Fundsmith manages only a modicum of growth despite Paypal exit

It was the second biggest performance drag last year


Fundsmith Equity started 2023 in positive territory having posted total returns of 1.5% in January – an identical performance to each of the previous two months.

However, it lagged the IA global sector which rose 4%.

According to its latest factsheet, the top five contributors to performance in January were Idexx, LVMH, L’Oréal, Meta Platforms and Amadeus. L’Oréal climbed to third in the portfolio’s top 10 holdings, replacing tobacco firm Philip Morris which fell to fourth.

Meanwhile, the main drags came from McCormick, Automatic Data Processing, Waters, Pepsico and Microsoft. Spice manufacturer McCormick fell out of the top 10 largest holdings, having ranked eighth in November and tenth in December.

After selling its stakes in Paypal and Intuit at the end of 2022, no major changes were made in January. The payments giant was the second largest detractor to the fund’s performance last year.

Taking aim at the firm in his yearly letter to shareholders, fund manager Terry Smith (pictured) said: “We tried to engage with Paypal as we identified, seemingly long before the management, that their lack of engagement with new customers was a problem, as was cost control, and that their acquisitions were value destroying.”

He added: “A representative of the board kindly told us they would think about that. Whilst they were allegedly thinking about it, Elliott Management bought a stake which led to them being given a board seat and an information sharing agreement.”

In 2022 as a whole, total returns for the £22.6bn fund fell 13.8%, marking the first time the strategy posted negative annual returns since inception in 2010.

Despite the decline, the strategy was the only actively-managed fund to feature on Interactive Investor’s most bought funds in 2022. 

Fundsmith Equity top 10 holdings

Position of holdingDecemberJanuary
2.Novo NordiskNovo Nordisk
3.Philip MorrisL’Oréal
4.L’OréalPhilip Morris
6.Estée LauderIdexx
7.LVMHEstée Lauder
9.Automatic Data ProcessingVisa
10.McCormickAutomatic Data Processing
Source: Fundsmith Equity January factsheet

See also: Fundsmith stands alone as investors flock to passives

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