disclose the top ten holdings in detail.
Largest Purchases (by Cost)
| Rank | Company | Cost (£) |
|---|---|---|
| 1 | Novo Nordisk | 358,582,195 |
| 2 | Becton Dickinson and Company | 300,046,157 |
| 3 | Intuit | 282,337,803 |
| 4 | Dr Pepper Snapple | 228,261,826 |
| 5 | Reckitt Benckiser | 208,349,743 |
Largest Sales (by Proceeds)
| Rank | Company | Proceeds (£) |
|---|---|---|
| 1 | JM Smucker | 324,420,720 |
| 2 | Imperial Brands | 318,965,139 |
| 3 | Reckitt Benckiser | 18,679,638 |
| Item | Value |
|---|---|
| Total Assets Under Management (AUM) | £13,199,392,187 (all share classes combined) |
| Ongoing Charge Figure (OCF) - T Class Acc | 1.05% |
| Direct transaction costs - T Class Acc | 0.04% |
| Portfolio Turnover Rate | 5.4% |
| Voluntary transaction costs as a percentage of average fund value | 0.011% |
1. Fund outperformed the benchmark: The T Class Acc share class returned 22.0% in 2017, compared to 11.8% for the MSCI World Index and 12.0% for the FTSE 100 Index over the same period.
2. Portfolio companies exhibit significantly higher quality than the market average: The average ROCE of portfolio companies was 28%, well above the 15% for the S&P 500 and 14% for the FTSE 100; the average leverage ratio was 37%, lower than the 52% for the S&P 500 and 46% for the FTSE 100.
3. Free cash flow growth drove performance: The portfolio-weighted average free cash flow grew by 13% in 2017, which the manager considers a solid result in a global environment of sluggish growth.
4. Reasons for selling: fundamentals and management concerns: The full exits from JM Smucker and Imperial Brands were driven by weaker-than-expected business performance (especially difficulties in growing the food business) and concerns over the company's positioning and management's insufficient response to next-generation lower-risk products (such as heat-not-burn devices), respectively.
5. Low turnover and cost control: The portfolio turnover rate was 5.4%, and the 13 stocks held since inception have remained unchanged, aiming to improve net returns for investors through low transaction costs.