Fundsmith

[JulianPH]

Guest said:

JulianPH said:

2Btoo said:

PH Equity?

https://www.pistonheads.com/gassing/topic.asp?h=0&f=206&t=1786977&i=2180

A similar, but more concentrated approach with significantly better performance.

Only just opened to retail investors on November 18th 2019.

Hi Julian,

A couple of questions on PH Equity if I may...

1) Please can you provide a link to the latest PH Equity factsheet?
2) When do expect PH Equity to be available via Hargreaves Lansdown?

It sounds like worth considering for the fund watchlist.

Thanks

Hi Guest

1) Here is a link to the latest fact sheet (which is currently being updated):

https://private-client.intelligentmoney.com/?wpdmd...

And here is a link to the PH Equity section of the IM website:

https://private-client.intelligentmoney.com/ph-equ...


2) It won't be available on any platforms as it sits solely with IM directly and therefore doesn't have platform fees.

So the total cost of holding Fundsmith on Hargreaves Lansdown is 1.4% a year.

The total cost of holding PH Equity with IM is 0.67% a year (falling 0.62% after £500k and 0.57% after £1m).

The increeased performance and lower fees are seeing a lot of people making the move over to us from the Fundsmith/HL route.

We have also held our ground year to date whilst Fundsmith is down over the same period.

Anything else please ask on the IM Sticky so I don't break site rules!

[Stedman]

JulianPH said:

Thanks for clarifying on the new retail share class of the sustainable fund.

You make some great points that I would completely agree with (and which is why I said I thought it was a great fund and much better than many others).

My focus, though, was on shorter time periods, which was when the majority of investors bought into the fund.

The gap between its performance and an that of its benchmark tracker has consistently narrowed up until the point it has under performed its own benchmark.


5 years:




3 years:




1 year:




6 months:




3 months:




So whilst the fund has certainly performed very well over the first half of its life, that situation has been steadily reversing to tracker returns and now below tracker returns.

Playing devil's advocate for a second, it's never been claimed FS will always outperform.

Ot- Does IM PH hold Netflix?

[Derek Chevalier]

Stedman said:

Playing devil's advocate for a second, it's never been claimed FS will always outperform.

Outperform what?

[JulianPH]

Stedman said:

Playing devil's advocate for a second, it's never been claimed FS will always outperform.

Ot- Does IM PH hold Netflix?

I completely agree, but that is what you are paying the extra for!

Yes, it is one of PH Equity's largest holdings and always has been.

[jshell]

Netflix? Is it so very safe? https://finance.yahoo.com/news/why-netflix-analyst...

[Stedman]

Derek Chevalier said:

Outperform what?

MSCI, S&P, FTSE. What would you suggest is the most suitable benchmark?

[Stedman]

P.S - Did anyone go?

[Derek Chevalier]

Stedman said:

Derek Chevalier said:

Outperform what?

MSCI, S&P, FTSE. What would you suggest is the most suitable benchmark?

Something that represents his investing style - I'd assume growth and quality. Once done it's unlikely you'd see significant outperformance.

https://www.aqr.com/Insights/Research/White-Papers...

[Stedman]

Derek Chevalier said:

Something that represents his investing style - I'd assume growth and quality. Once done it's unlikely you'd see significant outperformance.

https://www.aqr.com/Insights/Research/White-Papers...

Thanks Derek, really interesting.

Just thinking though, why don't more follow the style?

[Derek Chevalier]

Stedman said:

Derek Chevalier said:

Something that represents his investing style - I'd assume growth and quality. Once done it's unlikely you'd see significant outperformance.

https://www.aqr.com/Insights/Research/White-Papers...

Thanks Derek, really interesting.

Just thinking though, why don't more follow the style?

Because styles, much like the market, are not predictable. If they were, people would buy up the stocks that were going to outperform in the future bumping up their price and removing excess future returns.

In broad terms:

Fund manager returns = market returns + factor tilts + secret sizzle (otherwise known as alpha).

Fund managers/product sellers want you to believe they can offer secret sizzle - otherwise why would you buy into their offering. There are lots of ways to give this impression, but once adjusted for factors, the sizzle tends to disappear (or is very hard to differentiate from luck).

https://en.wikipedia.org/wiki/Fama–French_th...


As a bit of background:

Historically, small cap value shares have outperformed the market, but this decade has been very different, with the value premium having a real stinker. Large cap growth stocks have had a great run, but it might not last forever.

https://alphaarchitect.com/2016/10/10/value-invest...

[Stedman]

Thanks again Derek. Always willing to read and learn

[chip*]

I've copied over one of (many) DA's excellent post for reference sake.

DonkeyApple said:

I think active management will absolutely smash trackers over the medium term. It’s never been more critical to be able to weed out the weak from an index and go overweight on the strong.

So let’s start a list of known active fund managers who are up to the task and who we feel can really deliver.

Here’s mine:

[chip*]

For those who didn't attend in person, the recent annual Shareholder meeting is now available on YT.

https://youtu.be/PZy9-4Z_4i8

[drmotorsport]

Interesting to see how Fundsmith Equity has performed in a big market test over the last few weeks. I'm a fan of settling for the market average over long periods rather then trying to outperform it, and so passive trackers are the majority of my investments. However the recent massive market falls I think have demonstrated how an active fund can "add value". A quick check on HL charts seems to indicate that over the last 3 months Fundsmith has gone from a peak of around 6% rise to a low of -16%, compared to S&P500 peaking similarly but falling somewhat further to around -21%.

A 5% difference is surely a handy springboard especially if you're regularly topping up?

[Derek Chevalier]

drmotorsport said:

However the recent massive market falls I think have demonstrated how an active fund can "add value".

It doesn't

[Kingdom35]

Derek Chevalier said:

It doesn't

Can you elaborate?

Surely if at the lowest point you add money to your Fundsmith holdings and it rises back again, youve bought in at the low point? Just like a share.

Or am i missing something

[Mr Pointy]

Derek Chevalier said:

drmotorsport said:

However the recent massive market falls I think have demonstrated how an active fund can "add value".

It doesn't

Surely the abilty of a well managed active fund to not fall as far as it's peers & benchmark in a falling market & to perform very well in a rising market is a valuable feature & therefore adds value?

[Derek Chevalier]

Mr Pointy said:

Derek Chevalier said:

drmotorsport said:

However the recent massive market falls I think have demonstrated how an active fund can "add value".

It doesn't

Surely the abilty of a well managed active fund to not fall as far as it's peers & benchmark in a falling market & to perform very well in a rising market is a valuable feature & therefore adds value?

You would need to be sure that the benchmark and peers are representative or you aren't comparing apples with apples.

The value factor has majorly underperformed over the last decade (historically it has tended to outperform over the long term) and therefore growth(effectively the opposite) has done very well. For example

https://etfdb.com/multi-factor-channel/looking-und...

"In this case, using the popular iShares ETFs, you can see that the growth version of the S&P 500, IVW, is only down just under 12% for the year, where the value version, IVE, is down over 24%"

"The growth fund is light Financials, Energy and Health Care, and overweight Consumer Discretionary, Communications Services, and Tech."


Sound familiar?


Take two managers a decade ago

Manager 1: Growth investor
Manager 2: Value investor

Manager 1 will have smoked manager 2, not through skill but primarily because he got lucky backing the growth factor. He may give convincing stories about the defensive nature of his fund and how it has outperformed a benchmark that isn't adjusted for his factor exposure.

Manager 2 will take a beating (value mentioned here - haven't looked too closely)

https://www.ft.com/content/6acecabd-d569-4d94-b948...

All when and good, but what do you think will happen if/when the value premium comes back into fashion?

As mentioned before, in broad terms, what the investment managers/product sellers/sellers of secret sizzle want you to believe:

Fund returns = market returns + secret sizzle

The reality:

Fund returns = market returns + factor returns + secret sizzle.

These people (amongst others) monitor secret sizzle (or the lack of)

https://us.spindices.com/spiva/#/

I can assure you if someone had genuine sizzle they would jack in the day job and run a hedge fund that would generate billions.

https://en.wikipedia.org/wiki/Jim_Simons_(mathemat...

[drmotorsport]

Derek Chevalier said:

Mr Pointy said:

Derek Chevalier said:

drmotorsport said:

However the recent massive market falls I think have demonstrated how an active fund can "add value".

It doesn't

Surely the abilty of a well managed active fund to not fall as far as it's peers & benchmark in a falling market & to perform very well in a rising market is a valuable feature & therefore adds value?

You would need to be sure that the benchmark and peers are representative or you aren't comparing apples with apples.

The value factor has majorly underperformed over the last decade (historically it has tended to outperform over the long term) and therefore growth(effectively the opposite) has done very well. For example

https://etfdb.com/multi-factor-channel/looking-und...

"In this case, using the popular iShares ETFs, you can see that the growth version of the S&P 500, IVW, is only down just under 12% for the year, where the value version, IVE, is down over 24%"

"The growth fund is light Financials, Energy and Health Care, and overweight Consumer Discretionary, Communications Services, and Tech."


Sound familiar?


Take two managers a decade ago

Manager 1: Growth investor
Manager 2: Value investor

Manager 1 will have smoked manager 2, not through skill but primarily because he got lucky backing the growth factor. He may give convincing stories about the defensive nature of his fund and how it has outperformed a benchmark that isn't adjusted for his factor exposure.

Manager 2 will take a beating (value mentioned here - haven't looked too closely)

https://www.ft.com/content/6acecabd-d569-4d94-b948...

All when and good, but what do you think will happen if/when the value premium comes back into fashion?

As mentioned before, in broad terms, what the investment managers/product sellers/sellers of secret sizzle want you to believe:

Fund returns = market returns + secret sizzle

The reality:

Fund returns = market returns + factor returns + secret sizzle.

These people (amongst others) monitor secret sizzle (or the lack of)

https://us.spindices.com/spiva/#/

I can assure you if someone had genuine sizzle they would jack in the day job and run a hedge fund that would generate billions.

https://en.wikipedia.org/wiki/Jim_Simons_(mathemat...

So it's just luck FS has suffered less loss in this bear market, and luck that it's outperformed S&P500 over the last 5 years? Guess i'll go back to my cheap trackers then!

[Derek Chevalier]

drmotorsport said:

Derek Chevalier said:

Mr Pointy said:

Derek Chevalier said:

drmotorsport said:

However the recent massive market falls I think have demonstrated how an active fund can "add value".

It doesn't

Surely the abilty of a well managed active fund to not fall as far as it's peers & benchmark in a falling market & to perform very well in a rising market is a valuable feature & therefore adds value?

You would need to be sure that the benchmark and peers are representative or you aren't comparing apples with apples.

The value factor has majorly underperformed over the last decade (historically it has tended to outperform over the long term) and therefore growth(effectively the opposite) has done very well. For example

https://etfdb.com/multi-factor-channel/looking-und...

"In this case, using the popular iShares ETFs, you can see that the growth version of the S&P 500, IVW, is only down just under 12% for the year, where the value version, IVE, is down over 24%"

"The growth fund is light Financials, Energy and Health Care, and overweight Consumer Discretionary, Communications Services, and Tech."


Sound familiar?


Take two managers a decade ago

Manager 1: Growth investor
Manager 2: Value investor

Manager 1 will have smoked manager 2, not through skill but primarily because he got lucky backing the growth factor. He may give convincing stories about the defensive nature of his fund and how it has outperformed a benchmark that isn't adjusted for his factor exposure.

Manager 2 will take a beating (value mentioned here - haven't looked too closely)

https://www.ft.com/content/6acecabd-d569-4d94-b948...

All when and good, but what do you think will happen if/when the value premium comes back into fashion?

As mentioned before, in broad terms, what the investment managers/product sellers/sellers of secret sizzle want you to believe:

Fund returns = market returns + secret sizzle

The reality:

Fund returns = market returns + factor returns + secret sizzle.

These people (amongst others) monitor secret sizzle (or the lack of)

https://us.spindices.com/spiva/#/

I can assure you if someone had genuine sizzle they would jack in the day job and run a hedge fund that would generate billions.

https://en.wikipedia.org/wiki/Jim_Simons_(mathemat...

So it's just luck FS has suffered less loss in this bear market, and luck that it's outperformed S&P500 over the last 5 years? Guess i'll go back to my cheap trackers then!

You will have to decide for yourself whether it is luck or not - key to doing this is to understand the drivers of returns which hopefully the above gives you some info on.