Fundsmith

[scrumpyjack]

I agree about the charges, and it also niggles that he avoids UK tax on them by living in Mauritius. Mind you having had holidays in Mauritius several times I can understand the attractions though I think I'd get bored lying under a palm tree for much of the time

[simoan]

For those interested Smiths thoughts from his AGM are now on video on the website.

https://www.fundsmith.co.uk/tv/

I'd paraphrase by saying we got a few things wrong but are sticking to our knitting. The companies that we invest in are significantly better quality than the average on our metrics but are now sitting at about the same valuation as the S&P500 on our favoured metric having been valued significantly higher.

It was good to see they cut down Mr. Smiths overview this year (which was sometimes tediously long and repeated the same thing every year) and gave more time over to Q&A. As always, there were things I agree with and some I didn't. For a start, I don't understand why he said there are no good companies in the FTSE 100! I assume he really meant there were no companies with the quality, profitability and liquidity required that Fundsmith do not already own e.g. Diageo and Unilever. Talking of liquidity, I smiled at the little dig at Woodford when he mentioned running an Open Ended fund with low liquidity underlying investments being a recipe for disaster!

Interesting comments about individual companies, including other companies in the investable universe, such as Adyen NV, a company I had not come across before. Interesting also that they are buyers of Apple at $125 and that Meta is cheap, the latter I completely agree with even though it's doubled since the November 2022 low.

All the best, Si

[Backache]

For a start, I don't understand why he said there are no good companies in the FTSE 100! I assume he really meant there were no companies with the quality, profitability and liquidity required that Fundsmith do not already own e.g. Diageo and Unilever.

All the best, Si

I haven't listened to it a second time to confirm exactly what he said but what I took him as meaning was that the FTSE100 as a whole had poorer quality companies than the S&P500 and so was not a good comparator to use, and he was using it as well because it was the home market for the Fundsmith clientele.

[scotia]

Tracker total returns compared to Fundsmith funds:-



I currently hold all four. Last year I was wondering if the Fundsmith formula had begun to lose its winning ways- and its returns were reverting to the mean. But I now think that it is too early to come to that conclusion. But I'll keep watching.
Data from Hargreaves Lansdown

[Lootman]

I agree about the charges, and it also niggles that he avoids UK tax on them by living in Mauritius. Mind you having had holidays in Mauritius several times I can understand the attractions though I think I'd get bored lying under a palm tree for much of the time

Presumably Smith would still pay UK tax on UK-sourced income?

Unless Fundsmith is registered overseas?

As for sitting under a palm tree, I suspect that he travels a lot to Paris, Amsterdam, Dubai, Singapore, New York etc. Or on a yacht. He just needs to avoid spending too much time in the UK each year.

[scrumpyjack]

I agree about the charges, and it also niggles that he avoids UK tax on them by living in Mauritius. Mind you having had holidays in Mauritius several times I can understand the attractions though I think I'd get bored lying under a palm tree for much of the time

Presumably Smith would still pay UK tax on UK-sourced income?

Unless Fundsmith is registered overseas?

As for sitting under a palm tree, I suspect that he travels a lot to Paris, Amsterdam, Dubai, Singapore, New York etc. Or on a yacht. He just needs to avoid spending too much time in the UK each year.

Fundsmith is Limited Liability Partnership with a seemingly complex set up of various overseas subsidiaries so I would not be surprised if Terry's modest share of the profit (his share was £37 million last year) has been structured to arise in an overseas subsidiary so that as a non resident he would not be troubled by the imposition of UK income tax on it?

[BullDog]

I agree about the charges, and it also niggles that he avoids UK tax on them by living in Mauritius. Mind you having had holidays in Mauritius several times I can understand the attractions though I think I'd get bored lying under a palm tree for much of the time

Presumably Smith would still pay UK tax on UK-sourced income?

Unless Fundsmith is registered overseas?

As for sitting under a palm tree, I suspect that he travels a lot to Paris, Amsterdam, Dubai, Singapore, New York etc. Or on a yacht. He just needs to avoid spending too much time in the UK each year.

Fundsmith is Limited Liability Partnership with a seemingly complex set up of various overseas subsidiaries so I would not be surprised if Terry's modest share of the profit (his share was £37 million last year) has been structured to arise in an overseas subsidiary so that as a non resident he would not be troubled by the imposition of UK income tax on it?

From memory, Smith's investment management function is registered in Mauritius and provides services to Fundsmith LLP in the UK.

[Humeau]

For those interested Smiths thoughts from his AGM are now on video on the website.

https://www.fundsmith.co.uk/tv/

Interesting comments about individual companies, including other companies in the investable universe, such as Adyen NV, a company I had not come across before. Interesting also that they are buyers of Apple at $125 and that Meta is cheap, the latter I completely agree with even though it's doubled since the November 2022 low.

All the best, Si

Did you follow up on this Si?

I bought after it fell 40+% at 770 euro. It went lower but recovered quickly after the Investor's day update and is now 1200. Fundsmith started buying anew holding in August, but so far there has been no further news. I suspect it isn't Adyen, as they would have stopped buying last month.

In, any case, I'll hold because the FCF is absolutely phenomenal and it is not yet crazily overpriced like it was above 2500.

[simoan]

Interesting comments about individual companies, including other companies in the investable universe, such as Adyen NV, a company I had not come across before. Interesting also that they are buyers of Apple at $125 and that Meta is cheap, the latter I completely agree with even though it's doubled since the November 2022 low.

All the best, Si

Did you follow up on this Si?

I bought after it fell 40+% at 770 euro. It went lower but recovered quickly after the Investor's day update and is now 1200. Fundsmith started buying anew holding in August, but so far there has been no further news. I suspect it isn't Adyen, as they would have stopped buying last month.

In, any case, I'll hold because the FCF is absolutely phenomenal and it is not yet crazily overpriced like it was above 2500.

Errr, no. I wasn’t looking to open a position in Adyen NV and haven’t been following it for that reason. I seem to remember reading they’d followed Smithson into Fortinet recently, which surprised me tbh. Must admit I’ve not been reading the updates, although I did receive an email customer survey from them today. Well done on the well timed purchase of Adyen.

[BullDog]

Did you follow up on this Si?

I bought after it fell 40+% at 770 euro. It went lower but recovered quickly after the Investor's day update and is now 1200. Fundsmith started buying anew holding in August, but so far there has been no further news. I suspect it isn't Adyen, as they would have stopped buying last month.

In, any case, I'll hold because the FCF is absolutely phenomenal and it is not yet crazily overpriced like it was above 2500.

Errr, no. I wasn’t looking to open a position in Adyen NV and haven’t been following it for that reason. I seem to remember reading they’d followed Smithson into Fortinet recently, which surprised me tbh. Must admit I’ve not been reading the updates, although I did receive an email customer survey from them today. Well done on the well timed purchase of Adyen.

Smith's timing of the Fortinet purchase for Fundsmith was dreadful!

[Humeau]

He began buying in August, presumably after the big drop and the price went down a little more, and has recovered most of that since. 'Dreadful' looks way too critical. I missed the bottom of Adyen by over 20% and would say I should have waited another week or two, I would judge in hindsight. My timing was worse but 'dreadful' it was not.

Terry Smith should reduce his fees by 25 basis points, has made some quite strange decisions over recent years and the fund hasn't performed so well. However some of the criticism seems harsh, especially in the light of the excellent long term performance of the main fund.

[Arborbridge]

He began buying in August, presumably after the big drop and the price went down a little more, and has recovered most of that since. 'Dreadful' looks way too critical. I missed the bottom of Adyen by over 20% and would say I should have waited another week or two, I would judge in hindsight. My timing was worse but 'dreadful' it was not.

Terry Smith should reduce his fees by 25 basis points, has made some quite strange decisions over recent years and the fund hasn't performed so well. However some of the criticism seems harsh, especially in the light of the excellent long term performance of the main fund.

I wish most of my other investments were as "dreadful" (Referring to the main fund, not Smithson)

[Adamski]

Look like having a good year vs benchmark as heavily weighted in US Tech. He's made lot of investors rich. But with Ongoing Charges Figure 1.04%, there's one guaranteed winner, living in the tropical paradise of Mauritius.

[simoan]

Look like having a good year vs benchmark as heavily weighted in US Tech. He's made lot of investors rich. But with Ongoing Charges Figure 1.04%, there's one guaranteed winner, living in the tropical paradise of Mauritius.

Is this worse than those fund managers in a similar position who charge 0.5% for poor performance, or have even lost people money? Can't imagine Woodford is stacking shelves at Lidl. The same goes for many incompetent overpaid CEO's running publicly listed companies, of course, and yet we have no problem holding those shares. I understand why some people don't like Terry Smith but IMHO he deserves every penny.

[BullDog]

Look like having a good year vs benchmark as heavily weighted in US Tech. He's made lot of investors rich. But with Ongoing Charges Figure 1.04%, there's one guaranteed winner, living in the tropical paradise of Mauritius.

Is this worse than those fund managers in a similar position who charge 0.5% for poor performance, or have even lost people money? Can't imagine Woodford is stacking shelves at Lidl. The same goes for many incompetent overpaid CEO's running publicly listed companies, of course, and yet we have no problem holding those shares. I understand why some people don't like Terry Smith but IMHO he deserves every penny.

Absolutely. Carping about how wealthy Smith is misses the bigger picture entirely. FS is my best ever return by a mile. I don't begrudge him a penny.

[scotia]

I understand why some people don't like Terry Smith but IMHO he deserves every penny.

I'm not sure that he does - it looks like his formula is struggling . The total return over 5 years is
Fundsmith = 63.5%
Fundsmith Sustainable = 61.2%
Vanguard Developed World Tracker ETF (VEVE) = 66.7%
I hold all three, but the tracker is now receiving my spare cash.
Looking back to Woodford at Invesco Perpetual with its equity income funds , he had a long run of very successful investments - if I recollect they were substantially in Tobacco and Pharmaceuticals. But then in his last 5 years with Invesco, they fell back to the norm, or even lower. The formula was no longer producing results. So he set up his own funds, and ventured into new areas where he seemed to have little understanding (e.g. cold fusion), with disastrous results.
I'm beginning to wonder if the Fundsmith funds have fallen back to the tracker mean, and the early successful formula is no longer working. Where now?

[BullDog]

I understand why some people don't like Terry Smith but IMHO he deserves every penny.

I'm not sure that he does - it looks like his formula is struggling . The total return over 5 years is
Fundsmith = 63.5%
Fundsmith Sustainable = 61.2%
Vanguard Developed World Tracker ETF (VEVE) = 66.7%
I hold all three, but the tracker is now receiving my spare cash.
Looking back to Woodford at Invesco Perpetual with its equity income funds , he had a long run of very successful investments - if I recollect they were substantially in Tobacco and Pharmaceuticals. But then in his last 5 years with Invesco, they fell back to the norm, or even lower. The formula was no longer producing results. So he set up his own funds, and ventured into new areas where he seemed to have little understanding (e.g. cold fusion), with disastrous results.
I'm beginning to wonder if the Fundsmith funds have fallen back to the tracker mean, and the early successful formula is no longer working. Where now?

I don't have much doubt that for now at least, we've seen the best of Smith's strategy. I am not in any great rush to sell what has been a terrific investment for more than a decade. But I am wondering whether or not I'd be better served in a global tracker ETF like the Legal and General one, LGGG. The last few years I think LGGG has performed better than Smith and it has cheap as chips fees.

[monabri]

I'm not sure that he does - it looks like his formula is struggling . The total return over 5 years is
Fundsmith = 63.5%
Fundsmith Sustainable = 61.2%
Vanguard Developed World Tracker ETF (VEVE) = 66.7%
I hold all three, but the tracker is now receiving my spare cash.
Looking back to Woodford at Invesco Perpetual with its equity income funds , he had a long run of very successful investments - if I recollect they were substantially in Tobacco and Pharmaceuticals. But then in his last 5 years with Invesco, they fell back to the norm, or even lower. The formula was no longer producing results. So he set up his own funds, and ventured into new areas where he seemed to have little understanding (e.g. cold fusion), with disastrous results.
I'm beginning to wonder if the Fundsmith funds have fallen back to the tracker mean, and the early successful formula is no longer working. Where now?

I don't have much doubt that for now at least, we've seen the best of Smith's strategy. I am not in any great rush to sell what has been a terrific investment for more than a decade. But I am wondering whether or not I'd be better served in a global tracker ETF like the Legal and General one, LGGG. The last few years I think LGGG has performed better than Smith and it has cheap as chips fees.

Too many sales...he's looking like a HYP-P'er.

International Hotels Group - must be worth 50% more than when he baled. He saw a niche and rode on the back of it..well done to him. But, as above, buying an ETF such as "VUSA" or "VEVE" would have been as good.

SSON - ?
FEET - ? At least Simoan made some money from that one!

[BullDog]

I don't have much doubt that for now at least, we've seen the best of Smith's strategy. I am not in any great rush to sell what has been a terrific investment for more than a decade. But I am wondering whether or not I'd be better served in a global tracker ETF like the Legal and General one, LGGG. The last few years I think LGGG has performed better than Smith and it has cheap as chips fees.

Too many sales...he's looking like a HYP-P'er.

International Hotels Group - must be worth 50% more than when he baled. He saw a niche and rode on the back of it..well done to him. But, as above, buying an ETF such as "VUSA" or "VEVE" would have been as good.

SSON - ?
FEET - ? At least Simoan made some money from that one!

You're not wrong. Smith got several trades wrong the last couple of years. Some others are Sage and Wingstop, there's more besides.

It's quite clear to me that the Smith strategy doesn't really work that well away from global mega cap stocks. Hence Smithson and FEET disappointments.

Over the last (I think it's now) 12 years Smith has made a world of difference to my portfolio. But I'm not blind. Like I said above, I am thinking I might now be at least as well served in a global ETF.

[simoan]

Over the last (I think it's now) 12 years Smith has made a world of difference to my portfolio. But I'm not blind. Like I said above, I am thinking I might now be at least as well served in a global ETF.

I keep reading how wonderful global ETFs are on these forums and perhaps with the way Fundsmith is heading that makes sense. I’m not particularly happy with the vastly increased exposure to technology within the fund.

However, these ETFs are not really that diversified if you look carefully and the highest weighted stocks are being overbought as a consequence. Anyone that doesn’t own these stocks is bound to underperform from time to time. Personally I want a portfolio with greater breadth from a risk perspective, and so I’m quite happy to underperform because I don’t want to accept the concentration risk, particularly as I already have large holdings in Apple and Microsoft.