Terry Smith has disclosed a new position in a luxury goods maker.
He completed the purchase of Moët Hennessy Louis Vuitton, which he described as the “world’s leading luxury goods business”, in December, taking the total number of stocks in the best ideas portfolio to 30. Paris-based conglomerate LVMH own 75 high-end brands through its 60 subsidiaries, including Christian Dior, Fendi, Marc Jacobs, Guerlain, Veuve Clicquot, Bulgari and Sephora. It has divisions including fashion, wines and spirits, perfumes and cosmetics, and watches and jewellery.
The group was formed in 1987 from a merger of Louis Vuitton with Moët Hennessy, itself the result of an earlier merger between champagne producer Moët & Chandon and cognac maker Hennessy.
Its share price is up 22% over the last year, according to Bloomberg. Recently, it has been in a legal dispute with jeweller Tiffany after its planned takeover of the firm almost failed on concerns of how it had performed during the pandemic. But the two sides were able to salvage the deal, and LVMH is expected to complete the acquisition shortly, albeit at a lower price than originally agreed.
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Fundsmith Equity holds a concentrated portfolio, typically of 20 to 30 stocks, of what the manager believes to be high-quality and resilient global growth companies that also represent good value. Smith’s strategy is to hold his positions for a long time. Smith says he does “not seek to find tomorrow’s winners – rather, to invest in companies that have already won”.
Among Fundsmith Equity’s top 10 holdings are PayPal (NASDAQ:PYPL), Microsoft (NASDAQ:MSFT), Philip Morris (NYSE:PM), L’Oreal and Novo Nordisk (NYSE:NVO). Its largest sector weightings are to technology, consumer staples, and healthcare, while at the geographic level its greatest exposure is to the US at 69%, the UK, and France.
During December, PayPal, IDEXX (NASDAQ:IDXX), Philip Morris, Estee Lauder (NYSE:EL) and Intuit I(NASDAQ:INTU) were the top five contributors to fund performance, while the top five detractors were Facebook (NASDAQ:FB), Kone, Brown-Forman (NYSE:BF.B), Unilever (LSE:ULVR)and Automatic Data Processing (NASDAQ:ADP).
Fundsmith Equity returned just under 50% over the last three years, compared to 31% from the Investment Association Global sector, ranking it in the top quartile. Over one year, it has delivered 16.5% compared to a 14.3% return from the peer group, according to FE Analytics.
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The ii view
Terry Smith follows a buy and hold philosophy, and that naturally leads to lower portfolio turnover and a much longer holding period for an individual stock. The fund is positioned in such a way to be resilient to changes, such as technological disruption. Furthermore, its quality bias adds more protection on the downside and contributes to the better-than-the-peer-group average risk-return profile of the strategy over the long term.
Performance has been exceptional. Over five years, the fund is up 142% versus 92% for the average global fund.
We rate the fund as a core option within our Global Equity category owing to the high-quality nature of its underlying assets and believe that it could be ideally blended with more specialist, smaller companies or value funds in order to achieve greater diversification.
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