Terry Smith,who runs theFundsmithEquity Fund andthe FundsmithEmerging EquitiesTrust, has becomeone of Britain'sbest-known fundmanagers overthe last few years. He is known forhis focus on high-quality companies,arguing that the long-term prospectsof truly exceptional businesses aregenerally undervalued by the market.
Smith is not particularly optimisticabout the outlook for the economy, and thinks that central-bank interest rate rises could easily lead to arecession, he tells Citywire.co.uk. Paradoxically, this would be goodnews, since inefficient firms wouldbe "allowed to go bust and washthe beach clean". He also believes that current policies may be hurtingdemand.
"The lower you push interestrates, the less people spend and themore they save to survive." Overall,if policies don't change, the globaleconomy is at risk of stumbling "into alost decade or two or three".
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However, he remains upbeat aboutconsumer sectors he holds in the fund notably tobacco. Many investorsbelieve that industry faces threats from regulation and e-cigarettes.But Smith thinks that a ban onadvertising has "turbocharged"existing firms because it "erectedbarriers to new entrants to the sector".
Similarly, he thinks that electroniccigarettes, which are sold as asmoking cessation-aid, and arerapidly gaining market share, couldend up expanding the industry "byallowing existing smokers moreopportunities to smoke".
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