Fundsmith Equity Fund: Best fund to invest in Singapore - 15.6%p.a returns since launch in 2010

Disclaimer: This is not an investment/financial advice and as always when it comes to any investments, past performance does not guarantee future returns. The risk rating of Fundsmith Equity may not be suitable for you, please seek financial advice before you make any investment decisions. Readers should also understand that they may lose all their monies by investing into such products.

With annualized rate returns of 15.6%p.a (accurate as of 30th June 2023) since its launch of fund in Nov 2010, describing Fundsmith as special is an understatement as it constantly outperforms the MSCI World Index. 

Since its launch in November 2010, Fundsmith Equity Fund has consistently outperformed its benchmark and has been recognized with numerous industry awards. It is managed by the renowned British investor, Terry Smith, who is known for his "buy and hold" investment strategy.

The fund follows a concentrated portfolio approach, investing in a select number of high-quality global companies that have a proven track record of generating strong returns on capital and have sustainable competitive advantages. The portfolio typically focuses on consumer staples, healthcare, and technology companies. In Fundsmith Investor manual, it stresses the importance of investing in companies with a long-term horizon and avoiding short-term market noise.

It is interesting to note that most of the companies in Fundsmith Equity fund holding are recessionary resilient. For example, L’Oréal and Estée Lauder, whose business comprises of beauty products, Skin Care and Makeup, will generally do well in all market environment.

In McCormick, which distribute spices, seasoning mixes, condiments, and flavouring products, will still operate business as usual in inflationary or recessionary environment as people will still have to cook and consume food daily.

It is worth noting that despite owning the higher PE stocks in their portfolio, Fundsmith's risk measure remains lower than the category average, as evidenced by their *Sharpe Ratio (Fundsmith’s 1.09 compared to the FTSE World Equity of 0.53 – Stat taken from April 2023).

*A higher Sharpe Ratio means the investment has given us better returns compared to the risk we took. It suggests that the investment has performed well and rewarded us for the amount of risk we assumed. On the other hand, a lower Sharpe Ratio means the investment has not provided sufficient returns considering the level of risk. It indicates that we might be taking too much risk for the returns we are getting.

- We aim to buy and hold

- We aim to invest in high quality businesses

- We seek to invest in businesses whose assets are intangible and difficult to replicate

- We never engage in “Greater Fool Theory”

- We avoid companies that need leverage

- The businesses we seek must have growth potential

- We seek to invest in resilient businesses

- We only invest when we believe the valuation is attractive

- We do not attempt market timing

- We’re not fixated on benchmarks

- We’re global investors

- We don’t over diversify

- Currency hedging, or the lack of it 

- Management versus numbers

- Our investments are liquid and the Fundsmith Equity Fund is open-ended

Disclaimer: It's important to note that past performance is not indicative of future results, and that investing always carries risks. It is essential for investors to thoroughly research and understand the risks associated with investing in any particular fund before making an investment decision.

Fundsmith Equity Fund is highly transparent on their performance whereby their factsheet provides monthly returns for the fund, which can be useful for investors to track the fund's performance over time. 

In Singapore, typically FundSmith Equity Fund is available only to accredited investors. Accredited investors are individuals whose:

1. Net personal assets exceed S$2,000,000 (or its equivalent in a foreign currency) in value, of which no more than S$1,000,000 (or its equivalent in a foreign currency) in value is contributed by the net estimated fair market value of his/her primary residence; or

2. Whose financial assets (net of any related liabilities) exceed S$1,000,000 in value (or its equivalent in a foreign currency); or

3. Whose income in the preceding twelve (12) months is not less than S$300,000 (or its equivalent in a foreign currency).

If you qualify as an Accredited Investor, you will be able to invest into Fundsmith Equity Fund via IFAST or Phillip Capital platform on your own or through a Licensed Financial Advisor. However, Fundsmith Equity Fund is only available for Cash option (SRS/CPFIS is not available).

If you are a retail investors looking to invest into Fundsmith Equity Fund, you can gain exposure to the fund via ILPs – Investment-Linked Portfolios. In Singapore, ILPs are regulated by the Monetary Authority of Singapore (MAS) and offered by various insurance companies.

Currently, there are insurers from Tokio Marine, Singlife, HSBC Life and Etiqa that carries Fundsmith Equity Fund in their 101-ILP platform. While fees and charges associated with ILP are typically categorized to be higher, there are usually start up bonuses and loyalty bonuses to off-set them.

Additionally, there are benefits in investing in 101-ILP such as Death benefit, premium holiday flexibility, unlimited fund switches, choice of minimum investment period (MIP) to ‘’force’’ the investor to stay committed to the investment plan.

In Fundsmith investor manual, it is quoted ‘’The greatest threat you face to your investment performance is from you’’. Most investors make some classic mistakes which prevent them from capturing the best investment performance they could obtain. They buy at the top and sell at the bottom of markets or share price cycles, motivated by greed and fear.

In this case, the MIP commitment of an ILP can be seen more of an advantage than disadvantage by keeping the investor grounded and sticking to the plan instead of being affected by market noises

It is always recommended to consult with a qualified financial advisor before making any investment decisions. When considering any investment, it is important to evaluate several factors, including your investment goals, risk tolerance, and investment time horizon.

Speak to our licensed financial advisors to help you with your financial goals!