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Will Terry Smith’s fund be a knock-out?
by Dylan Lobo on Nov 30, 2010 at 07:00
It is no surprise that Terry Smith (pictured) describes himself as a ‘come-forward’ boxer.
Smith, one of the City’s more pugnacious characters, is a keen pugilist who takes no prisoners in or out of the ring and says the best way to protect yourself is by stepping into your opponent rather than keeping him at arm’s length.
A seriously wealthy man, Smith could have easily called time on his City career after stepping down as Collins Stewart’s chairman. Instead, he chose to pit himself in a relatively new arena and put his reputation on the line.
The mere suggestion that Smith, a qualified helicopter pilot, could have called it a day makes his hair stand on end. ‘Why should I retire? I can do this job until I die. I like doing things and don’t ever want to retire.’
Smith certainly was not shy in coming forward last month when he launched a high-conviction fund at his new investment boutique, Fundsmith.
As far as investment strategies go, the Fundsmith Equity fund could not be simpler. It will invest in a portfolio of just 20 stocks held for the long term with low turnover, which will help keep its total expense ratio at about 1%, some 0.8% lower than the conventional equity fund.
This has led to Smith being dubbed by rivals (somewhat disparagingly) as the ‘Michael O’Leary [Ryanair chief executive] of the funds industry’. Far from bothering him, Smith is happy with the comparison. ‘[O’Leary] substantially lowered the cost of air travel while still providing a good basic service.’
At the fund’s inception he claimed it was designed for a ‘broken industry’. While he chose to slate fund charges at launch, he thinks there has been too much focus on his fund’s fee structure and not enough on the simplicity of the investment process.
‘According to the FSA, the average mutual fund turns over 80% of its portfolio every year, the cost of which is not included in the total expense ratio. Does the average fund manager really have that many good ideas a year? If he does, he’s a better man than me. I don’t think any human being has that many good investment ideas,’ he says.
Discretion on disclosure
Smith has no intention of sharing his ideas with the public. In fact, there’s no guarantee investors in the fund will even be told what he is investing in. ‘If we reveal the portfolio, people will be preoccupied and will ask “do I really want that stock in my portfolio?” We have not yet decided what information we will disclose.’
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