Terry Smith has published his Annual Report for holders of the Fundsmith Equity Fund (I am a holder). Total Return last year was 12.4% which I consider a good result but was less than the MSCI World Index of 16.8% probably because of being underweight in large US tech stocks where mania continued unabated.
Terry emphasises the long-term track record of the fund and puts that down to the superior return on capital of the fund holdings in comparison with those of the S&P 500 and FTSE 100 (32% last year versus 18% and 17%). He says “….. if you own shares in companies during a period of inflation it is better to own those with high returns and gross margins” and “Consistently high returns on capital are one sign we look for when seeking companies to invest in”. I completely agree with him on that.
He also argues the fashion for investing in bonds is misplaced as equities have provided better returns since 1928 which includes such periods as the Great Depression, World War Two, the 1987 market crash, Dotcom meltdown, 2008-9 financial crisis and the Covid pandemic.
He also makes some prescient comments on the enthusiasm for AI products and points out it will be difficult to predict the winners in that market.
The newsletter is worth reading for the wisdom of Terry Smith. See Fundsmith Annual Report: https://www.fundsmith.co.uk/media/31plodnq/2023-fef-annual-letter-to-shareholders.pdf
I see no reason to change my holding in Fundsmith.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
You can “follow” this blog by entering your email address in the box below. You will then receive an email alerting you to new posts as they are added.