A lot of investors have struggled lately, but not Terry Smith. His Fundsmith Equity fund has been smashing it.
If I’d invested when it started in 2010, I would now have five times the amount I put in. I can’t think of any funds that have bettered that.
It’s an average 16% increase per year. The FTSE 100 is in a sorry state by comparison. Other indexes like the MCSI World Index or the US S&P 500 lag well behind Smith’s fund too.
Average return since 2010
| Fundsmith | FTSE 100 | MCSI World Index | S&P 500 |
| 16% | 6% | 11% | 13% |
I don’t think that table does it justice either. A 16% return multiplies quicker than most people realise. Even £200 a month at that return gets to £1.3m over 30 years.
That kind of wealth-building potential is why I plan to open a position soon. It’s a no-brainer, if you ask me. And it’s not only because of this superb past performance, I also like Smith’s no-nonsense approach.
Those aren’t my words, by the way. The phrase “no nonsense” is written on every Fundsmith factsheet. It’s a core part of the fund’s philosophy.
In short, the aim is to “buy good companies, don’t overpay, do nothing”.
Invest in good companies for a long time. I like that. It’s from the Warren Buffett school of thought, or value investing, as some call it. Either way, it’s a tried and tested way of making money in the stock market.
A diversified portfolio
This approach means a well-diversified portfolio. Fundsmith looks for the best companies, whatever the sector and wherever they are in the world. This is another thing I like. It gives me exposure to firms I wouldn’t otherwise invest in.
One example is Novo Nordisk, a Danish pharmaceutical company. It developed the weight loss and diabetes drug semaglutide (or Ozempic) and now stands to make billions from it. The drug is so popular the firm had to stop marketing for it.
Fundsmith has Novo Nordisk as its second-largest position. If I buy in, I can get exposure to it and other firms like it. And of course, I know that every stock is well-researched by Smith and his team.
And that research really is the key here. Fundsmith has shown it can deliver market-beating returns. If I buy in, it’s because I expect the same research will continue to do this and, of course, make me a lot of money.
A great buy
Investment funds do carry risks, of course. I’m giving my money to someone else to invest. If they invest badly, I pay the price. The Woodford collapse is a recent example of a fund that had an unhappy ending.
The lesson here seems obvious. Don’t put all your eggs in one basket. I won’t be doing this here, even though I think the fund is a great buy. While I plan to open a position soon, it will be a small part of my portfolio.
