Fundsmith Equity is a very popular investment fund here in the UK. Popular among young and old investors alike, the fund – which invests globally – is responsible for around £25bn of investor capital (including some of my own money).
Has Fundsmith been a good investment over the last five years though? Let’s take a look at its performance and find out.
Has Fundsmith been a good investment?
According to Hargreaves Lansdown, the ‘accumulation’ version of the Fundsmith Equity fund (which reinvests all income) generated a return of 73% for the five years to 29 September (around 11.6% per year). This means that if I had invested £10,000 in the fund five years ago, my money would now be worth around £17,300.
That certainly sounds like a good return at first glance. However, we should compare that return to other investments to put it in perspective.
Let’s start with a FTSE 100 tracker fund. If I’d invested £10k in the Vanguard FTSE 100 index (accumulation version) five years ago, my money would now be worth about £11,350, according to Hargreaves Lansdown.
What about a global tracker fund? Well, if I had invested £10k in the Vanguard FTSE Global All Cap index (accumulation version), my money would now be worth £14,980.
Looking at these numbers, my conclusion is that the performance of Fundsmith has been quite good.
Of course, there have been plenty of investments that have beaten Fundsmith over this time horizon. For example, if I had invested £10,000 in Apple shares five years ago, that money would now be worth over £40,000 when exchange rates are factored in (and that’s not including dividends).
However, for a fund, I think the long-term returns are very good. Especially when you consider that performance lately has been a little underwhelming. Over the last year, Fundsmith has returned about -8%.
Three takeaways
To my mind, there are a number of takeaways from these numbers. One is that it can pay to take a global approach to investing.
Over the last five years, Fundsmith has beaten the FTSE 100 index by a wide margin. The reason is that it has been able to invest in top companies listed internationally, such as Microsoft and Estée Lauder. Both of these US-listed companies have delivered strong returns over the last half decade.
Another is that actively-managed funds can potentially play a role in a diversified portfolio. In recent years, active management has received a lot of criticism. As a result, many investors have moved their money into passively-managed tracker funds. However, we can see here that, over the last five years, Fundsmith has beaten a globally-focused tracker fund quite comfortably.
Finally, the disappointing performance of the fund over a one-year time horizon shows that it’s a good idea to diversify, even when investing in funds.
That’s certainly what I’m doing. While I have a large position in Fundsmith, I also own a number of other uncorrelated investment funds, and plenty of individual stocks too.