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Terry Smith launches fund designed to repair a 'broken' industry
by Dylan Lobo on Nov 02, 2010 at 00:01
Former Collins Stewart boss Terry Smith (pictured) has launched a blistering attack on the funds industry to set the scene for the launch of a high conviction fund for his new investment firm Fundsmith.
Smith, one of the City's most recognised investment bankers brought the curtain down on his 18-year career at Collins Stewart last month so he could focus on Fundsmith, which he said he established because most equity funds have failed to deliver on their promises.
Smith believes the combination of poor performance and high fees is a huge problem in the funds profession.
'The fund management industry is broken. The vast majority of fund investors suffer from punitive fee structures, overtrading, fund proliferation, closet indexing and over-diversification. The net result is poor performance. The average IMA Global Growth fund delivered a total return of just 0.7% in the ten years to July 2010, underperforming the index by 5.3%.'
He added: 'By contrast, the Tullett Liberty Pension fund, which was significantly underfunded in 2003 when I took over as investment advisor, was returned to surplus by 2010, despite the market turmoil that took place in 2008, having employed a discretionary manager whose strategy is very similar to the one Fundsmith employs.'
A high conviction fund at a low cost
To back his forceful view Smith has launched the Fundsmith Equity fund, which he will run alongside his firm's head of research Julian Robins. The fund invests in a concentrated portfolio of between 20 and 30 stocks dotted across the globe, all of which will be held for the long term. And he is putting his money where his mouth is, investing £25 million of his personal wealth in the portfolio.
The fund will levy a flat 1% annual management charge with the total expense ratio running at a similar level as trading cost will be low due to a very low portfolio turnover.
'We are conviction investors. It requires emotional discipline not to chase after the latest fad. I will manage the fund, and have worked with Julian Roberts, our head of research, for the best part of twenty five years. Where investments are concerned we see eye to eye. Fees create an enormous drag on performance. The Fundsmith Equity fund is ideal as a core holding in an institutional portfolio. Until now, such a quality global equity fund has rarely been available to retail investors, and never at this price.'
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