Fundsmith Returns Without Fundsmith Fees
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- เผยแพร่เมื่อ 15 ส.ค. 2023
- Fundsmith Equity is a popular UK active fund that has the rare accolade of successfully beating the market over the long term. In this video, I look at the drivers of fund return to see whether we can capture some of the outperformance of Fundsmith, and other active funds, without paying high fees.
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All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.
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I think Terry Smith proved his integrity with the “Accounting for Growth” book.
I haven't read it, but plan to now, having checked out some reviews at Amazon. But, even if Tezza has integrity, and is clever, insightful, very successful, and apparently rather witty, why would that bear any relationship to whether to invest in FUQUIT and make Tezza even richer than he is already? Personally this enlightening vid has convinced me to start selling off my FUQUIT stock.
That backtest is not going to necessarily work going forward. Correlations breakdown
Nice flattering pic of Terry Smith.
Rathbone Global Opps is similar with a less fee on some platforms. I reduced my modest FS holdings in 2021 and sold remaining in FS and RGO for index trackers a year later. Time will tell.
Terry Smith is going to love you 😂
F him and his overpriced fund. Wipes the arse of the dum rich. Learn. Earn. Never return to active funds.
Terry is going to lose his sh*t over this
I think one of the majors reasons why Fundsmith has done so well, and continues to attract investor funds despite the very high fees, has to do with its UK investor base. Most UK investors look at the FTSE 100 and compare it to Fundsmith, which makes the relative performance look incredible. However the FTSE 100 is junk, whereas US investors compare everything to the S&P 500 (a much better comparison) which has actually beaten Fundsmith by some margin (past 5 years). Investing with an active fund manager who underperforms the S&P 500 is not very smart, as you are taking completely unnecessary risk for no gain.
I suspect that the majority of UK investors also use the S&P500 as their benchmark too. Since they can also buy an S&P tracker fund just as easily as any US investor.
I expect most people compare a fund with the benchmark selected by the manager and the average of its sector.
@@danguee1 Don't forget that most of Fundsmith is invested in US stocks and a lot of that is actually FAANG if you include Microsoft.....which is it's biggest holding. The fund also owns Apple, Meta and Alphabet now. They recently almost had the whole set of FAANG with the addition of Amazon, which they sold shortly before it rose 70%......a questionable decision. All the reasons you state why the S&P has done well are exactly why Fundsmith has also done well. You will find that if the S&P has a 'lost decade' in the future, Fundsmith will perform just as badly, but you will be paying very large fees for the privilege. You might think I suffer from recency bias, however I don't consider a 5 year track record recency bias......I think you will find that Fundsmith only outperformed the S&P by any meaningful amount in the first few years, when they had some individual stocks that performed spectacularly well (e.g. Dominos Pizza) - unlikely to be repeated as the fund is limited to investing in only the largest companies now.
I fully expect Fundsmith to deliver decent returns in the future, but the fund is not going to outperform the S&P in any meaningful way as they are far too correlated. However, you are paying very high fees for the what essentially tracks the S&P 500.
Average return over 30 years is 7.48% for ftse100. It's a dividend paying index. It's 2% less than s&p yes, but it's not "junk" there is also no guarantee that one index will continue as it did in the past
@theguy9067 That's true. There's no guarantee that the FTSE will continue to average 7.48% returns per year. Especially with the recent below par economic growth in the UK, and the increases in cost and complexity of doing business with our main trading partners in Europe.
Fantastic objective video Ramin and one I have been waiting for you to make for some time. I have 6 figures in fundsmith and since the PayPal fiasco i have been considering options. This has given me some ideas on what to do next.
As a longtime and satisfied Fundsmth investor , I welcome this analysis and find it informative and insightful. Good work! Thank you.
Glad it was helpful! @rhatid
What an amazing video!
So well made!
Thank you very much! @TheNimbleNomad
Would love to hear which superinvestor's returns you cannot easily outperform and replicate in the last 20 years with a combo of just two funds. If nobody listed on dataroma outperforms, then you could save us the time searching for their ideas! :)
Thank you for the excellent and clear explanations in your videos Ramin 🙌
Glad you like them! @russdavey1919
This is another superb video, Ramit
A very helpful video - Thank you.
Glad it was helpful! @kevinu.k.7042
But is it because these indexes replicated Fundsmith in the past that they will replicated in the future? Have you tried the same exercise for different time periods?
Would really like to know more about some of the maths used to make that tool of yours!
As always Ramin thank you for your content.
Following this presentation of the replication software, although the tool is able to give you a similar return of an active fund with several passive [ETF] funds, would a) the combined Sharpe Ratio differ between the actual fund and its replicate, and b) if this is the case does the tool report this as a combined Sharpe Ratio?
For the 3 fund replication, over 7 years only, the sharpe matches at 0.7 but correlation is only 0.8. If you take just the IUQF.L component it’s also sharpe 0.7 but with 0.9 correlation. Not sure you can really replicate Fundsmith.
Thank you for taking the time to feed this back, much appreciate! @@wrincht1
Great video. Am I missing something in my thought process? I'm a big fan of TS and held FS for many years. I'm asking myself is it worth switching to funds with lower fees rather than sticking with FS?? If the overall return of these alternative funds matches fund smith return taking into the lower fees, isn't the whole hypothesis of choosing lower fees irrelevant if the returns are the same?
I agree that if the net performance is the same there is no advantage of lower fees. The other significant point is that this is based on past data and there is no guarantee in the future - if you believe in Terry Smith and his approach the only way to guarantee TS returns in the future is to invest in FS. The relationship with a look-a-like runs the risk that it breaks down going forwards.
Ramin, is there any chance you can do a comparison video of L&G Global 100 Index Accumulating version please
This would be very interesting
@@ScipioAfricanus809a fellow South African?
Don't forget lost decades and found decades. The US has just had a stellar 'found' decade. It is due a 'lost' decade.
I remember another fund manager saying about Fundsmith: "Terry has only ever known tailwinds". So he does still need to prove himself in headwind times?
At fundsmith, perhaps when in retirement you can ask for a monthly income to be sent to your account to pay say £300 or whatever free of charge. They will just sell down some of your units. Who else does this ?
Also Terry does educate you and "hold your hand" when markets get tough so you have the confidence to "stay in the game" which is priceless in itself.
Stop knocking him. Terry and his team have been a godsend to uk investors.
Long may he continue.
johndoh539
Hi John Im a long term Terry Bull but I think you have got the wrong end of the stick here.
This upload is not knocking Terry it is simply exploring an alternative.
Im a big believer in adopting a wide funnel but tight filter to out side information and the wide funnel is very important.
Its probably how you came to hear about Terry in the first place.
Regards Andy
Yes I know Ramin wasnt knocking Terry, but a few posters seem to have little digs at him
Give me 15% for the next decade and I will be very happy.@@andypicken7848
Do PensionCraft members get access to Bubby's exclusive pics & videos ?
Not sure retrofitting funds past performance like that is valid. By chance some combination of funds will match Fundsmith or anything else. If there is no underlying causation the relationship is unlikely to hold.
I love your channel Ramin
Thanks for the comment @chrisbeach44
It's easy to be deceived by the apparent out performance of Fundsmith. But we must bear in mind that markets in general have done well since around 2010 in the wake of the crash caused by the banking problems.
What we are seeing now in all likelihood is a reversion to the mean for fundsmith stocks, so the next ten years may well significantly underperform the broader indices. The sort of high priced stocks in fundsmith always get hit hardest in downturns, which we are already seeing now.
Not the most flattering picture of Mr Smith in the thumbnail 😂
😂😂 true!
Your tool just find fund that correlate on that set period of time, but it does not replicate fund smith. If you change the date period it will be quite different. Going forward it also can not be relied upon. To have something that replicate fundsmith would be another fund that also invest into similar stocks that fundsmith invest it.
Experience has taught me never to invest in 'star" fund managers.
Yes. After that Neil Woodford clown I've learnt that lesson.
Hi, I have a question please! Since just before the beginning of the financial crisis I moved 100% of my pension fund over to high risk and have left it as so. Is this a good or bad strategy? My thinking is what goes down must go up! I am buying units at prices when others may be moving their funds into low risk which makes sense. My thinking is I have upped my total pension contributions considerably over this time to take advantage of the current unit prices which makes sense over the long term in my mind.
Only be greedy when others are fearful, makes sense to W Buffett.
Very much depends on your time frame before you need the pension, there have been periods of zero growth with risky assets, eg around 2000 on with the tech crash which went on for years. I think if your looking at 10 or 20 years then high risk high return is probably a good idea.
It seems that the upshot is that you can match Terry's performance using a cheap quality tilt fund. So perhaps he doesn't provide much alpha after all, as it was reliant on factor investing.
Trying to synthesise his fund using other funds and hindsight is pretty dubious, mind. All it tells you is what you should have done until yesterday.
Do you think there is something to be said for the fact that fundsmith is not entirely in USD. Some currency diversification is nice especially for long term investing.
I suppose there must be other quality factor ETFs in euros?
jjmurtyg7880
Thats a very interesting point. The one thing we can all be sure of is, if over the last 10 years, an investor only invested in sterling denominated equity, he/she would have been more wrong than right
You could mix in some Hedged ETFs to give currency diversity.
You don't want any exposure to bonds for decades so that vanguard 20% equity fund is a bad idea in my book
But but: what of Smithson Investment Trust Plc (SSON); not great!? Or actually pretty bad recently? Discount of over 11% (according to HL); et-al? Saving grace, charge of 0.9% (according to HL)? Why is this 'relatively' crap; or is it!? What am I missing, I thought IT's were supposed to 'usually' be better? I know he's not the actual manager, but he's supposed to have an oversight, doesn't he? I'm confused in this case, given I would have a preference to IT's rather than UT's/funds?
Wasn't Terry Smith a Banking analyst then large cap fund manager. Smithson is a global small cap fund; not his area of expertise, as was the case with the emerging markets investment Trust.
Royal London Global Equity Select
Good fund that. Big fan of Peter rutter
Has anyone tried replicating Cathy Wood's ARKK?
Yeah I just set my cash on fire. Not quite as quick to drawdown as Cathy though.
I transferred pension out of UK 10 years ago .
Advisors wanted min 5% initial 1% yearly, platform fee and discretionary.
I was able to deal direct with trustees who dealt direct with fundsmith so I am happy to pay TS his fee to pick and monitor stocks.
Far better than any of my other professionaly managed investments. X 5 now.
Too much in one fund? Why sell the winner.
Funds do well for some time until they don't: Bill Miller, Peter Lynch's Magelan fund.
Fundsmith hasn’t been tested through full market cycle.
👍
QQQM same as QQQ but 5 bips cheaper.
There is an option to invest directly with Fundsmith, thereby avoiding platform fees, which can be substantial.
You still have to pay the 1% management fee to Fundsmith.....
@@davidpaterson7142 did I say otherwise?
when investing directly you own the T class shares which have a fee which is 0.1% higher than the I class shares you buy on other platforms. so in essence that 0.1% is their platform fee. not bad for smaller amounts but will grow with your funds and turn into a bad deal at large amount.
10:46 great - but entirely backward looking (ie =hindsight).
Yes, he's planning to do an analysis of funds which mimic future performance of FUQUIT in a couple of weeks. 🙃
Yes this methodology is completely backwards. If you are doing this may as well just data snipe the best performing funds over all markets and tell yourself you could have got 1000% returns. He isn’t even setting aside some data to back test against. This is so wrong…
Second comment- oh my days - brilliant channel ❤
Thank you @wellthatsokay8582
Does it beat the S&P500.. naah
Great point!
L&G Global 100 beat fundsmith for the last 5 years IIRC
I’m glad someone else has mentioned L&G Global 100 Index. It’s done exceptionally well the last 10 years and let’s hope it continues 👍
Be great if Ramon could do a video of it.
@@Paulie44 Legal & General global technology index fund has done extremely well, nearly 600% over last 10 yrs to date since 2013. I wonder if the tech stocks will continue to outperform
That's interesting. But presumably it's not the fund but the index which is the star. e.g. iShares Global 100 ETF: 11% 10-year annual return. Pretty good. Can't say I have anything in this class myself, not yet. But I've been thinking of ditching my FUQUIT for some time now.
You lost me at "one percent".
1% per year though, it adds up.
Fundswindle