On March 31, Fundsmith Equity Fund published an investor letter in which it has reported how the fund is faring in the coronavirus Covid-19 pandemic environment. The Fundsmith Equity Fund continues to operate and the fund has been able to provide liquidity where required. According to their management, “Fund’s performance has been as they would have expected, hoped and predicted”. The management of the fund even says it is satisfactory if you accept that some fall in valuation is inevitable in a bear market.
“The Fundsmith Equity Fund is down 7.9% for the Year to date having outperformed the comparator MSCI World Index by nearly 8%. It outperformed the FTSE 100 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.
…The top 5 contributors in the month were Microsoft (MSFT), Novo Nordisk (NVO), Coloplast, Reckitt Benckiser and Kone. Companies in the portfolio of this fund which are most in the firing line – Amadeus and InterContinental Hotels (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. If the equity in both is vaporized the Fundsmith will lose about 5% of its current portfolio. Whilst the management of the fund would not be pleased with that, if that’s the worst thing that happens the management says that they can live with it.”
Fundsmith Equity Fund’s Terry Smith believes the markets plunged in March mostly because of their weakened immune systems. Deficit spending, zero or low interest rates, and quantitative easing were in place even before the new coronavirus struck the markets. Smith doesn’t have a clue about whether things will get back to normal quickly or not. However, he expects that his strategy of investing in only good businesses will continue to see this Fund through these trying times intact and continuing to prosper.
Disclosure: None. This article is originally published at Insider Monkey.