Terry Smith of Fundsmith is a portfolio manager I tend to keep a close eye on. He’s delivered enormous returns for his investors over the last decade and, as a result, is often referred to as ‘Britain’s Warren Buffett’.
One way I monitor Smith’s trades is by studying the Fundsmith 13F filings. These are the US regulatory filings that large investment managers are required to complete every quarter. In these filings, managers list their long US equity positions.
Recently, Fundsmith posted its filing for the first quarter of 2021 so here’s a look at some stocks Smith has purchased for his funds recently.
Fundsmith goes defensive
The most recent 13F filing reveals Fundsmith increased its positions in a number of consumer staples stocks. These included Jack Daniel’s owner Brown-Forman, consumer goods company Church & Dwight, healthcare giant Johnson & Johnson, spices specialist McCormick & Co, and soft drinks giant PepsiCo.
I think this is an interesting move by Smith. These are all relatively ‘defensive’ stocks. Typically, ones that tend to hold up well when the stock market is falling.
To my mind, the fact Smith is adding to these kinds of stocks suggests he’s more than a little cautious about the market right now. Given the amazing run stocks have had recently, I think this is probably a smart move from the portfolio manager. If the market experiences a correction in the near term, these stocks could potentially provide Fundsmith with more than a degree of protection. There’s no guarantee they will do so though.
Reopening stocks
Smith didn’t only buy defensive stocks throughout the first quarter however. Another stock he added to during the period was Visa, the largest payments company in the world.
I like this move. I think Visa should benefit from the reopening of the global economy and the return of international travel. For every $1 spent in physical locations globally, around 15 cents goes through Visa’s vast network. But it’s worth pointing out that Visa stock is quite expensive. So its high valuation (forward-looking P/E ratio of 36) adds a certain amount of risk.
Smith also added to medical device maker Stryker during the period. This is potentially another reopening play. It faced challenges last year when elective medical procedures were postponed due to Covid-19. However, now that vaccines are being rolled out and procedures are resuming, the outlook for the company appears to be improving.
A pet care stock
Finally, it’s also worth noting that Fundsmith added to its holding in Zoetis, the world’s largest producer of medicine and vaccinations for pets and livestock. This stock is held in Fundsmith’s Sustainable Equity fund. And this move suggests to me Smith is pretty bullish on the outlook for the ever-growing pet care industry.
