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| Version 1 | Version 2 |
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| Star stock-picker Terry Smith’s equity fund downgraded by ratings firm | Star stock-picker Terry Smith’s equity fund downgraded by ratings firm |
| (1 day later) | |
| Morningstar demotes Fundsmith Equity to silver rating, saying ill-timed share sale hurt performance | Morningstar demotes Fundsmith Equity to silver rating, saying ill-timed share sale hurt performance |
| The UK’s largest shares-focused investment fund has been downgraded by a leading ratings firm after a “number of missteps” by the star stock-picker Terry Smith. | The UK’s largest shares-focused investment fund has been downgraded by a leading ratings firm after a “number of missteps” by the star stock-picker Terry Smith. |
| Morningstar demoted the £35bn Fundsmith Equity fund’s rating from gold to silver, saying the manager’s ill-timed sale of shares in large companies including Amazon and the software firm Adobe had hurt performance. | |
| The downgrade will be a further blow for Smith. Fundsmith profits tumbled 14% to £50m in the year to March 2023, according to the latest available filings, as customers started to pull money from the fund. The decline in profits resulted in Smith’s pay falling for the first time since 2016, to £31.1m, down from £36.4m a year earlier. | The downgrade will be a further blow for Smith. Fundsmith profits tumbled 14% to £50m in the year to March 2023, according to the latest available filings, as customers started to pull money from the fund. The decline in profits resulted in Smith’s pay falling for the first time since 2016, to £31.1m, down from £36.4m a year earlier. |
| Daniel Haydon, a Morningstar analyst, said in the ratings firm’s report: “While Smith’s careful sell discipline has long been an edge, some questions have become apparent more recently.” | Daniel Haydon, a Morningstar analyst, said in the ratings firm’s report: “While Smith’s careful sell discipline has long been an edge, some questions have become apparent more recently.” |
| Smith has admitted to bad timing in relation to the sale of four major stocks, the report noted. | Smith has admitted to bad timing in relation to the sale of four major stocks, the report noted. |
| “In some cases (Adobe and Amazon.com) – having seen their share prices rise significantly after selling – he now thinks he acted too soon despite feeling his fundamental analysis stacked up at the time,” it said. | “In some cases (Adobe and Amazon.com) – having seen their share prices rise significantly after selling – he now thinks he acted too soon despite feeling his fundamental analysis stacked up at the time,” it said. |
| “In retrospect, he wished he had better incorporated thematic tailwinds relating to artificial intelligence. Elsewhere, he waited too long to make full sales of Estée Lauder and PayPal, and this hurt performance.” | “In retrospect, he wished he had better incorporated thematic tailwinds relating to artificial intelligence. Elsewhere, he waited too long to make full sales of Estée Lauder and PayPal, and this hurt performance.” |
| “For a high-conviction fund of 20-30 stocks that trades infrequently, this is a number of missteps,” the report added. | “For a high-conviction fund of 20-30 stocks that trades infrequently, this is a number of missteps,” the report added. |
| Smith, who grew up in Forest Gate, east London in 1960s, has long been one of the UK’s most popular fund managers, delivering stellar returns that left many hailing him as Britain’s answer to Warren Buffett. | Smith, who grew up in Forest Gate, east London in 1960s, has long been one of the UK’s most popular fund managers, delivering stellar returns that left many hailing him as Britain’s answer to Warren Buffett. |
| Fundsmith, which Smith founded in 2010, runs the UK’s largest stock-focused investment fund and manages £35bn on behalf of clients ranging from small savers to big institutions. Smith moved his operations to Mauritius in 2014. | |
| Commenting on Morningstar’s downgrade, Fundsmith said the fund continued to outperform global benchmarks on a historical basis. | Commenting on Morningstar’s downgrade, Fundsmith said the fund continued to outperform global benchmarks on a historical basis. |
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| The company said: “We have made it clear from the outset that we do not expect our strategy, or indeed any strategy, to outperform the market or even make a positive return in all reporting periods and market conditions. | |
| “We think that investors should judge our returns over the long term, and since inception Fundsmith Equity is up 596% or 15.7% on an annualised basis, net of fees, compared with 11.8% for the benchmark MSCI World. Looking over the last three years, Fundsmith Equity outperformed the average return delivered by funds in the IA [Investment Association] global sector.” | “We think that investors should judge our returns over the long term, and since inception Fundsmith Equity is up 596% or 15.7% on an annualised basis, net of fees, compared with 11.8% for the benchmark MSCI World. Looking over the last three years, Fundsmith Equity outperformed the average return delivered by funds in the IA [Investment Association] global sector.” |
| This article was amended on 2 April 2024. Fundsmith profits fell to £50m in the year to March 2023, not to £50bn. It manages £35bn on behalf of clients, not £25bn. And due to an error introduced during editing, an earlier version said that the Fundsmith Equity fund was up 11.8% annually since its inception, once fees are stripped out; the correct figure is 15.7%. | This article was amended on 2 April 2024. Fundsmith profits fell to £50m in the year to March 2023, not to £50bn. It manages £35bn on behalf of clients, not £25bn. And due to an error introduced during editing, an earlier version said that the Fundsmith Equity fund was up 11.8% annually since its inception, once fees are stripped out; the correct figure is 15.7%. |