Will it still be a good investment in 2024?

Fundsmith Equity is one of the UK’s most popular investment funds, and for good reason. Over the long term, it has delivered strong investment returns that outperform the market.

I own Fundsmith, which is a relatively large holding for me. Is it still a good investment in 2024? Let’s discuss.

investment strategy

First, let’s take a look at the investment strategy here. Fundsmith is a high-conviction, concentrated global equity fund (holdings of only 20-30 stocks) that invests in ‘high quality’ businesses.

Portfolio manager Terry Smith looks to invest in companies that are profitable, financially strong and resilient to change.

Once Mr. Smith invests in a company, he typically remains invested for the long term.

Is this a good strategy? I think so. History shows that long-term investments in quality businesses tend to yield strong returns.

However, this strategy doesn’t always work. And with concentrated funds like Fundsmith, there is always a risk that returns will deviate significantly from market returns.

Results in 2023

That brings me to performance. In 2023, Fundsmith achieved his 12.4% total return. That’s a solid profit.

However, it is significantly lower than the return of the MSCI World Index (16.8%). In other words, Fundsmith was late to the market.

Are you worried about your performance in 2023? Not really. That’s because 2023 was a weird year for the stock market, with most of the returns coming from megacap tech stocks (aka the Magnificent 7).

Fundsmith owns some, but not all, of these stocks.For example, you don’t own a chip designer. Nvidiaan increase of 239% last year.

However, I’m a little concerned about performance trends. As the table below shows, this fund has lagged the MSCI World Index over the last three years.

Source: Fundsmith Equity

I would like to point out that the long-term performance is still excellent. But I’m starting to think that fundsmiths need more exposure to technology, especially big tech. After all, we are in the midst of a global technological revolution.

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Outlook for 2024

Looking at the fund’s top holdings heading into 2024, I think we have the right mix of companies.

I’m happy microsoft is a large holding. It has a very relevant place in today’s digital world.I also like that novo nordisk (weight loss drugs) and visa (Electronic payments) are mixed.

However, sectoring is worth mentioning.

As of early 2024, consumer staples represented 28.6% of the fund and health care 26.7%. Meanwhile, information technology and communication services together accounted for just 19.6%.

Given this breakdown, we expect the fund to do well even if market conditions in 2024 are a little tough.

However, if tech stocks dominate again, Fundsmith could continue to underperform.

my view

Of course, we don’t know what will happen in 2024. But all things considered, I still think Fundsmith is a good choice for my portfolio.

However, like any fund, this is not a silver bullet. Therefore, I will also invest in other funds and individual stocks (such as Nvidia) to maximize my chances of success.

The post Fundsmith Equity Review: Is it still a good investment in 2024? appeared first on The Motley Fool UK.

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Edward Sheldon holds positions in Microsoft, Nvidia, Visa, and Fundsmith Equity. The Motley Fool UK recommends Idexx Laboratories, Meta Platforms, Microsoft, Nvidia, and Visa. Randi Zuckerberg is a former Facebook head of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. The views expressed on the companies mentioned in this article are those of the writer and may differ from official recommendations we make on subscription services such as Share Advisor, Hidden Winners, or Pro. At The Motley Fool, we believe that considering diverse insights makes us better investors.

The Motley Fool UK 2024