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    What Terry Smith is saying

Fundsmith Equity Fund sets new standard in portfolio turnover

The Fundsmith Equity Fund, launched in November 2010 by Terry Smith as the main vehicle for his own investments, has set a new standard in portfolio turnover delivering a negative portfolio turnover of -0.19% for the period to 30th June 2012. 

 Terry Smith, Founder and Chief Executive of Fundsmith, said: 

“We hit a new standard in terms of portfolio turnover in the half year when this was in fact negative at -0.19%. Portfolio turnover is defined as any buying or selling of shares we undertake over and above the amount investors invested in or redeemed from the Fund. During the period, all we did was to invest the money invested in our Fund except for a small increase in our cash. We sold no shares. As the money flowing into the Fund was slightly greater than the shares we bought, we ended up, curiously, with a negative portfolio turnover. We apologise for the technical explanation but wear this outcome as a badge of pride.
 
“The fact that the Fund continued to outperform all of our benchmarks over this period was a little surprising given that we do not even aim to outperform the market in every reporting period, let alone one as short as six months. Moreover, the first three months were a ‘risk on’ period in which a strong equity market rally was induced by yet more false hopes that a solution had been found to the Eurozone crisis as a result of two main developments: 1. The Long Term Refinancing Operations (“LTRO”) which the European Central Bank commenced in December 2001 which injected €489bn of liquidity into the Eurozone banking system; and 2. The agreement in February of the second bailout package for Greece.
 
“Of course, neither of these developments provided any solution for the fundamental ills of the Eurozone and by the second quarter, the market was much less buoyant. Nonetheless the bullish conditions of the first quarter are not the type in which we expect our Fund to perform well, so its performance in this period was pleasing.
 
“Just to be clear, we do not attempt to do any market timing and the Fund is always fully invested in equities of the type we seek to own. Macro events, whilst they may be fascinating and affect the performance of the Fund take no part in our decisions which are all about seeking to buy good companies at a fair price, or even cheaply, and then holding them with the minimum of activity to allow their wonderful returns to produce performance for our investors with the least interference, including minimising dealing costs.” 

Fundsmith Equity Fund 7.5% 
 MSCI World £  5.1%
 MSCI EAFE £  2.2%
 FTSE 100  2.6%
 UK Long Gilt (UK TSY 4% 2022) 3.5% 

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