Most of the holdings in my self-invested personal pension (SIPP) are FTSE 100 stocks, but I also hold Scottish Mortgage Investment Trust (LSE: SMT) shares and another hugely popular investment fund, Fundsmith Equity.
Fundsmith seemed like a no-brainer buy when I invested a large lump sum on 16 June last year. Scottish Mortgage felt like a big risk that I instantly regretted taking after buying in August.
I’d just transferred three legacy company pensions into my SIPP, and used Terry Smith’s flagship fund to get exposure to a spread of US and global companies that I’d never get round to buying myself, such as Novo Nordisk, L’Oréal, Visa and LVMH.
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Two funds, one winner
I saw this as a buy-and-forget fund, liberating me to get on with the far more interesting task of selecting individual UK blue-chip stocks.
I bought Scottish Mortgage to inject a little zip to my SIPP. It invests in big US names like Nvidia and Amazon, but privately owned companies (including Space Exploration Technologies) make up 27.1% of the fund.
Fundsmith had started to worry me because I feared Terry Smith was getting too big for his boots. Plus he wasn’t quite matching his early stellar performance. He’s explained why, saying that no fund can outperform at every stage of the market cycle. Yet it has eroded his mythology, as many assumed Smith could do just that.
But Scottish Mortgage worried me more because it had a rotten 2022, crashing by half. I worried how Tom Slater would fare after the retirement of Scottish Mortgage talisman James Anderson, and feared incurring a big early loss.
Yet it’s done well. The Scottish Mortgage share price is up 34.8% in the year to 30 April. I’m more than happy with that. Especially since interest rates are still high, which drives up borrowing costs for fast-growing companies, and squeezes investor sentiment.
Fundsmith Equity has been a bit meh. It’s up just 7.1% over the last year, marginally ahead of its MSCI World Index benchmark, which returned 6.7%. The S&P 500 is up 27.93% in that time, for crying out loud. Smith is 68.9% invested in US stocks, so he’s been buying the wrong ones.
I’d rather buy FTSE 100 stocks
Fundsmith has been a bit uninspiring for a while. Its factsheet shows it trailed its benchmark in 2023, 2022 and 2021. Trustnet puts its five-year return at 60%, just ahead of the Investment Association Global benchmark, which returned 57.9%. Is that worth the 1% annual management fee? Answer: it depends on the investor.
I no longer need the comfort blanket of paying a fund manager to buy shares for me. The biggest winners in my SIPP are UK stocks I chose myself, notably 3i Group, Smurfit Kappa Group, Lloyds Banking Group and Costain Group. Buying direct equities is more fun and so far, more lucrative. I’m short of cash to buy more. Scaling down my outsized holding in Fundsmith will help.
Over five years, Scottish Mortgage is up 64%, but with an awful lot of volatility in between, which Terry Smith hasn’t inflicted on investors. I’m going to hold for the long term, but paring back my stake in Fundsmith. I’m not giving up on it altogether though!
