Stick with winners, says funds guru
NOT everyone believes investors need to jump on new exciting investment themes to build wealth over the next 20 years.
Investment expert Terry Smith sits in this camp. He has delivered average annual returns of 17 per cent for investors in his £26.8 billion Fundsmith Equity Fund since it launched in late November 2010.
Smith’s approach to investing is meticulous. He will only invest in companies after he has conducted a forensic financial audit.
But once he has identified a good investment opportunity – typically a high quality business with a good brand name and strong growth potential – he tends to stick with it. This is why a number of the current 29 holdings have been in the fund for more than ten years – the likes of Diageo, Microsoft, PepsiCo, healthcare company Stryker and lift manufacturer Kone, based in Finland.
Last week, I asked Fundsmith’s public relations adviser whether the companies in Fundsmith Equity could be held for the next 20 years.
The response was swift: ‘The Fundsmith strategy is to invest in good companies and ideally hold them forever.’
It’s a sentiment shared by Freetrade’s Dan Lane. He says: ‘If your main aim is putting money aside to come back to in 20 years, you either spread it thinly over firms that might make it big in the hope that one does and makes up for the failures, or you focus on firms which have shown they already have.’
He adds: ‘Brown-Forman is a classic example. The Jack Daniel’s maker withstood two world wars, the Great Depression, prohibition (during which its product was illegal) and numerous recessions.
‘It might just make it through whatever comes next. That’s the type of character you want from an investment.’