Terry Smith’s Fundsmith Equity Fund lost 7.9% year-to-date and outperformed the MSCI World Index by nearly 8 percentage points. You can download a copy of their letter below. Here is how Smith explained why they outperformed the market:
“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.