A stock picking fund with impressive returns

A few readers have suggested this narrow-focused equity fund, which has delivered impressive returns so far this year.

I wrote here this week about the kind of focused stock-picking funds that I felt we should be invested inif we wanted to survive a decade in a sideways market. I also asked for suggestions.

The top offering so far is Terry Smith's Fundsmith Equity fund. A good many people (including Terry Smith) emailed to say that not mentioning it was a grave omission. They were probably right.

This Smith's first offering under the brand has delivered exceptionally impressive performance since its launch last year. It was up 7.8% in 2011, even as the IMA Global Growth sector as a whole fell nearly 10%; and this year it has delivered its investors an impressive 7% so far.

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There is no guaranteeing that this will continue, but the fund does offer the main thing I said I was looking for focus. The plan is to always hold only between 20 and 30 stocks, all of which are in "high quality, resilient, global growth companies that are good value and which we intend to hold for a long time, and in which we invest our own money."

The downside is that if you buy the fund via a platform that does not rebate trail commission (which you shouldn't), it will cost you 1.5% a year in management fees. If you buy it direct, it will only cost you 1%. And while that is more than some other good active funds, the fact that Smith keeps his trading costs exceptionally low means that the overall cost should, I hope, be a reasonable one. Smith also tells me that he will keep an eye on his fees and cut them if needs be. However, he also tells me that he wanted to have "a low cost fund, not the lowest cost fund."

One reader who holds the fund told me that just having a fund with a strategy of such "clear reasoned objective stock picking" means that he can "live and sleep well and look forward to getting old." That's quite something to get out of an equity fund: it is also something for Mr Smith, assuming he keeps delivering, to be pretty pleased with.

Other suggestions included the Scottish Mortgage Investment Trust, which has a great record, is relatively focused (37 holdings) and like all Baillie Gifford run investment trusts is cheap. You can see the details on it here. But we do like it so much so that it is one of the trusts in our model portfolio subscribers can look at the others here.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.