One way I keep an eye on Fundsmith’s holdings is by looking at end-of-month factsheets. Another way however, is by studying the fund’s 13F filings. These are US regulatory filings large investment managers are required to complete every quarter. In these filings, managers list their long US equity positions.

Recently, I took a look at Fundsmith’s for the final quarter of 2020. Here are two stocks he’s been buying recently.

Fundsmith is going defensive

One significant US stock Smith added over Q4 was soft drink powerhouse PepsiCo (NYSE: PEP). The most recent 13F filing shows that, over the last quarter, Fundsmith increased its holding here by about 8%.

I see this as a smart trade. PepsiCo is a defensive stock with a very impressive long-term dividend track record. This means it could potentially provide some portfolio protection if equity markets experience a correction in the near future.

At the same time however, it has growth potential. Recently, it announced a joint venture with Beyond Meat to develop plant-based snacks. This is an area of the food industry that looks set for strong growth in the years ahead.

PepsiCo’s full-year results for 2020 were solid. For the year, revenue was up 4.8%. Meanwhile, for the fourth quarter, revenue lifted 8.8%. As a result of this performance, the company announced a dividend increase of 5%. These results demonstrate the resilience of the business.

PepsiCo stock isn’t without risks, of course. The increased focus on the negative health effects of soft drinks is one risk to consider. The forward-looking P/E ratio of 22 also doesn’t leave a huge margin of safety.

But, all things considered, I think the risk/return proposition offered by the stock is attractive.

A global leader

Another stock Smith bought into substantially during the last quarter of 2020 was McCormick & Co (NYSE: MKC). 13F filings show Fundsmith increased its position in the stock by about 6% over the period.

McCormick is a global food company that manufactures and distributes spices, seasoning mixes, and condiments. It owns a number of well-known brands including Schwartz herbs, Aeroplane jelly, and Frank’s RedHot sauce.

I like this trade from Fundsmith as well. McCormick is capitalising on the sustained shift to cooking more at home and recent results were pretty good. For 2020, sales were up 5%, while cash flow from operations was up 10%. Looking ahead, the company said it expects sales to increase 7-9% in 2021.

Like any stock, there are risks to the investment case. If consumer trends change, McCormick could underperform. The stock’s valuation (the forward-looking P/E ratio is about 30) also looks relatively high which means there’s some valuation risk.

Overall however, I think this is a smart buy from Terry Smith, given the current economic environment.