But currently NAV is much higher than the price (for the first time sor SSON)

It’s currently £10.48 not a bad return in 2 under days. There are few buyers so anyone brave will make money in a hugely volatile market with low liquidity

Terry Smith's letter to shareholders


31st March 2020


Dear Fellow Investors,

It would be an understatement to say it has been an eventful start to the year so I thought I should take this opportunity to update you on how we are faring in the coronavirus Covid-19 pandemic environment.

First and foremost, the Fundsmith Equity Fund (‘Fund’) continues to operate. We can price it, people can deal in it and we have been able to provide liquidity where required.

I know that you normally just look at the price and do not worry about such matters, but we need you to know that you can contact us, that any information you need will be provided, and that any dealing instructions you give us will be executed. This is important. If we fail on one or more of those aspects we need not worry about what comes next. As Rick Mears, one of only three drivers to win the Indianapolis 500 Race four times, said ‘In order to finish first. You must first finish.’

Secondly, our Fund’s performance has been as we would have expected, hoped and predicted. I would even say it is satisfactory if you accept that some fall in valuation is inevitable in a bear market.


% Change 2020 YTD
Fundsmith Equity Fund 1 -7.9
MSCI World 2 -15.7
MSCI World Value 2 -22.0
FTSE 100 3 -23.8









1 T Class Acc shares, net of fees, priced at noon UK time, source: Fundsmith LLP
2 MSCI Indices, £ net, priced at US market close, source: Bloomberg
3 FTSE 100, £, total return, priced at UK market close, source: Bloomberg

The Fundsmith Equity Fund (T Class Acc) is down 7.9% for the Year to date having outperformed the Benchmark MSCI World Index by nearly 8%. It outperformed the FTSE100 by nearly 16% and the MSCI World Value Index by over 14%. It also outperformed all these indices significantly in the fall from the peak of the market to its trough before the recent rally. Bear in mind the MSCI World and FTSE100 indices benefit from the inclusion of our companies. The companies we do not own are collectively performing worse than the index numbers.

As you know, I was immensely sceptical of the view that so-called value stocks could protect you in a downturn. I have never been a believer in the philosophy that so-called “value” investments would perform well or protect your investment in an economic and market downturn. Shares in companies that are lowly rated are so mostly for good reasons. Because their businesses are heavily cyclical, highly leveraged, they have poor returns on capital and/or they face other structural or management issues. It doesn’t sound like a combination likely to protect the business and your investment in difficult times, and so it has proven thus far.

Our companies which are most in the firing line – Amadeus and IHG in airline reservations and hotels – are sensibly putting in place cost cutting and cash conservation measures and securing liquidity to enable them to hold their breath for 18 months or so with no revenues. This in our view is far more useful than speculation about what their sector will look like afterwards. They have to survive to find out (reference Mr. Mears thoughts earlier). If our equity in both is vaporised we will lose about 5% of our current portfolio. Whilst I would not be pleased with that, if that’s the worst thing that happens I would suggest we can live with it. Whilst we have various stocks exposed to knock-on effects in travel retail for example in cosmetics and drinks, and supply chain issues in other portfolio companies, if we were forced to guess we think about a third of the portfolio will endure this year with increased revenues – Microsoft, the payment processors, Clorox, and Reckitt Benckiser, for example.

It is said that every cloud has a silver lining and we are seeing opportunities and have bought two new holdings which we have been following for some while and which have been hard hit in this market because of China exposure and a classic “glitch”.

I suspect the current market reaction to the pandemic is explained by a simple analogy which relates to the virus itself. The COVID-19 virus is not fatal for the vast majority of the population. However, where it seems to be lethal is when it encounters someone with an immune system already weakened by age and/or pre-existing ailments.

Similarly, what has increased the impact of the virus, or rather measures taken to counter it, on the economy and markets is that in this area it has encountered structures with weakened immune systems too. The fact that most of the emergency measures taken in 2008—09 – deficit spending, low or zero interest rates and Quantitative Easing – were still in place 10 years after the crisis demonstrated that the patient – in this case the global economy – was not back in rude health when the virus struck. Cue a market panic.

What will emerge from the current apocalyptic state? How many of us will become sick or worse? When will we be allowed out again? Will we travel as much as we have in the past? Will the extreme measures taken by governments to maintain the economy lead to inflation? I haven’t a clue. Rather like some of the companies we most admire, I try to spend very little time considering matters which I can neither predict nor control and focus instead on those which I can affect. So at Fundsmith our focus will be on keeping our service to investors fully functioning, and then seeking to grasp any new investment opportunities which are unearthed by the turmoil whilst ensuring that our colleagues, families, friends, and anyone else we can reach receives any help they need and that we can provide.

I hope and expect that our strategy of only investing in good businesses will continue to see our Fund through these trying times intact and continuing to prosper.

Yours as ever

Terry Smith
CEO
Fundsmith LLP

I didn't want to look... trying to maintain some disciplined buy and hold strategy.

You got an incredible deal paying 10% less than NAV, Christmas does not come very often in an investment career.still very volatile with a high of £11.70 this morning!

yes very lucky. My strategy is to drip feed a fixed amount at the end of the month and hold for 10+ years, but when the market is volatile, I put in a buy order at a very low price between the feeds. If it hasn't triggered I simply revert to the end-of-month drip feed. This very rarely works and it was a relatively small amount. Just a bit of fun and I can't do worse than the drip feed.

i have a buy order at 750. unsurprisingly, it hasn't been filled yet. happy to be patient before buying emerging markets.

Emerging markets? Maybe you are talking about FEET instead of SSON?

yes. i'm talking of FEET.

You are up about 36%, what amazing timing +13% of which is change in the discount / Premium in NAV over the period.

I committed part of my money (luckily) at the recent bottom but kept in reserve additional funds expecting to deploy it in a second leg down and a third leg down.

I'm wondering if I got too greedy with my limits as my initial buys are up between 30%-60% and existing open buy orders are now far away from the current market price.

Funny how greed can change perspectives. Some stocks were at prices a year ago, I would have been throwing my money at to buy, I bought only a modest amount and instead set even lower buy limits.

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Stock market always is forward looking, the bottom of the market will be when sentiment is bad & everybody is expecting it to fall lower hoping to pick up a bargain, however the forced sellers have already sold, probably long ago.

I bought the GBP at around 1.14 as well. Doubled the fun.

In order to prepare for the next leg down, how do I sell my current shares at Fundsmith Fund in Luxembourg? I don't see a "sell" form on their website.

Good question. Anyone tried emailing them? My email gets bounced back and this problem was never solved.

Why do you believe in the 'next leg down', I know the media is talking about it, however they did not warn about the 'first leg down' so not a reliable source of the future movements of the market.

You send a FAX to State Street Bank as shown on the contract note, the Fax no is + 352 2 452 9050‬. You could send by post but I would not recommend it.

As I can't get my printer to work as a fax (Their fax answers on the first ring) I use www.pamfax.biz

Because I think the current market is overvalued, and the movement is not making sense. Production is reduced, people are not spending money, jobs are lost, and the virus situation is not under controlled. If we are not entering another leg down and a recession, I am happy to be on the wrong side of it.

The share price is the value of all future profits forever. As Ben Graham said 'The stock market is a voting machine in the short term & weighing machine in the long term.' Terry Smiths said there are to types of this investor 'those who can's market time accurately & those who know they cant market time.

Missing the best 5 investment days in 38 years will reduce you return by 35%, miss the best 10 days by return is less than half, miss the best 50 days & your return is 90% less!. The best days come when the outlook is very bleak.

source Fidelity tip no 3 https://www.fidelity.com/viewpoints/...ideas/six-tips

Also remember Fundsmith has performed roughly 60% better than the market for the 1st quarter -3.7% v -10.6% for the MSCI World index in £, exactly what you would expect for a defensive fund.

how does one follow the "all days" strategy? by investing the same amount every day? then how does one know how long one should ration the amount per day to invest?


I remember you once also said that DCA is also not good.

You invest day 1 & stay invested, or add funds & never sell.

I don't believe in cost averaging as it does not work long term as the market rises over time, if the market fell on average it would be better but then holding investments would be a waste of time.