Fundsmith boss hits out at ‘lurid headlines’ suggesting its demise

STAR money manager Terry Smith has attacked “lurid headlines” that seemed to suggest his fund is at risk of extinction.

In an unusual broadside, the founder and chief executive of Fundsmith wrote to shareholders defending his company’s performance and its strategy of investing in so-called quality stocks.

Mr Smith – a boxing enthusiast based in Mauritius – seeks to back companies that he believes are fundamentally good performers, rather than focusing on wider economic conditions or “value” companies, which have been wrongly discounted by the wider market. The approach has delivered years of stellar returns, winning him a devoted fan base and comparisons with Warren Buffett.

He said: “If you have been reading what investment commentators have been saying during this period you might be rather surprised that our fund has fared so well. You might even be surprised that we are still here. I realise that some commentators do not want the facts to get in the way of a good story, but our performance versus the ‘value’ stocks and Covid recovery plays tells its own story.”

The outburst appears to have been triggered by a number of negative media articles about the fund run by Mr Smith. Results released this week showed that Fundsmith’s Smithson investment trust underperformed the reference index for the first time.

Mr Smith added that since markets sensed an end to the economic disruption caused by the pandemic in the final quarter of last year, there has been a rotation from quality stocks into value holdings and those expected to recover as restrictions eased. He said: “In such a situation our fund is always likely to underperform for a period. After all, the companies we invest in mostly have little or nothing to recover from.

“However, this inevitable blip was accompanied by lurid headlines and articles, which seemed to suggest we were in imminent danger of extinction.”

He said the fund had not suffered “the kind of outflows which the headlines might lead you to imagine”.

Laith Khalaf, head of investment analysis at AJ Bell, said: “Terry Smith has penned a curious letter to shareholders, defending his track record even though it wasn’t really under attack.”

In April, accounts showed Mr Smith had collected a payday of up to £125m after a record profit at his investment firm. Fundsmith generated profits of £48.5m in the year to March 2020.

Payments from the British business to its Mauritius outpost mean that Smith could have received a far higher figure even than this.

‘Our performance versus the “value” stocks and Covid recovery plays tells its own story’