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Terry Smith vows to keep 'going through hell' to fix flagship fund

por Viola Boatman (24-03-2023)


Terry Smith has vowed to keep ‘going through hell' to turn around his flagship fund after it fell in value for the first time in over a decade.

In his annual letter to investors, the 69-year-old star stock picker struck a defiant tone after his flagship Fundsmith Equity fund suffered a 13.8 per cent drop in 2022 during a rocky year for world markets.

He launched a scathing attack on central banks for a prolonged period of ‘easy money' and warned they now risked tipping the global economy into recession as interest rates rise to tackle sky-high inflation.

Losses: Terry Smith, 69, (pictured) has seen his flagship Fundsmith Equity fund suffer a 13.8% drop in 2022 during a rocky year for world markets

Signing off the missive, Smith said: ‘I will leave you this year with a quote from Winston Churchill: "If you are going through hell, keep going." At Fundsmith we intend to.'

The fall in the value of the fund - which is still worth £22.5billion and is one of the most popular among savers in Britain - was worse than the 7.8 per cent slide for the MSCI World Index. 

But Smith - who is based in Mauritius - pointed out to his army of followers that the fund is still up 478.2 per cent since its inception in 2010.

The top ten holdings include Microsoft, Novo Nordisk, Philip Morris, L'Oréal, Estée Lauder and LVMH while other well-known investments are Amazon, Facebook owner Meta and consumer goods giant Unilever.

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‘Whilst a period of underperformance against the index is never welcome it is nonetheless inevitable,' he said, adding that even good companies have been caught up in the turmoil.

‘To quote an old adage "When the police raid the bawdy house even the nice girls get arrested",' he said. 

‘But it is a lot more comforting to own businesses which are performing well fundamentally when the share price goes down than to be found playing Greater Fool Theory in the shares of a company with no cash flows, profits or even revenues.'

Smith blasted central banking policy, and particularly the era of ‘easy money' created by ultra-low interest rates and so-called quantitative easing (QE) or money printing company about us now coming to an end.

He argued that the attempts to suppress volatility through easy money in recent years had failed.

Pulling together the dot-com meltdown in 2000, the credit crunch of 2008-09 and the current situation, Smith said: ‘We have now had three economic and financial crises this century and it is still in its first quarter. 

'This would seem to illustrate that attempts to expunge volatility from the financial system are actually producing the opposite of the desired effect.'

Smith said investors were now being caught out as central banks scale back QE and raise rates as inflation rages in the wake of the Covid pandemic and Russia's invasion of Ukraine.

But the inevitable end of easy money came only after ‘one last hurrah' during the pandemic when central banks again cut rates and again resorted to QE, he wrote. 

‘This final round of easy money post pandemic led to all the usual poor investments which people make when they are led to assume that money is endlessly available and costs zero to borrow or raise,' said Smith.

‘We can see the unwinding of these in the collapse of FTX and the meltdown in the share prices of those tech companies with no profits, cash flows or even revenues.'

He warned higher interest rates were now squeezing economies so hard it could tip them into recession. 

But the fund's performance has not stopped Smith from earning millions.

Over the weekend it emerged he could have pocketed as much as £190million last year as his pay of £36.5million was topped up by other fees.

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