Discussion
simon800 said:
Another year of underperforming whilst taking on more risk…
YoY increase of 12.37% compared with 15.41% of a global tracker (at a 9X lower cost)...it'll be interesting to hear what he has to say in March.https://markets.ft.com/data/funds/tearsheet/summar...
3 year annualised returns 5.35% compared to a global tracker at 9.56%, with Fundsmith demonstrating both higher volatility and greater concentration risk.
The problem with a fund that is a factor bet is what happens when that factor is out of fashion.
Fundsmith was right time right place for a few years, of that there is no doubt. Mega cap quality was the place to be.
But that was 3+ years ago, the world and investing environment has changed a lot since.
The problem with a fund that is a factor bet is what happens when that factor is out of fashion.
Fundsmith was right time right place for a few years, of that there is no doubt. Mega cap quality was the place to be.
But that was 3+ years ago, the world and investing environment has changed a lot since.
simon800 said:
3 year annualised returns 5.35% compared to a global tracker at 9.56%, with Fundsmith demonstrating both higher volatility and greater concentration risk.
The problem with a fund that is a factor bet is what happens when that factor is out of fashion.
Fundsmith was right time right place for a few years, of that there is no doubt. Mega cap quality was the place to be.
But that was 3+ years ago, the world and investing environment has changed a lot since.
Which global tracker are you comparing with?The problem with a fund that is a factor bet is what happens when that factor is out of fashion.
Fundsmith was right time right place for a few years, of that there is no doubt. Mega cap quality was the place to be.
But that was 3+ years ago, the world and investing environment has changed a lot since.
okgo said:
You fancied a tech play just as tech hits all time high? 
Ive been in tech for a long time. But never held any tech indexes. Decided to rationalise. I dont really care about "all time high's". I've heard that said a thousand times over the years. This is a relatively short-term play (<3yrs), and I believe there is more juice to squeeze. simon800 said:
It's amazing how whatever has done the best most recently suddenly looks the most attractive....
It's a huge destroyer of self directed investment performance and a major comm generator. Whether maliciously or wholly benignly your investment brokers' research (PR & Marketing in disguise) has a natural tendency to do one of two things which is to either market something that has been going up for quite a while as something that will continue to go on up, or to market something which has been falling for a while as about to reverse and one needs to get onboard that one also.
As an investor we are bombarded with 'research' which at its core is really designed to generate trading activity, self churning and the easiest way to do that is to play unwittingly or deliberately (I keep saying this as most analysts probably don't realise they're doing this but their owners almost certainly do and it is the core reason for running the team) into our natural fear of missing out. We've bought Fund A but everyone is now waving Fund B and saying it'll perform better and Fund B does indeed look to still be going up while Fund A really hasn't done what we thought it would. So we sell Fund A, for no real net gain, generating a comm for the broker, buy Fund B, generating a comm for the broker only to find a few weeks later that everyone is buzzing about Fund C. We watch Fund C now and it is indeed going up and quicker than Fund B which actually doesn't look to be going up in quite the manner we had hoped, expected or allowed ourselves to be led to believe. After a while we decide to swap Fund B for Fund C. We generate another two slugs of comm for the broker and bank no significant net return, possible even a loss.
Grass is greener. Fear of missing out. We have endless such phrases because these things are so integral to our fundamental human nature. They're essential characteristics that drive the human species forward. And when speculating, taking enormous risk for enormous returns it is these things that allow us to take those total loss risks such as backing start-ups etc. But when it comes to low risk investing to create our security and income once employers decide some time after 50 to have nothing to do with you they're potentially incredibly bad.
What doesn't help is that it is obviously correct to purchase a block investment when it is going up in value and to never try and speculate on when it may stop falling or stop doing nothing.
So when it comes to selective/active investing for alpha we have this really simple problem that the absolute common sense and right thing to do aligns with and looks no different as the worst thing to do.
You are absolutely right to wait for the target to confirm a clear uptrend but then you're also just generating lots of comm and mostly getting in at the top.
The things that grab our attention by rising moser quickly than is normal are the things that run out of steam sooner, fall back quicker etc and get over hyped and marketed the most as they grab the client eyeball the easiest.
We can literally list every single marketing trend just as we can get rich quick scenes and we can find investors who track them forever looking to beat the market just as we find the gamblers who jump repeatedly into every single get rich quick scheme. It's our punter generics at play and out of control.
AI may have lots further to run and waiting diligently for confirmation of its establishment as a credible investment driver is obviously correct and wise.
AI may just become just another vanilla tool and most of the companies bid up transpire to be worthless and the premium put into the blue chips start to bleed off. And when the next big thing appears speculative capital is going to reallocate way. So we're probably at the top and over the next year or so all the alsoran companies will start to die off and money will lose interest and the fund will just slowly start to curl up and die.
Both the wild punt constructed on fomo and the intelligent investment criteria align.
For me personally that is the point where I realise it's not for me. If I'm going to speculate with some money I've missed the boat on this one by the time the retail investment houses are all pitching it as the next best thing. And from an investment perspective I've already got some exposure from the index etf holdings and I'm not sure I want to go overweight on something that seems guaranteed to have a fatigue or burn out event in the medium term.
One of the benefits of stock selection by someone like Fundsmith is that when we allocated funds to something like that as we also believe those individual holdings are where we want some capital to be we are also buying some protection from ourselves when it comes to churning out savings and performance away in broker comms.
DonkeyApple said:
..I've already got some exposure from the index etf holdings..
And that's the bit that so many investors either forget or don't realise. I think at last check it was something like 37% of every dollar that goes into the S&P500 goes into the top handful of stocks. To me that's already overweighing them without overweighting them further. I personally prefer true global indexes, but If anyone really wants to overweight (FOMO?) the mega-cap stocks (without creating tooooo much concentration risk or volatility), just buy an S&P500 etf.
DonkeyApple said:
One of the benefits of stock selection by someone like Fundsmith is that when we allocated funds to something like that as we also believe those individual holdings are where we want some capital to be we are also buying some protection from ourselves when it comes to churning out savings and performance away in broker comms.
I'm not so sure on that.I used to have a fair bit with Fundsmith and I like Terry Smith a lot and think he talks a lot of sense and he's very persuasive.
But there was a bit of a "penny drop" moment where it dawned on me that I could watch a video of him telling me he'd just put 5% of the fund into a Lithium mine in Kyrgyzstan and I'd probably be nodding like a dog thinking "clever move Terry I'm sure you know best".
I'm not afraid to admit I don't understand companies enough to really be too sure whether a fund manager is doing sensible things.
So at that point how do you pick a fund manager?
I ended up deciding I couldn't so moved it all to passive trackers and/or cheap multi-asset.
Phooey said:
DonkeyApple said:
..I've already got some exposure from the index etf holdings..
And that's the bit that so many investors either forget or don't realise. I think at last check it was something like 37% of every dollar that goes into the S&P500 goes into the top handful of stocks. To me that's already overweighing them without overweighting them further. I personally prefer true global indexes, but If anyone really wants to overweight (FOMO?) the mega-cap stocks (without creating tooooo much concentration risk or volatility), just buy an S&P500 etf.
The other key element to indices is that they tend to encourage steady buy in rather than block switches which tends to smooth things out. Plus, if you like to buy in to major actions once they appear proven they do this naturally by moving the biggest losers out and replacing them with the biggest new winners. Just buying the ftse and the S&P kind of does it all for you while being dirt cheap but it's very dull and unsatisfying in the short and medium term.
Fundsmith is an index in a way but a smaller stock selection and less mechanical rules. And when benchmarked against another index it will go through periods of underperformance as well as outperformance. I imagine it's in the latter phase currently if it does not have AI exposure which is driving the S&P?
Phooey said:
DonkeyApple said:
..I've already got some exposure from the index etf holdings..
And that's the bit that so many investors either forget or don't realise. I think at last check it was something like 37% of every dollar that goes into the S&P500 goes into the top handful of stocks. To me that's already overweighing them without overweighting them further. I personally prefer true global indexes, but If anyone really wants to overweight (FOMO?) the mega-cap stocks (without creating tooooo much concentration risk or volatility), just buy an S&P500 etf.
DonkeyApple said:
Fundsmith is an index in a way but a smaller stock selection and less mechanical rules. And when benchmarked against another index it will go through periods of underperformance as well as outperformance.
That's an interesting take....in what way is Fundsmith an index, and would you say every single other active fund is an index too? simon800 said:
DonkeyApple said:
Fundsmith is an index in a way but a smaller stock selection and less mechanical rules. And when benchmarked against another index it will go through periods of underperformance as well as outperformance.
That's an interesting take....in what way is Fundsmith an index, and would you say every single other active fund is an index too? NowWatchThisDrive said:
I'd say a combination of him being pretty transparent (in presentations/letters etc) about the sort of criteria FS proxies for "quality" - fairly simple metrics along the lines of ROIC, gross/net margins, FCF multiples and growth, which are easy enough to understand and replicate - and the investible universe being constrained in terms of size and liquidity anyway by the FS AUM.
That's the same for loads of active funds though. It would be odd if we start counting actives funds as indexes just because we know what the investment strategy is! simon800 said:
NowWatchThisDrive said:
I'd say a combination of him being pretty transparent (in presentations/letters etc) about the sort of criteria FS proxies for "quality" - fairly simple metrics along the lines of ROIC, gross/net margins, FCF multiples and growth, which are easy enough to understand and replicate - and the investible universe being constrained in terms of size and liquidity anyway by the FS AUM.
That's the same for loads of active funds though. It would be odd if we start counting actives funds as indexes just because we know what the investment strategy is! I haven't done any empirical analysis to prove it, it's just what I suspect from intuition. And yes, it's going to apply to an awful lot of actively managed funds particularly when you're dealing with that sort of AUM.
I'm not convinced, there are a shed load of quality funds who only buy quality, defined by ROIC, free cash flow yield, etc and they look nothing like Fundsmith.
I take the point that Fundsmith is limited in what it can buy due to its size though. Which clearly has hampered performance as it's grown.
Morgan Stanley Global Brands employs the same strategy, and is big old fund (£17bn) but share just 3 of the top 10 holdings with FS...
I take the point that Fundsmith is limited in what it can buy due to its size though. Which clearly has hampered performance as it's grown.
Morgan Stanley Global Brands employs the same strategy, and is big old fund (£17bn) but share just 3 of the top 10 holdings with FS...
Gassing Station | Finance | Top of Page | What's New | My Stuff