- Fund lags for fourth consecutive year
- Second-best performing fund since inception
- Apple shares sold after successful re-rating
Global equity fund Fundsmith (FUND:B41YBW7) delivered a total return of 8.9% in 2024, undershooting the 20.8% gain in the MSCI World index for the fourth consecutive year, resulting in the popular fund slipping behind the index on a five-year annualised basis.
Eponymous founder Terry Smith is quick to highlight the longer-term performance of the £22 billion fund which has bested the MSCI World index by 2.7% a year since inception in 2011, making it the second-best performer among the Investment Association Global sector, comprising 162 funds.
Returns across the major indices were highly concentrated in 2024 making them especially difficult to beat. For example, in the US, [bold] Nvidia (NVDA:NASDAQ), Apple (APPL:NASDAQ), Meta Platforms (META:NASDAQ), and Amazon (AMZN:NASDAQ) provided 45% of the return of the benchmark S&P 500 index.
THE LAGGARDS
Smith described weight-loss drug market leader Novo Nordisk (NOVO-B:CPH) as the ‘most surprising’ poor performer given the year was marked by continued positive news around other medical conditions the drug is effective against and potential label expansion applications.
The shares fell 10% and ended the year on a PE (price to earnings) ratio half of US competitor Eli Lilly (LLY:NYSE), which launched its obesity drug Zepbound in December 2023.
Smith acknowledged an ‘arms race’ was going on to develop competitor drugs, but believes Novo possesses production and labelling advantages which should sustain its leading position.
THE LEADERS
Software giant Microsoft (MSFT:NASDAQ) was again among the best performers for the fund, for the ninth time since inception, while Facebook owner Meta made its fourth appearance.
Smith refers to Meta in relation to share price volatility and draws a comparison to AI darling Nvidia, which has also suffered periods of underperformance in the past.
‘One problem is it is difficult to remain calm and focus on the fundamental characteristics when the price volatility is sharply negative, ‘explains Smith.
In 2021-2022, Meta’s stock price fell by 76%, and although Smith’s faith has been subsequently vindicated, he concludes that given how difficult these types of stock are to own ‘maybe one is enough for our portfolio at any one time’.
During the year the fund sold its relatively small position in Apple, because the strong share price appreciation elevated the PE ratio from a discount to the S&P 500 average two years ago to a 50% premium.
‘We were not going to buy more stock against that background, and it was occupying a place in our portfolio and so we sold our stake,’ explained Smith.
During the year the fund started buying new positions in Swedish industrial company Atlas Copco (ATCO-B:STO) and US microprocessor manufacturer Texas Instruments (TXN:NASDAQ).
‘Texas Instruments has a long history of investing well ahead of upswings in demand and producing handsome returns from it,’ argues Smith.
Referring to commentators making comparisons between the Dotcom era and the current enthusiasm for AI, Smith says he is tempted to quote Mark Twain, ‘History doesn’t repeat itself, but it rhymes’.
Disclaimer: The editor of this story (Ian Conway) owns shares in Fundsmith Equity
