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The reinvention of Terry Smith

The reinvention of Terry Smith

When Terry Smith launched his boutique back in 2010 not everyone was convinced he could make it in the funds world.

Smith - one of the City’s pugnacious characters who described himself as a ‘come-forward boxer’ in an interview with Citywire when FundSmith launched - had previously carved out his success in the broking world as chief executive of Tullett Prebon.

In simple terms, investing in Smith's (pictured) new business would be putting blind faith in someone who had no demonstrative track record in fund management.     

Smith's Fundsmith Equity fund was run to one of the most basic concepts around, holding 20-30 'resilient' and 'high quality' stocks long term from across the world.

He received criticism by claiming the fund was designed for a ‘broken industry’, focusing on delivering ‘superior investment performance at a reasonable cost'. The philosophy was based on John Templeton’s axiom that ‘if you want to have better performance than the crowd, you must do things differently from the crowd’.  

No fees for performance; No nonsense; No market timing; No index hugging and No shorting are among the fund's key principles.  

Naturally these boasts and the Templeton comparisons from someone with little history in fund management provided plenty of bait for the sceptics. ‘The Michael O’Leary (Ryanair chief executive) of the funds world’, one blasted.

Others questioned the logic of investing in a fund which they perceived to be a quasi tracker, where the manager simply buys a handful of blue chip stocks and sits on them.

In the fund's early days, Smith’s outspoken nature continued to get the better of him. His constant tirades against politicians raised questions as to whether he was really focused on funds or more interested in running for office.

But during this transitionary period, performance of the FundSmith Equity fund held up and the cynics started taking Smith a little more seriously, while his political crusade moderated.  

Possibly a key moment in the fund’s life was John Chatfeild-Robert’s decision to buy into the strategy back in August 2012. The Jupiter chief investment officer remains a fan and described the fund as a good ‘buy and forget’ holding in March this year.

Performance backs this sentiment. Since launch the fund has returned 70.7% compared to a sector average of 38%, ranking it fourth in the 217-strong IMA Global sector, and earning Smith a Citywire AAA-rating.

And today’s news that Smith is standing down as chief executive of Tullett after eight years to focus on FundSmith shows this business is no flash in the pan. Assets under management have now breached the £2 billion mark, giving FundSmith the platform to develop.

Next up is an emerging markets investment trust, which will employ the same straightforward approach to the existing fund. Smith is investing £5 million of his own money into the trust and is targeting £250 million from a fundraising.   

With the politics put to one side and Tullett no longer absorbing his attention, FundSmith could be one of the firms to watch over the next few years.  

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