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.
The Fundsmith Equity Fund lost about 18% in the first half of 2022, worse than the global stock market. The main reason: its high-growth holdings like PayPal and Meta were hit hard by rising inflation and interest rates. But manager Terry Smith argues that the portfolio's companies have strong profit margins (60% on average), which helps absorb cost increases. Valuations have also fallen, with the fund's free cash flow yield rising from 2.7% to 3.6%. Smith refuses to buy energy stocks, claiming their long-term returns are limited. The fund traded only 3.2% of its holdings, keeping costs very low. For ordinary investors, this report shows the value of staying patient with quality companies, though you should watch the fund's annual fees (around 1%).
In the first half of 2022, the fund's net asset value fell by 17.8%, underperforming the MSCI World Index's -11.3% by 6.5 percentage points. During this period, the fund significantly increased its position in Adobe (£710 million) and fully exited Johnson & Johnson (£620 million). The manager emphas
| Metric | H1 2022 | Since Inception (Annualised) |
|---|---|---|
| Fund (T Class Acc, Net of Fees) | -17.8% | +15.8% |
| MSCI World Index (£ Net) | -11.3% | +11.2% |
| UK Bonds (5-10 Year) | -7.1% | +2.3% |
| Cash (£) | +0.3% | +0.6% |
Note: The fund is not managed against any benchmark; the above is for reference only.
The report does not disclose a full list of top ten holdings, only providing sector and geographic breakdowns.
Geographic Breakdown (by Listing Location, 30/06/2022)
| Region | Weight | Comparison (31/12/2021) |
|---|---|---|
| United States | 74% | (74%) |
| Europe | 22% | (21%) |
| United Kingdom | 4% | (5%) |
Sector Breakdown (30/06/2022)
| Sector | Weight | Comparison (31/12/2021) |
|---|---|---|
| Communication Services | 33% | (30%) |
| Healthcare | 27% | (26%) |
| Consumer Discretionary | 23% | (22%) |
| Consumer Staples | 2% | (2%) |
| Information Technology | 6% | (7%) |
| Industrials | 1% | (2%) |
| Other Net Assets | 8% | (11%) |
Major Buys (H1 2022)
| Company | Cost (£) |
|---|---|
| Adobe | 700,982,358 |
| Mettler-Toledo International | 497,369,849 |
| Alphabet | 74,855,914 |
| Stryker | 36,884,992 |
| LVMH Moet Hennessy Louis Vuitton | 20,165,476 |
Major Sells (H1 2022)
| Company | Proceeds (£) |
|---|---|
| Johnson & Johnson | 621,464,087 |
| Starbucks | 480,020,361 |
| Unilever | 282,648,721 |
| Intuit | 178,784,880 |
| PepsiCo | 162,702,563 |
| Item | T Class Acc | I Class Acc | R Class Acc |
|---|---|---|---|
| OCF (Ongoing Charges) | 1.04% | 0.94% | 1.54% |
| Total Fund Size (£) | 3,735,177,066 | 13,282,929,916 | 473,517,856 |
| Turnover Rate | 3.2% | — | — |
| Dividend (per share, p) | 0.28 | 0.47 | 0.00 |
Note: The turnover rate is disclosed only for the T Class shares.
1. Performance Attribution: The report notes that the fund underperformed the MSCI World Index by 6.5 percentage points in the first half, primarily due to a sharp correction in high-valuation growth stocks (e.g., PayPal, IDEXX, Meta) amid surging inflation and expectations of interest rate hikes.
2. Inflation Defense: The fund manager emphasises that the average gross margin of portfolio holdings is 60% (vs. the market average of 40%). This high-margin structure provides a first line of defence against rising costs; for example, a 10% increase in COGS has a far smaller impact on profits compared to an average company.
3. Valuation Changes: The report discloses that the portfolio's free cash flow (FCF) yield rose from 2.7% at end-2021 to 3.6% at end-June 2022, with valuations having reverted to levels seen at end-2017.
4. Sector Selection: The manager reiterates that the fund holds no energy stocks. Despite the sector's strong rally in the first half (S&P Energy Index +29%), the manager argues that the gains only bring it back to 2008 levels, offering limited long-term returns.
5. Portfolio Turnover: The portfolio turnover rate was only 3.2% in the first half, with voluntary trading costs at just 0.002% (0.2 basis points), underscoring the unchanged commitment to a long-term holding strategy.