Terry Smith shrugs off Fundsmith slip as investors continue to invest in a hot trend.
‘If in doubt, track an index’ seems to be the mantra of many investors who are largely sticking to passive global funds. However, active fund Fundsmith Equity remains in first place in our top 10 ranking of the most-popular investment funds, according to the number of ‘buys’ among our customers in July.
Fundsmith Equity is one of our Super 60 investment ideas and the global equity fund has legions of fans, including one DIY investor who shared his investing experience with us in a new ‘diary’ series.
In his half-yearly letter to investors, Terry Smith, manager of Fundsmith Equity, discussed the fund underperforming the index in the first six months of 2023, returning 8.5% compared with 8.9%. Smith, however, was unfazed by the figures and we reported on his update where he told investors that “Waters Corp (NYSE:WAT) and Mettler-Toledo (NYSE:MTD) have both been affected by the slowdown in laboratory expenditures post the pandemic. In neither case are we bothered by this. In fact, we hope it presents an opportunity for us to buy more.”
In his update, the star fund manager detailed another stock that had hurt performance, as well as the shares doing well in the portfolio. Specialist writer Faith Glasgow cites Fundsmith Equity in a popular piece on core holdings for a pension fund, although she reminds investors that “its style bias and concentrated nature do mean there’s potential for it to deviate from the benchmark when market conditions turn against it”. In other words, expect some volatility when investing in this global growth fund.
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While UK investors wait to discover whether the Bank of England will hike interest rates this week by 0.25 percentage points, or a more aggressive 0.5 percentage-point hike, everyone breathed a sigh of relief when July’s inflation readings were positive, both here and in the US. The figures caused many to adjust their UK interest rate expectations in the hope that the peak is nearer than anticipated.
But whatever decision the Bank makes on Thursday, interest rates are still on the up, and therefore money market funds are still in demand, as the return on these low-risk, cash-like investments rise as rates climb. The yield on the actively managed Royal London Short Term Money Mkt fund is 4.5%, according to the June factsheet. This fund held steady in second place in July,
Vanguard LifeStrategy 80% Equity remained in third place in July, while the 100% Equity version fell one place to sixth. Both funds cost 0.22% and invest in a range of in-house funds tracking global markets. The LifeStrategy fund range was under scrutiny this week, as we compared the popular multi-asset offering with BlackRock’s MyMap, taking in performance and portfolio choices among other considerations. Vanguard’s 100% Equity fund is also mentioned in Glasgow’s article on core pension holdings as a potential consideration for those who want both a passive fund and to keep fees to a minimum.
- Fund Battle: Vanguard LifeStrategy versus BlackRock MyMap
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Three other funds from the Vanguard stable were in the top 10 in July, namely Vanguard US Equity Index (fifth); Vanguard FTSE Global All Cap Index (seventh); and Vanguard FTSE Dev World ex-UK Equity Index (ninth).
Artificial intelligence fever continues and the L&G Global Technology Index fund, unchanged from June in fourth place, was named by our Saltydog Investor Douglas Chadwick as one of the best performers of the second quarter. Another fund with significant exposure to mega-cap US tech stocks is L&G Global 100 Index, in 10th place.
Top 10 most-popular funds in July 2023
|Rank||Fund||IA sector||Ranking change since previous month||1-year return to 1 Aug (%)||3-year return to 1 Aug (%)|
|1||Fundsmith Equity||Global||No change||5.91%||25.90%|
|2||Royal London Short Term Money Mkt||Short Term Money Market||No change||3.48%||3.80%|
|3||Vanguard LifeStrategy 80% Equity||Mixed investment 40%-85% shares||No change||3.80%||24.20%|
|4||L&G Global Technology Index||Technology and Technology Innovations||No change||21.50%||58.48%|
|5||Vanguard US Equity Index||North America||Up one||7.41%||45.87%|
|6||Vanguard LifeStrategy 100% Equity||Global||Down one||7.13%||38.17%|
|7||Vanguard FTSE Global All Cap Index||Global||No change||6.99%||37.00%|
|8||Fidelity Index World||Global||No change||7.58%||41.95%|
|9||Vanguard FTSE Dev World ex-UK Equity Index||Global||Up one||8.13%||41.49%|
|10||L&G Global 100 Index||Global||Down one||9.49%||52.73%|
Source: interactive investor. Note: the top 10 is based on the number of “buys” during the month of July.
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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.