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 2023 performance. It earned 12.4% but lagged the global stock market (16.8%) because it didn't own the "Magnificent Seven" tech stocks (Apple, Microsoft, etc.). However, since 2010 it has returned 550% vs. 317% for the index, with lower downside risk. For ordinary investors, it shows the value of buying great companies, holding long-term, and keeping costs low. Smith also warns against chasing AI hype, noting that many early tech leaders (like Nokia or Blackberry) eventually lost out. This is worth reading for a disciplined, long-term perspective.
In 2023, the fund returned +12.4%, underperforming the benchmark MSCI World Index's +16.8%. During the period, new positions were established in Procter & Gamble, Marriott International, and Fortinet, while Adobe, Amazon.com, and Estée Lauder were fully exited. The manager emphasizes that the portfo
| Metric | 2023 | Cumulative Since Inception (From 2010.11.01) | Annualized Since Inception |
|---|---|---|---|
| Fundsmith Equity Fund (T Class Acc) | +12.4% | +549.7% | +15.3% |
| MSCI World Index (£ Net) | +16.8% | +316.7% | +11.5% |
| UK Bonds (5-10 Year) | +5.6% | +26.5% | +1.8% |
| Cash | +4.6% | +12.8% | +0.9% |
The report did not provide a complete list of the top ten holdings, only disclosing the geographic and sector allocation. The following are the main holding changes mentioned in the report:
| Geographic Allocation (December 31, 2023) | Weight (2022 same period in parentheses) |
|---|---|
| United States | 69% (72%) |
| Europe | 26% (23%) |
| United Kingdom | 5% (5%) |
| Sector Allocation (December 31, 2023) | Weight (2022 same period in parentheses) |
|---|---|
| Consumer Staples | 29% (34%) |
| Healthcare | 27% (26%) |
| Consumer Discretionary | 13% (12%) |
| Information Technology | 11% (10%) |
| Communication Services | 8% (4%) |
| Industrials | 6% (6%) |
| Financials | 4% (4%) |
| Other Net Assets | 2% (4%) |
New Positions:
Liquidated:
Notable Increases/Decreases (Mentioned in Manager Commentary):
Largest Buys (by Cost):
| Company | Cost (£) |
|---|---|
| Marriott International | 635,445,163 |
| Procter & Gamble | 497,938,082 |
| Unilever | 274,905,676 |
| Fortinet | 189,583,548 |
| Church & Dwight | 132,901,731 |
Largest Sells (by Proceeds):
| Company | Proceeds (£) |
|---|---|
| Estée Lauder | 690,135,386 |
| Adobe | 551,281,458 |
| Amazon.com | 525,254,260 |
| Microsoft | 300,329,861 |
| IDEXX Laboratories | 283,821,135 |
| Item | T Class Acc | I Class Acc | R Class Acc |
|---|---|---|---|
| OCF (Ongoing Charges Figure) | 1.04% | 0.94% | 1.54% |
| Direct Transaction Costs | 0.01% | 0.01% | 0.01% |
| Total Cost of Investment (TCI, incl. transaction costs) | 1.05% | — | — |
| Total Fund Size (AUM, all share classes combined) | £23,174,609,592 | — | — |
| Portfolio Turnover Rate | 11.1% | — | — |
| Voluntary Transaction Costs as % of Average Assets | 0.008% (approx. 1 basis point) | — | — |
| Dividend (T Class Acc per share) | 1.82p | — | — |
1. Performance Attribution: In 2023, the fund underperformed the MSCI World Index (+12.4% vs +16.8%), primarily due to insufficient holdings in the "Magnificent Seven" tech stocks (which contributed 68% of the Nasdaq's gains). However, since inception, the annualized return of 15.3% has outperformed the index by nearly 4 percentage points, with lower downside volatility (Sortino Ratio 0.83 vs 0.51).
2. Portfolio Quality Remains Superior: As of end-2023, the portfolio's weighted average ROCE was 32% (vs S&P 500 18%, FTSE 100 17%), operating margin 29% (vs 16%, 15%), gross margin 63% (vs 45%, 41%), and cash conversion rate 91% (below the historical average of 100%, but expected to recover in 2024). The average portfolio company was founded in 1916, collectively over a century old.
3. Valuation and Cash Flow: The portfolio's weighted average free cash flow yield declined from 3.2% at the start of the year to 3.0% at year-end, below the S&P 500 median of 3.7%. The manager believes the portfolio companies' higher quality justifies the valuation premium and expects improved cash conversion in 2024 to narrow the valuation gap.
4. Cost Control and Trading Discipline: The portfolio turnover rate was 11.1% (slightly above historical levels), but voluntary transaction costs were only 0.008% of average assets (approx. 1 basis point). The Total Cost of Investment (TCI) was 1.05%, only 0.01 percentage points higher than the OCF, demonstrating extremely low transaction costs. The manager emphasizes that long-term holding (10 companies held for over 10 years, 5 held since inception) is key to cost control.
5. Cautious Stance on AI and Market Hype: The manager is skeptical of AI investments, noting that historically, early technology leaders (e.g., Intel, AOL, Nokia, Yahoo, Blackberry, Myspace) have mostly failed to maintain their advantage. The report argues that the current AI landscape is highly competitive (multiple large models coexisting) and may ultimately result in no one achieving a durable competitive advantage, akin to "the entire audience standing up, but no one seeing any better."