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 2021 performance. The fund returned 22.1%, slightly behind the market's 22.9%, but since 2010 it's up 570%, far above average. The manager owns only a few high-quality companies (like Microsoft and Novo Nordisk), holds them for years, and trades very little (5.6% turnover). His message: in a bull market even bad stocks rise, but only good ones deserve to be held long-term. For ordinary investors, it's a reminder to focus on quality, avoid overtrading, and accept short-term underperformance for better long-term results.
In 2021, the fund returned +22.1%, slightly underperforming the benchmark MSCI World Index's +22.9%. The largest contribution during the period came from Microsoft (+3.9%), with new positions initiated in Amazon.com and Alphabet. The manager emphasized that the portfolio's weighted average ROCE reac
| Share Class | Reporting Period (2021) | Annualized (Since Inception) | Cumulative (Since Inception) |
|---|---|---|---|
| T Class Acc | +22.1% | +18.6% | +570.7% |
| Benchmark: MSCI World Index (£ Net) | +22.9% | +12.9% | +287.1% |
Note: The report discloses that T Class Acc is the most widely held share class, and the fund manager also holds this class.
The report does not provide a complete list of the top ten holdings, only disclosing the top five contributors and bottom five detractors during the period.
Top Five Contributors:
| Rank | Company | Contribution to Fund |
|---|---|---|
| 1 | Microsoft | +3.9% |
| 2 | Intuit | +3.1% |
| 3 | Novo Nordisk | +2.3% |
| 4 | Estée Lauder | +2.0% |
| 5 | IDEXX | +1.9% |
Bottom Five Detractors:
| Rank | Company | Detraction from Fund |
|---|---|---|
| 1 | PayPal | -0.7% |
| 2 | Amadeus | -0.2% |
| 3 | Kone | -0.2% |
| 4 | Unilever | -0.2% |
| 5 | Brown-Forman | -0.1% |
New Positions:
Liquidated / Fully Sold:
Significant Increases/Decreases:
| Item | Value |
|---|---|
| Total Fund Size (AUM) | £28.66bn (all share classes combined) |
| OCF (T Class Acc) | 1.04% |
| OCF (I Class Acc Net) | 0.94% |
| OCF (R Class Acc) | 1.54% |
| Portfolio Turnover Rate | 5.6% |
| Voluntary Transaction Costs as % of Average Assets | 0.009% (less than 1 basis point) |
| Total Cost of Investment (TCI, T Class Acc) | 1.05% |
| Dividend (T Class Acc) | 0.77p per share |
1. 2021 Relative Performance: The fund returned +22.1% vs. the MSCI World's +22.9%, a slight underperformance. However, since its inception in 2010, the cumulative return is +570.7%, outperforming the IA Global sector average (+213.9%) by 357 percentage points.
2. Reason for Underperformance: 2021 was a recovery year. The fund's holdings demonstrated strong resilience but had limited recovery elasticity; the "rising tide" bull market lifted lower-quality stocks as well, and the fund was unwilling to sell high-quality companies for short-term trading.
3. Portfolio Quality Characteristics: Weighted average ROCE of 28%, gross margin of 64%, operating margin of 26%, cash conversion rate of 95%, and interest coverage ratio of 23x. The average founding year of portfolio companies is 1926, with weighted average free cash flow growth of 20%.
4. Valuation and Inflation: The portfolio's weighted average free cash flow yield is 2.7% (below the S&P 500's 3.6% and the FTSE 100's 5.4%). High gross margins (>60%) make portfolio companies more resilient to input cost inflation than index companies (e.g., a 5% cost increase for L'Oréal only erodes profits by 7%, compared to 22% for Campbell's).
5. Strategy Adherence: The fund continues to execute its three-step process: "buy good companies, do not overpay, do not trade." The portfolio turnover rate is 5.6%, and seven companies have been held unchanged since inception.