Terry Smith: your questions answered

TL;DR

Terry Smith shares his insights on the technology boom, fund size concerns, stock picking with computers, and the future performance of Fundsmith.

Transcript

hello today i have with me my colleague kyle caldwell collectives editor interactive investor and someone who needs no introduction terry smith founder chief executive and chief investment officer at fundsmith which includes the uk's largest investment fund fundsmith equity hello terry delighted that you could join us today good morning terry as yo... Read More

Key Insights

• 💥 The technology boom is expected to continue, driven by trends like e-commerce and digital transformation.
• 🛩️ Fundsmith's fund size is not a concern, as it is small compared to the companies they invest in and has minimal impact on market liquidity.
• 💻 While computers can assist in stock picking, the human element of analysis and experience remains crucial in active management.
• ⛔ Diversification is important, but there are limits to the number of stocks that provide optimal diversification.
• 👨‍💼 Unilever's focus on social and environmental matters over the operational aspects of the business is a concern for Terry Smith.

Questions & Answers

Q: Do you see the technology boom continuing and is Fundsmith too exposed to technology?

Terry Smith believes that the technology boom will continue, citing trends like e-commerce and home working. While Fundsmith holds technology companies, he emphasizes that they are driven by various factors, not just technology.

Q: Is Fundsmith's fund size a concern?

Smith dismisses concerns about Fundsmith's fund size, stating that it is small in relation to the companies they invest in and that it allows them to have significant holdings without affecting market liquidity.

Q: Can computers replace traditional fund managers?

While computers can play a role in stock picking, Smith believes that human intelligence and experience are crucial in active management. He cites the value of human analysis and understanding a company's management beyond the numbers.

Q: Can Fundsmith's winning streak continue in the coming years?

Smith states that as long as Fundsmith stays true to their strategy of investing in high-return, quality companies, their returns will gravitate towards the returns on capital of those companies.

Summary & Key Takeaways

• Terry Smith believes that technology is not a generic label and sees the technology boom continuing due to trends like e-commerce, home working, and digital transformation.

• He dismisses concerns about Fundsmith's fund size, stating that it is small compared to the companies it invests in and sizeable only in relation to the UK market.

• While computers can be used for stock picking, Smith suggests that human intelligence and experience play a significant role in active management for the foreseeable future.

• Smith believes that Fundsmith's winning streak can continue as long as they stick to their strategy of investing in high-return, quality companies.

• He addresses concerns about transparency and emphasizes that they will not go beyond regulatory requirements, citing the Woodford investment management catastrophe as an example.

• Smith discusses diversification and explains that while it has its limits, owning 20 to 30 high-quality companies can provide optimal diversification.

• He expresses his concerns about Unilever's recent focus on social and environmental matters over the operating aspects of the business but sees it as a great opportunity due to its strong brands and distribution footprint.

• Smith acknowledges the rise of app-driven self-investors and the potential for greater volatility in markets but states that it will not change Fundsmith's investment strategy.