Terry Smith explains..........

[Dod101]

Is anybody else buying his fund directly?

If you mean buying the constituents of his fund directly no, at least I am not but I will be buying his fund in the new tax year. It is too much hassle for me to go through all the faff of buying shares in a foreign jurisdiction. I will let Fundsmith do the job for me. And I will not be second guessing him either. If he thinks say Facebook is a good idea then that is fine by me but I am well aware that he will not get everything right all the time.

Dod

[Lootman]

It’s literally impossible for Facebook and Google to grow at 20% a year – or anything like that – beyond 5 or 10 years. Maybe they’ll find other things to do. But, all they’ve done historically is make money off ad spending. And they won’t be able to extract growth from that business after 5 to 10 years from now. [/i]

You could have said that about Amazon 15 or 20 years ago, i.e. that there is a limit to how many books they can sell. Amazon just went into other areas of retail, and then into media and entertainment.

Both FaceBook and Google have made acquisitions and both have huge cash piles and high-priced stock to make more. The question with that, as always, is how accretive they will be. All we have to go on is past acquisitions, and both Instagram and WhatsApp were handled impeccably. The general perception is that FB executes well, the recent negative publicity notwithstanding. Google has made smaller acquisitions, like of Nest, but could easily afford to do a deal to buy a Twitter or Netflix.

If you didn't predict the rise of smart phones and social media 10/15 years ago, then you probably can't predict the next two big things either. But the odds are that they will either come from these kinds of companies, or they will get purchased by them.

[MaraMan]

I have come to this topic late due to a 6 week trip down under. Thanks for posting the YouTube link. I have been invested in Fundsmith for 4 years now and not regretted it. I have increased my holdings over the years and it now comprises over 10% of my SIPP. I completely agree with TS's comments on IMB, something I expressed on here a little while back much to the chagrin of the die-hard HYPers. I do though worry about the investment in FB, I have always been uncomfortable with it although I do understand there are strong arguments in its favour. I felt that the noise around the US election was enough of a reason not to invest, let alone make a serious one. However TS is far more successful that I so I bow to his long term judgment and hopefully I will continue to benefit from it.
MM
PS - I think the question about buying directly refers to investing with them directly (see web site), rather than replicating their holdings.

[flyer61]

Maraman, no I have been (gently) replicating his fund in my SIPP. It has been on my mind to bin doing that and just keep adding to his fund. ( I have FEET as well). Dealing costs are an issue, however when buying Johnson and Johnson, Nestle, Kone, Automatic Data Processing, Unilever, Diageo, Sage, Reckitt Benckiser, Estee Lauder and Novo Nordisk I am optimistic that these will be there for the rest of my natural! Hence my interest in their current thinking and the five shares I am thinking of adding.

My ISAs contain all the FTSE rubbish he goes on about!

[MaraMan]

OK sorry for the misunderstanding. Good luck with your efforts, not sure I understand why that should be an attractive opion but anyway. I try not to duplicate individual holdings with ITs/Funds as much as I can, especially with highly concentrated funds like FEF. I don't think I have the abililty to be a better stock picker/allocator than TS, but good on those that are, having said that I do hold various individual shares so no doubt am doubled up sometimes but I am moving away from them as my record isnt generally as good as the ITs/Funds I hold (with some notable exceptions).
MM

[Quint]

Those who have an open mind towards investment strategies may wish to watch the latest 2018 investment seminar for Fundsmith share holders. Of particular interest are the questions regarding -

1 "How will Fundsmith fare in a market down turn"?
2 "Is Fundsmith getting too big?"
3 "Why should I invest in Fundsmith rather than "income" investments?" (Those here who want a regular monthly income may wish to pay particular attention this bit, it is very interesting indeed).
4 "Are the companies Fundsmith invests in too expensive"

I am well aware that these criticisms/questions are levelled at Smith every year since he launched the fund almost eight years ago. But several times similar questions have been posed here quite recently. Disclosure - I have a significant portion of my families wealth invested with Smith. He doesn't need me to defend the fund, the figures speak for themselves. I know the usual detractors of total return investing will be out in force here, but it really is worth a watch. (Sorry for the length of the video, a lot of ground is covered).

https://www.youtube.com/watch?v=g0mXKLIfHy8

Thank you for posting this, I have only recently returned home and had a chance to watch it.

Like you I have a fair chunk of Fundsmith and do not anticipate this changing in the foreseeable future.

[stevensfo]

I know nothing of Facebook never having knowingly ever seen a page from it, but my grandchildren who seem to know about these things would never use it. That I am certain is nothing to do with its ethics but simply reflects what teenagers are thinking these days.

I was amazed to get the same response from our kids, 21 and 24. They use Whatsup and Steam and, according to our Computer-studying son, 'Nobody uses Facebook!'

Sort of confirms my own experience. I use FB for interest/pressure groups. I cringe when I get a Friend request from a relative and just ignore them, explaining at the next encounter that I just don't use FB.

I still grieve for 'Friends Reunited'. The system of forums they had was amazing and I met people I hadn't heard from since I was in Infant school.

Steve

[sackofspuds]

I rather like Terry Smith and his approach, although he must be difficult to work for. No wonder his sidekicks looked slightly beaten up and out of the limelight.

Yeah, they sure did. They were probably thinking "here he goes again"!

Very convincing speaker. I started investing in Fundsmith relatively recently. Wish I'd done so earlier. I've known about it for years, one can hardly miss it given it's top of the tree.

Liked his point about stock market timing not being the most important factor in performance.

All made perfect sense. Obviously just that nagging doubt that you were in the hands of a highly convincing salesman. A wordsmith.

[Pendrainllwyn]

Hello Fred,

Thank you so much for posting the link to the Fundsmith seminar. Very interesting. I don't own Fundsmith but can see why people do. The fund's focus on companies with high ROCE certainly has merit but you can overpay for quality just like anything else.

The fees don't seem unreasonable to me but I don't like paying fees and my bias is to holding single names for the longer term. After going through my usual research and number-crunching I am now a small owner of L'Oreal, "If the Fund could only hold one stock?". I am underweight consumer defensives so it's a welcome addition. I already hold Estee Lauder (which I note Fundsmith holds too) but I am not adding at current levels.

Thanks again for the post.

Pendrainllwyn

[flyer61]

Pendrainllwyn

Having gone round the en suite and checked what Mrs Flyer had salted away (she tells me she has been using their 'stuff', 'potions' for 30 plus years - I call it clutter) and bearing in mind Fundsmith's view of LO I too have bought them.

I am curious to know how you bought your L'Oreal. Are they in your name directly or through a platform? I ask as I would like to avail myself of their loyalty dividend scheme. Or possibly did you buy them as ADR's to avoid the witholding tax? Still trying to work out the optimal way to hold them as a UK resident.

Hold both L'Oreal and Estee Lauder....EL have been my best performing share recently. Thinking I will continue to buy EL even though the yield is now down to 1%.

The other next direct FS purchase will be Philip Morris (PM).

[Itsallaguess]

I'm looking to possibly use the Halifax platform to dip a toe into Fundsmith, but as this would be my first foray into funds then I'd like to be absolutely clear on the expected initial costs and also (more importantly...) any on-going charges that I'd have to pay.

Having checked the Halifax charges PDF (https://static.halifax.co.uk/assets/pdf ... harges.pdf), they give a set of typical investment scenarios, one of which describes 'Farouk the Fund Fan' -



Can I just confirm my own understanding of the above, which seems to be that after the initial dealing-commission (which I'm happy to acknowledge we can't avoid when investing like this), there will be ongoing charges in the form of the 'Ongoing fund charge' and also the 'Transaction costs'?

If the above is correct, can I please ask how both of these ongoing charges are actually taken? Are they taken from existing, separate cash funds in the account, or are they both deducted from the fund value itself at the time the charges are taken?

I see from the Fundsmith factsheet (https://www.fundsmith.co.uk/fund-factsheet) that there are two yield figures -

Gross / Net Yield - 1.63% / 0.58%

and the notes on the Factsheet say the following -

< Gross Yield reflects the historic dividend income received by the fund in the preceding 12 months before the deduction of all expenses including management fees. Net Yield is Gross Yield less the deduction of all expenses including management fees i.e. Gross Yield less the OCF.

This seems to cover off the Ongoing Fund Charge (OCF), which looks to be taken off by the fund before any yield is paid to the holder of the fund, but it doesn't seem to cover the Transaction Costs, so I'm clearly lacking some key information on the face of it, hence my query here.

Does Halifax actually take an ongoing charge themselves, for me holding these types of funds?

Can I also confirm that if I were to use the Halifax platform to invest in Fundsmith, that it would be the I-class investment that I would be offered?

Also, if I were to go for the Accumulation option, are there any implications at all with regards to dividend accrual within that investment? I ask because I've managed to hopefully get below the expected £2000 dividend limit on my Halifax account, which is the only account I've got that's got now tax-free protection, but I'm only just going to be under it for this tax-year, and if there's anything I should be aware of with regards to fund-investment in this account, that might jeopardise my relatively fragile position with regards to the £2000 limit, then I'd be keen to understand that before I make any further purchase inside this account.

I'm also looking to dip a toe into one of the Vanguard LifeStrategy funds, so the above information will be very helpful to me just to confirm the initial and ongoing charge situation with Halifax, as well as any dividend-related impact that might accompany such a decision.

Thanks for any help that more experienced fund-investors might be able to offer, and I offer my apologies if some of this is pretty basic stuff, but I'd rather ask here and get some qualified answers than come unstuck due to a lack of proper understanding on my part.

Cheers,

Itsallaguess

[GeoffF100]

You cannot avoid the £12.50, but you can reduce it to £5 by using iWeb. The OCF is taken from the fund and the transaction costs are incurred by the fund. The actual transaction costs will be larger than the costs that are reported, according to Vanguard, even for their own funds. You have no way of knowing the actual transaction costs. With OEICs, you are taxed on the dividends actually paid to you. I do not understand why anyone would want to invest in Fundsmith. The costs are simply bonkers. The fund has been very lucky in the past, but there is no reason to believe that luck will persist. Lifestrategy is the more sensible option.

[Pendrainllwyn]

Hello Flyer61,

I purchased L'Oreal common (not ADR's) through a broker and will be subject to withholding tax. I too would like to benefit from the loyalty dividend scheme and will explore whether I can convert to directly registered or managed registered shares. I will update you if I have any success. I chose not to delay and bought before researching the scheme which so far has been a good decision.

I hope you are right and Estee Lauder has further to go. Best of luck with both of them.

Pendrainllwyn

[mc2fool]

Does Halifax actually take an ongoing charge themselves, for me holding these types of funds?

No, Halifax is a "flat fee" broker so the only ongoing charges you pay to them are the annual admin charges for the account -- and in the case of the Share Dealing Account that appears to be zero (they do have admin charges for ISAs & SIPPs). You can avoid the initial dealing-commission for funds if you use a different broker but those that don't charge a dealing fee aren't flat-fee based and levy an annual percentage fee on the value of your holding instead. As the flat-fee on your Halifax SDA is zero, that's going to be difficult to better.

All of the costs of running OEICs/UTs ("funds") are taken out of the fund itself directly, just as they are for ITs, ETFs, and, indeed, individual companies, and the effects of that is reflected in the share price and/or yield. You don't cough up anything yourself (directly).

Can I also confirm that if I were to use the Halifax platform to invest in Fundsmith, that it would be the I-class investment that I would be offered?

Well I don't have a Halifax a/c but I do have an IWeb one and find that (rather curiously) IWeb seems to offer all of the Fundsmith classes (including "I"), so I'd assume, being the same beast in a different skin, that Halifax does the same. However, why assume, just log into your Halifax a/c and check for yourself, by starting a funds trade, selecting Fundsmith and seeing what classes it offers.

BTW, the I Acc class has the unfortunate fund code (MexID) of "FUQUIT"; let's hope he isn't! (I hold too, in my ATS a/c.)

Also, if I were to go for the Accumulation option, are there any implications at all with regards to dividend accrual within that investment?

Yeah, accumulation units are a bit of a pain, tax-wise, outside of a tax shelter. The dividends themselves automatically roll up within the units and increase the value of the units, which is, in itself, nice and useful. However, the tax man regards you as having received the dividends (and reinvested them), so:

a) the dividends will appear on your consolidated tax statement, and they will count towards, and potentially take you over, the £2K limit, and if they do you will have to pay tax on them, according to your marginal dividend tax rate.

b) CGT calculations when you sell the accumulation units become more complicated, 'cos your base cost isn't just what you paid for them initially but that plus all of the rolled-up dividends that you "received". Of course, that'll have the positive effect of increasing your base cost and so reducing your potentially taxable gain, but then you have potentially paid tax on those dividends over the years.

[Backache]

Itsallaguess
If you are considering investing in Fundsmith you can invest directly with them either in an ISA or stand alone and you need pay no dealing charges or platform charges.
(You can also invest directly with Vanguard but they have some fairly modest charges.)

[Itsallaguess]

Halifax is a "flat fee" broker so the only ongoing charges you pay to them are the annual admin charges for the account -- and in the case of the Share Dealing Account that appears to be zero (they do have admin charges for ISAs & SIPPs).

You can avoid the initial dealing-commission for funds if you use a different broker but those that don't charge a dealing fee aren't flat-fee based and levy an annual percentage fee on the value of your holding instead.

As the flat-fee on your Halifax SDA is zero, that's going to be difficult to better.

Great news, thanks for the confirmation, and more by luck than judgement it looks like the Halifax standard share-dealing account that I've had for years might be a good platform for this new area of investment for me.

All of the costs of running OEICs/UTs ("funds") are taken out of the fund itself directly, just as they are for ITs, ETFs, and, indeed, individual companies, and the effects of that is reflected in the share price and/or yield. You don't cough up anything yourself (directly).

Thanks - it was ambiguous enough in the Halifax charges PDF that I thought I best confirm this, so great to hear that everything comes out of the natural yield of the fund itself, and I'll be left with what I'm left with in accumulated-dividend terms after any initial dealing costs.

BTW, the I Acc class has the unfortunate fund code (MexID) of "FUQUIT"; let's hope he isn't! (I hold too, in my ATS a/c.)

Thanks - so just for confirmation then, and given that the I-class look to have the lowest charges, if my Halifax platform give this as an option, it sounds like the accumulation version of the I-class would be my best bet? I wouldn't of course take your confirmation as any sort of advice, but more to just confirm I'm not missing anything, all other things being equal in terms of the potentially-available Fundsmith options, and given that I'd rather not own the income version of any of the classes.

Yeah, accumulation units are a bit of a pain, tax-wise, outside of a tax shelter. The dividends themselves automatically roll up within the units and increase the value of the units, which is, in itself, nice and useful. However, the tax man regards you as having received the dividends (and reinvested them), so:

a) the dividends will appear on your consolidated tax statement, and they will count towards, and potentially take you over, the £2K limit, and if they do you will have to pay tax on them, according to your marginal dividend tax rate.

b) CGT calculations when you sell the accumulation units become more complicated, 'cos your base cost isn't just what you paid for them initially but that plus all of the rolled-up dividends that you "received". Of course, that'll have the positive effect of increasing your base cost and so reducing your potentially taxable gain, but then you have potentially paid tax on those dividends over the years.

Thanks for that also - I'm hoping that I'll be able to manage the dividend limit appropriately this year, including any issues with low-yield funds like Fundsmith, and that also goes for any potential CGT issues as well, hopefully, but your input has been invaluable given my lack of confident-understanding with these things, so thanks very much indeed for taking the time with such a great set of responses.

Cheers,

Itsallaguess

[Itsallaguess]

If you are considering investing in Fundsmith you can invest directly with them either in an ISA or stand alone and you need pay no dealing charges or platform charges.

(You can also invest directly with Vanguard but they have some fairly modest charges.)

Thanks Backache, I think given the lack of ongoing charges on my current Halifax account (although I do acknowledge that things can change quite rapidly in that area....), there will be a benefit of me keeping things under the one Halifax roof, so to speak, and I do see a benefit of keeping my accounts-list as simple as I can if possible, even if there's a small cost to maintain that position.

Thanks for raising this issue though, as it's an option if Halifax ever change their position and I need to start looking elsewhere for viable holding-options.

Cheers,

Itsallaguess

[mc2fool]

BTW, the I Acc class has the unfortunate fund code (MexID) of "FUQUIT"; let's hope he isn't! (I hold too, in my ATS a/c.)

Thanks - so just for confirmation then, and given that the I-class look to have the lowest charges, if my Halifax platform give this as an option, it sounds like the accumulation version of the I-class would be my best bet? I wouldn't of course take your confirmation as any sort of advice, but more to just confirm I'm not missing anything...

Well, as I say, the I Acc class is the one I hold

If you are considering investing in Fundsmith you can invest directly with them either in an ISA or stand alone and you need pay no dealing charges or platform charges.

Thanks Backache, I think given the lack of ongoing charges on my current Halifax account (although I do acknowledge that things can change quite rapidly in that area....), there will be a benefit of me keeping things under the one Halifax roof, so to speak, and I do see a benefit of keeping my accounts-list as simple as I can if possible, even if there's a small cost to maintain that position.

Au contraire, investing directly with Fundsmith would involve a small cost to maintain 'cos what they offer direct is the T class units which have a 1.05% OCF vs 0.95% for the I class units...

[Itsallaguess]

there will be a benefit of me keeping things under the one Halifax roof, so to speak, and I do see a benefit of keeping my accounts-list as simple as I can if possible, even if there's a small cost to maintain that position.

Au contraire, investing directly with Fundsmith would involve a small cost to maintain 'cos what they offer direct is the T class units which have a 1.05% OCF vs 0.95% for the I class units...

That's a very good point, and thanks for raising it. Given this issue, then the added account-simplification aspect of maintaining these under my Halifax bonnet is the way to go, I think.

Thanks again for your input, it's very much appreciated.

Cheers,

Itsallaguess

[Dod101]

It says on the Fundsmith Fact Sheet that the minimum investment for the 'I' Class is £5 million. I can't quite manage that so it seems that it will be the T Class for me. If that is the case it presumably means that to access the 'I' Class that most will have to piggy back on a platform.

Dod